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Union Budget 2021: Top 10 highlights you need to know
The Finance Minister, Ms. Nirmala Sitharaman announced the Union Budget for the next financial year yesterday. There were no changes in the tax rates/slabs but some changes have been made to make tax compliance easier. The focus on self-reliance and increased spending on healthcare are some positives that look at taking the economy ahead.
Here are some of the significant announcements that you need to know.
Chance’s Garden: Even You’re Seeking Growth, Aren’t You?
Investing is an act of faith.
Might some unforeseeable economic shock such as now can trigger another recession so severe that it would destroy our faith in the promise of investing? Excessive confidence in smooth seas can blind us to the risk of storms. There is little certainty in investing. As long term investor, however, we cannot afford to let the short term events frighten us away from the markets. For without risk there is no return. Another word for “risk” is “chance”. Here’s a dialogue by Chance, The Gardener that stuck.
As uncanny as it may seem, the word “chance” struck a chord that reminded me of ‘Chance, The Gardener’. For the ones who have never had the fortune to read this gem of book, ‘Being There’ by Jerzy Kosinski or watch the movie based on it, the plot revolves around a rather simple man – Chance, the gardener whose knowledge about the world is defined by what he has watched on TV and everything he has observed while tending to his garden. By twists of fate, he reaches a situation where he has high-ranking state officials seeking advise from him and interpret his simple words as a metaphor about the economy.
Back to the scene that stuck with me for long – When asked about the stressed state of economy, he said – “In a garden, growth has its season. There are spring and summer, but there is also fall and winter. And then spring and summer again. As long as the roots are strong, all is well and all will be well”.
Well, when you look at markets, economies (and also gardens), you would appreciate the simple yet profound truthfulness of the statement.
In an attempt to draw a parallel, I started rummaging through the internet ocean and found a beautiful illustration (Courtesy: Visual Capitalist) that clearly reflects that as long as the world economy is healthy, financial crises may come and go, but the economy will only bounce back stronger – offering a much larger opportunity each time.
Perhaps, the fact that the global economy has gone through a longer period in economic crises than uninterrupted growth. However, like Chance put it right, economies and markets only continued to push upwards with periods of crises seeming like nothing more than simple seasonality in hindsight.
I remember reading about at least ten black swan events where the S&P 500 declined by a quantum of anywhere between -5% to -60% only in the past fifty years. Events include the Oil Embargo ’73, Iranian Hostage Crises ’79, Black Monday ’87, Gulf War ’91, 9/11 Attacks ’01, SARS ’03, Sub-Prime Crisis ’08, Intervention in Libya ’11, Brexit ’16, and Pandemic’19. However, it is interesting to note that $100 invested in 1973 in S&P 500 is worth almost $3,000 today – which seems pretty healthy considering the number of financial crises we just recounted.
As an investor, you may choose to focus on the periods where people lost money and redeem with a higher probability of converting notional losses into real losses, or ride the tide only to emerge victorious as the world pushes ahead towards progress.
Active, Passive and Balanced funds
Investing can be a scary endeavour without a road map. Each investor has a different mindset when they invest. The final goal of an investor must be to choose funds planned as per his/her financial goals and strategies. Here is the breakdown of how one should opt for active or passive funds when it comes to investment.
What are Active Funds?
Active investing is a strategy that involves buying and selling assets to make profits that outperforms and sets the benchmark in the index. A fund manager is an example of an active investor.
Investors in actively managed funds will have to pay higher annual charges for the expertise of the fund manager, the interest is usually between 0.6% to 1.5%, and sometimes it could be more, depending on the type of the portfolio they are running. So it is up to you to decide whether the cost of a fund investment is worth the potential returns you could receive.
What are Passive Funds?
Khelo App ki Cricket Investments Pe
Cricket is the most popular game in the world undoubtedly, and it’s the world’s greatest sport. It’s a gentleman’s sport, full of sportsmanship. An epic journey where players and fans get to know each other over days of play, where respect is the golden rule, and integrity is very much alive. And on the contrary, Investing in the Mutual Fund is helps you to create wealth in the long/short term and helps in achieving your financial goals.
Besides entertainment, Investing is like a game of cricket.
“Your Team→ Your Portfolio
Your Players→ Your Securities.”
In this article, let us use the analogy of a cricket game in investing. When it comes to cricket, We ‘Fans’ always feel like the cricket team could have done a better job, when it comes to us, we fail to create our investment portfolio and financial success.
The importance of making a Will
Making a will can save your loved ones a large amount of money and stress. A will is a legal document that stipulates your wishes as to who will receive your property and possessions when you die. It is important that you have a valid will to ensure your estate is distributed to those you wish.
The statistical data says that 80% of Indians do not have their wills made and the reasons for it are many. Here are some of them:
- It’s too early to think about.
- Making a will is a lengthy process
- I am not aware of rules and regulations
- I have told my spouse and children of my intentions that I will do
And many more…..
While each person’s situation varies, here are seven reasons to have a will:
Choose between Direct and Regular plan
When you buy something, you will always try to cut expenses. Suppose if we buy any product online, you prefer to have free delivery. Why you do that? In order to reduce costs, you’ll try to cut the additional expenses which you don’t want to incur. Here, you do the same with the Mutual Funds.
In the market, we can buy Mutual funds in 2 ways:
- Directly from Asset Management Company (AMC) – Direct Plan
- We choose to buy through an intermediary – Regular Plan
In Regular plan, you buy mutual funds through an intermediary such as brokers, distributors or advisors. And these agents will charge a commission for the services they provide where your expenses on investments will be high. As you know that these brokers will never sell you the products that you need. They always try to push the schemes which earn a good profit to them.
