Category Archives: Finance

In the early article, we discussed financial planning. In this article, we will try to under the taxation in the mutual fund system that applies to mutual fund investments.  Factors determining the taxation of Mutual funds  To know the taxation structure, first, you need to identify which type of mutual funds you have invested in and whether the fund you hold is an equity mutual fund or a debt-oriented mutual fund.   Along with this, the type of income that you are generating from the fund, whether a capital gain or dividend income - both these types of income are taxable in different ways.  Finally, your holding period is crucial in knowing the taxes applicable to your mutual funds' portfolio.  Earnings in mutual funds There are usually two ways in which money is earned in mutual funds: one through the selling of the mutual fund (capital gain) and the other through dividend income.   For example, if you are holding units of a mutual that you purchased at a NAV (Net Asset Value) of Rs. 100, and you sell it when its NAV of Rs. 150, you make a capital gain of Rs. 50; it is worth noting that capital gains tax accrues on the mutual funds' units only after redemption.   The tax will be payable when you file your income tax returns for the coming fiscal year.  The second way to earn from mutual funds is dividend income – the fund declares dividends for the holders based on the surplus that it has for distribution Dividends are taxable as soon as the dividend amount hits the bank accounts of the investors.   Source: Pexels Tax on capital gains  Here, there are again two parts to the story – whether the realized capital gains have come from equity mutual funds or debt mutual funds.   An equity mutual fund has an equity exposure of greater than 65%. For equity mutual funds, if the gains have been realized within 12 months of holding, then the applicable tax rate is flat at 15% on the gains (irrespective of your income tax bracket).   When the holding period exceeds 12 months, the capital gains of Rs. 1,00,000 are exempt from taxes. Any amount upwards of Rs. 1,00,000 is taxable at 10%, along with the provision of indexation benefits.  For debt mutual funds (funds with greater than 65% exposure to debt instruments) - the holding period is considered short-term if it is less than 36 months; anything more than that is long-term.  For the short term, the tax rate is in accordance with your income tax slab. On the other hand, for debt funds held for more than 36 months, the gains are taxable at a flat rate of 20% post-indexation (plus, some cess and surcharge are added).  A possible third case is hybrid funds (funds with a mix of debt and equity) it is simple, their tax treatment is supposed to be on the basis of the fund's exposure to debt and equity.  If the hybrid fund is equity-focused: LTCG is charged at 10% on capital gains exceeding Rs. 1 lakh (without indexation), and STCG is charged at 10%. If the hybrid fund is debt-focused: LTCG is charged at 20% with indexation benefits, and STCG is charged per income tax slab.  Tax on dividends  Now, when it comes to taxation of dividends paid out on mutual funds, it is done by adding the dividend to the investor's taxable income, and then the individual income tax slab rate is applicable; this is in accordance with the amendments made by the union budget of 2020.  Earlier, dividends were tax-free in the hands of investors since the companies paid the Dividend distribution tax (DDT) before sharing the profits with the investors.   Dividends (received from domestic companies) of up to Rs. 10,00,000 per year were tax-free in the hands of the investors during this period. Dividends above Rs. 10 lakhs were subject to a dividend distribution tax of 10%.  STT Aside from the dividends and capital gains taxes, there is also a securities transaction tax (STT).   When you acquire or sell mutual fund units of an equity or a hybrid mutual fund, the government charges an STT of 0.001%. It is important to note that selling units of debt funds are exempt from the STT.  Important points to note  There are tax-saving equity funds as well. Investments made under the ELSS (Equity-linked savings schemes) qualify for tax exemption under section 80C of the Income-tax Act (exemption up to Rs. 1,50,000).   Please note that ELSS schemes come with a lock-in period of 3 years – that is, investors cannot redeem the units before three years. LTCG (long-term capital gains tax) is not applicable for gains up to Rs. 1,00,000.   For LTCG more than Rs 1 lakhs, the applicable tax rate is 10% without indexation.  Taxation in the case of SIP (Systematic Investment plans)  Let us understand this with the help of an example  An investor invests Rs. 10,000 every month from April 2021, and another investor invests Rs. 60,000 lump sum at the same time.   When both of them redeem their funds simultaneously, Rs. 10,000 will qualify for tax exemption for the SIP investor because the investment made in 2021 would exceed one year as of May 2021. In contrast, the entire capital gain isn’t taxable for the lump sum. Investing in the long term can be more tax-efficient than holding the units for a short duration. FAQs How much amount is taxed in mutual funds? If the investor claims redemption in less than 1 year of investment, it would fall under the Short-term Capital Gains (STCG) category. The tax rate would be 15% on the gains earned by the investor. If the investor holds the investment for more than a year, (say April 2020 – May 2021), the gains would be taxed at long-term capital gains (LTCG) tax of 10% Is SIP in mutual funds taxable? Yes, SIP in the mutual fund is taxable. The tax amount differs based on the duration and returns generated Which mutual funds are tax-free? Profits from the sale of ELSS fund units are considered long-term capital gains and have tax exemption. Consult an expert advisor to get the right plan for you TALK TO AN EXPERT

In the previous article, we talked about what is dollar-cost averaging. In this article, we will try to understand what is NAV and some important points related to NAV   What is NAV? The full form of NAV is Net Asset Value. This term refers to the price of a unit of a mutual fund. To give context, mutual funds are schemes that collect money from investors and invest the money into varied asset classes, from debt to equity.   Mutual funds are broken down into units that are when you purchase a mutual fund, you receive units of it. NAV represents the assets held by the mutual fund.   According to the SEC (Securities and exchange commission), mutual funds and unit investment trusts (UITs) should calculate the respective NAV once a day.  How is NAV calculated?  Net Asset Value = Value of assets – Value of liabilities, where 'value of assets' represents the value of securities in the mutual funds' portfolio, and 'value of liabilities is the value of all the expenses and liabilities incurred by the fund.  On a per-unit basis, the formula is   NAV = ( Value of assets – Value of liabilities ) / Total number of outstanding units.  Is NAV important?   The answer is No! NAV is fairly irrelevant in cases of mutual funds – new mutual funds have a lower NAV than old ones.   