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The recent stock market correction and the big drop in prices of many jewels of the stock market has created lot of negativity about equity investing. But one should note that higher the intensity of stock market correction, the higher is the possibility of making more money in the long run.

You can take this correction as an opportunity to invest in the most qualitative stocks available at an attractive valuation. You should gradually build a portfolio of your lifetime and the only question you need to ask is how to select the right stocks given the current market situation and global economic upheaval?

As you must be aware, buying stocks requires expertise and knowledge of technical and fundamentals analysis. Investors use different strategies to optimise their investment in stocks. In fact, there are external factors that are different from technical or fundamentals factors, which also affect the price movement of any stocks. These could be any development in the global and Indian economy. For instance, oil prices or interest rates can have a huge impact on the Indian stock market. These developments can also bring down stock prices of strong companies, at times. This often leads investors to part with their good quality stocks, which they had invested in for long-term wealth creation.

Since many investors do not possess these necessary skills to manage their investment in equities, investing in stock market via mutual fund route is the best option. Being a first-time stock market investor, if you don’t know all the technical intricacies, you can still create a sound portfolio on your own by following certain important parameters.&nbsp;

One of the most important things to note is to invest in blue chips, that is, large-cap stocks. These are stocks of those businesses which impact the lives of many and the products they make are used by huge strata of society. It makes sense to investing in the stocks of companies which is one of the best or at the top of their game. These companies are cash rich and are numero uno in their respective fields and chances of going wrong with these investment is remote.

It is also important to invest in the business you understand, because knowing about the business your desired company is in to helps you gain better control and avoid a shock later on. These companies also offer better financial strength and good quality management and also possess the necessary economic MOAT. The term was invented by the legendary investor Warren Buffet. It means a company that has a great competitive advantage over its competitors.

So, use the stock market correction as a great opportunity to invest in good quality stocks, which are already discounted by 30%-40%. They may provide some more discount in the next few months. A first-time investor should invest in stocks at a gradual pace and should not exceed their investment beyond 5%-10% of their overall assets base till their understanding about the stock market improves. You can create a portfolio of around 10-15 companies and keep buying regularly. Remember, the longer you keep invested in these stocks the longer you gain not only in the form of capital appreciation but also by way of dividends and bonus shares.

(The writer is chief gardener, Money Plant Consultancy)

This story first appeared in DNA Money: <a href="https://www.dnaindia.com/personal-finance/column-invest-gradually-as-market-corrects-2685760">Invest gradually as market corrects</a>

As you must be aware, buying stocks requires expertise and knowledge of technical and fundamentals analysis. Investors use different strategies to optimise their investment in stocks. In fact, there are external factors that are different from technical or fundamentals factors, which also affect the price movement of any stocks.


Take market correction as an opportunity to invest in qualitative stocks 

Diwali is around the corner and most of you are busy planning the celebrations, which will involve a good amount on spending. So why don't you also gift yourself some financial gifts this Diwali? Here is how you can take the right financial action and cleaning up some financial mess.

Buy term life, health insurance 
You need to buy sufficient term cover for all family members who are bread winners in your family. Though people have realised the importance of having term insurance cover, the challenge lies in converting that awareness into reality. The same argument holds for buying health insurance cover, which becomes more important if you are 45 years of age or more.

When you apply for an individual health cover, you will not get most of the benefits that you getting from the health cover provided by your employer. This becomes more critical if you lose job or decide to leave the job. Besides, the older you get, higher will be the premium you have to pay. Or the policy may come with many do's and don'ts.

Check discount offers thoroughly 
Due to the emergence of online shopping, the world has truly become a buyer's market. The problem is you end up buying things you do not need, but are tempted to buy. So, in case you can't control the urge to splurge then make sure to weigh all the offers available online and offline. Due to heavy competition from online retailers, even stores and malls are offering huge discounts. Do a thorough price check across different platforms before spending your hard-earned money. You also need to control your impulsive shopping.

Increase your retirement kitty 
The importance of retirement planning is also something people are aware of, but still don't do it correctly. Mistakes include both not doing the right retirement planning and not investing in the right financial instruments. If you are young and have 15 to 25 years before you retire, then you need to start investing today. If that investment is already made, do increase the monthly contribution towards your retirement kitty. You can gift yourself a mutual fund Systematic Investment Plan (SIP) this Diwali, a small percentage of your yearly allocation towards Public Provident Fund and also increase your Employee Provident Fund contribution. Do a comprehensive financial planning and invest in the right product mix and retire peacefully.

Streamline your loans 
Before you take another loan for funding any luxury purchase during this Diwali, I suggest you first have a good look at your existing loans, such as car and home loans. Do you know that you can negotiate the interest rate with your bank and get it lowered based on the current interest rate structure? This will help save you a fair amount of monthly outgo, which can be further invested in a mutual fund via SIP.

So, make sure to do a thorough clean-up of your finances like you do your Diwali safai, that is, the ritual of cleaning your house. Just as you spend time,effort and money on Diwali cleaning, cloths, electronic gadgets, etc, make sure to do a deep financial cleaning and buy the above mentioned financial gifts for securing your family's future and create a good amount of wealth in the long run. Happy Investing, Happy Diwali!

(The writer is chief gardener, Money Plant Consultancy)

Source: DNA Money

You need to buy sufficient term cover for all family members who are bread winners in your family. Though people have realised the importance of having term insurance cover, the challenge lies in converting that awareness into reality. The same argument holds for buying health insurance cover, which becomes more important if you are 45 years of age or more.


Get these Diwali gifts for yourself; do not hold back on spending!

One of the most important things investor should be aware of is the net returns they will get out of their investments. Investors need to understand the exact return their investment is making. But this is not taken in to account quite often.

In fact, this is very important and often missed. Let me give you an example to explain the concept of net returns (which includes pre-tax and post-tax returns).

One of my friends recently threw a birthday party for his daughter and felt agitated while settling the bill at the famous restaurant chain where the party was organised. The problem was the amount he was asked to pay as against the offer he received from the restaurant. The actual offer was to provide the complete meal set for Rs 99 only due to an ongoing discount offer on booking confirmation for a minimum number of of 100 packs, which my friend availed. He was clear in his mind to make the payment of Rs 9,900 to the said food joint, but the final bill came for Rs 10,890 which was inclusive of 5% GST and 5% service charge.&nbsp;

He was surprised to see the amount which was up by 10% and ended up arguing with the restaurant manager who said that that taxes and service charge is always exclusive of any offer price as per the policy. Hence, they were not charging anything extra on their committed offer price. Not only this, the manager at the food joint also made one interesting point, by saying that tax money is not going to his pocket but ultimately, they need to pay it to the government.

