Blog - VSRK Capital | Trusted Mutual Fund Distributor & Financial Advisory Services

May 20, 2020

4 Tips to Manage Your SIPs in Lockdown

We understand that due to these turbulent times when there is almost no trade, business are having huge losses and thousands of people are losing jobs it has become very difficult to manage your SIPs (systematic investment plan). We would like to advise you the following tips to manage your SIPs effectively without knowing its shortcoming or a better alternative.

You Can Invest More Without Starting Another SIP
If you intend to take advantage of such a situation where the markets are down you can. You don’t need to start an additional SIP alternatively you can opt for a top-up.
You Can Pause Payments
Unlike the above case, you might find yourself in a situation where the payment is not possible due to any reason maybe loss of job, receipt of lower salary or maybe the intend to keep liquidity. In such situations you have the option to cancel the SIP; however there is an alternative to pause it. You may pause the payment instead of cancelling the same.
Consider the Exit Load
Some people may be thinking of cancelling their SIP. If you cancel your SIP before the said lock-in period, a charge known as exit load shall be chargeable. Each SIP has its own lock-in period and exit load
Tax applicability
When you opt to sell your investment, capital gains are applicable. Period of holding for the purpose of Long-term capital gain is as per the Income Tax act. Last we checked it was one year for equity funds and three years for debt, gold and other securities.

April 10, 2020

How to Save Tax Without Fresh Investment in FY 2019-20?

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When the month of March is comes to end, the only thing that comes to the mind of a salaried person is Tax Liability and Returns. Tax Liability is a duty levied by the government on your income which aids it to conduct public welfare activities. Tax planning here becomes a necessity as there are a lot Individuals who often pay tax more than they were required. The only reasons are the lack of weakness and knowledge about various deductions and schemes issued by the government in order to help the individuals avoiding excess tax liability. In common parlance, the best time for tax planning is in the starting of the year but people tend to procrastinate till the year end and end up either making errors in filing statements, paying more tax or filing belated returns.

However the good news is that even if you have been careless towards planning tax the whole year you can still claim certain deductions on expenses that you have incurred in the normal course of your daily routine. Some of the deductions are-

Children’s Education & Hostel Allowance and Tuition Fees (Sec 80C & Sec 10(14))

The most common expense generally an individual incurs is the tuition fees of school, college or any other recognized institution for the purpose of full-time education of any two children of the employee is eligible for deduction. Please note that any sum in the name of donation, development fees or capitation fees or any other payment of similar nature shall not eligible for deduction. In certain cases where the Children’s Education & Hostel Allowance is provided by the employer, such sum shall be added to the gross income of the individual & deduction of Rs 100 & Rs 300 per month per child upto 2 children shall be eligible.

Medical & Life Insurance (Sec 80D & Sec 80CCC)

Keeping in mind the uncertainty of human life and importance of medical and life insurance, the government has incorporated sums expended in such regards as an eligible deduction. Tax deduction based on health insurance premiums paid for individual, spouse, and dependent children shall be eligible for deduction up to Rs 25,000 per budgetary year. Similarly, for investments made with respect to life insurance shall be eligible for deductions as per the related provisions.

House loan and interest (Sec 80E, Sec 80E, Sec 24)

Employer’s contribution to NPS

Every individual whose employer has made contribution under section 80CCD(2) to the notified pension scheme which is not covered within the overall cap of Rs 1.5 lakh for cumulative deductions under sections 80C, 80CCC and 80CCD(1) shall be eligible for the deduction in accordance to the said section. Such deduction under is in addition to the cumulative deduction available under section 80C, where the overall limit is Rs 1.5 lakh, and 80CCD(1B) which is Rs 50,000.