Before buying mutual funds, you should consider the size of the AUM (Assets under management), the past performance of the fund, the managers' experience, and the alpha, and the beta. Source: Pexels Invest in funds with lower NAV: A common myth about NAV  Let's take an example. Suppose you invest INR 10,000 in two schemes (A & B). The Nav of scheme A is INR 50. while the Nav of scheme B is INR 100. For your investment in scheme A, you will get 200 units(10000/50). And, for your investment in scheme B, you'll get 100 units. Now, after 1 year, both the schemes generate a return of 20%. This implies that the NAV of schemes has also appreciated by 20%. So now the NAV of scheme A will be INR 60 (20% * 50 + 50). Similarly, the NAA of scheme B will spur to INR 120(20% * 100 + 100). The final investment value in scheme A is INR 12000(200 units * 60) and in scheme B also it stands at INR 12000(100 *120). Thus, a fund with a lower NAV doesn’t signify that it’s a good investment or an underpriced one. Same for investors who think that funds with higher NAV are good investments.    What matters is the performance of the scheme and not the NAV.  When is NAV updated?   Unlike stock prices, NAV is not updated on a real-time basis – the reason for this is that a mutual fund has many assets in its kitty, and tracking all of them is a complicated task. Hence, SEBI mandates the mutual funds to update the NAV every day by 9 p.m. (different mutual funds update their NAV at different times before 9 p.m.).  Which NAV value is taken while buying and selling a mutual fund?   If a mutual fund unit’s purchase happens before 3 p.m., the investor will receive the units at the NAV of the same day at 9 p.m., whereas purchases made after 3 p.m. are calculable at the next day's NAV.   The ruling remains intact even when the mutual fund units’ selling happens. Transactions before 3 p.m. are settled on the same-day NAV, and transactions post 3 p.m. are carried out on the next day's NAV.   In case of purchase/sale done on holiday, the order is carried out at the NAV of the next working day.   How do stock markets affect the NAV of a mutual fund?   Different mutual funds hold different types of assets; they have different levels of exposure to equity and debt markets. The relevance of the exposure to the stock markets will determine how much the SENSEX and NIFTY will affect the NAV of a mutual fund.  If a mutual fund has invested in companies that are part of SENSEX, NIFTY, or both, it is more likely to imitate their movements. Also, multi-cap mutual funds invest in companies of various sizes, so they may or may not be affected by SENSEX or NIFTY depending upon the number of large-cap investments they have.   NAV vs. Stock price Are they the same?  The answer is NO! As we saw above, NAV is not affected by demand, but stock price movements do depend on demand and supply.   Instead of calling NAV and stock price the same, we can say they're similar - the reason being that NAV reflects the book value of the mutual fund, and stock prices, do the same for companies; the book value for companies would include assets of the company and the profits it made.   However, another vital metric behind stock price is demand – if many people want the stock, its price may shoot up (the stock becomes over-valued), and the reverse may happen (the stock becomes under-valued).  How do AUM and NAV differ?  NAV and AUM are two different things. Unlike NAV, AUM is of prime importance, and it should be factored into consideration before purchasing a mutual fund.   AUM (Assets under management) is the total value of assets that the mutual fund manages; it includes both the assets held and the cash possessed by the fund.   How does NAV fluctuate?  NAV can fluctuate with the change in the value of assets held by the mutual fund. Since mutual funds have varied investment instruments, the value of the holding will change depending upon the change in prices of the instruments.  So, if the value of the assets held by a mutual fund is lower than the previous day, the NAV will also be lower and vice versa.  Some key takeaways   The Net Asset Value is a fund's assets minus liabilities and expenses.   It represents (on a per-share basis) the price the investors can transact in the mutual fund units.   The NAV moves in the same direction as the value of securities the mutual fund holds.   The NAV itself offers no justification for a fund being "good" or "bad" to invest in.   A fund's mutual fund units may trade at levels different from the NAV.  FAQs What is NAV? The full form of NAV is Net Asset Value. This term refers to the price of a unit of a mutual fund. To give context, mutual funds are schemes that collect money from investors and invest the money into varied asset classes, from debt to equity.   How is NAV calculated? Net Asset Value = Value of assets – Value of liabilities, where 'value of assets' represents the value of securities in the mutual funds' portfolio, and 'value of liabilities is the value of all the expenses and liabilities incurred by the fund.  On a per-unit basis, the formula is   NAV = ( Value of assets – Value of liabilities ) / Total number of outstanding units. Is NAV important?   The answer is No! NAV is fairly irrelevant in cases of mutual funds – new mutual funds have a lower NAV than old ones.   Before buying mutual funds, you should consider the size of the AUM (Assets under management), the past performance of the fund, the managers' experience, and the alpha, and the beta. Does NAV change daily? Unlike stock prices, NAV is not updated on a real-time basis – the reason for this is that a mutual fund has many assets in its kitty, and tracking all of them is a complicated task.   Hence, SEBI mandates the mutual funds to update the NAV every day by 9 p.m. (different mutual funds update their NAV at different times before 9 p.m.).    What is NAV, and how does it work? The full form of NAV is Net Asset Value. This term refers to the price of a unit of a mutual fund. To give context, mutual funds are schemes that collect money from investors and invest the money into varied asset classes, from debt to equity.    According to the SEC (Securities and Exchange Commission), mutual funds and unit investment trusts (UITs) should calculate the respective NAV once a day. Net Asset Value = Value of assets – Value of liabilities, where ‘value of assets’ represents the value of securities in the mutual funds’ portfolio, and ‘value of liabilities is the value of all the expenses and liabilities incurred by the fund.    On a per-unit basis, the formula is    NAV = ( Value of assets – Value of liabilities ) / Total number of outstanding units.   Consult an expert advisor to get the right plan for you TALK TO AN EXPERT

Trading on the exchange can be a challenging experience. If you buy too soon, you risk being disappointed if the price declines. However, if you postpone and the price rises, you will feel you have lost out on a good offer.  Dollar-cost averaging is a risk-minimization tactic that involves progressively increasing your holding. When you employ a dollar-cost average strategy, you engage in an asset in equal amounts of dollars at regular intervals your purchase is at a range of prices rather than aiming to time the market.  Like most investment techniques, dollar-cost averaging isn't for all, and there are periods when it makes more sense than others. However, it can be an efficient strategy for overwhelming some mental hurdles to investing.   Let's understand the nitty-gritty of dollar-cost averaging.  What is Dollar cost averaging?  When buying equities, exchange-traded funds (ETFs), or mutual funds, dollar-cost averaging is a tactic for reducing price risk.   Instead of investing in a single asset at a single purchase price, you divide the investible money to buy tiny amounts over a period at regular intervals with dollar-cost averaging - it reduces the risk of paying a high price before market prices come down.  