1. THE TIMES OF INDIA, AHMEDABAD
MONDAY, JANUARY 25, 201614 TIMES PERSONAL FINANCE
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THIS WEEK
Figures are % returns as on 21 Jan 2016. 3-year and 5-year returns are annualised. Source: Value Research
The 5-year returns of
Mirae Asset Emerging
Bluechip are highest
in mid-cap category
Equity: Large Cap 1 Year 3 Year 5 Year
Birla Sun Life Frontline Equity -0.81 12.99 10.54
Religare Invesco Growth Fund -8.45 14.07 10.14
ICICI Pru Focused Bchip Equity -11.86 11.58 9.97
Equity: Mid Cap
Mirae Asset Emerging Bluechip -1.77 26.59 22.35
BNP Paribas Midcap Fund -2.85 22.26 19.62
UTI Mid Cap Fund -7.23 26.18 18.43
Equity: Multi Cap 1 Year 3 Year 5 Year
ICICI Pru Value Discovery Fund -8.43 20.28 16.26
Franklin India High Growth Cos -12.93 20.57 15.32
Franklin India Prima Plus Fund -7.44 16.02 12.94
Equity: Tax Planning
Axis Long Term Equity Fund -6.67 24.11 18.24
BNP Paribas Long Term Equity -7.11 16.01 14.57
Reliance Tax Saver Fund -16.67 17.89 14.53
BEST
FUNDS
TO BUY
22%
return in
past 5 years
Hybrid: Equity-Oriented 1 Year 3 Year 5 Year
Tata Balanced Fund -4.59 16.21 13.9
ICICI Pru Balanced Fund -7.53 14.37 13.51
HDFC Balanced Fund -7.05 15.69 13.39
Debt: Income
ICICI Pru Long Term Fund 3.84 11.19 10.58
Franklin India Income Builder 7.61 9.39 10.17
Birla SL Treasury Optimizer 7.83 10.15 9.93
BABAR ZAIDI
A
majority of taxpayers want
Finance Minister Arun Jait-
ley to raise the basic exemp-
tion limit as also the tax de-
duction under Section 80C.
More than half the 829 respondents to
an online survey conducted last fort-
night wanted the basic exemption limit
to be raised to `3 lakh. Another 43%
wanted the limit to be linked to inflation
and automatically raised every year.
Only 5% of the respondents said the
basic exemption and tax deduction lim-
it should be kept unchanged.
Taxpayers are divided over what kind
of budget they want. Most taxpayers
(45.4%) want a balanced budget that
broadens the tax net without raising
taxes, but some are looking forward to
a growth budget (26.3%) while some oth-
ers want a taxpayer-friendly budget
(25%). Only a minuscule minority (3.3%)
is willing to face a belt-tightening budg-
et even though it may be harsh.
This minuscule minority may find
its wish come true this year. A `10,000
deduction translates into a loss of `3,000
crore to the exchequer. The Seventh Pay
Commission has already put pressure
on the government’s coffers so it is un-
likely that Arun Jaitley will play Santa
Claus this year. He is more likely to act
like Robin Hood. Taxpayers want Jaitley
to broaden the tax net to include rich
farmers. Almost 40% also want a fourth
tax slab of 40% for those earning more
than `40 lakh a year, while another 27%
want an inheritance tax on wealth be-
yond a certain limit.
We reached out to experts from the
financial services industry for sugges-
tions on the budget. Most of the experts
want the investment limit raised. “The
Indian investor’s equity allocation is
very low and the budget should address
this serious issue. We are hoping for a
separate `50,000 limit for ELSS funds,”
says A. Balasubrahmanian, CEO Birla
Sunlife Mutual Fund. Others have
sought new tax deductions and more op-
tions for retail investors. There are also
suggestions for amending the tax rules
for key goals such as retirement plan-
ning and education savings for children.
Here are 10 such ideas that would be
beneficial for investors and taxpayers.
Make NPS income tax free
The National Pension System (NPS) is
a very good tool for retirement planning
but the tax treatment is not favourable
to investors. Right now, the scheme is
treated as Exempt Exempt Tax (EET).