Contribution made towards PPF and other approved schemes

There are a lot of regular investments that a common person invests in for which deductions is allowed under the Income Tax Act. This includes any deposits made with National Savings Certificate, Sukanya Samriddhi Account, Senior Citizen Savings Scheme 2004 (SCSS), NABARD Rural Bonds,

Equity Linked Savings Schemes (ELSS)

ELSS is tax saving mutual fund that help the investors to save taxes up to Rs 1.5 lakh under Section 80C of the Income Tax Act. ELSS funds are considered ideal for new investors to start their investments in equity mutual funds. They, generally, have a mandatory lock-in period of three years and are among the shortest lock-in period among tax-saving investments permitted under Section 80C.

Standard deduction

A standard deduction up to Rs 50,000 is allowed for all salaried employees. This deduction is is mandatorily available and is considered by the employer while computing tax liability of each employee. The respective deduction is available at the time of filing ITR. However, while planning your taxes for FY 2019-20, you must consider standard deduction as well to compute your total tax liability.

Apart from all the deductions mentioned above there are multiple other deductions under the Income Tax Act 1962 which are available to an Individual.

April 1, 2020

3 Reasons Why We Should Invest in Falling Markets?

Recently the Indian Stock markets were seen crashing into a bearish phase where the stock prices fell more than 20% from the recent highs. Bear markets occur during economic recessions or depressions when pessimism prevails. In such markets, the prices of the securities drop heavily, and a negative sentiment causes a selling pressure upon the current which force the prices to stoop down even further.

As a general human behavior, most of the investors opt out of the securities they were holding and are ready to sell their investments at a lower price. This situation is often seen with a skeptical point of view. There is, generally, a lot of pressure upon the investors as well as on their financial advisors. One wrong decision or miscalculation could lead to a major financial loss. In common parlance, this situation is very stressful and involves a lot of decision making. But, despite all such risks in investments such scenarios can actually prove to be a good chance to reap some good alphas and it might not be incorrect to say that no matter how much villainous this phase looks like, it might offer you a good opportunity to earn.

Good Stocks at Affordable Rates

Legendary investor Warren Buffet had once stated, “Whether we’re talking about socks or stocks, I like buying quality merchandise, when it is marked down.” This is what happens in a bearish market. The prices of all shares both good and bad tend to fall down, opening a window to invest in lower than normal rates. As more people invest in such securities, the prices tend to recover and the growth is set back to the track.

Better Investment Options Highlight Up

As we have seen, the bearish markets are always preceded by tough economic conditions. In difficult environment, the corporates may struggle in paying their debts and other liabilities highlighting their creditworthiness. The creditworthiness is often rated by various independent credit rating authorities. When such reports declare a good report it means the organization is financially sound and is a good to shot to take.

In short, we can summarize that bearish phase is comparatively shorter than its counterpart, i.e. Bull. Therefore, the impact of bearish market upon the securities doesn’t sustain for a long time. The good stocks of companies having great creditworthiness shine in the bullish market following the bearish phase. So, the advice to invest in falling markets is highly justified subject to risk & careful

March 3, 2020

What is the New and Simplified Personal Income Tax Regime

On 1st February, Smt. Nirmala Sitharaman (Finance Minister of India) in the First Annual Budget of this decade announced the Annual Budget 2020-21 which included a lot of changes in the current tax regime to revive our slow economy. Being one of the best Tax planners in Delhi NCR, we think that this was done to revive the economic slow-down and to battle the investment and consumption-led stress factors.

Being the Top Tax Planning Consultancy in Delhi NCR, we can state that the changes that were proposed aim to stimulate growth, simplify tax structure, bring ease of compliance, and reduce litigations and thereby provide significant relief to middle class taxpayers.

The New and simplified personal income tax regime proposed is as follows:

Taxable Income Slab (Rs.)	Existing tax rates	New tax rates
0-2.5 Lakh	Exempt	Exempt
2.5-5 Lakh	5%	5%
5-7.5 Lakh	20%	10%
7.5-10 Lakh	20%	15%
10-12.5 Lakh	30%	20%
12.5-15 Lakh	30%	25%
Above 15 Lakh	30%	30%

Everything about the new regime is very exciting but there is one set back of the new scheme, the tax payers in the new regime would not be allowed to claim around 70 of the existing exemptions and deductions (more than 100) would be removed.

