DV-Mint – Page 9

September 14, 2023

How to save big on your health insurance premium

Having higher medical coverage is the order of the day. That’s because medical costs are rising faster than average inflation. With medical treatment set to grow at 8.6 per cent this year, as per Global Medical Trends Survey of 2023, a hospital bill of Rs 5 lakh today will double in eight years’ time. Hence the need for higher medical coverage.

But a higher insurance policy is accompanied with affordability issues, more so because premiums increase with age. Since this can burn a hole in your pocket, we explore four options that can save a sizable chunk on your premiums.

Option 1: Basic medical policy

If health cover: Rs 15 lakh. The insurer will cover your medical bill up to Rs 15 lakh.

Option 2: Basic policy with deductible

If health cover: Rs 15 lakh; Deductible: Rs 25,000. You pay the initial Rs 25,000 before your insurance policy kicks in.

Option 3: Basic policy with super top-up

If base health cover: Rs 5 lakh; Super top-up: Rs 15 lakh. The super top-up will come into effect once you exhaust the basic plan.

Option 4: Basic policy with deductibles and super top-up

If base health cover: Rs 5 lakh; Deductible: Rs 25,000; Super top-up: Rs 15 lakh. You first pay the deductible from your pocket, then exhaust your basic policy and finally use the super top-up policy.

Now that we understand the four options, let’s consider which plans will give you significant health coverage at a lower premium. To provide a real-life example, we considered HDFC Ergo. Refer to the table ‘Four ways to get a health cover’.

Four ways to get a health cover

Clearly, the basic policy with deductibles and super top-ups (Option 4) can save you 37-39 per cent on your annual premiums compared to a vanilla health policy (Option 1). That said, each of these policies has its share of pros and cons.

Basic medical policy (Option 1)
Pros: Convenient and no complications.
Cons: Annual premiums are very high.

Basic policy with deductibles (Option 2)
Pros: 15-25 per cent lower premiums than option 1.
Cons: Need to pay deductible amount from your pocket. Not all insurers provide this option.

Basic policy with super top-up (Option 3)
Pros: 18-22 per cent lower premiums than option 1. Treated as two policies; helps you and your spouse save tax.
Cons: Super top-ups come with a few strings attached, such as limits on hospital room rent. Treated as two policies, so need to file your claim twice.

Basic policy + Deductible + Super top-up (Option 4)
Pros: Pay the most affordable premiums. Treated as two policies; helps you and your spouse save tax.
Cons: Pay the deductible amount from your pocket. Treated as two policies, so need to file your claim twice. Super top-up plans can insert sub-limits, such as a cap on hospital room rent.

What you can do

We think all four options are viable and usable. You can pick the one that suits you best.

Choose a basic health policy if you prefer convenience over cost.

Choose a basic plan with deductibles provided the limited options you get here suit you on other dimensions. For most people, a small deductible component won’t burn a big hole and yet reduce your annual premium by a considerable amount.
Additionally, a lot of people can be financially vulnerable to one major episode of hospitalisation, and that is exactly what health insurance is there for. Even though there’s a small deductible, the utility of a large health policy remains intact.

Choose a basic plan with a super top-up if you want to:
a) enhance your health coverage and protect yourself from galloping medical inflation.
b) get additional tax benefits. Since a basic plan and a super top-up plan are considered separate policies, you and your partner can individually claim tax benefits of up to Rs 50,000 (under Section 80C).The best practice is to buy a super top-up plan from the same insurer. However, check the super top-up’s fine print, as they may have certain sub-limits and clauses.

Choose a basic plan with deductibles and a super top-up if you are looking to pay the most affordable annual premium and receive benefits mentioned in the above point, but of course, with certain conditions that come attached with a super top-up plan as explained above.

Source- Valueresearchonline

September 11, 2023

Sovereign Gold Bond Scheme 2023-24 Series II opens today; all you need to know

The Reserve Bank of India (RBI) has established the issue price of the Sovereign Gold Bond (SGB) for the September 2023 series at ₹5,923 per gram. The upcoming installment of the program will be available for subscription from September 11, 2023, to September 15, 2023.

In a press release pertaining to the price, date, and other particulars of the Sovereign Gold Bond, the RBI stated, Sovereign Gold Bond Scheme 2023-24 Series II will be open for subscription from September 11–15, 2023. The nominal value of the bond based on the simple average of closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three working days of the week preceding the subscription period, i.e., September 06, September 07, and September 08, 2023, works out to ₹5,923 per gram of gold.