Of course, prices do not always move in a single direction. However, splitting your purchase into many increases your odds of paying a lower aggregate price over time.   Furthermore, dollar cost averaging allows you to regularly put your capital to work, essential for long-term success.  Let's understand with an example, using DCA, a $200,000 investment in shares can be undertaken over eight weeks by investing $25,000 each week in the same manner.   The trades for lumpsum investing and the DCA approach are in the table below:   The amount invested is $200,000, with 2,353 shares purchased as a lumpsum transaction. On the other hand, the DCA strategy purchases 2,437 shares, a differential of 84 shares worth $6,888 at the $82 average share price.   As a result, DCA can raise the number of shares purchased when the market is down and decrease the number of shares purchased when the market is up.   DCA @ $25000 per weekLumpsumWeekShare priceNo shares purchasedShare priceNo shares purchased185294852353286291  383301  481309  582305  678321  780313  882305  Total shares purchased 2437 2353Average share price82 85  What is the best time to employ dollar cost averaging?   When it comes to dollar-cost averaging, it's crucial. You must, in particular, create and keep to a consistent plan. The strategy's main advantage is that it allows you to avoid worrying about when to buy in and stop trying to beat the market by splitting the investment into parts.  As a result, you must adhere to it once you've set a date, no matter what.  The day you select is the perfect day.  Scenarios of the DCA in market phases  When you employ DCA in a falling market, you can own more significant shares as the market prices fall each day, thus helping you get more shares than the lumpsum buy.  In a rising market, Dollar-cost averaging prevents you from maximizing your returns compared to a lump sum buy because the stock rises and then rises again. However, unless you're looking to make a quick buck, this circumstance rarely occurs in real life. Stocks are pretty volatile.  In a flattish market, the scenario appears to be the same as the lump sum buy in a flattish market, but it isn't because you've eliminated the danger of market mistiming at a low cost. For long periods, markets and stocks might move sideways – up and down but ending where they started.  Benefits and disadvantages of the DCA.  Who should use DCA?  You may consider dollar-cost averaging if you are  When you first start investing, you only have a small quantity of money to invest.   I'm not interested in the extensive research that goes into market timing.   Putting money down for retirement every month.   In a falling market, it's unlikely to maintain investing.  You may employ another investment approach if  You have a lot of money to invest.  You invest in mutual funds through a taxable brokerage account with greater initial investment minimums.   You love attempting to time the market and are unconcerned about the extra time and research required.   You're making a short-term investment  Aside from other aggressive techniques like target asset allocation, diversity, and frequent portfolio rebalancing, an investor should seek to use DCA as an optional strategy. FAQs How do you explain dollar cost averaging? Dollar cost averaging is an investment strategy to mitigate risk while investing. It means that an investor will continue to buy stocks, ETFs and mutual funds by buying smaller units at regularly irrespective of the price point. What is an example of dollar cost averaging? Dollar cost averaging allows you to regularly put your capital to work, essential for long-term success.  Let's understand with an example, using DCA, a $200,000 investment in shares can be undertaken over eight weeks by investing $25,000 each week in the same manner.   The trades for lumpsum investing and the DCA approach are in the table below:   The amount invested is $200,000, with 2,353 shares purchased as a lumpsum transaction. On the other hand, the DCA strategy purchases 2,437 shares, a differential of 84 shares worth $6,888 at the $82 average share price.   As a result, DCA can raise the number of shares purchased when the market is down and decrease the number of shares purchased when the market is up. Is dollar cost averaging a good idea? Yes, it is great for investors who do not want to take on a risky venture. It allows you to invest regularly.  Consult an expert advisor to get the right plan for you TALK TO AN EXPERT

Rating agencies are companies that evaluate the financial capabilities and strengths of different companies and government entities, especially their ability to meet their principal and interest repayment on their debt obligations.   The ratings given by these companies act as a signal to the public whether the borrower (the company or government entity) will be able to honor its obligations or not.   If a rating agency downgrades your short-term instruments, it isn’t a big worry if the maturity date is close. However, it could be an issue if the downgrading happens for long-term bonds. Keeping track of these ratings is essential because all debt instruments, though less risky, have some degree of risks involved such as default risk, interest rate risk, rate risk, etc.  Credit rating agencies like Standard and Poor’s, CRISIL, and Fitch assign letter grades to indicate ratings. Each rating has a different meaning. For example, Standard and Poor’s credit rating varies from AAA (excellent) and D.   Any instrument with a rating below BBB minus is considered a junk bond. You should invest your money into bonds with high creditworthiness and, thus, less speculative.   The ratings become crucial when choosing between bonds of different entities.  What is the role of rating agencies in capital markets?   Assessment of credit risk is done by rating agencies for specific debt securities and borrowing entities. In the bond market, a rating agency assesses the creditworthiness of government and corporate debt obligations.   Two of the three major rating organizations provide ratings to large bond issuers. Rating agencies also give ratings to sovereign borrowers, the largest in most financial markets.   For example, some sovereign borrowers are national governments, municipalities, state governments, and other sovereign-supported institutions.   A rating agency gives the sovereign a rating to show its ability to fulfill its debt obligations.   The poor credit rating shows that the loan has a high-risk premium, and it prompts an increase in the interest charged to individuals and entities with a low credit rating.   A good credit rating allows borrowers to quickly borrow money from the public debt market or financial institutions at a lower interest rate. At the national level, investors use these ratings given by credit rating agencies to make their investment decisions.  Source: Pexels Impact of a Downgrade by a rating agency   Rating agencies downgrade companies primarily because of the danger of default, which can emerge from bad financial performance, declining cash and bank balances, increasing debt, lowering the debt service ratio, and worsening business circumstances and prospects.   Any news of the downgrading of any asset, particularly bonds, could cause a drop in price, resulting in a loss for the investors. Unrealized losses are often known as market-to-market losses.   A downgrade with a ‘rating watch’ might sometimes imply that the instrument will be downgraded further or the default on the debt will be initiated soon.   