We have gone through the fine print of the Annual Budget 2020-21 and providing the Leading Tax Planning Services in Delhi NCR, we would like to please note that the new tax regime is optional and that an individual has the option to continue to either opt the new scheme or pay tax as per the old regime and avail deductions and exemptions. As per the reports, this bold step of the government would cost them estimated revenue forgone of Rs. 40,000 crore per year.

In addition to the above, measures to pre-fill the income tax return are initiated so that an individual who opts for the new regime gets pre-filled income tax returns and would need no expert assistance to pay income tax.

Now in order to reap the full benefit under the new regime, you would now have to calculate tax payable under both the tax regimes, old as well as new. You would have to chalk out your taxable income, deductions and exemptions under the old schemes and see whether it is more than or less than the tax payable under the new regime. If the tax payable under the old regime comes less than that under the new one, please opt for the old scheme only, however if the tax amount under the new scheme is less than that the old one, then go for the new scheme.

February 10, 2020

Missed ITR Deadline- Here’s What You Should Do

If given a choice, most of us wouldn’t even want to pay tax on the income we earn. But we should. As citizens of India, it is our rightful duty to pay taxes as we are also consumers of the country’s public infrastructure and facilities, and income tax is an important source of revenue for the government. So, it is our responsibility to contribute towards building and maintaining the public infrastructure. Paying income tax and filing income tax returns on time ensure that.

The best time to start planning your tax-saving investments is at the beginning of the financial year. Most taxpayers procrastinate till the last quarter of the year, resulting in hurried decisions. Instead, if you plan at the start of the year, your investments can compound and help you achieve long-term goals. Remember, tax-saving should be an additional perk and not a goal in itself.

But, if you are reading this, it means you have already missed the last date to file the returns for the said A.Y. 2019-20. Being a registered taxpayer with the Income Tax department, a lot of reminder e-mails and text messages are send literally every other day to file your tax returns before August 31, 2019. The government had extended the last date for filing the returns for FY 2018-19 from July 31 to August 31. This was done in a bid to increase tax compliance and incentivise citizens to file their returns without being penalised.

Can you still file ITR?

The answer is yes, even after the extended return filing time period, you could still file your overdue tax returns for the previous financial year, but this obviously comes with a penalty for late filing. The penalty is levied as per Section 234F according to which an individual would have to pay a fine along with the tax liability. Please note that if the taxes have been paid and only filing the ITR is pending, then there will not be any Interest Implications.

What is the Penalty Amount?

In accordance to Section 139(1) of the Finance Act, if return after due date (belated return) is filed but before December 31, 2019, the penalty will be Rs 5000. In cases, where the returns are filed on or after January 1, 2020 but before the end of the Assessment Year (i.e March 31, 2020) the penalty shall be Rs 10,000. However, where the declared income is below Rs 500,000, the amount of penalty shall be Rs 1000. Along with the penalty, you may also have to pay interest at 1% per month or part of the month, on tax due under Section 234A. The interest rate is calculated from the end of the deadline to the actual date of filing returns on a simple interest basis.

How to file belated returns

The procedure to file belated returns is the same as filing the return on or before the due date. The only difference is while filing belated returns you have to select Return filed under section 139(4) from the given drop-down menu.

Once you have filed your returns, you will have to verify it as well (ITR-V). The IT department only starts processing your returns once you do so. You have 120 days from the date of filing to get the returns verified. You can e-verify the returns via multiple channels, such as the Income Tax website, Aadhaar OTP or net banking channels. Refunds, if any, will be processed only for returns that have been verified.