Buying SGBs at discounted prices

The SGB scheme is a government-backed investment instrument designed to enable investors to acquire gold without the need for physical possession. These bonds are denominated in grams of gold and are issued in multiples of one gram. The minimum investment allowed in SGBs is one gram, with a maximum limit of 500 grams per individual per fiscal year (April to March).

In collaboration with the Reserve Bank, the Government of India has resolved to provide a discount of ₹50 per gram below the face value to investors who apply online and complete the payment through digital channels. For these investors, the SGBs will be available at an issue price of ₹5,873 per gram of gold.

The SGBs come with an eight-year tenure and provide an annual interest rate of 2.5 per cent. This interest is paid twice a year, in the months of June and December. Upon maturity, the bonds are redeemed at the prevailing market price of gold.

The SGB scheme for the 2023-24 Series 2 will be available for purchase through various channels, including banks, the Stock Holding Corporation of India Ltd (SHCIL), designated post offices, and recognized stock exchanges, namely the NSE and the BSE.

This scheme is exclusively available for purchase by resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable Institutions.

Investment details

The SGB scheme imposes specific maximum investment limits based on the investor category. For individuals and HUFs, the maximum investment cap stands at 4 kg of gold per fiscal year, which runs from April to March. This means that both individuals and HUFs can invest up to 4 kg of gold collectively across various tranches during the financial year.

This investment limit applies cumulatively across different tranches within the same financial year. For example, if an individual invests 2 kg of gold in the initial SGB tranche in April, they may invest another 2 kg of gold in the subsequent tranche in May. However, the total investment within that financial year must not exceed 4 kg.

Additionally, this investment ceiling also applies when acquiring SGBs from the secondary market. If an individual buys 1 kg of SGBs from the secondary market in April, they can only purchase an additional 3 kg of SGBs from the secondary market in the same financial year.

These limitations are established by the government to curb excessive gold investments, given the volatile nature of the asset, with the aim of safeguarding investors from potential losses. If you intend to invest in the SGB scheme, it’s crucial to be mindful of these investment limits and carefully assess your financial objectives and risk tolerance before making investment decisions.

Redemption details

The redemption value of an SGB is determined based on the simple average of the closing price of gold with 999 purity over the previous three working days, as reported by the IBJA. This redemption value is denominated in Indian rupees.

To illustrate, if the closing price of gold on Monday, Tuesday, and Wednesday stands at ₹5000 per gram, the redemption price on Thursday will be ₹5000. This calculation hinges on the nominal value of the bond, which is the price at which it was originally issued.

The SGBs mature after an eight-year tenure, and they can also be redeemed prematurely, beginning from the fifth year. However, there is a penalty for early redemption. In the first year of premature redemption, the penalty is one per cent of the bond’s nominal value, and this decreases to 0.5 per cent for each subsequent year.

The SGBs represent an attractive investment avenue for those looking to invest in gold without the burden of physical possession. They provide a guaranteed annual interest rate of 2.5 per cent and enjoy government backing. Furthermore, the redemption value is tied to the prevailing market price of gold, ensuring investors receive a fair return on their investment.

Source- Mintgenie

September 7, 2023

What are the benefits of having NRI Account

Top 5 Benefits of NRI Account

A Non-Resident Indian (NRI)/Person of Indian Origin (PIO) can open NRI Account as Non-Resident External (NRE) and Non-Resident Ordinary (NRO) Accounts, which will enable an easier and convenient fund transfer for him/her from abroad to India. Both of these accounts allow the amount in foreign currency to be credited in the account. However, NRE Account does not allow any rupee credits into the account and is, therefore, suitable only if one needs to transfer overseas income and funds in an Indian bank account. It also provides you with additional benefits like repatriability, preferential tax treatment, etc.

NRI Account Benefits:

Convenient money transfers to India – Whether one has opened an NRE or NRO Account, one can deposit the income earned in overseas country in such accounts. Thereafter, the funds can be accessed through any bank branch in India as well. Accordingly, having an NRI Account in India is an easier mode of remitting money to India from overseas. Given the existing banking relationship, you can also expect competitive exchange rates for such funds transfer.