Now there are two points I want to highlight through this incident. The first is on the taxes and the second is about your net outflow. In the above example, my friend did not take in to account the implication of tax and the surcharge which impacted his spending. In fact, the tax rate could have been even more, say 18% or so. If that was the case, then the total outgo would have been substantially higher.&nbsp;

So, the manager or the restaurant may not be wrong in the way things are promoted and dealt with. Customers need to understand what is going out of their pocket and what is coming in. It is similar to the "take home salary" concept. A salaried person never accepts a seemingly lucrative job offer as given in the proposed "CTC", but calculates the final in-hand salary, after taking into account all deductions, including taxes.

The other point is about the mindset. When the manager said that the money collected towards taxes and not the restaurant chain, how would it change anything for my friend with respect to his spending. My friend's overall expenses went up and that is what he needed to factor in.

Investors need to understand the similar impact on their investments. For example, you invest money in Fixed Deposits or Public Provident Fund. Let us assume that both options offer 8% returns. Tax is applicable on FD, while PPF is tax free. The tax deduction on FDs could be 10, 20, 30% or as almost 35%, based on your tax slabs. This makes the approximately 8% offered by PPF a better investment than 6.60% post-tax FD interest.

Watch this Zee Business video

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Similarly, there could be other charges inherent in other investment products. You need to focus on understanding net returns like take home salary concept.

(The writer is chief gardener, at Money Plant Consultancy) 
Source: DNA Money

One of the most important things investor should be aware of is the net returns they will get out of their investments. Investors need to understand the exact return their investment is making. But this is not taken in to account quite often.&nbsp;In fact, this is very important and often missed. Let me give you an example to explain the concept of net returns (which includes pre-tax and post-tax returns).


Invested money? Got profit? This system will really tell you if you benefitted

During the last few years, Indian economy has seen huge participation by retail investors in mutual fund investments. If you are an existing MF investor or someone wanting to invest in a MF, you must be aware about the direct and regular MF schemes. The only difference between direct funds and regular funds is that in the former investor does not pay any commission or brokerage to the distributor/broker. The overall portfolio, scheme's structure and investing strategies for both regular or direct plan of any scheme will remain same.

There is a lot of debate going around this topic and investors are constantly facing the dilemma of which to choose. I am sure, you must have heard a lot about how direct MFs can help you save lakhs of rupees (how you can earn additional 1-1.5% returns) over a period of 20 or 25 years. In fact, there are many advertisements floating around highlighting this cost saving as the main benefit. So, does that mean that you can simply follow a Do It Yourself method and buy any direct fund? The answer depends on many parameters. You should not rush to invest in a direct fund until you are clear about all the pros and cons.

The most important factor in this debate of direct v/s regular fund is to find out the main objective, which hardly gets discussed. I suggest you shift the focus from saving cost to a larger objective. If I were to ask you about your objective behind investing money, you would mention earning returns and creating wealth. Saving cost is never the objective, though it does play an important role in every financial decision.

The priority for investors should be to draw up a comprehensive financial planning, by setting clear measurable financial goals, with a road map for achieving the same. Decisions like which products and schemes to invest in, what returns to expect are the next steps.

There are hundreds of MF schemes to select from and choosing which schemes to invest in requires expertise. A wrong fund selection can get you a lower return than expected. In fact, the gap between the best or worst scheme could be as high as 5-10%.

Your investment needs a constant monitoring and regular review to re-balance. In case a change in the economic situation has the likelihood of impacting your goal planning, a trusted financial advisor will help you optimise the performance of your portfolio and help it outperform the market.

Your financial advisor will also handhold you during the time of distress and market volatility. At such times investors tend to take rash decisions, which could impact their portfolio negatively.

The other option is to have a fee-based financial advisor, who along with fees and a share in profits (if it crosses a certain percentage), can help you select the right plans. This will help you save the brokerage part involved in regular plan and also make your advisor more accountable, as his income will depend on the returns your investments generate.

Instead of debating about direct or regular plans, you should think about your main objective of achieving the financial goals you have set. Focusing on earning higher returns and achieving your financial milestones are a bigger objective than saving cost.

Watch This Zee Business Video Here:

<iframe allow="autoplay; encrypted-media" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/Lm7P45Mp0Yk" width="100%"></iframe>

In case you are already sorted out with your goals and can spend time, energy and possess the necessary expertise, then investing is simple for you. In that case, going direct and saving even a 0.1% cost makes complete sense.

(The writer is, chief gardener at Money Plant Consultancy)

Source: DNA Money

During the last few years, Indian economy has seen huge participation by retail investors in mutual fund investments. If you are an existing MF investor or someone wanting to invest in a MF, you must be aware about the direct and regular MF schemes.


Mutual Fund Tip: Want to earn additional 1-1.5% returns? Why it would be wrong

Non-resident Indians (NRIs) are allowed to invest in mutual fund schemes offered by Indian fund houses and are governed by the Foreign Exchange Management Act (FEMA). Before investing in Indian MFs, there are certain things NRIs have to comply with. Let us understand in detail: -

NRE/NRO bank account 
Investment in MFs cannot be made in a foreign currency. So NRIs have to open an NRO or NRE account with an Indian bank. They can either make payments via a cheque issued from their NRE/NRO account or use net banking facility.

KYC 
Know Your Customer (KYC) norms are the same for NRIs and resident investors. An NRI has to apply for a KYC and submit documents for address and identity proof, such as copy of passport, PAN and photograph.

How to invest 
NRIs can invest on their own or authorise someone on their behalf to make the investments. For doing that, they need to get a Power of Attorney and KYC formalities have to be completed with respect to the POA.

Application form 
The MF application form is the same as applicable to any investor. But make sure that the FATCA information/declarations is submitted correctly.

TDS on capital gains 
On redemption, there is a provision of Tax Deduction at Source (TDS), which does not apply to resident investors.

Credit of redemption proceeds 
On redemption, proceeds get credited to NRE or NRO bank account as registered with the fund house.

USA &amp; Canada 
The regulatory requirement and compliances are often more stringent for NRIs based out of US and Canada. As per FATCA rules, every financial organisation has to share details of transactions of NRIs staying in USA, with the United States Government.

Repatriation of redemption money 
NRIs can transfer their invested money and the gains back to their overseas account, subject to paying off the due income tax liability as applicable.

Tax on capital gains 
The capital gains can be either short-term or long-term. The standard taxation rules apply depending on the MF scheme and how long it was held. If an equity scheme is held for more than one year, the gain is treated as Long-Term Capital Gain and is liable to tax at 10%, after April 1, 2018, with an exemption of first Rs 1 lakh in a year.&nbsp;

If the gain is booked within one year, it becomes Short-Term Capital Gain, which is taxable at 15%. For debt MFs held for less than three years, the gain becomes STCG. It has to be added to an NRI’s total gross taxable income and is taxable based on their tax slab. If the debt fund is held for more than three years, gains becomes LTCG and will be taxed at 20% with indexation benefit.