When a hybrid fund is downgraded, the immunity portion of the portfolio may lose value. When the downgrade is just one notch lower, with an outlook for an upgrade shortly, it can result in temporary volatility in the price.  How to make decisions?   As said above, if the downgrade is for a short-term instrument, you need not worry too much if the majority of these instruments are just one or two months away from maturity. However, if the downgrade is for long-term bonds, you must check how much of your investment is in these bonds. One can get this information from the monthly factsheets.   An exposure of 10% to 15% could be risky. To conclude, whenever a downgrade happens to a debt or a hybrid fund you have invested in, you must take care of the above aspects and then decide to exit or continue from the scheme. FAQs Why do investors prefer debt funds? Investing in debt mutual funds is gaining popularity among investors who are looking for a safe and convenient way to earn higher returns than traditional fixed deposits or savings accounts. What are the different types of debt funds for investing? Liquid Funds Ultra Short-term Funds Short-term Funds Medium-term Funds Long-term Funds Credit Opportunities Funds Dynamic Bond Funds What are debt funds? Debt funds earn through capital appreciation and interest income from fixed-income securities. Consider that a debt fund receives 10% interest per annum; this is divided by 365 and is added to the NAV every day. A debt fund’s NAV hence depends upon the interest rate and the credit rating of its portfolio. If the credit rating of one of the securities that a fund is invested into goes down (due to default), the NAV of the fund also depreciates.  Consult an expert advisor to get the right plan for you TALK TO AN EXPERT

Education is an investment in one's future, and many students opt for education loans to fund their studies. However, repaying an education loan can be a daunting task, especially with the high-interest rates involved. In India, education loans are becoming increasingly popular, and students need to be aware of the repayment process and schemes available to them. In this article, we will explore how to repay an education loan, the education loan process, interest rates applicable in India, and education loan repayment schemes that can help students manage their debt effectively. Whether you are a recent graduate or currently studying, this guide will provide you with all the necessary information to successfully repay your education loan.  Tips for Effective Education Loan Repayment Management  Repaying an education loan can be a challenging process, but it is essential to manage the debt effectively. In India, education loans are available for students pursuing higher education, with interest rates ranging from 6% to 12%. The education loan process involves applying for the loan, submitting the necessary documents, and getting approval from the lender.  Once the loan is approved, students must start repaying the loan as per the agreed-upon repayment schedule. Education loan repayment schemes are available, such as the Education Loan Subsidy Scheme, which offers interest subsidies for economically weaker sections, and the Post-Graduate Scholarship Scheme, which provides financial assistance to students pursuing postgraduate studies.  To repay the loan, students can opt for different repayment plans, such as the standard repayment plan, extended repayment plan, or income-based repayment plan, depending on their financial situation. It is crucial to make timely payments and avoid defaulting on the loan, as it can negatively impact the credit score.  To manage the loan effectively, students can also consider options such as loan consolidation, refinancing, or loan forgiveness programs. These options can help reduce the interest rate, simplify the repayment process, or even forgive a portion of the loan in certain circumstances. https://www.youtube.com/watch?v=4gTQkdePOWM Here are some additional points to consider when repaying an education loan:  Make a budget: Create a budget that takes into account your monthly expenses, including the education loan repayment. This will help you plan your finances and ensure that you have enough money to make timely payments.  Keep track of due dates: Keep a record of the due dates for your loan payments to avoid missing payments or defaulting on the loan. You can set up reminders or automatic payments to ensure that you don't miss a payment.  Consider prepayment: If you have extra funds, consider prepaying the loan. This can help reduce the interest rate and the overall cost of the loan.  Look for tax benefits: In India, there are tax benefits available for education loan repayment. Make sure to take advantage of these benefits and save on your taxes.  Seek professional advice: If you are facing financial difficulties, seek professional advice from a financial planner or counselor. They can help you develop a plan to manage your debt and avoid defaulting on the loan.  Negotiate with the lender: If you are having difficulty making your loan payments, consider negotiating with your lender. You may be able to get a lower interest rate or a more manageable repayment plan.  Consider part-time work: If you are currently studying, consider taking up part-time work to supplement your income and help with loan repayment. There are several online platforms that offer freelance work opportunities that you can consider.  Refinance your loan: Refinancing your education loan can help reduce your interest rate and make your monthly payments more manageable. Look for lenders that offer lower interest rates and better repayment terms than your current lender.  Avoid defaulting on the loan: Defaulting on your education loan can have serious consequences, including damaging your credit score, legal action, and difficulty in securing loans in the future. Make sure to make timely payments and seek help if you are facing financial difficulties.  Stay motivated: Repaying an education loan can be a long and challenging process, but it's important to stay motivated and focused on your goal. Remember that the loan is an investment in your future, and by repaying it, you are investing in your career and your future financial stability.  By following these tips and staying focused on your goal, you can effectively manage your education loan repayment and achieve your career aspirations without financial stress.  Guide to Education Loans Read More Conclusion  Education loans are a popular way for students in India to fund their higher education. However, repaying the loan can be a challenging process, especially with the high interest rates involved. It is crucial for students to understand the education loan process, interest rates, and repayment schemes available to them.  By making a budget, keeping track of due dates, considering prepayment, and seeking professional advice, students can effectively manage their education loan repayment and avoid defaulting on the loan. Additionally, negotiating with the lender, refinancing the loan, and avoiding defaulting on the loan are some other ways to make the repayment process more manageable.  Remember, repaying the education loan is an investment in your future, and with proper planning and management, you can achieve your career aspirations without financial burden. So stay motivated, stay focused, and take the necessary steps to manage your education loan repayment effectively. 