Flexibility of repatriation of funds – The current regulations in India allow flexibility in the repatriation of the balance available in NRE Accounts, for both the principal as well as interest income. In simple words, the balance in NRE Account can be transferred back to the foreign country without any restrictions. However, in case you open an NRO Account, you can transfer the interest income earned in such account without any limit, but certain limits are applicable on transfer of the principal amount as per extant forex regulations in force.

Better interest rates – The focus of the Central Banks across the globe has been to adopt the decreasing interest rate scenario, and in line with such philosophy, other banks provide very low-interest rates on the Savings Accounts. On the other hand, NRE Accounts in India tend to offer better interest rates. As such, an NRI Account can help you garner better returns for your surplus funds.

Easier operations within India – An NRI Account allows you to perform banking operations easily within India, even while you may be staying abroad. The bank will generally allow you to register the operational mandate to allow the operations of the bank account on your behalf. Such a mandate can be registered for your parents, relatives, spouse, siblings, etc. A cheque book and ATM Card can also be provided to the mandate holder, to enable easy withdrawal of the funds. Further, an NRO Account can also allow you to open a joint account with a resident Indian, allowing joint operations.

Tax exemption for NRE interest income – As per the prevailing tax laws in India, the interest income earned on NRE Accounts is not subject to Income Tax and thus remains tax-free for the account holder. Due to this exemption, the bank will not deduct any tax in respect of such interest income on NRE Savings Account or NRE Fixed Deposit. However, the exemption is applicable only for NRE Accounts and not for NRO Accounts. Accordingly, the bank will deduct tax at source for such interest income on NRO Accounts.

As such, NRIs can manage their money in a better manner through NRI Accounts and conveniently manage the fund transfer from abroad to India effortlessly.

Source: ICICIBank

September 3, 2023

Mutual funds that still enjoy indexation benefit

Ever since debt funds, international funds and gold funds lost indexation benefits – an inflation-adjusting feature that lowers tax liability – investors, especially conservative ones, have been in the dark about what to do now.

Krishnan V, one of our subscribers, is among them. He contacted us, asking if there’s a mutual fund with a 40-60 equity-debt split that also offers indexation benefits.

We hope the below table answers the question.

As you can see, balanced hybrid, multi-asset and dynamic asset allocation funds still retain indexation benefits. Let’s look at them at a glance.

Balanced hybrid funds

The equity allocation in these funds usually fluctuates between 40 and 60 per cent, activating indexation perks.

That said, there are no balanced hybrid funds currently in the market. Instead, what you have are a few solution-oriented funds. A few examples of these funds are UTI’s children’s career savings funds and retirement benefit pension funds.

Multi-asset funds

These funds invest in at least three asset classes, with a minimum allocation of 10 per cent in each.

The asset classes include equities, debt, real estate, international securities and commodities like gold and silver.

However, the equity allocation in these funds can vary widely, and the indexation benefit depends on this equity allocation. The fund receives indexation benefits only if the equity allocation lies within the 35 per cent to 65 per cent range.

So, keep a close eye on the fund’s asset allocation to ensure it qualifies for the indexation benefit.

Moreover, these fund’s decision to invest in commodities and real estate do not sit well with us. We have, for long, believed that they are not great investments in the long run.

Dynamic asset allocation (AKA balanced advantage funds)

Technically speaking, these funds can choose to have a 35 to 65 per cent allocation in equities and the remaining in debt. That said, quite a few of them have a higher equity allocation, thereby limiting the choice of conservative investors and retirees.

What got us thinking now is whether it makes sense to do a 40-60 equity-debt allocation yourself.

There are two reasons why:

There are very few mutual funds in the 40-60 equity-debt space.
We also wanted to see if the do-it-yourself (DIY) method is tax efficient.

So, we pitted UTI Children’s Career Fund – Savings Plan with a DIY allocation, and here’s what we found:

Although the DIY asset allocation option has a marginally higher tax liability, its post-tax returns are considerably higher, as shown in the above table.

There are two reasons why:

The DIY investment (40 per cent in a flexi-cap fund and the remaining 60 per cent in a short-duration debt fund) generated 9.2 per cent as against the UTI fund’s 8.35 per cent
The DIY tax liability was not too high compared to the UTI fund because flexi-cap fund gains up to Rs 1 lakh are exempt from tax.

The last word

Clearly, the DIY route makes more sense for retirees or conservative investors looking at a 40 per cent exposure to equities.

However, don’t dive into it headlong. Opt for the DIY option only if you have the knowledge and time to monitor and adjust your portfolio.