Residential address&nbsp; 
It is compulsory to provide the resident country address. The corresponding proof must also be submitted along with your MF application form.

Watch this Zee Business video

<iframe allow="autoplay; encrypted-media" allowfullscreen="" frameborder="0" height="315" scrolling="no" src="https://www.youtube.com/embed/HMDjDUNWNeg" width="100%"></iframe>

Today, technology has reduced the paper/physical compliances and made it easier for them to participate in the India growth story.

(The writer is chief gardener, Money Plant Consultancy)

Source: DNA Money

Investment in MFs cannot be made in a foreign currency. So NRIs have to open an NRO or NRE account with an Indian bank. They can either make payments via a cheque issued from their NRE/NRO account or use net banking facility.


NRIs can invest in mutual funds, here is how; 10 points   

Your Employee Provident Fund contribution allows you a tax benefit under section 80C as per the Income Tax Act. But are you also aware about the tax implications if you withdraw your PF?

Contrary to popular belief, PF withdrawal becomes taxable in certain situations. The income tax rules with regards to PF withdrawal has changed from June 1, 2015 and there is a 10% tax deduction at source (TDS) on PF withdrawal. Let us understand the income tax and TDS provisions with respect to the same: -

Situation 1: PF withdrawal is before completing five continuous of service

If PF withdrawal is less than Rs 50,000: 
There will not be any TDS, but if the employee is earning more than the basic tax exemption limit of Rs 2.5 lakh, then he or she has to offer this income in the income tax return&nbsp;&nbsp; 
For calculating the period of continuous services, the period served with the previous employer will also be included

If PF withdrawal is more than Rs 50,000: 
There will be a 10% TDS if the employee has furnished PAN and there would be no TDS in case the employee has submitted 15G or 15H form.

Situation 2: PF withdrawal after completing five continuous years of service 
There will be No TDS as this withdrawal is completely tax exempt so there is no need to offer it as an income as well.

Situation 3: PF account transfer from one job to other: - 
There will be no tax implication in case an employee transfers his PF from his previous employer to the new employer, that will be taken up as continuous service. But in any case, PF withdrawal will become taxable if the employee leaves the job before completing continuous service of five years except for the reason as stated below.

Situation 4: PF withdrawal is not taxable under the given situations, even if it withdrawn before completing five years of continuous service: 
-If the employee gets terminated due to his ill health&nbsp;&nbsp; 
-The employer has discontinued his business&nbsp;&nbsp; 
-Or for any reason which is beyond the control of employee

The Important point to note is that your premature withdrawal of PF will attract tax liability unless it is withdrawn due to the above-mentioned conditions.

There are many people who get confused with the TDS part of it, whether there is a TDS or not. If it is taxable based on the tax rules mentioned above, you need to declare it in your return of income and pay tax depending on your tax slab.

Watch this Zee Business video

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Let's assume that you submit form 15G or 15H to your employer, following which they do not deduct any tax on your PF withdrawal, that is, no TDS at all. But if the PF withdrawal happened in less than five years of continuous service and there is no condition that makes it exempt in your hand (as mentioned in situation 4). In this case, though there is no TDS, you still have to declare it and pay tax accordingly. So, the next time you change your job, don't be in hurry to withdraw PF without understanding the tax implications.

(The writer is chief gardener, Money Plant Consultancy)

Source: DNA Money

Contrary to popular belief, PF withdrawal becomes taxable in certain situations. The income tax rules with regards to PF withdrawal has changed from June 1, 2015 and there is a 10% tax deduction at source (TDS) on PF withdrawal.&nbsp;


Income tax return (ITR) filing: EPF gives you tax benefit under section 80C, but there is catch

You need to&nbsp;save&nbsp;money in order to have money, you need to invest money to have a pool of money. It is important to make good amount of money so as to achieve the freedom to do what you really want to do in your life. Since&nbsp;the year has just ended and it’s a celebration time to welcome 2018 and also the apt time for you to set up some realistic financial resolutions. &nbsp;Let us look at some interesting points to ponder in order to successfully set your financial resolutions:-

Start with the review of your last year’s financial performance:&nbsp;

First thing you need to do is to introspect and do some self-analysis by asking the below questions:-&nbsp;

<ul>
	<li>Did you achieve your financial objectives set during the last year?&nbsp;</li>
	<li>Did you incur any expenses which were unexpected?</li>
	<li>Did you pay your EMIs and credit card payments in time?</li>
	<li>What is the return you made on your investments; did you surpass your target?&nbsp;</li>
	<li>Did you have an extra cash lying dud?</li>
	<li>Did you touch your emergency fund, rather did you create one?</li>
	<li>Did you borrow money and for what purpose? &nbsp;</li>
</ul>

After this self-analysis,&nbsp;following are some of the financial resolutions you can make for 2018:- 
&nbsp; 
Plan &amp; Control your Budget: Budget is one of the most important step for controlling your finances, you need to track your spending habits well. What following a budget does to you is it makes very easy for you to change your&nbsp;financial&nbsp;patterns and habits and help&nbsp;you understand things which you have to change. &nbsp;

Improve your Credit rating:&nbsp;Having a good credit rating is always important and a sign of a healthy financial life. Keep checking your credit score to constantly improve the same, in case its needed.

Plan to reduce your debt:&nbsp;Nobody wants a loan on their head, especially salaried class people who does everything to pay off their home loans on every raise or money they get. Ideally don’t take home loans to be a bad debt as without that many wouldn’t have bought their houses/flats. But yes, do a proper cost benefit analysis before paying out your home loans as now a day’s interest rate is around 8.35%, so as long as you can make more returns than this via alternate investments options like mutual funds etc. then you can plan accordingly. But yes, if you have a loan say personal or a car loan at a much higher rate, then it makes every sense to pay off that loan asap.

Emergency/Contingency Fund:&nbsp;If you don’t have a fund set aside to meet your emergencies, then make one in the new financial year! And If you have already got an emergency fund then aim to increase it.&nbsp;

Pay your EMIs on time:&nbsp;The last&nbsp;thing you want in this new year is to pay a&nbsp;penalty for any of your late payments either for tax, EMIs or a credit card payment. Make sure to make a due date diary and set a reminder for all your regular planned expenses or payments on your phone. The best way is to create auto debits, ECS towards any planned expenses.&nbsp;

Make charity a part of your financial planning:&nbsp;Most of us wants to give back to our society and&nbsp;many times we plan to do this but many times takes a back sit due to other priorities. If you also want to contribute then make the joy of giving a part of your financial planning so as you don’t have to wait to do something good and meaningful.&nbsp;

Create second source of income:&nbsp;This new year, focus on creating an additional source of income which could possibly come from either following a hobby or any skill which helps you generate an additional income.&nbsp;

Plan well because&nbsp;the real and any permanent change always comes from inside rather than any external source, it has to be form within&nbsp;so focus on your internal thoughts and start the new year with a bang, Happy Financial Year.