Saving money is something that everyone wants to do, but people often struggle with it. It can be challenging to find ways to cut back on expenses when there are so many things we want or need to buy. However, with a little effort and creativity, it is possible to save money every day without sacrificing too much. Why is saving money every day necessary? Everyday savings are important for several reasons. Firstly, it helps you build an emergency fund that you can use in case of unexpected events such as a job loss, a medical emergency, or a major home repair. Having an emergency fund can give you peace of mind and help you avoid taking on debt or relying on credit cards to cover unexpected expenses. Secondly, saving money every day can help you achieve your long-term financial goals. Whether you want to buy a house, pay for your children's education, or retire comfortably, saving money consistently is essential. By saving a little bit every day, you can accumulate a significant amount of money over time that can help you achieve your goals. Thirdly, saving money can help you reduce financial stress and anxiety. Financial stress can have a negative impact on your mental and physical health, as well as your relationships. By having a savings cushion, you can feel more secure and less anxious about your financial future. Moreover, saving money every day can also help you develop good financial habits and improve your overall financial health. When you make saving a priority, you are more likely to live within your means, avoid unnecessary expenses, and be more intentional with your spending. Practical strategies to save money every day. 1. Make a budget The first step after you think to yourself, “How can I save money every day?”, is to create a budget. Knowing how much money you have coming in and going out each month can help you identify areas where you can cut back on expenses. Start by listing all of your sources of income, such as your salary or any side hustles, and then list all of your expenses, including bills, groceries, and other miscellaneous expenses. This will help you see where your money is going and where you can make cuts. 2. Cut back on unnecessary expenses Once you have a budget in place, you can start looking for areas where you can cut back on expenses. For example, you may be able to save money by cutting back on your cable or streaming subscriptions, or by shopping around for better deals on your car insurance or cellphone plan. You can also save money by reducing the amount of energy you use at home, such as turning off lights when you leave a room or using energy-efficient appliances. 3. Shop smart When it comes to saving money on groceries and other household items, there are a few strategies that can help. First, always make a list before you go shopping and stick to it. This will help you avoid impulse purchases that can quickly add up. You can also save money by buying generic or store-brand products instead of name-brand items. In addition, look for coupons and sales on items you need as the best saving strategy. FD vs Savings Read More 4. Cook at home Eating out can be a major expense, so try to cook at home as much as possible. The best way to save money is by buying ingredients in bulk and planning your meals in advance. Not only will this save you money, but it can also be healthier than eating out all the time. 5. Use cash The best way to save your money every day is to use cash instead of credit cards. When you use cash, you are more aware of how much money you are spending and can avoid overspending. Plus, you can set a budget for each day or week and only spend what you have set aside. 6. Avoid impulse purchases Impulse purchases can quickly derail your budget, so try to avoid them as much as possible. If you see something you want to buy, take a few minutes to think about whether or not you really need it. Ask yourself if it is something that will bring value to your life or if it is just something that you want at the moment. This is the best strategy to save money. Conclusion  Saving money every day is all about being mindful of your spending and finding ways to cut back on unnecessary expenses. Making a budget, shopping smart, cooking at home, using cash, and avoiding impulse purchases; are the ways to save money every day without sacrificing too much. By making saving a priority and being intentional with your spending, you can create a better financial future for yourself and your loved ones. Remember, even small changes can add up over time, so start implementing these tips today and watch your savings grow. Consult an expert advisor to get the right plan TALK TO AN EXPERT

Saving money is an important aspect of personal finance, and there are several different types of savings that you can consider. Each type of savings has its own unique features and benefits, and choosing the right type of savings can help you achieve your financial goals. Different savings types are designed to meet different financial goals.  Having different types of savings can help you plan better for your financial future. For example, if you have specific savings goals like a down payment on a house or your child's education, you can set up dedicated savings accounts to help you achieve those goals. This will assist you in creating a more structured and disciplined approach to saving.  By having a well-rounded savings plan that includes different types of accounts, you can achieve your financial goals and secure your financial future. In this article, we will discuss the types of saving options and their advantages. Types of savings plans in India for child education 1. Emergency savings Emergency savings are funds set aside for unexpected expenses such as medical emergencies, job loss, or home repairs. This type of savings should be easily accessible and liquid, such as in a savings account or money market account. Emergency savings are important because they can help you avoid taking on debt or relying on credit cards to cover unexpected expenses. 2. Short-term savings Short-term savings are funds set aside for expenses that you plan to make in the near future, typically within a year or two, such as a vacation or a down payment on a car. This type of savings should be kept in a relatively safe, low-risk, and liquid investment, such as a savings account or a short-term CD. One of the main advantages of short-term savings is that they allow you to plan for upcoming expenses without having to dip into your emergency savings or take on high-interest debt like credit card debt. By having dedicated short-term savings accounts, you can make sure that you have enough money set aside for your upcoming expenses and avoid financial stress or setbacks. Calculate Savings 3. Long-term savings Long-term savings refers to money that is set aside for financial goals that are more than five years away. This type of savings is often used for retirement, but it can also be used for other long-term goals like purchasing a home. When it comes to long-term savings, the key is to focus on growth. Unlike short-term savings that are usually held in low-risk accounts like savings accounts or CDs, long-term savings can be invested in a diversified portfolio of assets like stocks, bonds, mutual funds, or exchange-traded funds (ETFs). The reason for this is that over the long term, these types of investments have historically offered higher returns than savings accounts or other low-risk savings options. 4. Retirement savings Retirement savings are funds set aside for your retirement. This type of savings can include individual retirement accounts (IRAs), or other retirement savings accounts. Retirement savings are important because they can help you maintain your standard of living in retirement and ensure that you have enough money to cover your expenses. The National Pension System (NPS) is a government-sponsored pension scheme that allows individuals to save for retirement. It is open to all Indian citizens between the ages of 18 and 60 years.  Employee Provident Fund is a retirement savings scheme that is offered to employees in India. Public Provident Fund is a government-backed savings scheme that is open to all Indian citizens. 5. Education savings Education savings are funds set aside for your children's education. Education savings are important because they can help you avoid taking on debt or burdening your children with student loans. PPF is a government-backed savings scheme that allows you to save for your child's education expenses. The account has a lock-in period of 15 years, and the interest rate is set by the government each year. Sukanya Samriddhi Yojana (SSY) is a savings scheme designed specifically for the education and marriage expenses of girl children. The account has a lock-in period of 21 years or until the girl child gets married, whichever is earlier. Unit Linked Insurance Plan (ULIP) is a type of insurance plan that offers both investment and insurance benefits. A portion of the premium is invested in a diversified portfolio of stocks and bonds, while the rest is used to provide insurance coverage. ULIPs can be a good option for education savings as they offer tax benefits. Mutual funds offered by Indian banks and AMC are a great way to build your education savings. These funds provide long-term gains, and tax benefits and have the potential to beat inflation. As investors, you are required to invest a small amount monthly for attractive returns. The best-performing funds are those where investors remain invested for 10 to 15 years. Remember mutual funds can be risky and the potential for big returns is almost as high as massive losses. It is important to consult your financial advisor or invest with the help of experts who understand your needs and can recommend the best financial strategy for you.  Conclusion There are several different types of savings that you can consider, each with its own unique features and benefits. Emergency savings, short-term savings, long-term savings, retirement savings, and education savings are all important types of savings to consider when managing your personal finances. By choosing the right type of savings and being intentional with your saving habits, you can achieve your financial goals and secure your financial future. Consult an expert advisor to get the right plan TALK TO AN EXPERT

