Maximizing Savings & Investments: Financial Insights by T.N. Satish

Finance Basics T.N.Satish

Salary Increment Last year, your take home salary was Rs.1,00,000 / month Your expenditure was Rs.90,000 / month You got 10% raise this year (in take home salary). If you are not buying anything extra, how much more can you save this year compared to last year?

Inflation Your average savings would be Rs.16,400 / month Inflation for 2017 was 4%. Inflation is the cost of increase of the consumer prices.

Provident Fund (PF) and FD PF Interest Rate 8.55% > Inflation 4% FD Interest Rate 6.5% > Inflation 4%

Inflation 2009 - 14.97% 2012 - 11.17% 2008-2013 > 9% [Except for one year] If you had got salary raise less than 9% between 2008-2013, it actually means, your salary got reduced.

Value of Money Is Rs.1 Lakh today same as Rs.1 Lakh 15 years back?

Value of Money Is Rs.1 Lakh today same as Rs.1 Lakh 15 years back? Is Rs.4 Lakh today same as Rs.1 Lakh 15 years back?

Value of Money Is Rs.1 Lakh today same as Rs.1 Lakh 15 years back? Is Rs.4 Lakh today same as Rs.1 Lakh 15 years back? Fixed deposit of Rs.1 Lakh at the interest rate of 9% per annum for 15 years would become Rs.3,83,800. If Rs.1 Lakh is more valuable for you 15 years back, you are losing money by having in Fixed Deposit.

Life Insurance Money Back Policies Pay Rs.5000/month - You will get Rs.10 Lakh after 15 years Term Insurance - No money back Pay Rs.3500/year - Get Insurance cover of Rs.25 Lakh (for age 25) Which one is better?

Life Insurance Money Back Policies Pay Rs.5000/month - You will get Rs.10 Lakh after 15 years Term Insurance - No money back Pay Rs.3500/year - Get Insurance cover of Rs.25 Lakh (for age 25) Which one is better? In Money Back Policy, you will get all your money back along with insurance In Term Insurance, you will only get insurance, but no money back.

Life Insurance If your budget is Rs.60,000 / year Pay Rs.3500/year for Term Insurance Invest remaining amount anywhere else (FD or PPF or Mutual Funds) Most of the time, Money back policy would pay less than other investments.

Buying a Flat Your income after all exemptions is Rs.9,00,000. You are utilizing section 80C completely You are not eligible for special schemes introduced by Modi Bank is giving loan for 10% interest and you get tax exemption I am ready to offer you the loan. But, you won t get tax exemption Would you take loan from me? If so, how much interest would you be willing to pay?

Buying a Flat - Interest Rate The Income Tax Exemption is on the interest. For 10% interest, with 20.8% tax exemption, the real interest rate is 7.92% If anyone offers you loan for less than 7.92%, you would be better off taking that loan rather than taking home loan If you are having FD (without any immediate need of money) and having loan, you are wasting your money

Buying a Flat Flat is a depreciating asset - Its value goes down every year The increase in price that you see in a flat is the increase in the price of the land After 30 years or so, the apartment needs to be reconstructed You need to pay significant amount to reconstruct the flat If not, your undivided share in the land would be reduced to half. Buying Land is the best investment

Gold If you had invested Rs.31,000 in 2012 in, Gold - It would have been 32,000 by today Fixed deposit of 6.5% - It would have been Rs.45,643 today Since 1981 till today except during 2006-2012, Gold was always behind FD In 2008-12, the price is increased mainly because of Global crisis Long back, All the countries currency was backed by Gold It is no longer the case. (Still, the recommendations are continued). Gold would have better value, only if the economy is completely destroyed.

Business If you have some spare money, would you like to invest in a business Provided there is a trusted person who can run the business The business would be profitable in the long run. If your answer is No, then stock market may not be for you

Business It is hard to see anyone who earned hundreds of crores of money legally without doing business. There is a limit to earn money without doing any business. If you want to earn a lot, you need to own business.

Business You don t need to have lot of money to own business. If you think some business has better future, you can try to own a minute fraction of that company. Your Profits would also be proportionate to that.

Stock Market Stock Market is nothing but a market which allows you to buy a minute fraction of the company s share. If you have Rs.1000, you can own 0.0000000157% share of Reliance Industries (of Mukesh Ambani) If you have Rs.300, you can own 0.0000000205% share of Wipro or 0.0000000155% share of ICICI Bank If you think some company grows bigger than other companies, it is better to invest in those companies, so that, our money grows proportionally.

Stock Market - Wipro If you had spent Rs.10,000 in buying Wipro in 1980, what would be the value today?

Stock Market - Wipro If you had spent Rs.10,000 in buying Wipro in 1980, what would be the value today? More than Rs.500 crore

Stock Market - Eicher Motors In 2001, instead of buying a Royal Enfield bike, if you had bought Eicher Motors (which produced Royal Enfield), what would be the value today?