Our Suggestions for you

Even though the tax department has a provision for filing belated returns, it is best to adhere to the mentioned timelines. Although the above-mentioned solution might help you file the return every time you are late on filing your ITR, filing returns after the deadline may create some additional issues for you. Some of the issues in late filings are mentioned as below:

Losses under any head of income other than those from house property cannot be carried forward if the taxes have not been filed before the due date. This becomes especially critical for individuals with operating business losses or that of capital gains
Your refunds could get delayed further.
The IT Department may take more time in processing your returns
Not only would you incur a penalty plus interest on your tax obligation, it could also bring you under scrutiny

How does VSRK tax advisory help you with tax planning and filings?

We, at VSRK are a team of highly trained Taxation professionals. We are one of the best Tax Planning Company in Delhi providing Online Tax Advisory Services to all our clients. We are a well known name Tax Advisory Services in Delhi NCR.

February 3, 2020

What Are The Highlights Of The Budget 2020-21 Related To Direct Tax?

On 1st February, The Finance Minister of India announces the Annual Budget 20020-21 which included a lot of measures to revive our slow economy. This was inclusive of various short term, medium and long term measures. The following actions were made in Direct Tax:

One of the major changes that were proposed to stimulate growth, simplify tax structure, bring ease of compliance, and reduce litigations and thereby provide significant relief to middle class taxpayers.

The New and simplified personal income tax regime proposed is as follows:

TAXABLE INCOME SLAB (Rs.)	EXISTING TAX RATEs	NEW TAX RATEs
0-2.5 Lakh	Exempt	Exempt
2.5-5 Lakh	5%	5%
5-7.5 Lakh	20%	10%
7.5-10 Lakh	20%	15%
10-12.5 Lakh	30%	20%
12.5-15 Lakh	30%	25%
Above 15 Lakh	30%	30%

However, there is one set back of the new scheme, the tax payers in the new regime would not be allowed to claim around 70 of the existing exemptions and deductions (more than 100) would be removed.

However, please note that the new tax regime is optional and that an individual has the option to continue to either opt the new scheme or pay tax as per the old regime and avail deductions and exemptions. This bold step of the government would cost them estimated revenue forgone of Rs. 40,000 crore per year.

Apart from the above the following changes are also entailed:

Corporate Tax:

Tax rate of 15% extended to new electricity generation companies.

Indian corporate tax rates now amongst the lowest in the world.

2. Dividend Distribution Tax (DDT):

DDT has been removed in the hands of the corporate making India a more attractive investment destination. Deductions will be allowed for dividend received by holding company from its subsidiary. Please note that the dividend would be taxable in the hands of the investors.

3. Start-ups:

Start-ups with turnover up to Rs. 100 crore to enjoy 100% deduction for 3 consecutive assessment years out of 10 years. Tax payment on ESOPs has been deferred.

4. MSMEs to boost less-cash economy:

Turnover threshold for audit has been increased to Rs. 5 crore from Rs. 1 crore for businesses carrying out less than 5% business transactions in cash.

5. Cooperatives:

Since cooperatives are an important instrument of growth of an economy, option to cooperative societies to be taxed at 22% + 10% surcharge and 4% cess with no exemption/deductions is given in order to bring parity brought between cooperatives and corporate sector.

Also, Cooperative societies exempted from Alternate Minimum Tax (AMT) just like Companies are exempted from the Minimum Alternate Tax (MAT).

6. Tax concession for foreign investments:

For boosting foreign investment 100% tax exemption to the interest, dividend and capital gains income on investment made in infrastructure and priority sectors before 31st March, 2024 with a minimum lock-in period of 3 years by the Sovereign Wealth Fund of foreign governments has been given.

7. Affordable housing:

The additional deduction up to Rs. 1.5 lakhs for interest paid on loans taken for an affordable house has been extended till 31st March, 2021. Date of approval of affordable housing projects for availing tax holiday on profits earned by developers extended till 31st March, 2021.

What are the Tax Facilitation Measures?

- Now Instant PAN would be allotted online through Aadhaar.