Debt mutual funds belong to a category of investment plans that involve purchasing fixed-income securities like corporate bonds, government bonds, and money market instruments. The fund is operated by skilled fund managers who pool the funds of investors and invest them in debt securities that offer consistent interest payments. The primary objective of debt mutual funds is to generate a stable income for investors while preserving the capital invested. As the name suggests, these funds have a primary focus on debt securities, and the returns generated are usually in the form of interest income. Investing in debt mutual funds is gaining popularity among investors who are looking for a safe and convenient way to earn higher returns than traditional fixed deposits or savings accounts. Debt mutual funds offer several benefits to investors, such as diversification, liquidity, and tax efficiency. Diversification: Debt mutual funds invest in a variety of fixed-income securities, thus reducing the risk of a single borrower defaulting. When you diversify your investments across different places, you are dividing the risk. This protects your investment from the possibility that one place might not be able to pay you back. Liquidity: Investors can easily buy or sell shares in debt mutual funds without facing any penalty as they are highly liquid. This makes them an excellent option for investors who do not want to lock their money for a specific period. Tax Efficiency: Debt mutual funds are tax-efficient as they are taxed at a lower rate as compared to traditional fixed deposits. Moreover, they also provide indexation benefits, which help in reducing the tax liability for investors. How do rating agencies impact debt funds? Read More There are various types of debt funds in mutual funds to match the risk and return preferences of investors. Some of the most popular debt mutual fund types are: 1. Liquid Funds Liquid funds are short-term debt mutual funds that allocate their investments to money market instruments, including commercial papers, certificates of deposit, and treasury bills. They offer high liquidity and a low-risk option to park surplus cash for a short period. Liquid funds are suitable for investors who want to earn better returns than savings accounts or fixed deposits without the risk of loss of capital. 2. Ultra Short-term Funds As the name suggests, ultra-short-term funds invest in short-term debt instruments with a maturity of up to 1-year. They offer slightly higher returns than liquid funds and are suitable for investors with a slightly higher risk appetite. These are typically less volatile than longer-term debt funds, but they are still subject to interest rate risks, credit risk, and market volatility. However, they are still relatively safe investments and provide stable returns. They are a good investment option for investors who want to earn slightly higher returns on their short-term investments with relatively lower risk.  3. Short-term Funds One to three-year maturity debt securities are the focus of these funds. While they have a marginally higher risk, they also provide slightly higher returns compared to ultra-short-term funds. Short-term funds are ideal for investors who want higher returns than liquid or ultra-short-term funds but are not willing to take too much risk. 4. Medium-term Funds These funds are invested in bonds and other types of fixed-income securities with a maturity of 3-5 years. They offer higher returns than short-term funds but also come with higher risks. Medium-term funds are suitable for investors who want to earn relatively higher returns and are willing to take moderate risks. 5. Long-term Funds Long-term funds invest in bonds and other fixed-income securities with a maturity of over 5 years. They offer the highest returns among all categories of debt mutual funds but also come with the highest risk. Long-term funds are ideal for investors who have a long-term horizon and are willing to take risks for potentially higher returns. 6. Credit Opportunities Funds Credit Opportunities Funds invest in debt securities that are evaluated below investment grade or not considered at all. They offer higher returns as they take on higher credit risk. Credit Opportunities Funds are suitable for investors who want to take higher risks for potentially higher returns. 7. Dynamic Bond Funds Dynamic bond funds invest in a mix of debt securities of varying maturities based on the interest rate and economic outlook. These funds have the flexibility to switch between short-term and long-term debt securities, depending on market conditions. Dynamic bond funds are suitable for investors who want to take advantage of market volatility and are willing to take moderate risks for potentially higher returns. Conclusion Debt mutual funds offer a range of investment options to cater to different investor needs and risk appetites. They are an excellent investment option for investors seeking secure, and hassle-free means to earn higher returns. Before investing, investors must analyze their investment horizon, risk appetite, and financial goals to select the right type of debt mutual fund. They should also consider factors such as portfolio quality, expense ratio, and past performance while selecting a suitable debt mutual fund for investment. One should always consult a financial expert before making any investment decisions; our team of financial advisors is constantly available for your help and support whenever you require it.

In the previous article, we learned about what is financial planning. And the importance of financial planning. In this article, we will dive into the types of financial planning. Investment Planning  Investment planning refers to allocating funds towards various investment products to create a wealth corpus and generate continuous income.   It involves the analysis of short-term needs and long-term goals and then deciding how much money to invest in and in which asset class. Knowing how much savings you possess is the first step in investment planning.  Tax Planning   Tax planning is a way to optimize your investment returns smartly by minimizing your tax liability by channeling your investments into particular instruments.   With proper tax planning, you can have a higher post-tax income. Some ways to save tax are to hold your stocks for more than one year and prefer tax-savings schemes like ELSS.  Retirement Planning  This type of planning’s objective is to ensure that you have adequate resources to live after you stop earning. Achieving a good retirement requires good planning from an early age by investing and saving a proportion of your income for your future self.   The most important factors while considering your retirement plan are the rising inflation and the rising standard of living. Source: Pexels Cash Flow Planning  Cash flow planning is more of a daily process. It involves actively budgeting your income and expenses to maximize your savings by prioritizing necessary expenses over wasteful ones.  Insurance Planning  Having insurance is most important, even before having any other investment product. Insurance acts as a safety net for you and your investments.   Insurance planning requires planning the amount of life cover and health cover through various comparisons between individual and family floater plans to ensure protection.  Children’s Future Planning   Planning your children’s future is an important task – be it education or marriage, these are big-ticket expenses that require proper planning and investments.  Estate Planning  This type of planning entails the concoction of property investments; real estate investing is usually tricky because of the high investment amount and various government rules and regulations involved. However, with good consultation, real estate investments can be one of your best bets. FAQs What are the 7 types of financial planning? Investment Planning Tax planning Retirement planning Cash Flow Planning Insurance planning Children’s future planning Estate planning What are the main types of financial planning? The main types of financial planning are - personal finance, retirement planning, and tax planning. What is the value of a child's future planning? A child's future planning is extremely valuable. Especially when it comes to future college planning in this day and age. The cost of education is rapidly increasing worldwide with education inflation estimated at 10% which means your child's college will be much higher than the average increase in world income. Consult an expert advisor to get the right plan for you  TALK TO AN EXPERT

