The beginning of a new financial year is a great time to evaluate your investment portfolio once again. Financial experts advised reviewing all of your investments at least once a year to know whether it is performing according to your financial goals or not. So, April is just the right time.
“It’s never too late to do the right thing.” ― Nicholas Sparks
If you are waiting to make proper investment planning, then a new financial year could be a right push for you. Various investment tools are available in the market. So, start saving, investing, planning and evaluating your financial portfolio.
In this article, we will discuss seven smart money moves. Certainly, it will help you to stay financially fit from the start of the new financial year 2019-20.
1. Start ELSS Funds
You can save your tax and plan accordingly from the starting of the new financial year. SIP in the ELSS or equity-linked savings scheme is the best solution for tax saving planning.
An ELSS fund is a kind of equity mutual fund where a minimum 80% of its total assets invested in equity and equity-related financial instruments with 3 years lock-in period.
Moreover, ELSS qualifies for a tax exemption under section 80C of the Income Tax Act that allows a maximum tax exemption of Rs. 1,50,000.
Read also:Capital Gain Tax – STCG & LTCG
Now the best part. Why choose ELSS as the most suitable solution? Let’s understand this by comparing with other tax saving instruments on the basis of return and their respective lock-in period.
|Investment Options||Lock-in Period||Return (per year)|
|Fixed Deposit(With tax excemption)||5 years||6.50%-8.25%|
|Public Provident Fund||15 years||7-8%|
|National Savings Certificate||5 years||7-8%|
|National Pension Scheme||Till retirement||8-10%|
So, ELSS funds become the most preferred tax saving and wealth accumulation investment option nowadays.
Consequently, returns on ELSS funds are subject to a long term capital gains tax (LTCG) at 10%. However, LTCG taxes up to Rs.1 lakh per year are exempt.
Certainly, the risk involved with ELSS looks higher when you compare with FD or PPF but in a similar way the returns are potentially higher as well.
2. Open NPS Account
NPS or National Pension System is a pension cum investment scheme launched by Government of India.
You will get the following benefits after opening an NPS account,
- This scheme is available for all Indian citizens under the age group of 18 to 60 years.
- The scheme comes with a wide range of investment options.
- NPS is a flexible investment plan. So, you can easily switch from one investment option to another or from one fund manager to another under NPS regulations.
- The NPS is a portable scheme. Therefore, you can operate from anywhere.
- NPS regulated by the Pension Fund Regulatory and Development Authority (PFRDA) that involves transparent investment norms.
- The maintenance charges are very low compared to other pension schemes.
- NPS scheme helps to plan your retirement, and you can be sure of receiving assured returns at retirement.
- Most importantly, NPS subscriber can get tax benefits under section 80C of the Income Tax Act. It provides an additional deduction of Rs. 50,000 under Sec 80CCD (1b).
- Earning potential of NPS is higher compared to other instruments for retirement savings.
Therefore, NPS is a perfect solution for retirement planning with reasonable market-based returns.
So, if you do not have the NPS account, then it is the right time to start. You can quickly open NPS account online by visiting eNPS website. If you are KYC compliant and have a Netbanking account, then log on to the NPS portal and follow the instructions to open an eNPS account.
3. Start VPF
A VPF or Voluntary Provident Fund is an extension of the EPF (Employees’ Provident Fund). The VPF scheme is available only to the salaried employee. The interest rate in VPF is same as the EPF.
VPF is the voluntary fund contribution from the employee towards his provident fund account.
Your employer contributes 12% of your basic salary including DA (Dearness Allowance) into your EPF. So, you can afford more than that. 12% contribution is compulsory. But you can contribute 100% of basic salary and DA.
The VPF has the following benefits that you must know.
- VPF is a risk-free, long-term and government-sponsored investment option.
- The VPF is an excellent tax saving option and falls under the EEE category (EEE – exempt on contribution; exempt from the principal; exempt on interest).
- A contribution up to 1.5 lakhs per annum in VPF. This interest is exempt from tax under Section 80C. So, it makes higher returns in a long-term savings perspective.
- At any time you can withdraw the accumulated money from VPF.
- If you continue your service for more than five years, the earnings from VPF after maturity will be tax exempted. But, if you leave your job before five years, then the maturity amount will be taxed.
- You can apply for a personal loan against the funds accumulated.
- So, for the top tax bracket employees, VPF is highly recommended.
- Employee’s Aadhar Card linked with VPF account. Therefore, it is easy to transfer from one employer to another.
- Assuredly, against inflation VPF is considered as a great tool for anyone.
In conclusion, VPF is very popular and appropriate savings schemes for risk-averse salaried people. The VPF interest rates are really good nowadays – 8.65%.
4. Submit Form 15G, 15H
The form 15G and form 15H you can submit to make sure TDS (Tax Deducted at Source) is not deducted if your total income is below the taxable limit. Most of the banks allow submitting these forms through their online portal.
Moreover, form 15H is for senior citizens who are 60 years or older. Whereas, form 15G is for everyone else.