Rishabh Parakh is a Chartered Accountant and Chief Gardener of Money Plant Consultancy, one of the fastest Tax &amp; Financial Service Provider&nbsp;Company. He can be reached at&nbsp;rishabhparakh@moneyplantconsulting.net&nbsp;&nbsp;

How to set the right financial resolutions in the year 2018?

Dhiraj recently sold a Bitcoin worth Rs 2,75,000/- after the money what he invested in it got doubled. But he is not aware whether he need to pay tax on this or not and if tax needs to be paid then under what income tax head and how much! Let’s understand: -

<h3>Is profit on bitcoin selling tax free?</h3>

Like Dhiraj, there are many who have been making profit on the sale of bitcoins but there is no clarity in terms of how the profit should be taxed because the Indian Tax Laws does not cover the virtual currencies as yet.&nbsp; But, investor beware, because our tax laws have provisions to bring any sort of income under its ambit via its five different heads irrespective of the form it has been received. The various heads are, income from house property, salary, capital gain or business and&nbsp;profession and the fifth one i.e. income from other sources is one such head which covers all your remaining income source which cannot be taken under any of the other four as mentioned above.

<h3>Under what head the profit of bitcoin will be taxed?</h3>

Since the income tax laws has not defined the asset class under which bitcoins or other crypto currencies will fall under hence there is a&nbsp;debate in terms of how the profits would be taxed.&nbsp; So, we need to look at the reason from the investor’s perspective behind buying the said currency. Let us look at the various possibility of taxing bitcoin profits under different circumstances: -

<h3>Bitcoins purchased as an investment</h3>

Most of the people are investing in Bitcoins for making the gains on account of increase in the value of these coins thereby wanting to capitalize the price appreciation. In this particular scenario, it acquires the definition of a capital asset under Section 2(14) of the Income Tax Act and the resultant capital gains will be classified either as short-term or a long-term. Now whether the gains are short term or long term depends on the period these coins were held.

So, in case a person who has sold the bitcoins after holding it for more than three years needs to pay the long-term capital gain tax. The applicable tax rate is 20% for the long-term gains and the benefit of indexation will be allowed as per the income tax act. And anything sold in less than three years will be termed as a short-term capital gain and will be taxed according to your applicable tax slabs, if your income is more than 10 lakhs then gains will be taxable at the maximum rate i.e. 30% plus cess and surcharge as applicable.

<h3>Bitcoins purchased as a regular trading</h3>

In case a person is buying and selling i.e doing it frequently then the person is said to be doing a trading and will be termed as a trader. The treatment of this profit would change then what is advised above and it will be considered as a business income and the is payable as per the tax slabs of the said investor. But what define “frequent” is not clear hence the applicable rules for the income under the head profits and gains of business will apply accordingly.&nbsp;

But due to the lack of clarity and absence of any government guidelines on its taxability, one can also choose to report any gains from bitcoin profits under the head income from other sources.

<h3>Bitcoins received as a consideration for sale of goods or services</h3>

What would happen in case you get bitcoins in exchange of regular currency like rupee or a dollar? Assume that you are a blogger, freelancer or a consultant who receives Bitcoins against the services you have offered to your clients in India or overseas. &nbsp;Then there is no ambiguity here and the coins as received will be treated at par like the way you would have received any other legally tender currency. It becomes income in your hand as a business or profession and you need to pay tax like the way you would have paid under the head profits or gains from business or profession normally.

Conclusion:&nbsp;Bitcoin transactions in India have picked up very fast recently and though the laws to regulate them is absent today, I expect the&nbsp;government to announce some notification to clear off all the ambiguity around its legality and taxability.

Rishabh Parakh is a Chartered Accountant and Chief Gardener of Money Plant Consultancy, one of the fastest Tax &amp; Financial Service Provider&nbsp;Company. He can be reached at&nbsp;rishabhparakh@moneyplantconsulting.net&nbsp;&nbsp;

<blockquote>
Also Read:

<ul>
	<li><a href="http://www.zeebiz.com/world/news-meet-the-sibling-of-bitcoin-enjoying-meteoric-rise-33352" target="_self">Meet the sibling of bitcoin enjoying meteoric rise</a></li>
	<li><a href="http://www.zeebiz.com/personal-finance/news-do-you-want-to-invest-in-bitcoins-heres-a-few-facts-33513" target="_self">Do you want to invest in Bitcoins? Here's a few facts</a></li>
	<li><a href="http://www.zeebiz.com/world/news-will-bitcoin-be-another-bubble-tale-33404" target="_self">Will Bitcoin be another “Bubble” tale?</a></li>
</ul>
</blockquote>

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&nbsp;

How to pay tax on bitcoins profit?

Is your bank deposit safe? Like many, have you also heard the widespread rumours on various social media platforms on the new FRDI bill and its Bail-in clause. The message that is worrying people is that their deposits will be used to bail out their banks in case of a failure or their deposit can be converted for an unknown period offering 5% rate of interest.

Should you worry about your deposits with the banks?&nbsp;Let’s understand: 
&nbsp; 
What is FRDI Bill?

FRDI Bill i.e. Financial Resolution and Deposit Insurance Bill 2017 aims to focus on finding a resolution in case of a rare event of a failure of any financial service provider like banks, insurance companies or a non-banking financial companies etc. At present the bill is pending with the standing committee and have not been enacted as a law. 
&nbsp; 
So, what is the controversy and&nbsp;bail-in clause?

One of the major change that this law has introduced is the widely talked about ‘bail-in’ clause which if enacted as law will use depositor’s money to bail out the failing bank or any financial institution. Another cause to worry is that the bill doesn’t specify the limit up to which the depositors’ money is insured.

<h3>What is the difference between Bail-outs and Bail-ins?</h3>

A bail-in concept is totally the opposite of what a bail-out means, under bail-out, outside external parties mostly government funds the bail-out by deploying taxpayers’ money and it has always been more common. Where-as Bail-ins requires the depositors and investors to bear the loss directly in case of a failure, they have to take the hit and would not get their full money back.

<h3>What is the present rule on the security of your deposits with the banks?</h3>

At present Reserve Bank of India protects up to Rs 1 lakh of deposits under the Deposit Insurance and Credit Guarantee Corporation Act. So actually even at present your money i.e. deposit is only secured to an extent of Rs. 1 lakhs. For example, if you have 20 lakhs of FDs and your bank fails, then all you will get is maximum Rs. 1 lakh under insurance as a return. You have to forego all your money beyond one lakh and it has always been like this as the limit which was set more than 25-30 years back has not been revised in spite of the growing inflation and standard of living. In fact and if we look at the current panic situation otherwise, this Bail-in controversy has one strong point you as an investor should take note of. There is a change in the relationship between you as a customer and the bank which means that at present when you make a deposit with your bank, you don’t think you are the creditor of your bank as you do not get any security against the money you are depositing with the bank. But in principal and in accounting terms you are actually the creditor of the bank which we generally don’t think in that fashion.