In the previous article, the focus was on education inflation and its impact on our savings. This article will discuss how to break free from debt. Debt, this dreaded four-letter word, is a nightmare for most people. However, everyone has a debt of some kind, whether credit card debt, student debt, home mortgage, personal debt, or more.   Debt is an unavoidable part of life. Dealing with debt often leads to stress and anxiety and can impact your physical health. There are both good debts and bad debts. The debt that creates a valuable asset (tangible or intangible) for you is good debt.   Debt that keeps on exerting negative pressure to pay off is known as bad debt. You need to remove this bad debt to live a stress-free life. How do you break free from debt?  Here is a step-wise guide to help you break the vicious cycle: Assess your situation: To get out of the debt trap, you must know where you stand. Check all your accounts and add up your liabilities (all types) to know how much you owe and to whom. Calculate your net worth by subtracting your liabilities from your assets. This will help you know your worth on paper.   Know where you spent your money: It is important to categorize your expenses into housing, transport, food, travel, miscellaneous, and debt. An example of a bad monthly budget is where the debt is almost equivalent to income. You need to get your basics of spending right as your first step.   Improve your budget: When you don't follow the rule “Spend less than you earn” that's how your debt problem arises. Living below your means is a very important thing that one should take care of to avoid getting into a debt cycle or when trying to get out of it. Unless you manage to spend less than you earn, you will always be in debt and never be able to come out of it.   Pay off your high-interest debt in full every month: Your credit card bills keep on mounting because you do not pay them in full every month. It happens because you take on more interest-bearing debt than you can manage. Paying off your credit card bills and other debts very religiously every month will do good for your credit score and will be a good step to lighten your debt burden.   Source: Pexels Some effective ways to reduce your debt  Use the snowball effect: Start paying off your small debts and then tackle the bigger ones. Put as much money towards paying that one small debt, and once it is done with, the free money from that shall go to the next big one. As you proceed with wiping out debt, the amount going to the current payment will increase. Another way is to tackle the highest interest debts first (to save on interest payments) and proceed.   Pay more than the minimum amount: You pay both the principal and the interest when paying down debt. So, paying more than the minimum for a particular month means cutting the principal for the next month and thus, saving money on interest payments.   Increase your income: An increase in your income will solve half your debt problems if you know how to channel your money. An increased income from the same work or a new income from a different income source will leave more money in your hands to get out of that unwanted debt you are in. You have to help yourself in this regard. FAQs What are 3 ways to eliminate debt? The 3 ways to eliminate debt are: Budgeting, increasing your income, and paying your debt on time without accruing more interest. What are the 5 ways to get out of debt? The 5 simple ways to get out of debt are: Listing your debt obligations, creating a budget for repayment, increasing your income and paying your debt on time without accruing more interest and finally reducing your daily/miscellaneous expenses to create space for savings and investing. What are the 5 golden rules for managing debt? The golden rules for managing debt are: Budgeting your expenses and debt, actively generating more income and wealth, paying your debt on time without any delays or additional interest, reviewing your spending habits, and avoiding future debt traps. How do I clean up my debt? Stepwise guide to help you break the vicious cycle:   Assess your situation   Know where you spent your money   Improve your budget   Pay off your high-interest debt in full every month   What is the best solution for debt?   Start paying off your small debts and then tackle the bigger ones. Put as much money towards paying that one small debt, and once it is done with, the free money from that shall go to the next big one. As you proceed with wiping out debt, the amount going to the current payment will increase. Another way is to tackle the highest interest debts first (to save on interest payments) and proceed.   How to live a debt-free life? When you don’t follow the rule “Spend less than you earn”, that’s how your debt problem arises. Living below your means is a very important thing that one should take care of to avoid getting into a debt cycle or when trying to get out of it. Unless you manage to spend less than you earn, you will always be in debt and never be able to come out of it. How can I recover from debt fast? It is important to categorise your expenses into housing, transport, food, travel, miscellaneous, and debt. An example of a bad monthly budget is where the debt is almost equivalent to income. You need to get your basics of spending right as your first step.     Consult an expert advisor to get the right plan for you TALK TO AN EXPERT

In this article, we will discuss direct mutual funds vs growth mutual funds. We'll try to understand what they offer in terms of risk and return and their composition.  Growth mutual funds As the name suggests, growth mutual funds invest in stocks of companies that have the potential to grow rapidly, thereby outpacing the market.   The main aim for investment in a growth mutual fund is capital appreciation, for which investors do not receive any dividends because the earnings are used as reinvestments in the company.   With high returns, growth mutual funds also bring about asymmetric risks. So, growth mutual funds are more suited for investors with a high-risk appetite.   Investors with a conservative approach and those with less knowledge of the market should keep away from these investments.   Growth mutual funds are highly volatile. The value of the investment might fluctuate widely, especially during market corrections.  In terms of taxation, these funds are subject to a long-term capital gains tax of 10% on profits over 1 lakh rupees (for investments held for more than one year).   Investment in growth funds allows you the diversification of companies that can multiply your money in a shorter amount of time.  Direct mutual funds On the other hand, direct mutual funds were introduced by SEBI (Securities and Exchange Board of India) in January 2013.  The direct mutual fund plans aim to eliminate mediator involvement by channeling your money into the fund. The absence of a mediator will add to your responsibilities as a buyer to do good research about your buying fund.   Because the transactions are done directly, the commission is absent, and as a result, the expense ratio for direct mutual funds is lower than the regular plans.   The lower expense ratio acts as a bonus for the investor, saving them the cost. However, people usually avoid direct mutual funds owing to a lack of research & awareness and end up paying a higher expense ratio (usually higher by 1 percent) and hurting their returns in the long run.  Source: Personalfn In the figure above, we assume that a fund generates 12% CAGR, then Rs. 1,00,000 lakh invested in a direct fund would amount to Rs. 3,47,855 after ten years and Rs. 3,23,073 in a regular fund we see a big difference of +7.7%. In the long term, the difference is non-ignorable.  Now, to say which one is better than the other is difficult. It depends on your willingness to spend time on what you do and your risk appetite. Use your due diligence to make your investment. FAQs What are growth mutual funds? Growth mutual funds invest in stocks of companies that have the potential to grow rapidly, thereby outpacing the market.   The main aim for investment in a growth mutual fund is capital appreciation, for which investors do not receive any dividends because the earnings are used as reinvestments in the company. What are direct mutual funds? Direct mutual funds were introduced by SEBI (Securities and Exchange Board of India) in January 2013.  The direct mutual fund plans aim to eliminate mediator involvement by channeling your money into the fund. The absence of a mediator will add to your responsibilities as a buyer to do good research about your buying fund. Is the expense ratio for direct mutual funds less than regular? Yes, because the transactions are done directly and the commission is absent, the expense ratio for direct mutual funds is lower than the regular plans.  