Stock Market - Eicher Motors In 2001, instead of buying a Royal Enfield bike, if you had bought Eicher Motors (which produced Royal Enfield), what would be the value today? More than Rs.6 crore

Stock Market - Reliance, KFA If you had spent Rs.10 Lakh each in buying the following on Jan 1st 2008 (IPO for Reliance Power), What would be your worth today? Reliance Communications (Anil Ambani) Reliance Power (Anil Ambani) Kingfisher Airlines

Stock Market - Reliance, KFA If you had spent Rs.10 Lakh each in buying the following on Jan 1st 2008 (IPO for Reliance Power), What would be your worth today? Reliance Communications (Anil Ambani) Reliance Power (Anil Ambani) Kingfisher Airlines Reliance Power - Rs. 10 Lakh to Rs.1.27 Lakh Reliance Communications - Rs. 10 Lakh to Rs.18,522 Kingfisher Airlines - Rs.10 Lakh to ZERO

Mutual Funds Mutual Funds are professionally managed funds which invest in Stocks They take investments from multiple investors/institutions They diversify the investments in multiple stocks to reduce the risk The portfolio managers are professionals and they regularly keep track of the companies, economy and many others

Mutual Funds They keep track of all the information that is not in the media It need not be confidential information that others are not supposed to know It can be Whether the company is paying salaries to their employees or not The state of the court cases that the company is handling and its impact The state of the enquiries by gov. organizations like CBI, SEBI etc. If you take any company that has gone down, you hardly find any MF investments in the last three years before the public announcement (Whether it is Gitanjali Gems (Nirav Modi) or Kingfisher Airlines)

Stock Market - Gambling? People consider investing in Stock Market is Gambling. If you are planning to buy stocks today and sell tomorrow, it can be gambling But, if you consider it as owning a part of the company, it is not gambling

ULIP - Insurance Insurance sales people pitch ULIP is a better product as it includes equity investments (Mutual Funds) Many times, they do not disclose the charges in the insurance, which eats up significant amount Difficult to track ULIPs performance with others

ULIP - Insurance For ULIP, you need to see two criteria o Claim Settlement Ratio o Returns from the investments When you put money which is having two independent criteria, you would get the worst of the both Take Term Insurance based on Claim Settlement Ratio Invest in Mutual Funds based on the returns

Stocks and MF Taxes Stocks Charges o Brokerage Charges around 0.3% of transaction value (If you use Zerodha) Mutual Funds Charges o Exit Load 1%, if redeemed in less than 1 year. Taxes for Stocks and MF o Tax for Profits within less than one year 15% o Tax for Profits after one year Upto Rs.1 Lakh Tax Free More than Rs.1 Lakh 10% There is no other investment with this much less tax

Mutual Funds Tax Saving Mutual Funds o Minimum Amount : Rs. 500 o Lock in Period : 3 years Normal (Non-Tax Saving) Mutual Funds o Minimum Initial Amount: Rs.5000 o Additional Increment Amount: Rs.1000 o No Lock-in If Rs.500 is not a big amount for you, please start investing in Mutual Funds.

80C Tax Saving Product Lock In PF Till Retirement PPF 15 years ULIP 5 years Other Insurance 10-20 years Tax Saving FD 5 years Tax Saving Mutual Funds 3 years

Tax Saving Mutual Funds Invest Rs.1.5 Lakh for the next three years in Tax Saving Mutual Funds In 4thyear, withdraw the amount that you invested in 1styear and invest again In 5thyear, withdraw the amount that you invested in 2ndyear and invest again After three years, you don t need to allocate budget for 80C

ELSS (Tax Saving) Mutual Funds http://www.moneycontrol.com/mutual-funds/performance-tracker/returns/elss.html Returns over 5 year Asset value more than Rs.1000 crore Axis Long Term Equity Fund Aditya Birla Sunlife Tax Relief 96 Reliance Tax Saver DSP Blockrock Tax Saver Fund L & T Tax Advantage

Investing in Mutual Funds If you are KYC Compliant - Directly login to respective MF Website Invest in Direct Growth plan If you are not KYC Compliant, Register in FundsIndia FundsIndia would do all the paperwork Then, you can invest directly from the MF websites Investing in MF directly (Direct Plan) would save 1% when compared to investing through FundsIndia (Regular Plan) Dividend plan would be taxable at 10% - So, Opt for Growth Plan

Returns One of our Colleagues has invested a small amount in Franklin Templeton MF in 2003. It is increased by 30 times in 15 years. If he does not withdraw that amount, and if the value increases by same proportion, what would be the value 15 years later?

Returns One of our Colleagues has invested a small amount in Franklin Templeton MF in 2003. It is increased by 30 times in 15 years. If he does not withdraw that amount, and if the value increases by same proportion, what would be the value 15 years later? In 30 years - Returns would be 60 times

Returns One of our Colleagues has invested a small amount in Franklin Templeton MF in 2003. It is increased by 30 times in 15 years. If he does not withdraw that amount, and if the value increases by same proportion, what would be the value 15 years later? In 30 years - Returns would be 60 times In 30 years - Returns would be 900 times

Land and Mutual Funds Invest in Land and Mutual Funds Nothing else will keep your money with the same value

Disclaimer Mutual Fund Investments are subject to market risk. Please read the offer document carefully. Do NOT invest, if you want to withdraw in less than 5 years or whenever you need money Invest only, if you are prepared to keep the money for at least two government changes at the center. Keep 6 months of your expenses in FD. Try to invest equal amount every month

Income Tax Returns Everyone needs to file Income Tax Returns https://www.incometaxindiaefiling.gov.in/ ITR-2 is Strongly Recommended Except when You did not submit any HRA You do not have any other income except from FD/Savings Account Even if you have Rs.10,000 FD, you need to pay tax on the interest that you got

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