Source- Valueresearchonline

August 27, 2023

The markets they are a-reverting

Have you heard the Bob Dylan song where he explains the basic principle of investing? No? You don’t think that Bob Dylan is the kind of guy who would bother about the financial markets? You’re wrong. There’s a song where he sings at one point, “For the loser now, will be later to win.” Later in the same song, he sings, “And the first one now, will later be last”. That’s the principle of reversion to mean, explained very nicely.

So what exactly is a reversion to mean? I would have given you the dictionary definition, but since I’m trying to keep up with the times, here’s what GPT4 says it is: In finance, “reversion to the mean” refers to the assumption that the price of an asset will move towards its average price over time. If the price of the asset has been above the mean, it is expected to decrease in the future, and if it has been below the mean, it is expected to increase.

While that definition refers to stocks, it’s just as applicable to almost all financial assets, including entire markets. That’s the reason it makes little sense to get too excited about the markets zooming to all-time highs or specific parts of the markets doing fabulously well. Similarly, it’s pointless to get panicky when the markets fall too sharply. However, the problem arises because investors do not understand the underlying idea and assume that the current trend will continue. Of course, in this belief, they are aided and abetted by those who stand to make money from them.

The lure of investing in whatever segment of the market is doing well at the moment is easy to pass off as research. Professionals (brokers, advisors, fund companies) as well as individual investors, can always justify investing in an industry by pointing out that it is doing better than others, the assumption being that it will continue to do better. If this excitement sustains long enough or strongly enough, then it becomes conventional wisdom – something ‘everyone’ knows. For sectors, this happened to tech stocks back in the heady days of 1999, and we all know how that ended. Around 2005-07, it happened to a set of industries that were loosely (forcibly?) defined as infrastructure. That ended up in just as big a blowup as tech in 2001.

Meanwhile, it also happens for segments of the market, like small-caps. Small-caps are especially prone to this phenomenon because the deviations from the mean are most severe. When they do better, they do much better. It’s easy to convince investors (or it’s easy for investors to convince themselves) that this means something when it doesn’t. When a sector or a segment sustains better-than-average performance for a noticeable amount of time, a bandwagon gets created around it. Fund companies launch funds or start pushing the ones that already exist. Investment advisors start talking about it, seeing a clear short-term win if the trend holds. For a while, the trend does hold. At this point, it looks sub-optimal to invest in a diversified way. The thing to understand is that this almost always happens. Since some sector or the other is always certain to be doing better than the average, having a diversified portfolio always looks like a foolish choice.

And then, as the investment analyst Bob Dylan explains, the averages assert themselves, and the segment starts performing below average, and the returns revert to the mean. Those who join the party late are left with a negative outcome. The reversion to mean often results in the formerly best segment falling to the absolute bottom and creating losses even when the rest of the market is booming. And so it goes on, year after year, decade after decade.

The right option is to keep investing steadily, in a diversified manner, preferably through SIPs. It’s not complicated, but avoiding the hype takes effort.

Source- Valueresearchonline

August 21, 2023

NRE and NRO Accounts – Meaning, Comparison, Benefits, Taxation

NRE and NRO Accounts – Meaning, Comparison, Benefits, Taxation:

A Non-Resident Indian (NRI) may open an NRE Account or an NRO Account in India. While both accounts may be similar in a few features, they differ in some. As such, the selection of a suitable bank account is dependent upon the specific transaction requirements of the NRI. Let us discuss these bank accounts in detail.

NRE and NRO Account meaning:

NRE full form is Non-Resident (External) Account, which allows only foreign credits from outside India into the account. On the other hand, NRO stands for Non-Resident (Ordinary) Account. Such accounts allow both foreign currency credits from outside India as well as rupee credits from within India.

NRE and NRO Accounts comparison:

Here are some of the major points of difference between NRE and NRO Accounts:

Acceptance of Rupee Credits – As mentioned above, NRE Accounts do not accept rupee transactions from within India. On the other hand, NRO Accounts allow rupee transactions as well as foreign currency transactions. As such, if one wants to receive any amount from within India, NRO Accounts will be suitable for such persons, as against NRE Accounts.

Repatriability of Account Balance – NRE Account allows free repatriation of funds outside India without any limits. On the other hand, the interest income in NRO Accounts is freely repatriable, while the principal balance can only be repatriated up to specified limits.