“This is at a sharp disadvantage to the
other major retirement products such
as the EPF and PPF,” says Dhirendra
Kumar, CEO of Value Research. The
budget should give EEE status to the
NPS to encourage retirement savings.
Last year’s budget had introduced
an additional deduction of `50,000 for
Do the math. Compute how much you will need after retirement,
taking into account living expenses, medical expenses and inflation.
Start now. Begin to save for retirement at an early age and allow
the magic of compounding to work its wonders. To begin with,
make a habit of saving at least 10% of your income for retirement.
As your income increases, increase your contribution towards
retirement. Gradually, as a rule of thumb, you should be saving
40-50% of your income when you hit the peak of your earnings.
Make a household budget and a saving plan and stick to it.
Establish an automatic investment plan.
Don’t withdraw from the retirement corpus before retirement.
This will hamper the compounding and amount to a serious
shortfall at retirement.
Dos and don’ts for retirement planning
SMART THINGS
TO KNOW
1
2
3
4
5
In 40s, focus on earnings
As you pursue your career and earnings peak, continue
to save and invest so that your wealth grows too
UMA SHASHIKANT
T
heworryingcouplenudgingthe
40s is one of the most common
types that I meet when I speak
to investors. Most of them are
very successful professionally.
They, however, seem singularly unhappy
with the state of their finances. There is
a dominant sense of regret, of not doing
enough. Or there is dissatisfaction that
they have not been involved in financial
mattersastheyshouldhavebeen.Orthey
feel they do not know enough to act deci-
sively as they do in their professional
lives. Here are some action points.
First, acknowledge that the best is yet
to come. Except for the few who became
CEOs and business owners in the 30s, for
most salaried and self-employed profes-
sionals, the peak incomes happen in the
40s and 50s. If you have the qualifica-
tions, skills and experience, your career
will take off in your 40s. By the time you
are 45, most of you should be earning
enough to stash away a lot for yourself,
your kids and your future. So focusing
on your career with little time for any-
thing else, including personal finance
and investments, is quite all right. Keep
and sharpen that focus on earning.
Second, increase your saving rate each
year. The 30s are the toughest times for
most. There are EMIs to pay, expenses on
kids and the family, growing lifestyle ex-
penses and the salary seems inadequate.
What is important is that you increase
the savings rate to at least 25-30% of your
income by the time you are 40 years old.
Women who fell off the career map to
care for kids, should be back to pursuing
a career; home EMIs should already be
over or closed; holidays should now be
streamlined to twice a year aligning with
the school breaks; and spends on the
house, car and clothes should be reined
in. If you don’t have a saving habit by 35,
and are not ready to increase it aggres-
sively each year, you might be in trouble.
Third, invest for growth not income.
Many young couples who have not spent
time on understanding how their financ-
es should be managed end up choosing
conservative and low-risk investment
options. They typically have income-
oriented investments like PPF, bank de-
posits and insurance. If you are bringing
home a regular income and have a sur-
plus to save, you are the income-earning
asset. Your household needs growth and
capital appreciation. You need equity
investments. Do not short-change your
wealth by choosing dividend options and
government saving schemes and poorly
designed insurance policies. Choose di-
versified equity funds. An equity portfo-
lio is the surest way to sizeable wealth.
Fourth, invest big to make a difference.
I find many investors choosing SIPs of
`5,000 or less. If you have two earning
members, your home should run on one
salary and the other salary should be
saved away in SIPs. Investing small sums
in this and that, or writing small cheques
worrying about risks, are all counter-
productive. A mutual fund portfolio is
already well diversified, holding 50-60
stocks or securities, across sectors and
companies. Choose your funds and invest
large amounts to build wealth. Make
these choices early on in the year, and
keep investing whenever you can.
Fifth, do not buy that second house or
that plot of land. If you like a bigger
house that reflects your current econom-
ic status, move up from the smaller house
you have been living in, sell it, seek more
loans and move up. Don’t keep both hous-
es. Invest instead in financial products.