The 30s are very crucial for you as an investor. In this article, we will try to understand the best way to start investing in the 30s.   Steps to take before investing   1. Create an emergency fund The first and foremost thing you need to do is create an emergency fund that will assist you in times of urgent need. Ideally, the emergency fund should be equivalent to 6- 8 times your monthly expenses.    2. Become debt-free Tension-free and full-fledged investments are possible when you are not reeling under your loans. In the case of personal loans like credit card bills, try to clear them off on or before the due dates.  What should be your investment strategy?   1. Align investments with life goals The 30s is that juncture of life where you have a lot to do ahead –in terms of responsibility and achievement. For this reason, you need a detailed time log of what you intend to do in the upcoming decades before you define your investment strategy. In general, some big-ticket expenses are your marriage, your kids’ future studies (maybe 15 years later), and planning your retirement. At this age, your portfolio should have a subtle combination of equity and debt to suit your long-term goals.   2. Beating inflation In your 30s, you still have time to get rich and enjoy the luxuries of life. So, you should put the investible money into assets that will beat inflation. Inflation is your enemy so treat it like one, and thus, do not invest your money (for growth purposes) into assets that do not even match inflation such as FDs and savings bank accounts. You should aim at investing in stocks and mutual funds or even real estate (if you have the proper knowledge and guidance).   3. Do not fear risk At this time of life, the risk is synonymous with living in terms of a career or investments. Risks depend on your appetite; if you wish to obtain asymmetric returns, you have to take asymmetric risks. However, you must have the potential to manage the risk (an emergency fund). Managing risk implies diversifying your investment portfolio by placing your money into various asset classes and reviewing your portfolio to check for risks.   3. Do not disregard liquidity Liquidity is a vital factor to consider. While investing, you must ensure that your investments are not tied entirely to illiquid assets, which might create problems in times of distress.   4. Invest continuously Continuity and patience will reap the highest benefits in your investments. The longer you remain invested, the more you can benefit from the power of compounding and through the systematic accumulation of stocks/mutual fund units over a long period.  FAQs Is it OK to start investing at 30? Yes, it is a good idea to start investing at 30 years of age. It is never too late to start investing your money toward your financial goals. You can consult a SEBI-registered financial advisor and get the best advice to make a success. How can I build my wealth at 30? Here are some ways to build your wealth at the age of 30- Create an emergency fund Become debt-free Align investments with life goals Beating inflation Do not fear risk Do not disregard liquidity Invest continuously Is 32 too late to invest? No, 32 is not too late to invest. Be sure to connect with an expert who is SEBI-registered with ample finance experience to guide you on how to invest properly. Consult an expert advisor to get the right plan for you TALK TO AN EXPERT

As an investor, you may have heard about three broad types of funds equity funds  hybrid funds  debt funds  In this article, we will be trying to put out a comparison between debt funds and hybrid funds. We will try to differentiate them based on risks-returns and tax assessment. Difference between Debt funds and Hybrid funds 1. Debt fund A debt fund is a mutual fund, an exchange-traded fund (ETF), or any other pooled investment instrument that invests primarily in fixed-income assets. Debt funds have lower fees than equity funds due to lower management costs. Investors in debt funds can choose between passive and aggressive solutions. Credit funds and fixed-income funds are common names for debt funds. These funds are popular among investors looking to preserve their capital, along with the generation of low-risk income. Debt funds invest in a wide range of securities, each with its own set of risks. Companies with a steady outlook and high credit quality issue investment-grade debt. High-yield debt is usually issued by low-credit-quality businesses with good growth potential and a larger risk-return profile.  Debt funds are appropriate for people with short to medium-term investment horizons, where “short-term” refers to 3 months to one year, and “medium-term” refers to a period of 3 to 5 years.  2. Hybrid funds A hybrid fund is a mutual fund scheme that invests in a mix of equity and debt instruments to create a balance between the risk and returns of the instruments mentioned above.   The risk of investing in a hybrid fund is dependent on the allocation of funds between equity and debt.   Hybrid funds obtain their returns effectively in two parts:   From the risk-free debt instrument   The risky and high-delivering equity segment is volatile as well.  A comparative analysis of Debt and hybrid funds  1. Comparison of the risk-return scale Without a second thought, hybrid funds are riskier than debt funds because of equity components.   The riskiest ones within hybrid funds are those with more than 65% of equity exposure; among debt funds, the fund with low credit quality and high growth prospects carry a riskier profile.  Returns are dependent on the risk you take so returns will vary depending upon your separate exposure to equity and debt, though debt funds are categorically safer than a hybrid.  2. Comparison of the funds on the taxation scale These funds are subject to taxation on capital gains and dividend distribution tax. Funds are categorized into equity (if equity exposure is >65%) and non-equity.  Equity funds are subject to STCG of 15% if held for less than one year and LTCG of 10% if held for more than a year. On the other hand, non-equity funds (debt funds and hybrid funds with <65% equity) are taxable according to your income-tax slab.   If held for less than three years, LTCG is payable at 15% with an indexation benefit. Equity and non-equity funds attract Dividend distribution tax (DDT) of 10% and 25%, respectively.  So, while choosing the fund you wish to invest in, you have to account for your risk-return equation before deciding. FAQs What are debt funds? A debt fund is a mutual fund, an exchange-traded fund (ETF), or any other pooled investment instrument that invests primarily in fixed-income assets. Debt funds have lower fees than equity funds due to lower management costs. Investors in debt funds can choose between passive and aggressive solutions. What are hybrid funds? A hybrid fund is a mutual fund scheme that invests in a mix of equity and debt instruments to create a balance between the risk and returns of the instruments mentioned above.   What is the difference between debt funds and hybrid funds? Hybrid funds predominantly invest in equity whereas debt funds invest in debt and debt-related instruments. Consult an expert advisor to get the right plan for you TALK TO AN EXPERT