Joint Operations – One can hold a joint NRE Account with another NRI. Also, in NRE Accounts, NRIs / PIOs can hold accounts jointly with a Resident relative on ‘former or survivor’ basis and the Resident relative can operate the account as a Power of Attorney holder during the life time of the NRI / PIO Account holder. On the other hand, you can hold a joint NRO Account with either a Resident or a Non-Resident.

NRE and NRO Account benefits:

Foreign Currency Remittance – Both NRE, as well as NRO Accounts, allow an individual to receive foreign currency credits from outside India. As such, one can open an NRI bank account and conveniently transfer funds into their account in India while staying abroad.

Mandate Holder – One can also appoint a mandate holder to the account, which adds convenience and accessibility to the operations in the NRI bank accounts. RBI has prescribed specific transactions for a Mandate Holder, hence it can be operated only with the permissible transactions.

Attractive Interest Rates – NRI bank accounts also allow better interest rates to the depositors, especially when compared to the foreign developed countries, most of which are operating on a near-zero or negative interest rates regime.

NRE and NRO Account Taxation

In terms of tax benefits, NRE Accounts enjoy tax exemption in respect of interest income on the bank accounts as well as Fixed Deposits. On the other hand, the interest income on NRO Accounts and deposits is subject to tax at applicable rates. However, one may avail of the benefit of Double Taxation Avoidance Agreements (DTAA). The DTAA benefits are subject to the relevant documentation being shared with the Bank and not by default.

While NRE Accounts offer repatriation and tax benefits, NRO Accounts are more suitable if one needs to accept rupee transactions. One may choose the account as per their specific transaction requirements.

Source- icicibank

August 20, 2023

Fake patterns in investing

Several decades back, a particular incident sparked Daniel Kahneman’s journey toward ground-breaking discoveries, ultimately leading to the birth of behavioural economics as a widely accepted field. Despite being a psychologist, Kahneman was honoured with a Nobel Prize in Economics for his pioneering contributions. However, for us investors, this story sheds light on how we can be misled into believing we are correct, even when we’re off the mark.

In the 1960s, Kahneman was a junior psychology professor at the Hebrew University of Jerusalem while having a part-time assignment of giving psychology lectures to the Israeli Air Force flight instructors. One of his recommendations was to advise instructors to praise trainee pilots for their achievements but to abstain from criticism when they erred. This approach was rooted in his psychological education and understanding.

However, the flight instructors argued that their real-life experiences taught a different lesson. They had seen that trainees often underperformed after receiving praise and improved after being reprimanded. Although Kahneman was confident in his ideas, he didn’t outright dismiss the instructors’ assertions, given their substantial real-world experience. He kept thinking it over. And then, he had the insight that set him on the path to behavioural economics.

Kahneman realised that good performance after a scolding was not a result of the scolding itself. Each pilot had a certain skill level, which gradually improved with training. Naturally, each trainee had some good days and some bad ones. These were distributed around an average that represented that trainee’s skill level. A good day in the aircraft had a higher likelihood of being followed by a bad day, and vice versa. However, because the instructors followed each day with either praise or criticism, it looked as if the feedback had a contrary impact. An almost random set of events created a powerful impression of cause and effect, which was utterly believable.

Isn’t it obvious how this has a great similarity to how we all make decisions about investments and how we come to conclusions about the impact of our decisions? The brain is an extremely powerful and persistent pattern-recognition system, to the extent that it will create believable patterns where none exist. After a few years of investing, whether in equities or equity mutual funds, all of our brains are likely to be as clouded with false conclusions and misleading rules of thumb as those flight instructors. The worst part is that, exactly like the flight instructors, we all have ‘evidence’ that our rules work. When we make bad investments, we explain them away by making more spurious connections that are, in effect, even more rules. Curiously, I find many more people who have made these little rules about timing the markets rather than identifying good investments. Everyone seems to have these signals they follow about when to buy stocks, when not to buy, and when and how to sell. Sometimes, purely due to chance, the rules appear to work, reinforcing our beliefs.

The way I have described this phenomenon, there is no solution. However, there is, and a very simple one. One word: automate. I don’t mean in the technology sense but in the sense of rule-based investing. A perfect example is investing through a SIP in an equity mutual fund.

