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Tenbestmoneymovesfor2016
ByChandralekhaMukerji ,BabarZaidi ,ETBureau | Updated:Dec28,2015,03.44PMIST

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Atthebeginningof2015,manystockmarket
punditshadestimatedthatequitieswilldeliver
roughly15%returnsduringtheyear.Instead,
theSensexhasdeclinedaround6%.Ifyou
wereinvestingfor12years,thesestatistics
wouldbetrulyworrisome.However,ifyour
investmenthorizonislonger,say56years,
These10decisionswillensurethat
2015wouldhavebeenagreatyearduring
yourportfolioyieldsbetterreturns,
whichyoustockeduponqualitystocks(orthe
yourtransactionsbecomesavvierand
fundsthatinvestedinthem)atlowprices.The
yourfinancesimproveinthenewyear.
stockmarketgraphisneverastraightline.The
Nifty'sjaggedtrajectoryhasrewardedthe
patientandpunishedthejitteryinvestor.
Whatshouldinvestorsdoin2016?Firstly,theyshouldcontinuetosaveand
investfortheirgoalsandnotbedeterredbythenoiseaboutreturns.More
importantly,theyshouldnotlosesightoftheirassetallocation.Iftheequity
portionoftheirportfoliohasshrunkduetothedeclineinequities,itistimefor
themtogetridofsomefixedincomeinstrumentsandincreasetheallocationto
stocks.
However,thisisgenericadvicethatshouldbefollowedatalltimes.Wehave
drawnupalistofsmartthingstodowithyourmoneyin2016.Wedidn'tstop
there.ETWealthreachedoutto50financialplannersacrossthecountryto
knowwhattheythoughtofoursuggestions.Someofthestepswesuggested
havebeenheartilyendorsedbytheplanners.Morethan95%believethat
gettingyourstafftoinvestinthesocialsecurityschemeslaunchedbythe
governmentisaverygoodidea.
Atthesametime,somesuggestionslikebuyinganonlineUliporshiftingfrom
regularmutualfundschemestodirectplanshavenotreceivedagood
response.TwooutofthreeplannersthoughttheUlipwasabadidea,whileone
ofeverythreeplannersgavedirectplansathumbsdown.Inthefollowing
pages,wewillexplainhowdirectplanscanhelpyouearnbetterreturnsand
whyyouneedtochangeyourperspectiveaboutUlips.Wearesurethatthese
twostepsandeightothersuggestionswillproverewardinginthenewyear.

1.OpenanNPSaccount
AvailofadditionalRs50,000taxdeduction.

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OpeninganNPSaccountshouldbeapriorityforthosewantingtosavemore
taxthisyear.UptoRs50,000investedintheNPSunderthenewSection
80CCD(1b)getsadditionaltaxdeduction,overandabovetheRs1.5lakh
investmentlimitunderSection80C.Inthe30%taxbracket,aninvestorcan
shaveoffRs15,000fromhistaxliability.Thiswouldbringdowntheeffective
investmenttoonlyRs35,000andpushupthereturnsfortheinvestor.Ifthe
NPSfundyouinvestinearns8%compoundedreturnsoverthenext15years,
theeffectivereturnwouldbe10%.
SomefinancialplannerssaythatinvestingintheNPSisnotagoodideaas
equitymutualfundscangivebetterreturnsthantheNPS,wherethere'sa50%
caponequityexposure.Eventhoughinvestmentsinequityfundsarenot
eligiblefortaxdeduction,theirpotentialtogivesuperiorreturnsmorethan
makesupforit.TheotherproblemwithNPSistherigidrulesforinvestingthe
corpusonmaturity.After60,atleast40%ofthecorpushastobeputinan
annuityformonthlypension.Withdrawalsaretaxableandthepensionfrom
annuityistaxedatnormalrate.Themonthlypensionfromannuitywillbeamix
ofprincipalandinterest,buttheentireamountwillbetaxed.