<h3>Should you worry about your present deposits?&nbsp;</h3>

No, not at all, because as stated above, even the present situation and the rule hardly protects your deposits beyond one lakh and what essentially, we are discussing is a theoretical situation which has never arisen in India. No commercial bank in the past have made its depositors lose their hard-earned money and RBI had always forced merger or taken other measures to fight against any banking failure for e.g. Global Trust Bank or United Western Bank. The present panic situation arisen more due to the wrong and ambiguous wordings and needs to be corrected soon. The government has already acknowledged that there is no reason for depositors to worry and their money is safe and government is committed to protect it.

<h3>Conclusion:</h3>

Since bank deposits has always been considered one of the safest investment avenue and now after knowing the risk your deposit is carrying, you need to really look for an alternate investment option because your deposits or recurring account hardly beats the inflation. It’s time for you to shift your attention towards mutual funds &amp;amp; SIPs for generating good amount of wealth looking at the bright story India has to unfold.

Rishabh Parakh is a Chartered Accountant and the Chief Gardener &amp; Founder Director of Money Plant Consulting, a leading Tax &amp; Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at&nbsp;<a href="http://www.mangoinvestor.com" rel="nofollow" target="_blank">www.mangoinvestor.com.</a>

FRDI Bill i.e. Financial Resolution and Deposit Insurance Bill 2017 aims to focus on finding a resolution in case of a rare event of a failure of any financial service provider like banks, insurance companies or a non-banking financial companies etc. At present the bill is pending with the standing committee and have not been enacted as a law.


Is your bank deposit safe? Know more about FRDI Bill & bail-in clause

Have you ever been confused by different financial terminologies, I believe, many times? But don’t worry, when it comes to understanding income tax jargons and laws, you are not the only one who gets bewildered by these.&nbsp;Considering this fact, there are few specific terms under income tax act, which always confuse many taxpayers and these are&nbsp;Exemption, deductions and allowances.

All these are nothing but different options for reducing your tax outgo and can be availed as allowed under income tax act.&nbsp;Let us understand these terms in detail: -

Income tax exemption, deduction and allowance, similar yet different terms. Similar because all are related to different benefits as available to a taxpayer but different because of the applicability and availability of these items to the Taxpayer. So it becomes necessary for you to understand these terms to optimally utilise these items to minimize your tax liability.

All these terms be it ‘Allowances’, ‘tax deduction’ and ‘tax exemption’ refers to lowering of taxable income; these are various tax reliefs and tax breaks as provided by the government to a taxpayer.

Tax Allowance:

The dictionary meaning of allowance is ‘the amount of something that is permitted, especially within a set of regulations or for a specified purpose’ i.e. for example allowance is a payment made by an employer to an employee for a specific purpose. The earned income is expected to be utilized for the specific purpose for which it is given. For ex. House Rent Allowance should be utilized to meet the Rent Expenses.

Below is the suggestive list of allowances for understanding purpose:

<ul>
	<li>Dearness Allowance</li>
	<li>Performance Allowance</li>
	<li>Conveyance Allowance</li>
	<li>Laundry Allowance</li>
	<li>House Rent Allowance</li>
	<li>Transportation Allowance etc.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
</ul>

Tax Exemptions:

Tax Exemption means a part of your income which will not be taxable. These are available in two types, Partial Exemption and total exemption. Some incomes are fully exempt such as dividend earned from equity shares and some are exempt to an extent only, like transport allowance which is exempt only up to Rs 1600/- per month or less.&nbsp;

Other Examples of ‘Exemption’:

a) House rent allowance

b) Leave travel allowance

c) Leave encashment

Tax exemptions may include complete relief from taxes or tax only on a portion of your income and&nbsp;to encourage investments, the government generally offers tax exempt entities to invest in. Such entities are exempted from a single or multiple taxation laws. For example, investments in the Sukanya Samriddhi Scheme are fully tax exempt. Money deposited under this scheme will be exempted from tax at the time of investment, accumulation of interest and payout of returns i.e. following the EEE regime i.e. exempt, exempt, exempt.&nbsp;

Tax Deductions

In case of tax deductions, your income tax liabilities decrease by a specified amount for spending money in specified avenues. You invest in various schemes to reduce your taxable income, for example, you can get tax deduction by paying life insurance premiums or towards payments of your&nbsp;home loan principal amount&nbsp;. Tax deductions are offered by government to tempt taxpayers to participate in programs carrying societal benefits.

Deduction is termed as reduction from something. Tax Deduction is basically the deduction allowed in income tax on application of income in prescribed instruments. These all are available at the discretion of the taxpayer. The more you invest, the more deduction you will get as per the limits prescribed under the income tax act.

Few examples of Deductions:

a) Section 80C – Payments to investments as mentioned in the section.

b) Section 80D – Payments for medical insurance premium.

c) Section 80E – Payments to repayment of interest on education loan.

d) Section 80G – Payments to charitable institutions as donations.

Rishabh Parakh is a Chartered Accountant and the Chief Gardener &amp; Founder Director of Money Plant Consulting, a leading Tax &amp; Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at&nbsp;<a href="http://www.mangoinvestor.com" rel="nofollow" target="_blank">www.mangoinvestor.com.</a>

Tax Exemption means a part of your income which will not be taxable. These are available in two types, Partial Exemption and total exemption. Some incomes are fully exempt such as dividend earned from equity shares and some are exempt to an extent only, like transport allowance which is exempt only up to Rs 1600/- per month or less.


We tell you the difference between allowance, deductions & exemptions

Diwali celebrations just came to an end and most of us have started working on new financial plans. But, have you changed your investment plan which will definitely influence your finances in future? Let’s understand the best investment sectors available today in India.

In earlier years when the inflation was at a high rate, Bank Fixed Deposit was an attractive choice, as there was zero risk and substantial return on the money invested. But, nowadays this is not the case with Bank Fixed Deposits. Though the risk level has not gone up the return side has faced a downfall.

<blockquote>
So, investment in FDs ignoring the core benefits of Mutual Funds, SIPs, etc. is just because of the unawareness and lack of knowledge. Due to that we are nothing but losing the extra money that can be earned.
</blockquote>

In last 3 years, the interest rates are drastically fallen around&nbsp;40 percent, which is kind of freaking. People generally end up doing incorrect mathematics of the returns on investments. As every step in the downfall of interest rates appears very small. Rate cuts are generally around 0.25% to 0.5% which prima facie sounds nothing.