That subjects you to an automated, rule-based system that is not amenable to the ad hoc timing you may be tempted by. For equity investing, do the equivalent. For stocks on your buy list, keep putting in a fixed amount of money at a regular period. That’s exactly the strategy we recommend in our Value Research Stock Advisor service.

Remember, the pattern recognition that serves you so well in many other aspects of life can be your biggest enemy as an investor.

Source- valueresearchonline

August 16, 2023

How does the transfer of shares get taxed?

Recently, one of our readers asked us about transferring shares. They asked, “What are the tax implications if I transferred shares to my spouse’s name? Does the spouse need to pay tax if they do not sell the shares? If I have it for a long term, when will it be considered long term after transfer?”

Firstly, you can transfer shares to your spouse or anyone else in two ways. Either you can transfer shares through a will/inheritance, or you can gift it to them.

The transfer process is simple. All it needs is simple online documentation and the usual transfer fee which varies from broker to broker, plus 18 per cent GST.

However, the tax-related implications of such a transfer can be significant and nuanced. The taxability of transferred shares depends on three major factors.

The mode of transfer
Holding period
Cost of acquisition

Let us look at each of them separately

Mode of transfer

Taxability of gifted shares depends on whether it’s a will/inheritance or a gift. Further, it also depends on who is the recipient of these shares. Let’s look at the three possible scenarios.

Transfer as a will or inheritance.
In this scenario, there is no tax liability, irrespective of whether or not the recipient is a relative.
Transfer as a gift to a non-relative.
In this case, if the aggregate value of such shares transferred in a year exceeds Rs 50,000, it becomes taxable for the recipient.
Transfer by way of gift to a relative.
There is no tax liability in this case, but the definition of ‘relative’ is quite elaborate and covers the following people:
- Your spouse
- Your siblings and their spouses
- Your spouse’s siblings and their spouses
- Your parents’ siblings and their spouses
- Your lineal ascendants and descendants, as well as their spouses
- Your spouse’s lineal ascendants and descendants, as well as their spouses

Holding period

Next, there is the consideration of the holding period.

Stocks held over the long term and short term are taxed differently. Also, if you transfer your stocks to a relative, they become taxable only when your relative eventually sells the shares.

The combined holding period is considered to decide whether the gains are long-term or short-term. It is the period for which you hold the shares before transferring them to your relative, combined with the period for which your relative holds them before they sell them.

For example, if you bought the stocks on January 1, 2022, and gifted them to your spouse on September 1, 2022 and the latter chooses to sell these shares before January 1, 2023, the combined holding period will be considered short-term (less than 12 months).

In this case, your relative has to pay a short-term capital gains tax of 15 per cent. But if your spouse chooses to sell it after January 1, 2023 – which is more than 12 months – she’d be taxed 10 per cent, provided the gains exceed Rs 1 lakh.

Cost of acquisition

Further, you need to consider the cost of acquisition.

If you transfer or gift your shares to a relative, then the cost of acquisition for your relative is the same as the cost at which you acquired the shares.
If you transfer the shares to a non-relative, and the transaction is non-taxable, then the cost of acquisition for them is the same as it was for you.
However, if you transfer the shares to a non-relative, and the transaction is taxable, then their cost of acquisition is the value of the gift, which is to be taxed.

Suppose you transfer shares worth Rs 49,999, their cost of acquisition remains the same as the cost on which you acquired the shares. However, if you transfer shares worth Rs 50,000 or more, their cost of acquisition changes to the value of the shares you gift them.

Grandfathering of gains

For those new to this term, a grandfather clause is a provision where an old rule continues to apply to some existing situations when a new rule is introduced. In all future cases, the new rule holds valid.

In this case, the grandfathering of gains applies only to equity shares and units of equity-oriented funds.

According to this clause, any long-term capital gains prior to February 1, 2018, become tax-free. However, any losses can be claimed only if they are absolute, which means if you sell your shares for lower than the buying price.

In short, grandfathering of gains boils down to what you can claim as your cost of acquisition.

Your cost of acquisition becomes the higher of
1. The actual cost of acquisition (whatever you paid to purchase the shares or units), and,
2. The lower of,

Fair market value as on January 31, 2018.
Sale consideration received.

Let’s look at three different examples that explain this phenomenon.

Case 1
Suppose you bought some shares on January 31, 2015, for Rs 10 each and sold them for Rs 100 each in 2023. You are now eligible for grandfathering of gains and do not have to pay any tax on your long-term gains up to January 31, 2018. The gains after January 31, 2018 are however taxable.