- Under the Finance Minister’s ‘Vivad Se Vishwas’ scheme, with a deadline of 30th June, 2020, to reduce litigations in direct taxes:

- Waiver of interest and penalty – only disputed taxes to be paid for payments till 31st March, 2020.

- Additional amount to be paid if availed after 31st March, 2020.

- Benefits to taxpayers in whose cases appeals are pending at any level.

- In order to reducte corruption and bring transparency in governmental operations faceless appeals to be enabled by amending the Income Tax Act.

- For charity institutions:

- Unique registration number (URN) would be issued to all new and existing charity institutions.
- Pre-filling in return through information of donations furnished by the Donee.
- Process of registration would be made completely electronic.
- Provisional registration to be allowed for new charity institutions for three years.
- CBDT to adopt a Taxpayers’ Charter.

How does VSRK help you with the new tax planning and filings?

We, at VSRK are a team of highly trained Taxation professionals. We are one of the Best Tax Planning Company in Delhi providing Online Tax Planning Services to all our clients. We are a well-known name for Tax Planning Services in Delhi NCR. As per the new scheme Income Tax Payers has the option to choose between the 2 schemes. We step herein and help you to calculate the amount of taxes, applicable deductions and exemptions in order to assist you in tax-planning and filings and saving you the hassles to compare between the two regimes of the Income Tax. Being a Best Tax Planning Company in Delhi, we provide the best tax planning advisory.

January 31, 2020

Tax Planning: Best Tax Saving Options For Salaried Employees in 2020

As this financial year is close to its end, one thing that comes to every individual’s mind is the phrase ‘Tax Liability’. On the other hand, given a choice, most of us wouldn’t even want to pay tax on the income we earn. But we should. As citizens of India, it is our rightful duty to pay taxes as we are also consumers of the country’s public infrastructure and facilities, and income tax is an important source of revenue for the government. So, it is our responsibility to contribute towards building and maintaining the public infrastructure. Paying income tax and filing income tax returns on time ensure that.

However, this amount of tax levy payable often consumes a large chunk of our disposable income but if we are smart enough we could save huge amounts of the same. Since, such amount of taxes paid are often high it is sensible to plan it before-hand.

According to the Income Tax Act, 1962 you can make certain investments and expenses which are in turn deducted from your taxable income.

Following is the list of ways how you can actually save tax by spending smartly:

Making an investment under Sec 80C (Limited to Rs 1.5 lakh) to reduce your taxable income
Buy Medical Insurance & claim a deduction up to Rs. 25,000 (Rs 50,000 for Senior Citizens) for medical insurance premium under Section 80D
Invest in various funds such as the ELSS funds, National Pension System (NPS), 5-Year Bank Fixed Deposit, Public Provident Fund (PPF) and National Savings Certificate
Claim deduction up to Rs 50,000 on Home Loan Interest under Section 80EE

What are the Investment Options under Sec 80C?

Section 80C of the Income Tax Act, 1962 is one of the most sought after sections as it grants deduction of various expenses. It provides many tax-saving options available mainly to individuals and HUFs in India. However, this deduction is limited up to Rs. 1.5 Lakh.

This section includes deductions payments made in regards to:

Life Insurance
Sukanya Samriddhi Yojana
Home Loan Principal Repayment
Investments made toward long-term government-approved infrastructure bonds.
Investments made under a government-approved equity savings scheme.
Payment of tuition fees
Contribution towards gratuity and EPF

Other Tax Savings options beyond Sec 80C

You might be surprised to know that alongside deductions in the amazing section of 80C, there are various other deductions which you can claim under Section 80 to save on income tax.

Following is the list of a few such:

Expenditure on Medical Insurance & claim a deduction up to Rs. 25,000 (Rs 50,000 for Senior Citizens) for medical insurance premium
Deduction up to Rs 50,000 on home loan interest under Section 80EE
Payment of home loan and related interest.

