Personal Finance For Starters

Personal Finance for Starters (For Newcomers)‏
By : Manish Chauhan
http://www.jagoinvestor.com

Agenda
Section 80C
HRA
HRA Example
LTA and Medical Exemptions
Tax Calculations
Tax Slab and example
Power of Investing Early
Understanding Equity and Debt
Investments Options
What is Insurance
Insurance Options
4 most important things
Objective of the session To make you understand basic concept of Investments and Taxation

Section 80C
.
Govt says that if you invest in any product covered under Sec 80C, you do not pay tax on that amount subject to limit of Rs 1.0 Lac + 20,000 in investment bonds . Under Sec 80C - Mutual Funds (ELSS) - PPF and EPF - 5 yrs Fixed Deposits - ULIPS / ULPP - NSC - Life Insurance Premiums - Home Loan Principle amount

HRA HRA you can claim is minimum of - The actual amount of HRA received. - 40% of salary (basic component + dearness allowance). This increases to 50% if you are renting out the house in Delhi, Mumbai, Chennai or Kolkata. - Rent paid minus 10% of Salary (basic component + dearness allowance)‏

HRA Example Basic salary of Rs 40,000 per month Rent : 20,000 pm : Mumbai Actual HRA : Rs 25,000. These values are considered to find out his HRA tax exemption: a) Actual HRA allowance from the employer, i.e. Rs 25,000, b) 50% of the basic salary as he resides in a metro (else 40%), i.e. Rs 20,000 c) The actual rent he pays for the house from which 10% of his basic pay is deducted, i.e. Rs 20,000 - Rs 4,000 = Rs 16,000 Actual HRA exemption : Mimimum of a , b, c = 16,000

LTA and Medical Reimbursment
LTA
Limit of Rs 50,000 per year
It can be claimed 2 times in 4 yrs block
Block is decided by Govt , the current block is 2006-2009 .
You must be on leave while travelling
Medical Bills
Limit of Rs 15,000 per year
Doctors Visit fees and Medical Bills

Calculating Tax Taxable Salary = Gross Salary – Exemptions – Deductions Exemptions - HRA - Gratuity - LTA - Medical Bills - Transport Exemption (800 pm) - Interest for Home Loan (sec 24)‏ - Others Deductions - Investments under Sec 80C - Medical Insurance Premium (80D)‏ - Education Loan Interest (80E)‏ - Donations (80G)‏ - Medical for Handicapped Dependent - Others

Tax Slab and Example Tax Slab (2010-2011)‏ Upto 1.6 Lacs : No tax 1.6 lacs – 5 lacs : 10% 5.0 – 8 lacs : 20% 8 lacs + : 30% Exemption Limit Men = 1.6 lacs Women = 1.9 lacs Senior Citizens = 2.4 lacs Example Taxable Salary = 5.4 Lacs Upto 1.6 lacs = 0 From 1.6 – 5.0 = 34,000 (10% of 3.4 Lacs)‏ From 5.0 – 5.4 = 8,000 (20% of 0.4 Lacs) Total = 42,000 Note : Rs. 20,000 tax exemption will be provided for investments in certain investment bonds. This is in addition to the already allowed exemption (Rs. 1,00,000) in certain savings instruments.

Power of Early Investing Ajay starts investing 3,000 per month at 25 till 60 Investment : 12.6 lacs Corpus : 1.95 crore Robert is late and starts investing 6,000 when he is 35 till 60 Investment : 18 lacs Corpus : 1.15 Crore

Power of Early Investing Ajay invests 5,000 for 10 yrs and stops for next 25 yrs . Investment : 6 lacs Corpus : 1.97 crore Robert is late and starts investing 5,000 when he is 35 till 60 Investment : 15 lacs Corpus : 1.52 Crore

Understanding Equity and Debt Debt - Loan - Fixed Returns - For Short Term - Bank FD , Govt Bonds, Liquid Funds Equity - Ownership - Risky - Excellent Return in long run - Risk goes down in Long Run - Shares and Mutual Funds - Equity gives Returns

Investment Options Equity Diversified Mutual Funds: Track Record High Returns over long term , Extremelly tax efficient . Balanced Mutual Funds : For people who want to take less risk than Diversified Mutual Funds . ULIPs : Only for Long Term investors and smart people who can use switching at right time with discipline and under the importance of Asset Allocation . PPF : Very Important for long term , 100% secure debt portfolio . Can not be used in Legal proceeding too . Pension Plans (ULPP's) : Can be used for Retirement . Same structure as ULIPS for Investments . Fixed Deposits : You know in advance the return you are going to get . NSC/KVP/RBI Bonds/Endowment Plans : I am not excited with these

What is Insurance
Why
- Cover Life and Health risk
- Security to Family

Why Not
- For Investment
- Only for Tax Savings (should not be the primary reason) .

Misellings
- No proper information given
- For meeting sales targets
- No proper products sold because of personal benefits like commissions.

Insurance Options
Endowment or Money back Plans
- Safety
- very less returns (5.5 - 6%)
- No ability to fight Inflation
Term Insurance
- Only Life Cover provided without Returns
- very cheap premium
- Recommended for everyone
ULIPS
- Long term Products (10+ yrs)‏
- Complex a bit and advised for someone who can utilize the features like Switchings .

4 most Important things Return : Good and Resonable Returns which can meet your financial goals Risk : Should cover overall risk factors like Life, Health, any other Liquidity : This means availibility of money anytime you need it . It should be atleast 3-4 months of Expenses Simplicity : Your overall Financial Life needs to be simple enough for you to understand it . Simple is best Your Financial Life

Demat and Trading Account

Additional Readings
5 Elements : http://www.jagoinvestor.com/2008/10/5-elements.html
Pillars of Success : http://www.jagoinvestor.com/2008/10/pillars-of-success.html

Power of Compounding and Early Investing : http://www.jagoinvestor.com/2008/01/power-of-compounding-and-early.html

Creating Long term Wealth : http://www.jagoinvestor.com/2008/08/creating-weatlh-we-are-going-to-discuss.html

Diversification of Portfolio : http://www.jagoinvestor.com/2008/04/what-is-diversified-portfolio-and-how.html

How to do your own Financial Planning : http://www.jagoinvestor.com/2008/05/factors-to-consider-while-doing.html

Early Investor , Smart Investor : http://www.jagoinvestor.com/2009/02/early-investor-smart-investor.html

How to choose a Mutual Fund : http://www.jagoinvestor.com/2009/01/what-to-look-for-while-choosing-mutual.html
Portfolio Rebalancing : http://www.jagoinvestor.com/2008/07/portfolio-rebalancing-today-i-am-going.html

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Personal Finance For Starters

by Manish Chauhan on Jul 12, 2009

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Personal Finance For Starters — Presentation Transcript