Expertsadmitthattaxingannuityincomemeanstheprincipalwillalsobetaxed,
butpointtothedeductiontheinvestorenjoysatthetimeofcontribution."The
investoronlydefersthetaxtillafterretirement,"saysAmitabhChaudhry,CEO
andMD,HDFCLife.
2.Startusinganewallet
Yougetcashbackandit'ssaferthanonlineusage.

Thisyear,theRBIgrantedlicencesforpaymentbanksto11entities.Ase
walletsareexpectedtoplayakeyrole,youcanstartusingthesefordiscounts,
cashbacksandotherincentives.This,evenasplayerslikePaytm,PayUand
Mobikwikarealreadyofferingsignificantcashbacks.
Somefinancialplannersbelievethateaseofonlinetransactionandheavy
discountinghaveledtoariseindiscretionaryexpenses."Wehaveseen
budgetsforfoodandclothingincreasetwofoldinthepasttwoyears,"says
PriyaSunder,Director,PeakAlpha,awealthmanagementfirm.However,there
areincentivesevenforessentialhouseholdexpenseslikegrocery,Internet,

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areincentivesevenforessentialhouseholdexpenseslikegrocery,Internet,
DTHandmobilebills(seetable).Othercategoriesincludetaxirides,movie
tickets,onlineshopping,foodorders,hotelbookings,andflight,trainandbus
tickets.Therearemonetaryrewardsforreferringothersaswell.

ThewalletsinwhichyoucanputinRs1010,000alsooffersecurity,a
concerninonlinetransactions."Theyaresafe,convenientandrewarding,"says
AbhijitBhave,CEO,KarvyPrivateWealthManagement.Thesitesmaintainthe
samesecuritylevelasthatforanyotherbankingtransactionandyoucanlimit
yourlossbyputtinglessmoneyintheaccount.Theonlylimitationisthatthey
aresemiclosed,whichmeansyoucantransactonlyonlineonlimitedpartner
sites.
3.Movetodirectmutualfunds
Lowerchargesleadtohigherreturns.

Investorsstandtogainfromdirectplansofmutualfundssincelowercharges
translatetohigherreturns.Thedifferenceinreturnsismorepronouncedfor
equityfunds.Indebtfunds,theexpenseratioofregularplansisnottoohigh,so
thedifferenceislower.Inliquidfunds,theexpenseratioisverylow,sothe
differenceiswaferthin.Inthethreeyearssincethesewerelaunched,the
averagelargecapdiversifiedfundhasgiven15.39%annualisedreturns,butthe
averagedirectplanhasgiven16.42%.Evena1%differencecangrowtoabig
suminthelongterm(seechart).Beforeyouswitch,however,checkifyouhave
crossedtheminimumtenuresetbythetaxman.

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Inequityandbalancedfunds,shiftaftercompletingayearorthe15%taxon
gainswillwipeoutthegain.Indebtfunds,debtorientedhybridfundsandgold
funds,waitforthreeyearsorthegainswillbeaddedtoyourincomeandtaxed
atmarginalrate.Evenafterthreeyears,gainswillbetaxedat20%with
indexationbenefit.
4.Replacefixeddepositswithdebtfunds
Thesearemoretaxefficientandgivehigherposttaxreturns.

Fixeddeposits(FDs)aresafe,butalsotaxinefficient.Shorttermdebtfunds,
whoseportfoliohasacombinedcreditriskalmostatparwithFDs,canbea
betteralternative.Thoughthereturnsgeneratedfromshorttermdebtfundsare
similartotheinterestyouearnonFDs,thetaxbenefitsmeanthattheactual
returnfromdebtfundsishigherifyouholdthemformorethanthreeyears.This
iswhynearlyeightoutof10plannersgavethismoveathumbsup.
Inadebtfund,thelongtermcapitalgainsaretaxedat20%afterindexation,
whileshorttermcapitalgainsareaddedtoyourincomeandtaxedatthenormal
rateapplicabletoyou.Thisisagamechangerforthoseinthe30%taxbracket
(taxableincomeofoverRs10lakhayear).Insteadofshellingout30%taxon
theinterestearnedonafixeddeposit,thetaxrateis20%,whichisfurther
reducedbytheindexationbenefit(seetable).