5 Best Investment Options for a Salaried Person

There are various tax saving options for salaried persons available in the market, eligible for deduction in tax liability. Some of them are mentioned as follows-
Investment in fixed deposit and recurring deposits
Fixed Deposit and recurring deposits are one of the most sought after tax saving options, considered as the safest by its investors. In fixed deposit a lump-sum amount of money is kept aside for a specific period of years on which the investor earns an pre-stated amount of interest. Whereas, recurring deposit refers to the investment option where the user invest a small amount of money like INR 500 per month and owns returns in the form of interest on the maturity of the policy. One can save taxes under Section 80C by investing in tax-saving FDs. However, interest earned is taxable as per tax slab of the depositor. These tax-saving FDs come with a lock-in period of 5 years.

Investment in Mutual Funds

Mutual funds investment have started gaining much popularity due to its characteristics such as high liquidity, diversification of risk and management a professional. Mutual fund is a financial instrument where different investors pool their money for set objective. search fund is managed by a profession portfolio manager or an asset managing magic company (AMC). They offer multiple types of mutual fund options to invest in and each has their own objectives. Due to its various benefits and eligibility for tax deduction some advisors also call them as the best tax saving option. You can either make a lump sum investment or you can start an systematic investment plan (SIP). you can start your SIP with just INR 500 and for making lump sum investment you need to invest at least INR 5000.

Investment in Public Provident fund

Public Provident fund (PPF) is one of the tax saving options which is there in every tax advisor’s tax saving tips. PPFs are another type of safe investment options with almost zero risk because of the sovereign guarantee from the government. Here, the investor has the option to open an account and invest money for a set period of 15 years. The Finance Ministry reviews the interest rate every financial quarter basis the government bond yields. Maximum limit to invest in PPF is Rs 1.5 lakh in a financial year while the minimum amount is Rs 500. Unlike recurring deposits here you are not required to invest on an recurring basis. The investors can put in money whenever he finds suitable. The amount of the deposit can also vary time to time.

Investment in National Pension Scheme (NPS)

The national pension scheme is also being called the best saving plan available in the market as this amount is absolutely tax free. It is also one of the safest investment options because it is backed directly by the central government of India. Although, it is available for all the people but however it is mandatory for all government employees. one can start investing in NPS withy just INR 6000 annually or INR 500 monthly. The affordability and eligibility of tax deduction has made NPS one of the highly sought-after investment options.

Investment in Unit linked Insurance Plan

ULIP is an insurance plan which provides cover for its policyholders along with options to make qualified investments. It provides dual benefits to it’s Investors, wealth and insurance. Such plans are a hybrid of insurance and market linked investments. One part of the premium is invested towards ensuring your life while the other parts are invested and stocks add other financial instruments. Such plans have a locking period of 5 years. These investment plans are also eligible for tax deduction under section 80 C and are considered good for tax saving options for salaried persons.

December 8, 2019November 27, 2024

5 Reasons you need a Financial Advisor

Health is wealth. Good health is not just the absence of any illness, but complete physical and mental wellness of an individual.

In today’s world, stress affects both physical and mental health – and one contributor to stress is the state an individual’s finances.

We all have financial goals we want to reach, and savings just don’t cut it. It’s important to invest. While we invest, how do we know we’re doing the right thing for our goals?

Here’s where your financial doctor, or advisor, comes into the picture. Just like you need a doctor for your physical or mental health, you need one for your finances too.

So, how can your financial doctor help you?