In India, we can also say, it is a traditional issue, that we have hardly seen our parents investing in Equity or Mutual Funds. At a young age when we have all our strength and skillsets with us and ample opportunities waiting for us to earn money, the risk involved in Mutual funds seems tiny as compared to huge returns offered by it. As in any worst case scenario, if we do not get return up to that level or say we get returns less than FDs Risk free Rate. We are able to re-earn that opportunity loss as we are at the start of our career.

We should always invest in Mutual Funds instead of FDs. FD holders would not hesitate to invest in Mutual Funds having low-risk profiles. These have nearly at par rates of return with those of fixed deposit income.

In addition to this, there lies a hidden benefit:&nbsp;Taxation. While withdrawing gains earned in Mutual Fund Investments, the tax required to be paid works out very less as compared to the case of withdrawal of interest of FDR. following table of comparison elaborates this.

For, easy calculations suppose the rate of return is 10.00% in both cases.

[[{"fid":"24797","view_mode":"default","type":"media","attributes":{"height":462,"width":617,"class":"media-element file-default"},"link_text":null}]]

Following are differences to understand the best investment option:

[[{"fid":"24798","view_mode":"default","type":"media","attributes":{"height":271,"width":562,"class":"media-element file-default"},"link_text":null}]]

<h3>Fixed Deposits Vs Debt Mutual funds</h3>

●&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liquidity:&nbsp;After redemption money can be received within 1–2 days

●&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Professional management:&nbsp;Can dynamically alter strategy &amp; avail benefit of market

●&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No penalty&nbsp;on premature withdrawal.

Mutual funds are definitely depending on the market condition, unlike the FDs. But, if you are in the age bracket of 25 to 30 yrs and you can take risk (not a huge one) then you should invest most of your money into Mutual Funds or SIPs as it will give you extra benefits. Investors are suggested to invest in SIP for a longer duration (more than 5 years) to achieve desired financial goals. This is not the case with Fixed Deposits.

So, most likely, the yield on mutual funds would always be higher than fixed deposits given that you invest for long term and keep monitoring your money. &nbsp;&nbsp;

Rishabh Parakh is a Chartered Accountant and the Chief Gardener &amp; Founder Director of Money Plant Consulting, a leading Tax &amp; Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at&nbsp;<a href="http://www.mangoinvestor.com" target="_blank">www.mangoinvestor.com</a>.

In earlier years when the inflation was at a high rate, Bank Fixed Deposit was an attractive choice, as there was zero risk and substantial return on the money invested. But, nowadays this is not the case with Bank Fixed Deposits. Though the risk level has not gone up the return side has faced a downfall.


Mutual Funds vs Bank Deposits: What should be your preferred financial product?

First of all, let me wish all the readers a very happy Diwali and a prosperous new year. Diwali, by far is the most celebrated &amp; equally awaited Indian festival where Indians families plans everything right from buying cloths, TV, Fridge, Vehicles etc. and also indulge in lots of spending to decorate their houses or on buying gifts for their loved ones.&nbsp;

We also do Laxmi Pooja to seek the blessings of&nbsp;the goddess of wealth for prosperity all around. But do all these things have any connection with your financial planning? Let us understand.&nbsp;

1. Planning &amp; Execution:

As mentioned above, most of the Indians don’t compromise on their spending during Diwali and also plans these expenses way ahead in advance and that too with lots of enthusiasm, more importantly we focus on it right till all the tasks gets executed. But the same level of planning, execution and intent towards one’s financial planning is often missed because of the various factors.

Lesson to be learnt:

If you imbibe the same culture of planning and focus on its successful execution towards your investments planning, then you can really avoid losing money and save handsomely for the golden years of your life apart from reaching your important financial milestones on the way.

What needs to be done?

They key is to start and the earlier the better, your timely investments can help you get the benefit of power of compounding. For example, If you invest Rs. 1 lakh today then assuming a rate of return of say 10%, this invested amount will become Rs. 6.72 lakhs after 20 years, thereby an increase of 5.72 lakhs in 20 years. But what would happen in case if you do not invest now but defer this investment and invest after 10 years, then in that case your Rs. 1 lakh investment will be invested only for 10 years and would become Rs. 2.59 lakhs. Now if you see, the same Rs. 1 lakh invested and kept for 20 years has resulted in a gain of Rs.5.72 lakhs as compared to a gain of Rs. 1.59 lakhs if it is kept only for 10 years. So a loss of total Rs. 4.13 lakhs which you are losing out due to starting late. So the key is to have the similar planning and zeal towards your finances like what you do for Diwali.&nbsp;&nbsp;

2.&nbsp;The importance of Protecting your family:

When your children play with firecrackers, you always protect them and be around them to burst crackers safely to avoid any untoward incident.

Lesson to be learnt:

The same practice what we follow to protect our children while bursting crackers needs to be followed while protecting your family financially too. 
&nbsp; 
What needs to be done?

You need to buy the right amount of life &amp; health insurance cover. Many times, people make huge mistake of not having the sufficient protection due to the varied reasons as follows: 
&nbsp;

<ul>
	<li>They end up buying the wrong policy without understanding its terms and conditions and a policy which is less on cover and more on premium.&nbsp;</li>
	<li>The wrong timing like for buying a life cover, one need to buy it when they are in their accumulation phase say between 24 to 45 years of age and not afterwards, your need to protect your family is very high when you are still accumulating and generating wealth.</li>
	<li>Similarly, for buying your medical insurance policy should be worked out based on the coverage you are getting along with various dos and don’ts which comes with the health policy like covering preexisting illness or not.</li>
</ul>

&nbsp;3.&nbsp;Plan your investments based on your Goals:

During Diwali, you buy gifts for your friends and relatives based on their taste or age group so likewise your investments is supposed to be done based on your many financial goals. You need to categories your goals like buying a house, childrens’ education and their marriage planning in future or buying a car or planning for a foreign vacation.

Lesson to be learnt:

Every financial goal of yours will carry a certain timeline and the money you need to invest to achieve the same, it is going to impact your monthly cash flow. You need to plan all your financial decisions based on all your financial Goals to make sure to have the funds available as and when you need it.

What needs to be done?

Treat Diwali as one of that event which helps you to start planning and categorizing your goals and implanting ways to achieve those. If you have already planned for it, then it is a best time to review so do not stop this process ever as it is a constant evolving process due to a dynamic world we all are living in, where we not have control over our income and expenses.&nbsp;

4.&nbsp;Bring Diversification in your investments:

You buy various kinds of sweets, crackers,, decorative materials and clothes on the occasion of Diwali so likewise you need to bring diversity in your investment portfolio too.

Lesson to be learnt:

The way you plan your Diwali celebrations and celebrate by making sure to have variety all around, similarly you need to make sure that you have the right amount of mix in your investments products as well.

What needs to be done?

You need to categories your goals as seen in the third point and then you need to buy different financial products suiting your needs and to help you achieve these goals. The idea is to have a right mix of different products and allocation in to FDs, PPF, PF, Mutual funds, SIPs, Equity or a real estate, this will make sure that your risk is reduced considerably and is in alignment with your risk appetite.