They are easy to liquidate, use, transfer
and divide. Your career may require you
to move. You may decide to quit and begin
something on your own. Your children
may decide to work and settle in another
country. The 40s and 50s will bring chang-
es in your life that you may not have im-
agined. Allow yourself the flexibility to
use your assets the way you wish, and to
be able to tap into them when you wish.
Residential property won’t cut it, and
take my word you will never sell it.
Sixth, make mental budgets and limits.
Very few actually keep money accounts
even with technology-enabled tools.
Make rules instead that enable you to
limit the expenses on heads that drain
your income. If you take 4 weeks off out
of 52-work weeks for holidays, you should
not be spending more than 8-10% of your
annual work income. Limit the routine
spending on a monthly basis to not over
50% of your income. Allowing 10-20% for
extra spends and unexpected events, you
still save 30-40%. Do not allocate too much
to your business, much as you love it and
are confident it will do well. Set broad
limits for big ticket expenses and stick to
them. Do not overdo credit cards and
personal loans. By the time you are 45,
you should be ideally debt free.
Seventh, do not romanticise early re-
tirement. You will be bored trying to fish,
trek and relax. The craving to run away
from it all comes from your dislike for
what you are currently doing. Take
breaks from work to pursue other hob-
bies. If you have to stop working, find
that alternate career that will not seem
like work. Set up that business venture
that frees you from what you hate doing,
to being able to do what you like, so you
don’t have to retire. Do not shift mind-
lessly from the tyranny of a bad boss to
the tyranny of demanding clients and
employees. Entrepreneurship is not for
everyone. Ensure that you are able to
secure and grow your income and wealth
in your new venture, and be prepared to
quit and return if so required.
The 40s is a wonderful time of your life
when you have the energy and enthusi-
asm for change and challenge. Keep the
focus on earning. Systematise and auto-
mate the saving and investment tasks so
that wealth building happens aggres-
sively in the background, while you are
fiercely pursuing your career and profes-
sional goals.
The author is Chairperson, Centre for
Investment Education and Learning
Taxpayers want a balanced budget, lower taxes
Most respondents to an online survey wanted the basic exemption and Sec 80C limit raised
investments in the NPS. Mutual fund
want to be part of this as well. “The
additional investing limit should also
include pension products from mutual
funds,” says Chandresh Nigam, man-
aging director of Axis Mutual Fund.
Remove RGESS restrictions
The RGESS was designed to attract
small investors to equities, but its re-
strictive nature has prevented it from
making a meaningful impact. The
scheme offers deduction under Section
80CCG to ‘first-time’ retail investors
with an annual income of not more
than `12 lakh. Also, the deduction is
only 50% of the invested amount, up
to a maximum of `50,000. “The Budget
should remove these restrictions and
make the scheme more broad-based,”
says Prableen Bajpai, director of Fin-
Fix research and Analytics. There is
Wishlist for the Budget 2016
Here’s what experts and taxpayers want from finance minister Arun Jaitley’s third budget
also a need to encourage long-term
investments in equities. “The Budget
should introduce a deduction for SIP
investors,” says Manoj Nagpal, CEO
of Outlook Asia Capital.
Tax benefits on home insurance
Several natural calamities damaged
property and assets worth crores in
different parts of India in recent
years, but barely 1% of those assets
were insured. “It is ironical that in-
dividuals who insure their factories
and automobiles do not feel the need
to insure their homes against calam-
ities,” says Tapan Singhel, managing
director and CEO of Bajaj Allianz
General Insurance. Singhel believes
that if tax benefits are extended to
home insurance, people will be more
willing to buy this critical cover.
Home loan, reverse mortgage rules
One critical change that tax experts
want in the budget relates to the de-
duction on home loan interest. Under
the existing rules, interest of up to `2
lakh paid on a home loan is deducti-
ble if the taxpayer gets possession of
the property within three years of
taking the loan. However, most hous-
ing projects get delayed, which may
lead to the buyer losing the tax ben-
efit for no fault of his. The total tax
benefit then gets reduced to `30,000.
“Given that the intent behind this tax
benefit is to support housing, the de-
duction of `2 lakh should be allowed
if the delay is from the builder’s end,”
says Archit Gupta, co-founder and
CEO, Cleartax.