Understand your financial health –Your financial advisor will work with you to assess your current financial health – your assets, liabilities, income and expenses. He/she will also consider any expected future obligations (insurance, taxes, other long-term expenses) and sources of income (pension, gifts, etc.) to get a complete picture of where you stand.
Assess your goals –Once your advisor maps out where you stand, he/she will understand your investment goals, time frame and risk appetite. An understanding of risk appetite will allow your advisor to determine your asset allocation. He/she will also assess your retirement needs at this stage.Invest now
Build the financial plan –The next stage is where your advisor charts out a comprehensive financial plan for your goals. This plan will include details such as where to invest, how much to invest, for how long to invest. He/she has the expertise to understand how all these products will work in tandem for you to achieve your goals. The plan will also look at your retirement plan, your projected withdrawal rates during retirement and have the best- and worst-case scenarios for your expected life span. If you’re already investing for your goals, your advisor will review your current habits and suggest a course of action. If you’re investing without goals in mind, your advisor will help you allocate your existing investments for your goals. Read why goal-based investing is important here. Once your plan is ready, it’s on you to implement it.
Help you understand where you’re investing –When building your financial plan, it is important to understand the products you’re investing in. The pros and cons, how it fits in your portfolio, what it can do for you – your advisor will help you with this.
Regular reviews and adjustments –It’s a good idea to revisit your investments regularly to check if you’re on track, review what you’re doing and see if you need to adjust your plan to incorporate new goals or modify/remove existing ones. Depending on your needs, your advisor will suggest changes to take you closer to your goals.

Financial advisors are the doctors you need for your financial health. With their expertise, you can get the best out of your investments.

December 8, 2019November 27, 2024

7 bonus ideas you need in your life!

It’s the end of another financial year, and many of you will be receiving your annual performance bonus. Exciting time, isn’t it? I bet you’ve got fantastic plans of how to splurge it. I’ve got them too, with a little boring, but necessary checklist I thought I should share.

I hope that maybe it helps you too. Without further ado, here’s 7 bonus ideas you need in your life.

Pay off debt:Credit card bills, student loans, vehicle or home loans, you could have any of these. It might be a good idea to pay these bills and also set aside some money for any future loans you may be considering. This will minimise the principal amount you owe and you can save on hefty interest payments.
Add to your retirement fund:Your retirement may be a long way off, but no one tells you it’s one of the first goals you should start saving for. Why? Look at cost of living today. If you spend 30,000 a month today as living expenses, 20 years down the line assuming inflation is at 6%, you’ll be spending 1.72 lakhs a month. Start putting aside a little by little with a Systematic Investment Plan in mutual funds to build wealth for your retirement. You can also invest in NPS and PPF for relative safety. Use a retirement calculator to figure out how much your SIP amount should be.
Build an emergency fund:Life is unpredictable. So, isn’t it a smart move to be prepared? You may lose your job, or your company isn’t doing well and can’t pay salaries, or for some reason, there is little or no income. It’s ideal to have at least 6 months of expenses saved in an emergency fund. Do not touch this unless it truly is an emergency. Consider a liquid fund for this. Frivolous purchases are not emergencies and can be planned.
Invest for longer term, big ticket goals: You’ve got a lumpsum in hand, why blow it all up now? You may want to purchase a car in the future, make the down payment on a house, fund your child’s higher education, or even start a business. Whatever your goal may be, no matter how far, start setting aside funds today for it. You can even start a SIPin mutual funds. Time and compounding will work for you.
Get insurance: Ever considered who will take care of your family should anything happen to you? Get a term plan to secure your family financially in case you die. The earlier you get it, the lesser the premiums cost. Don’t delay this until next year.
Buy health cover for your family: Health is wealth, and when your bonus can help you secure your family’s health, why not? There could be a time when your employer’s health cover may not be enough to cover all expenses. Consider purchasing a family floater health plan.

Invest in yourself: An investment in yourself is the best investment. Take a course, learn a skill, join the gym, read! Meet people, socialise, and don’t forget to have fun. You’ve earned it.

December 4, 2019November 27, 2024

Breaking Down Debt Mutual Funds

Debt mutual funds are those that invest in fixed income instruments – such as corporate and government bonds, overnight securities, corporate debt securities, money market instruments etc. These funds are ideal for investors who are averse to risk and seek to generate regular income.

Debt funds are a good tool to use if you want steady income with low volatility and higher than bank returns. They also come with greater tax-efficiency than these products. We’ll address the advantages of debt funds and compare them with similar products in another article.