Now let’s look at Direct Plans. Direct Plan is a new regulation which is enforced by SEBI on January 1, 2013. In the Direct Plan, as an investor, you can directly buy the mutual funds from the Asset Management Company (AMC), where there will be no involvement of any brokers or intermediaries and these funds which you buy are commission free.
The great advantage of Direct Plans is that NAV (Net Asset Value i.e., the value per share) is more when compared to Regular Plan which means that you earn more on your investments.
For example, if you invest Rs 10 lakhs in both the Direct Plan and Regular Plan. The direct plan offers 17- 19% of returns whereas the Regular Plan offers 14-15% of returns. Thus, With Direct Plans you can earn 1-15% more returns than Regular Plans.
And here you have a platform to make an investment in Direct Plan- Finity with zero commission and zero fees. Finity offers you a wide range of funds and helps you to choose the right one that suits your investment needs. To look into more features of Finity – download the app, complete KYC and get access to top recommended funds.
How to decide on Direct plan and Regular Plan?
- If you already have an experience of investing in mutual funds, it is recommendable to go for Direct Plan, since you will have enough knowledge on mutual funds.
- If you are a beginner then you can opt for Regular Plan and it is recommendable that you can switch to Direct Plan once you gain knowledge and experience in investing.
So don’t miss out on those 1.5% extra return. Choose Finity and begin your journey to fulfill your dreams.
You are unique and so is your Investment!
Understand the rules for investing in Equity
Getting equity exposure is about following the rules for holding the portfolio to see index-plus returns( high returns). Take a considerate decision on investing in Equity and understand that equities are the best way to create wealth.
Rules for investing in Equity:
- Have the patience to see consistent returns. If you buy equity with a holding period of 10 years, you’ll be able to see interesting returns(positive returns) in the 7th year of your investing. This happens because the fluctuation in the returns will start reducing and then on average, you’ll see returns that will above 14-15% per year. Thus, have the patience to have investments in the long term.
- You’ll be at risk if you choose a poor product. If you opt for a poor product with a long holding period and later you find yourself that you did worse than the average product in the market. So, be careful while choosing a product and be very particular about your risk bearing capability.
- What if you find out yourself frozen in choosing Equity products. Firstly, understand the Equities completely.
There are 3 ways to buy equity:
- Direct stock
- Market-linked products(ULIP’s)
- Mutual Funds.
You can invest in Equity Funds through Finity. They are professionally managed by expert professionals who spend quality time researching the performance of these funds.
The benefits include:
- You can invest in Equity Mutual Funds that have provided returns >15% for the past 5 years.
- They offer you an opportunity to redeem your investments at any time (Except for Equity Linked Saving Schemes-‘ELSS’ which has a lock-in period of 3 years).
- Equity mutual fund schemes avail you a facility to invest small sums at regular intervals through systematic investment plans (SIP).
- Do not invest in any product that locks you in a particular company or asset manager. Always opt for the product where the “Exit” is possible with an easy and cheap procedure. And also look for the “portability” where you should be able to move your money more easily to a better fund investment with minimum cost.
- If you want to manage your funds by yourself, start learning about the products through online platforms and try to look in the records to know how the funds are performing over the years, and then invest. Always remember, “Not investing in Equity” is not your option.
Thus, put your money to work for the long term. If you’re a good financial planner then you would have already planned for your Emergency funds and medical cover. So, you have taken away the need for keeping money in liquid and you can risk investing in Equity Mutual Funds.
Here, you have the best platform -“Finity” to invest in Equity Funds and create wealth for the long term. Use Finity to discover, track and invest in Equity Funds.
Are investments in Real Estate really safe?
We have heard our elders saying that “Invest in Real estate, the future value of the property will fetch you prosperous wealth.” Is it true?
Let us now discuss how a Real estate as an investment option.
Yes, Investment in Real Estate can generate a regular income, and you can see capital appreciation over a period of time. People think Real estate as an investment option is good only because they look only into the returns ignoring the other factors.
There are other factors that you need to consider:
- Risk factor: There is more risk involved if you buy a property, and risk comes in the form of property disputes, your property can be grabbed, finding the tenant becomes difficult.
- Additional expenses: Incurring more expenses can affect your returns. Expenses such as brokerage chargers, maintenance costs, taxes will be incurred by you. You will pay all these expenses from your returns.
- Low liquidity: In case of emergency, to can’t sell a part of your property and make money and also your need for cash can make you sell the property at a lower price than its original cost. Thus, you incur a loss.
- Market fluctuations: Yes, there has been a time where you can sell your property more than 10 times its original value but the things are changed and are not the same.
Reasons why an investor should avoid investing in Real Estate
- An under performing asset class as it gives more or less the same returns as FDs and offers an annual rent between 2-5% which is very less when compared with the returns earned on FDs
- The value of a property depends on the geographical location of a property which makes a real asset as an unpredictable asset class.
- The typical mentality of investors where they link properties to memories and emotions ignoring the returns on investment.
- Liquidity is less because when you need immediate cash, you can’t find buyers easily and need of cash can make you sell the property at a lower cost than its market value.
They are subjected to more litigation and the risk involved is high because of property disputes or your - property can be grabbed.
Thus, these are the disadvantages of having investments in Real Estate. But is an alternative? Yes! there are better options to invest such as Mutual Funds. Direct Plans, SIPs, Gold Funds or Equity Mutual Funds help you with wealth creation in the long term. Use “Finity” to discover, track and invest in Mutual Funds.
Don’t invest in better, invest in the best!