Similarly, reverse mortgage is a
useful tool for unlocking the value of
real estate assets. Unfortunately, too
many conditions have narrowed
down the scope of reverse mortgage.
“The Budget should relax the mini-
mum age of borrower from the cur-
rent 60 years as also remove the
clause on self-occupied property,”
says Sukanya Kumar, director of Re-
taillending.com. The loan-to-value
ratio of reverse mortgage should also
be freed from capping. “Calculating
it on the basis of the current market
value of the property is unreasona-
ble,” adds Kumar.
Revise limits or remove deductions
Jaitley and his team should also con-
sider removing the web of exemp-
tions and deductions, many of which
have not been revised for decades.
The education allowance for children
stands at `100 per month per child.
Under Sec 80GG, a taxpayer who does
not get HRA as part of his compensa-
tion can claim a maximum tax deduc-
tion of `2,000 a month. “This capping
of the deduction is unfair. The Budg-
et should raise the limit to at least
`10,000 a month,” says financial plan-
ner Bhuvana Sreeram.
What type of Budget would you prefer?
45.4%
26.3%
25%
3.3%
Balanced Budget
that broadens the
tax net without
raising tax ratesBelt tightening
Budget even
though it may
be a little
harsh.
Growth Budget that offers
incentives to corporate
sector and boosts economy
Taxpayer friendly Budget
even though it puts pressure
on government finances
The online survey
had 829 respondents
from all income
levels. 95% of them
were male.
The basic tax exemption limit should be ...
50%
Raised to `3 lakh
for all taxpayers
below 60
2%
Raised to `3 lakh for
female taxpayers
(below 60)
43%
Linked to inflation and
raised automatically
every year
5%
Kept unchanged at
`2.5 lakh for
taxpayers below 60
The tax
saving limit
under
Sec 80C
should be ...
49%
Doubled to `3 lakh
for all taxpayers
22%
Raised to `2 lakh
for those below 60
23%
Linked to income,
with higher limit
for high-income
taxpayers6%
Kept unchanged
at `1.5 lakh
SAY 14% SERVICE TAX
RATE IS VERY HIGH AND
SHOULD BE REDUCED
73%
Taxes that
should be
removed
5%
Taxes that
should be
introduced
Inheritance
tax on wealth
beyond a limit
Luxury
tax
40% tax slab for
incomes above
`40 lakh a year.
Capital gains tax
on long-term
gains from equity
investments.
Tax on
agricultural
income
Dividend
distribution tax
27%
39%
11%
24%
28%
37% 29%
Securities
transaction
tax
Tax on
gifts
Figures are % of respondents
Make NPS income tax free
“When an investor withdraws the corpus
after retirement, he will be taxed. NPS
should be tax free like EPF and PPF.”
DHIRENDRA KUMAR, CEO, VALUE RESEARCH
Revamp RGESS to attract investors
“It has not clicked because only ‘first-time’
investors earning less than `12 lakh can
join. These restrictions should be removed.”
PRABLEEN BAJPAI, DIRECTOR, FINFIX RESEARCH & ANALYTICS
Tax sops for home insurance
“It might act as an impetus for people to buy
this critical cover. If a calamity occurs, they
won’t have to sell assets to make ends meet.”
TAPAN SINGHEL, MD & CEO, BAJAJ ALLIANZ GENERAL INSURANCE
Incentives for reverse mortgage
“The minimum age of a borrower should
be relaxed from 60 years and the clause on
self-occupied property should be removed.”
SUKANYA KUMAR, DIRECTOR, RETAILLENDING.COM
No penalising home buyers
“Why should buyers lose the tax benefit if
projects don’t get completed within the
three-year deadline? It’s not their fault.”
ARCHIT GUPTA, FOUNDER & CEO, CLEARTAX.IN
Link tax sops on life plans to tenure
“Tax exemption is given if the life cover is at
least 10 times the annual premium. The tax
exemption should be based on the tenure.”
RAJESH SUD, MD AND CEO, MAX LIFE INSURANCE