Let’s look at how SEBI has categorized debt funds.

Overnight Funds

These funds invest in overnight securities having a maturity of 1 day. They are the least risky of all debt fund categories, and this low risk comes with low returns. How these funds work is that at the beginning of each day, the AUM is invested in overnight securities, and since they mature the next day, the fund manager can buy fresh overnight bonds the next day using the principal and return earned. NAV of this fund will increase little by little over time. The advantage of this is that changes in the RBI rate, credit rating of the borrower do not affect your investment.

Liquid Funds

Liquid funds invest in debt and money market securities such as treasury bills, government securities, call money with a maturity of up to 91 days. These are a good tool to use to park surpluses and to build an emergency fund. These can also be used to transfer that surplus to an equity fund using a Systematic Transfer Plan (STP). What’s interesting to note is that some liquid funds even come with an instant redemption facility.

Money Market Funds

Money market funds invest in money market instruments such as commercial papers, certificates of deposit, treasury bills, repo agreements of the highest quality with a maturity of up to 1 year. These are suitable for investors with low risk appetite and an investment horizon of at least a year.

Corporate Bond Funds

Corporate Bond Funds invest in debt instruments issued by companies. These instruments comprise of the highest rated bonds, debentures, commercial papers and structured obligations. Minimum investment in corporate bonds by these funds is 80% of the AUM. They are suitable for investors with an investment tenure of 3-5 years.

Credit Risk Funds

Credit-risk funds are debt funds that invest at least 65% of total assets in papers rated less than AA (not of the highest quality). As these funds take on more risk than most other debt funds, they come with the ability to generate higher returns too. It is suitable for investors who can assume high risk and have an investment horizon of at least 3 years.

Banking and PSU Funds

Banking and PSU debt funds invest at least 80% of their corpus in debt instruments of banks, Public Sector Undertakings and Public Financial Institutions. They come with low risk and are suitable for investors who have an investment horizon of 1-2 years.

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Duration funds

Duration funds invest in debt and money market instruments that have different maturities. Based on the maturity of instruments, they are classified into ultra-short (3-6 months), low duration (6-12 months), short duration (1-3 years), medium duration (3-4 years), medium to long duration (4-7 years), long duration (7+ years). The longer the tenure of the fund, the higher its ability to take risk. Investors in these funds should invest if the maturities are in line with their investment horizon as the fund will take this time to give an investor his principal and the interest owed to him (Macaulay duration) for investing in the fund.

Dynamic Bond Funds

Dynamic bond funds invest in instruments with varying durations. These are actively managed funds and are suitable for investors who find it difficult to judge interest rate movement and have an investment horizon of 3+ years. This is because these funds hold securities with reducing portfolio maturity when interest rates rise and increasing portfolio maturity when interest rates fall.

Gilt Funds

Gilt funds invest at least 80% of their total assets in Government securities (G-secs). These are issued by central and state governments across various tenures, both long and short. They usually have no default risk as these are government backed. They do come with higher interest rate risk for instruments with higher maturities. These funds are suitable for investors with an investment horizon of 3+ years and benefit the most in a falling interest rate environment.

Gilt Fund with 10-year constant duration

Gilt funds as discussed earlier invest in government securities. In the case of funds with a 10-year constant duration, assets held in the fund have a Macaulay duration of 10 years and are suitable for investors with this investment horizon in mind.

Floater Funds

Floater funds invest a minimum of 65% of assets in floating rate instruments and the rest in fixed income securities. Floating rate instruments are those that don’t have a fixed interest. If interest rates rise, the interest from these funds also rise immediately. These funds invest in securities that have medium to long-term maturities.

Fixed Maturity Plans (FMPs)

FMPs are passively managed close-ended funds, where investments are held to maturity. These can be considered as an alternative to FDs as they have the potential to deliver FD beating returns. Another advantage they have over FDs are that they come with better tax-efficiency. We will discuss tax-efficieny of mutual funds in another article.