Consequently, in the following cases, you are eligible to submit form 15G.
- You must have a PAN card.
- If you are an individual but not a company or a firm.
- Only for resident Indian.
- Tax calculated on your total income must be NIL.
- The gross annual interest must be less than the basic exemption limit – Rs. 2,50,000 of that financial year.
In the recent interim Budget the TDS threshold for bank and post office deposits raised from Rs 10,000 to Rs 40,000. Similarly, TDS threshold for senior citizens is at Rs 50,000.
Under Section 87 you are eligible for no tax if the taxable income is below Rs 5 lakh. So, if your income from interest is less than Rs 40,000 and the total income is below the basic exemption of Rs 2.5 lakh, you can submit the Form 15H or 15G with the bank. This should be done in the first week of April to avoid TDS.
Hopefully, the following examples will simplify more the concept of Form 15G and Form 15H.
|Perticulers||Mr. Anil Mohanti||Miss. Ahana Roy||Mr. P. Krishnamurti||Mrs. Nilam Ahmed|
|Age||40 years||23 years||64 years||68 years|
|Income from Interest||Rs. 85,000||Rs. 2,60,000||Rs. 1,80,000||Rs. 3,30,000|
|Gross Income (before allowing section 80 deductions)||Rs. 2,65,000||Rs. 2,60,000||Rs. 2,80,000||Rs. 3,30,000|
|Deductions under section 80||Rs. 45,000||Rs. 30,000||Rs. 10,000||Rs. 55,000|
|Taxable income||Rs. 2,20,000||Rs. 2,30,000||Rs. 2,70,000||Rs. 2,75,000|
|Minimum exempt income||Rs. 2,50,000||Rs. 2,50,000||Rs. 3,00,000||Rs. 3,00,000|
|Eligible for Form 15G submission||Yes||No||No||No|
|Eligible for Form 15H submission||No||No||Yes||Yes|
|Explanation||Since, Mr. Anil Mohanti ‘s age is below 60, total tax is NIL and income from interest is less than minimum exemption limit. So, he is eligible for form 15G.||Ahana’s income from interest is more than the basic exemption limit. So, she is not eligible for Form 15G.||Mr. Krishnamurti’s age is more than 60 years and tax calculated on total income is nil. So, he is eligible for form 15H.||Mrs. Ahmed’s age is more than 60 years and tax calculated on total income is nil. So, she is eligible for form 15H although interest income exceeds basic exemption limit.|
5. Start Health Insurance
Health insurance provides anyone a much needed financial backup at times of medical emergencies. Nowadays, with the constantly increasing prices of healthcare and rising instances of diseases, health insurance is essential.
There are different types of health insurance plans, like individual health insurance, family health insurance, critical illness insurance, etc. available. Therefore, purchasing health insurance is an integral part of financial planning.
Here are some reasons why you must have health insurance as early as possible.
- If you are insured, you can avail cashless treatments.
- Most of the insurance policy covers pre and post hospitalization charges up to a certain period.
- Moreover, health insurance policies offer annual health checks ups facility that encourages health awareness.
- Most importantly, the premium paid on health insurance is eligible for tax deduction under section 80D of the Income Tax Act.
- Subsequently, buying health insurance at a young age provides a more comprehensive deal. So, there is less possibility of preexisting diseases as you covered early, and any diseases diagnosed later will be covered automatically.
So, think about yourself and your family and start one health insurance, if you haven’t already.
6. Set up an Emergency Fund
Everyone must have an emergency fund, whatever the monthly income is. Most of the people ignore this point or left it for the future.
But, we must sincerely consider the positive side of having an emergency fund that you can access at short notice without disturbing other long-term investments.
- An emergency can strike at any time and then quickly access is crucial.
- This financial buffer can avoid borrowing or take out high-interest loans.
- Savings for an emergency fund will make a habit of saving regularly.
According to the experts, the emergency fund should be equal to 4-6 months’ household expenses.
7. Monitor Cash Flow
“A budget is telling your money where to go instead of wondering where it went.” –Dave Ramsey
“It’s not your salary that makes you rich, it’s your spending habits.” –Charles Jaffe
These two famous quotes always motivate me.
Mostly, we find investment is difficult because of the lack of idea about how much can save. Most of the people do not monitor their expenditure, and as a result, they do not know how much they spend in a month or a year.
Above all, if you track your payments, only then you can identify the unnecessary expenses.
So, you must monitor your
budget. Cash flow monitoring is the first and crucial step to have a good
“Planning is bringing the future into the present so that you can do something about it now.” – Alan Lakein
Therefore, the start of a new financial year is a good time to review your investment portfolio and sync it with your financial goals. It will help you to be on the right track from the very beginning.
Certainly, financial planning is not a one-time process. So, you must keep revisiting to evaluate it wisely.
Automatically, it will give you the perfect opportunities to sort your life on the personal front and help you to fulfill your resolutions.
Well, this is from my side. Do you have any other worthy ideas for this new financial year? Please share with us.