We also do Laxmi Pooja to seek the blessings of&nbsp;the goddess of wealth for prosperity all around. But do all these things have any connection with your financial planning?&nbsp;


Financial lessons to be learnt from the festival of Diwali

The Diwali season is here and we all are busy in celebrating &amp; enjoying rituals with joy. While you will be busy in spending your hard earned money for various things, how about giving a Diwali bonus to yourself? Sounds wonderful, isn’t it? With a quick analysis and systematic action plan you can definitely get this done. Getting a bulk of cash in hand isn’t always called as a Diwali bonus but securing a future while saving some money might be a special bonus to yourself.

<h2>Following are few tips that can help you get a bonus for yourself this Diwali:</h2>

<h3>Prioritise clearing all your debts:</h3>

Before you plan to buy new things it’s recommended to clear all your earlier outstanding loans or to renegotiate the interest rates with your banker. If you have a loan with a higher rate of interest like Home Loans or your Credit Card payments, you should aim to pay it off first or plan to get the interest reduced. Due to the interest rate reduction in our economy, now your home loan interest rate is at around 8.50% as against the earlier 10.50%, so if you haven’t done the renegotiation with your banker, do it today. That will make you feel relax and help you create a substantial financial plan. It will certainly be a special gift, a bonus for you!

<h3>Leverage the best offers:</h3>

Many companies come up with various mouthwatering offers. Make sure that you double check prices online and offline as happens in many cases, we always end up spulrge and cant really avoid spending on our wants than needs. If you can really control your expenses then nothing like it but if you cannot then at least make sure that you avail the best deal with everything you buy and mind it, it is often seen that people don’t use their credit cards or cash back schemes smartly, it can really save you big time. You just need to list down the things you are planning to buy this Diwali and look out for offers on the same and now a days everything can be checked online like on Amazon, flipkart or Paytm and stores like Vijay sales, croma etc.

You can really negotiate smartly and get the best deal from whichever place you want to buy stuff from, remember the fact that this is a buyer’s market now, you being a buyer is king now a days, so make the most of it and resultant savings will serve as a bonus. However, if you can avoid your wants and focus on your needs then it can anyways saves you big money. Let me put this way, that during this Diwali time, you can save big time i.e. say 60% by log in your Amazon or Flipkart account, but do you know that there are ways you can save 100% also but how?&nbsp; It’s simple, by not login in to these accounts! But jokes apart, this is indeed serious and important for your future, so be smart, buy smart!

<h3>Create a buffer:</h3>

It has been observed many times, that people specially those who are depending on their salary income have most of their expenses already planned via EMIs or scheduled payments from their regular monthly salary. So every time after their salary gets credited in their account, most of the money gets spent to cover up their expenses within the span of 2-3 days itself and then there is always a cash cruch during the entire month. To overcome this one may needs to create a budgeted buffer amount in advance or a kind of contingency reserve, equivalent to a month’s salary or two cater to any emergency situation which may arise in future. Plan this immediately so that next Diwali, you will have more amount in hand than ever before.

<h3>Term insurance of every earning member&nbsp;in your family:</h3>

As earning members of any family are its financial pillars, I would strongly recommend you to buy a sufficient term insurance cover to protect the financial risk, what a life of an earning member carries. Having a sufficient Term life cover insured you and your dependent to keep getting the income regularly in case of any unfortunate event of a death of the earning member. Always buy a pure term policy first with a good amount of cover &nbsp;say Rs. 1 crore or more depending on your risk profiling. Select the right insurance policy today itself and protect your loved ones, please read my earlier columns on selecting the right life insurance policy.

<h3>Medical insurance for everyone in the family:</h3>

“Health is Wealth”, as said often, is true in every sense because the wealth of a person is his or her good health and It is very important that there should be a sufficient risk cover to face any medical emergency. The main reason is the ever increasing medical expenses so you need to be in a sound position to face these unplanned expenses. There are various medical insurance schemes as available, you need to choose the best available plan which caters your requirements, remember the fact that there are many conditions which are not hidden I would say but too complicated at times for you to understand and failing which you may end up not getting any claims in case of any emergency. You need to really understand it in detail and by reading the fine prints of the offer document like does it give you a cover against pre-existing diseases, to check in exactly how many months or year’s lock in, they may give you the cover or is there any room rate capping or a list of events wherein a particular policy will not work etc. Please make sure to read, understand and then only buy it otherwise the entire purpose will be defeated.

<h3>Investments with long term goal:</h3>

Besides a priority to cater your immediate financial needs, you should always keep in mind your Long term needs as well. Because as we know that “Rome wasn't built in a day” your secured financial future will also need good amount of planning and time to achieve the same.&nbsp; Start building your financial assets to achieve your various financial goals like marriage, buying a house, education for children, marriage of your children etc. It is never too late to start by saving small amounts towards these goals. You’re your finances smartly and allocate your funds in order to celebrate your present and protect your future.

<h3>Evaluation of expenses:</h3>

The key to spending less is to cut back expenses, even though by a small percentage in every area, where you can. You need to evaluation and do a kind of an audit of your expenses to simplify your financial life. An intelligent person can always convince himself or herself by believing or pretending that every expense that person is incurring is a must and cannot be avoided. However, I am sure and you also would agree that if you really analyse your expenses then you would surely be able to cut down good amount of your spend.

I want you to look within and think &nbsp;deep and you may realise that you can easily save money at various places like for example, spending Rs. 1000-1500 monthly on your mobile expenses seems feasible but the same amount if you need to spend for buhing a good health insurance cover say for Rs. 5 Lakhs will look huge. You need to be careful with your spending and investments, about every penny what you spend should be worthwhile, after all it’s all your hard earned money at the end.

Beef up your retirement fund:

Each one us will prefer to have a substantial amount of corpus fund during your retirement time. But it’s a must that you take those steps to build and protect your golden years, as early as possible. “Slow and steady wins the race” and your monthly investments say SIPs howsoever insignificant it looks today, slowly and gradually gets converted in to a huge retirement corpus. Start &amp; increase your mutual funds SIPs, PPF or PF contribution today to save for your rainy days.

If you plan well, execute well, then you can celebrate Diwali way much bigger than what you can now and your savings and returns on your investments will become a bonus for yourself for not only during this Diwali but also for the upcoming many more Diwali’s to come.

Rishabh Parakh is a Chartered Accountant and the Chief Gardener &amp; Founder Director of Money Plant Consulting, a leading Tax &amp; Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at&nbsp;<a href="http://www.mangoinvestor.com/" rel="nofollow" style="list-style-type:none;" target="_blank">www.mangoinvestor.com</a>.