"Besidesthis,therearewaysthatthecapitalgainscanbesetoffifyouinvestin
adebtfund.NosuchoptionsareavailableforinterestincomefromFDs,"says
BhuvanaShreeram,Head,FinancialFreedomGoldenPractices,aMumbai
basedwealthmanagementfund.Debtfundsalsohelpindeferringthetax.In
thecaseofFDs,youhavetopaytaxontheinterestincomeeveryyear,
whereasinthecaseofdebtmutualfunds,taxispayableonlywhenyou
generateanincome,thatis,whentheunitsaresoldduringredemption.
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5.Monetisegoldinvestments
Goldbondsoffer2.75%interestanddon'tlevyanycharge.

Thegovernmenthasgiveninvestorsagoodreasontonotbuygoldin2016.
LaunchedinNovember2015,goldbondsarelinkedtothepriceofgoldand
offer2.75%interest.Ifweassumethatgoldpriceswillriseby5%,thebonds
willyieldanannualisedreturnof7.75%.Thisishigherthanthatofthegold
depositscheme(seetable)."Goldbondsofferseveraladvantages.One,you
don'tneedtoworryaboutthepurityofgold.Two,thereturnis2.75%overthe
priceofgoldatthetimeofinvestment,leadingtocompoundingbenefits.Finally,
youdon'thavetoworryaboutitssafety,"saysSunderofPeakAlpha
Investments.
It'stimetogetridofyourgoldETFsaswell.Youpay1%onthefundperyear,
butifyousellandputtheproceedsingoldbonds,youearn2.75%,andthenet
gainis3.75%.However,takenoteofthetaximplicationsanddon'tforgetthat
goldbondsarelessliquidthanETFs.Theyhaveatenureofeightyearswithan
exitoptionafterthefifthyear.Purchaseshavetobemadewithinthestipulated
timeandthereisalsoa500gbuyingrestrictionperfinancialyear.

"GoldETFsareattractiveifyouwanttostaggerinvestmentsandtheyoffer
liquidityontheexchange,"saysLovaiiNavlakhi,CFPandMD,International
MoneyMatters.However,ifyoualreadyhavebarsandcoins,puttheseinthe
goldmonetisationschemetoearnanextra2.25%.Investingviagoldornaments
istheworstasmakingcharges(1530%)canevenchurnoutnegativereturns.
6.InvestintheSukanyascheme
Ifyouhaveadaughterbelow10years,thisisthebestdebtoptionforyou.

LaunchedinJanuary2015,thisgovernmentmanagedschemeisdefinitelythe
bestdebtinstrumentinthemarkettoday.Don'tgetuswrong:wearenot
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suggestingthattheSukanyaSamriddhiYojana(SSY)shouldbeseenasan
alternativetoequityinvestments.Youshouldstillinvestinequityandbalanced
mutualfundsthroughSIPstogethighreturns.However,theSSYisthebest
categorytoinvestinifyourdaughterisbelow10yearsold.Thisisbecauseit
offersevenahigherinterestratethantheoldtimefavouritePPF.Besdies,itis
afarbetteralternativethanthefixeddepositsandrecurringdepositsyouare
investinginforyourdaughter'seducationandwedding.
WhilethePPFoffers25basispointshigherthantheyieldof10year
governmentbonds,theSSYwilloffer75basispointshigherthanthesebonds
forthepreviousyear.Thisfigurewas8.33%fortheperiodbetween1April2013
and31March2014.For201415,theinterestforthePPFis8.7%,whilethe
SSYoffers9.1%.
Comparedwiththefixeddeposit,theSSYnotonlyprovideshigherrates(at
present),butalsohasbettertaxbenefits.AsinthePPF,youcanavailoftax
benefitsundertheSection80CforSSYtoo.So,investmentsuptoRs1.5lakh
willbeexemptfromtaxinafinancialyear.