Case 2
Next, assume you bought these shares on January 31, 2015, for Rs 10 each. In 2018, their price increased to Rs 100 each, but in Jan 2023, their price dropped to Rs 20 each. In this case, while you will not have to pay any taxes, you cannot claim a loss either.

Case 3
However, if you bought these shares on January 31, 2015, for Rs 10 each. In 2018, their price increased to Rs 100 each, but in Jan 2023, their price went down to Rs five each; you could claim a loss and offset it.

You can look at your holdings and calculate how much gains are taxable.

Or better yet, head over to ‘My Investments’ and add your investments, and we will tell you what your gains are and how much tax liability you have.

Clubbing of income

Lastly, the clubbing of income provisions is applicable when income is generated from the asset transferred. In all the following circumstances, income from the asset is taxable for you instead of your relative.

1. When you transfer your assets to your spouse without adequate consideration except when,

As part of the agreement to live apart
Before marriage
Income is received when the relationship no longer exists
Spouse acquired assets out of maintenance money

2. Transfer of assets to your son’s wife without adequate consideration.

3. Transfer of assets to someone else without adequate consideration for the immediate or deferred benefit of your spouse or son’s wife.

In short, if you wish to gift wealth to your loved ones in the form of shares, you should do it with due consideration to the various nuances of taxation.

Source- Valueresearchonline

August 12, 2023

High returns or Appropriate returns?

Morningstar’s vice president of research, John Rekenthaler, on Bill Bernstein’s newly released second edition of his 2002 classic, The Four Pillars of Investing.

The book covers a wide range of territory: investment theory and history, financial advisory practices, portfolio construction, and investor psychology.

When Bernstein wrote the first edition of Four Pillars, as a relative newcomer to the field, he was enthralled by the numbers. Investment research is bounded by science. In contrast with many of his quantitatively minded peers, though, he recognized from the start that investment math could also be a trap. History never repeats exactly—sometimes not even approximately.

For that reason, he addressed investor psychology.

Twenty years later, he has expanded on that message. The second edition opens by contrasting two investors:

1) Hedge fund Long-Term Capital Management, run by two Nobel Laureates

2) Sylvia Bloom, a legal secretary who died at the age of 98, holding $9.2 million in assets

The former belied its name by surviving only four years, while the latter persisted for 67 years, with great success. Writes Bernstein, “Unlike the geniuses at LTCM, [Bloom] wasn’t trying to get rich quick, but rather to get rich slow—a much safer bet.” That sentence neatly summarizes Bernstein’s counsel.

Speculators pursue high returns; investors seek appropriate returns.

Four Pillars spends little time on the obvious forms of speculation, such as buying meme stocks or trading options. No need to beat that horse; the book’s readers either already realize the futility of tail-chasing, or they bought the book because they are ready to absorb that lesson.

Four Pillars instead addresses the type of errors that educated investors might unknowingly make—and that Bloom did not. They include:

1) becoming seduced by investment narratives, as made by intriguing but ultimately mediocre theme funds

2) succumbing to recency bias

3) believing too strongly in one’s own abilities, thereby discounting the wisdom of the crowd (Is the marketplace crazy? Perhaps. But that occurs far less often than most investors believe.)

The most dangerous delusion comes not from how investors perceive the outside world, but instead from how they view themselves.

The first edition of Four Pillars included a risk-tolerance table, to help readers establish their equity allocation. For example, investing 80% of one’s assets in stocks might lead to a 35% portfolio decline, under unusually bad (although not the worst possible) circumstances, while owning 40% would cut the loss to 15%.

Writes Bernstein in the second edition:

I neglected to ask whether readers had actually lost 15%, 25%, or 35% of their portfolio. Simply looking at this table or running a portfolio simulation on a spreadsheet is not the same as facing real-world losses. The stock market only rarely falls for no good reason – bear markets are almost always the result of incipient financial system collapse, hyperinflation, or the prospect of nuclear annihilation. The fear of real geopolitical and economic catastrophe makes such times the most dangerous mountain passes on the highway of riches.

That is, it is not enough to have been in the right place at the right time, as wealthy Americans have been during the past 40 years. Investors must also know how to convert their paper opportunities into tangible dollars, by making sound decisions that withstand the test of time. Underinvesting is an obvious problem, as one can’t pocket stock market gains without stocks. But overinvesting can also be a costly error. Getting rich slowly means finding the appropriate personal level.