How to give yourself a bonus this Diwali

India is a developing economy and to become the superpower what we are touted to become our government needs to continuously fund various activities and a major part these funds comes in the form of tax collections. Hence, the government under its power through Constitution levies the taxes &nbsp;in mainly two forms i.e. Direct Tax and Indirect Tax. In this book, we are going to understand Income Tax, a part of direct tax and how it impacts the lives of a salaried person.

As we all know, Income Tax has never been a pleasing term for any Taxpayer, after all who wants to share a pie from his hard earned income with anyone? So, though not all but may citizens are reluctant to pay taxes and always keep finding ways to avoid it. While doing that, they may end up opting for ways which can lead to following unlawful or illegal ways of savings taxes. We can divide these tax saving activities to reduce tax liability in to three different terms i.e. Tax Planning, Tax Avoidance and Tax Evasion. Let us understand the difference between these three terms:-&nbsp;

Though the purpose of doing any of these exercise is to reduce taxes and quite often these terms are used as synonym but all the three terms are different and should not be used in context to one another. There is always a great confusion in deciding what can be termed as tax planning, avoidance or evasion, so let us demystify the same as follows:- 
&nbsp; 
Tax Planning

In a very simple term, tax planning is an art to reduce your tax outgo by making sure that all the applicable provisions of our income tax act as designed to reduce your tax liability has been availed of. Tax planning ensures the optimal minimization of the tax liability within the law frame and it also takes care of your short and long term financial planning. Hence it is a continuous process as followed with a detailed analysis of your current financial position and future financial goals with a blend of Tax saving perspective. There are many tax provisions like section 80C, 80D or claiming the benefits of HRA, LTA claims etc. It is highly advisable to do your tax planning so that you can save every penny possible as allowed within the framework of our law. 
&nbsp; 
Tax avoidance

Tax avoidance is an exercise undertaken by the taxpayers to use the loopholes of our tax laws for reducing his or her tax liability. Though the entire exercise is always within the framework of our law and is legal but it kills the very basic purpose &amp; spirit behind making any law. There is hardly any difference between tax planning and tax avoidance except the fact that tax avoidance is not what our government expect us to do follow and they keep plugging the loopholes from time to time and every taxpayer is advised to refrain from doing this.&nbsp; 
&nbsp; 
Tax Evasion

Tax Evasion happens, when any person tries to reduce his taxes either by increasing the amount of available deductions, benefits or exemptions or decreasing their income by under reporting. It is completely illegal and anti-national act. To deal with such activities, Income Tax Law have made strict provisions imposing heavy penalties or even put the tax evaders behind the bars. 
&nbsp; 
How to avoid this dilemma of doing your tax planning, the legal way?

As stated above, always resort to saving your taxes by doing the tax planning and in order to do that, you need to be aware of the various Exemptions, Deductions, Rebates and Reliefs as provided under income tax act. To make the most of it, you need to arrange your financial transactions and affairs in such a manner that without overruling any of the provisions of our law, you still maximise various benefits.

Rishabh Parakh is a Chartered Accountant and the Chief Gardener &amp; Founder Director of Money Plant Consulting, a leading Tax &amp; Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at <a href="http://www.mangoinvestor.com/" target="_blank">www.mangoinvestor.com</a>.

Tax planning is an art to reduce your tax outgo by making sure that all the applicable provisions of our income tax act as designed to reduce your tax liability has been availed of.


Difference between Tax Planning, Tax Avoidance & Tax Evasion!

The number of folios in the mutual fund investments have increased manifold specially post demonetisation and there are many reasons for the same.

Some of these reasons are, the huge cash deposit in the system which cannot be used for making FDs due to the much reduced rate of return apart from the stagnant returns over the past many months from the property market and gold, which has made them an unattractive choice.

As you must be aware that most of the retail investors opts for SIPs i.e. Systematic Investment Plans and in this article, I am presenting some of the recent reader’s queries on investing in mutual funds SIPs and how it can help them achieve your financial goals: -

Case-1: &nbsp;I am 29 years old and can invest at around Rs. 50,000 a month in to SIPs and also plan to increase the amount by 5% every year. One of my important goal and target is to buy a second house by creating a corpus of Rs 5 crore in the next 15 years. Can you please help me plan for it by investing in SIPs? --Abhinav Ghosh

First of all, mutual funds SIP investment will surely help you achieve your financial goals, let me explain you how much corpus can be created based on your porposed&nbsp; SIP of Rs. 50,000 a month with an increase of 5% every year. Let’s assume that there would be a return of of 15% to 16% on your equity mutual fund investments via SIPs, this is based on the past returns from the mutual funds over many decades. With this run rate, you would roughly create a corpus of Rs. 3.50 Crores which will not help you achieve your desired target. Now in order to achieve your target of Rs. 5 crores, you have two choices, either to increase your planned amount for SIP to Rs. 60000/- from Rs. 50000/- &nbsp;or increase the yearly percentage rise in the SIP figure to 10% from the planned 5%.&nbsp;

You can plan to invest your SIPs in more of Mid-caps funds with a combination of some small &amp; large cap schemes. You need to monitor your investments at regular intervals and keep an eye on your targeted amount. You can invest in some of the following schemes like L&amp;T Emerging Businesses, Kotak Infrastructure, Birla Sun Life Top 100 fund, Canara Robecco Emerging Equities Fund, Mirae Asset Emerging Bluechip Fund, SBI Magnum Multicap Fund &amp; Franklin Build India Fund.

Case-2: I am a 35-year-old IT professional and my current expenses are around Rs 1 lakh a month. I plan to retire in the next 20 years so my query is to know that how much amount I would need if I want to pursue the same lifestyle post retirement. --Yash Moghe

Assuming an inflation rate of 7-7.50% annually, your current monthly expenses of Rs. 1 lakh will become around Rs. 5 lakh a month. It means that you need to generate Rs. 60 lakhs every year i.e. Rs. 5 lakh a month after 20 years, which ultimately implies that you have to create a corpus of around Rs. 12-13 crores in the next 20 years for maintaining the same lifestyle. Post retirement, your risk appetite will reduce and you may not take risk the corpus which you create i.e. Rs. 12 Crores needs to be invested in the safe investment avenues say your bank FD which can only provide you a low but safe rate of return in the range of 5-6% which also depends up on the probability of FD returns going down considerably in the coming years.

So your target is to create a corpus of Rs. 12 crores and for which, you have to start an SIP of minimum Rs. 25,000/- and increase it by an average 8-10%. So if we assume the past MF returns of 15% and what the future holds for us in terms of economic growth; then the said target can be achieved.

Rishabh Parakh is a Chartered Accountant and the Chief Gardener &amp; Founder Director of Money Plant Consulting, a leading Tax &amp; Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at&nbsp;<a href="http://www.mangoinvestor.com/" rel="nofollow" target="_blank">www.mangoinvestor.com</a>.

Rishabh Parakh