Personal Musings

This blog is intended to be just a jumble of thoughts that hit me and need not necessarily mean anything.

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Location: Kerala, India

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Saturday, April 01, 2017

New Financial Year.

First of all, a very happy new year.  No, I am not talking about a new calendar year. Today marks the beginning of the new Financial Year(FY17-18). In salaried man's terms, this is the year that we use for taxation purposes. (This use of a different financial year that starts at an awkward April 1 is just ludicrous. We should either start the fiscal year with the beginning of Gregorian year or with the start of the Saka year. But this is a different discussion.)

Most of you have just somehow managed to complete the tax requirements for the last FY, FY16-17 for which we will file returns in another 2-3 months. If you were like me in my younger years, you will probably have no money, not much bank balance to talk about, extra deductions  from salary in the last two months to ensure correct TDS has been deducted and mostly cursing yourself for spending too much money in the last two months. Can we decide to not repeat the mistakes for this new year.

Most of us have very badly timed insurance payments. We all have "helped" a friend meet his targets at the end of financial year. The amount is going to be small, but there would be so many LIC(it's usually LIC) policies. There is bound to be the last minute PPF payment, then an emergency 5-year tax saving FD just to cover up.

Why haven't I talked about ELSS? AFAIK, no colleague of mine have an ELSS.

Commonsense says, you are only going to pay a 10 or 20%  tax. It's cheaper to pay Rs. 20,000/- as tax rather than locking one-and-half lakh in some longer term deposit. I had a friend who used to be in perpetual fiscal trouble, who just paid the tax. Ten years later, all his loans had shifted to Bank loans instead of personal loans from relatives. For a person like him, it made more sense to payback high interest loans(what we call as blade rates). For such cases, it's just cheaper to pay taxes.

Rest of us can resolve to be a bit more prudent from this fiscal year.

PPF is one of the best places to park your money and reduce your taxes. This article talks a bit about PPF and why it's coveted. The article also talks about the new changes. Earlier PPF rates used to be fixed for the whole year. Now, the PPF rates are going to be revised every quarter. Basically, it makes more sense to put money in PPF at least once in three months now instead of paying everything in February or March. I have a friend who puts money every month. He says that its easier that way as money is automatically transferred via a standing instruction(SI). Best savings according to him are the ones that you yourself aren't that aware of. In my case, I put a Rs 5000/- earlier in the year, and additional amounts almost every quarter after my regular finance review.

Spread your insurance payments evenly throughout the year. If you choose quarterly payment, you might end up paying more towards insurance. But it's better to pay once three months instead of bearing the whole burden in one month. If you had bought too many insurance policies, converting it to a quarterly policy sounds like commonsense. As far as insurance goes, please stick to term plans. They are cheaper, saves taxes. If you want to get back money, just go for term insurance+ELSS.

SIP, systematic investment plan, is one of the best ways to put money in Equity Linked Savings Scheme, aka ELSS. This another long term investment. The only difference is that you can take out money after it has been in the ELSS mutual fund for 3 years. With ELSS, if things go horribly wrong, you might end up losing a bit of money. You to be extremely unlucky to be forced to take money with a 40% loss, as it happened in the 2008-09 market crash. But, the thing is, if market didn't really crash like that in the initial time, you would never face any loss under any rate. ELSS is not for taking money out in 3 years. It's the only tax saving instrument where you have the ability to withdraw in 3 years. Ideally, ELSS is something where you put the money for a long term, at least 8-10 years.

These are just simple methods to avoid the February-March mad rush at least in the next calendar year.

As usual, this is just personal opinion. This is not an investment advice. I am not qualified to give any investment advice. There are great professionals (CFAs CFPs) who can help fix your financial plan for an appropriate fees. They take fees, so they are not going to spoil your investments. Reputation is their main asset, and they wont spoil it.
Disclaimer: I have a decent amount in PPF. I have one insurance that I need to pay in March, rest are in January and February. I put money in one ELSS, hoping to expand it to one more this fiscal. Last fiscal I put about as much as my usual PPF. Personally, I am a big fan of five year FDs. (I am super conservative. I dont mind a base FD in a PSB at any interest rate that is +/- 200 bps from inflation as long as i have a guarantee that money wont be lost.) 


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