That conclusion may seem simple, but enacting it proves surprisingly difficult. Over the years, tens of millions of investors have crashed upon the asset-allocation rock. Such a fate, however, is unlikely to befall those who read Four Pillars. By the time the reader encounters Bernstein’s homily on risk perception, the book already established 200 pages of context, with another 100 yet to follow. The advice is therefore not hollow. It echoes.

Source- Morningstar

August 8, 2023

Retirement: a fast disaster or a slow one?

A few weeks back, while googling retirement systems in other countries, I saw this headline: 100-year-old Brazilian breaks record after 84 years at same company. Brazilian Walter Orthmann joined a company named Industrias Renaux on January 17, 1938, and 84 years later is still working there. I guess the greatest achievement here is that at the age of 100, he is still active and alert and still enjoys working. In the article I read, here’s the advice he gives, “I don’t do much planning, nor care much about tomorrow. All I care about is that tomorrow will be another day in which I will wake up, get up, exercise and go to work; you need to get busy with the present, not the past or the future. Here and now is what counts.”

There are a lot of news stories about this man that you can Google and find out more about this man but it goes without saying that this kind of a ‘retirement solution’ is not on the cards for the salaried amongst us. Retirement is a scary thing. By the time salaried people reach that age, they’ve typically been working for close to 40 years. For most of them, their existence is pretty much defined by the routine of their jobs. More importantly, their finances are defined by getting that salary every month.

Some small fraction of people are lucky enough to have an inherently inflation-protected income – for example, rent or a government pension, or those who have generated enormous wealth during their working years – the spectre of post-retirement financial problems and impoverishment haunts most retirees. Nowadays, lifespans are long and most people have two or three decades of lives left at retirement.

During these long years, a lot can happen. For example, even though lifespans have become long, the rise of chronic diseases has meant that ‘healthspans’ have become short and many of us will face ruinous medical bills at some point in the latter part of our lives.

This fear of the unknown – the spectre of risk that comes with retirement makes it a natural instinct to be conservative with post-retirement investments. This is perfectly understandable. Once you stop earning, there is no plan B. If you make big losses in your investments, then that money is gone forever – you will not be able to earn more and make up for the losses. This makes people extremely conservative in their outlook. A considerable number will trust only bank deposits, sovereign schemes and perhaps LIC.

This feels safe but actually, it is not. The problem is that your savings can face a sudden, hard disaster, or they can face a long, gradual disaster. Like the proverbial frog in boiling water, the latter cannot be felt. Those who face this long, slow disaster do not even know that there was an alternative.

In fact, I’ve come to realise that some people choose this disaster knowingly. Why so? I’ve spent years explaining that after retirement, equity is a must in order to avoid this slow disaster. There are those who understand this very well and yet are so scared of the quick disaster that they willingly choose it. This is the worst of all worlds, and it comes entirely from a lack of confidence.

This confidence is hard to gain, and the only route to it is through knowledge and experience, coupled with real-life examples. That’s the part I try to play in this publication, along with resources you can find online, including a very comprehensive set on Value Research Online. However, I must point out that like all savings, fixing your post-retirement investment plan is something that needs to be done sooner rather than later. It may be a slow disaster, but the years roll by quickly and it does not take time for the slow one to arrive.

Source- Valueresearchonline

Option 1: Basic medical policy

Option 2: Basic policy with deductible

Option 3: Basic policy with super top-up

Option 4: Basic policy with deductibles and super top-up

Four ways to get a health cover

What you can do

Buying SGBs at discounted prices

Investment details

Redemption details

Top 5 Benefits of NRI Account

NRI Account Benefits:

Balanced hybrid funds

Multi-asset funds

Dynamic asset allocation (AKA balanced advantage funds)

NRE and NRO Accounts – Meaning, Comparison, Benefits, Taxation:

NRE and NRO Account meaning:

NRE and NRO Accounts comparison:

NRE and NRO Account benefits:

NRE and NRO Account Taxation

Mode of transfer

Holding period

Cost of acquisition

Grandfathering of gains

Clubbing of income

Speculators pursue high returns; investors seek appropriate returns.

The most dangerous delusion comes not from how investors perceive the outside world, but instead from how they view themselves.

Writes Bernstein in the second edition:

Varanasi | Prayagraj | Raipur | Bhadohi | Siliguri

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