However,theschemelacksliquidity.Whilethefixeddeposithasalockinperiod
offiveyearsandthePPFhasalockinperiodof15years,youhavetostay
investedintheSSYtillyouchildturns21.Whilethismeansalockintermof11
years,ifyourchildis10whenyouinvest,itisover16yearsifsheisbelowfour.
Prematurewithdrawalsareonlyallowedafterthegirlturns18andyoucan
withdraw50%ofthecorpus.UnderthePPF,50%withdrawalisallowedfrom
theseventhyear.
7.PurchasealowcostUlip
Switchbetweendebtandequityfundswithouttaximplications.

TwooutofthreefinancialplannerssurveyedsaidthatbuyingaUlipwasnota
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goodidea.However,wefeelthatit'stimeinvestorsshedthebaggageofthe
pastandlookatUlipsfromafreshperspective.
IrdaiclampeddownonUlipchargesin2010bycappingtheannualisedcharges
at2.25%forthefirst10yearsofholding.ThenewonlineUlipshavesweetened
thedealandbroughtdownchargestosuchanextentthatsomearecheaper
thanthedirectplansofmutualfunds.SomeeUlipsdonotlevypremium
allocationchargesorpolicyadministrationcharges.Otherscompensatelong
terminvestorswith'loyaltyadditions',whichhelpsbringdowntheoverallcosts.
HDFCLifedeclaredapricewarwithitsClick2Investplan.Theonlychargeit
leviesisanannualfundmanagementfeeof1.35%ofthecorpusvalue.There
isalsoamortalitycharge,butthatisforthelifecoverofferedtothe
policyholder.ThelowchargesmaketheClick2Investplancheaperthanthe
directplanofadiversifiedequityfund,whichchargesanexpenseratioof1.5%
peryear.

AnotherbigadvantageofchoosingaUlipisthetaxfreeswitchingbetweendebt
andequity.Onecanseamlesslytransferfundsfromdebttoequityand,vice
versa,withoutincurringanytaxliability.Ifyoudothesamewithmutualfunds,
youwillhavetopaytaxontheshorttermandlongtermcapitalgains(see
table).SinceUlipsareinsuranceplans,thegainsandmaturityproceedsare
taxfreeunderSection10(10d).
However,onlysavvyinvestorsmaybeabletotakethisadvantage."The
switchingfacilityofUlipsishardlyusedbyinvestors.Also,thisadvantageis
overshadowedbytheriskofbeingstuckwiththeonefundthroughalong
period,"saysNavlakhiofInternationalMoneyMatters.
8.StartsavingforahouseDepressedpricesandsupplyglutmeanyoucould
getagooddeal.

Inthepast45quarters,realestatepriceshavefallenorremainedstagnantin
somemarkets.This,coupledwithinterestratecutsandpassingoftheReal
EstateBill,couldmakebuyingahomeasweeterdealin2016."Endusersand
investorscanusethedownturntomakeapurchasewiththeobjectiveoflong
termgains,butsomepainmaystillbeleft.So,considerbuyinginthesecond
halfof2016,"saysBhave.

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halfof2016,"saysBhave.
Lookforgoodbargainssincebuildershaveapileupofinventoryandarefacing
acashcrunch.Besides,thosewhohadinvestedfortheshorttermandwantto
flip,areunabletosellasthesentimenthasbeenlow.Housesarebeingsoldat
discountedratesand2016maybetheyeartohagglehard.
Thisisthereasonfouroutof10wealthmanagerssurveyedagree.However,
threedon'tandanotherthreehavetakenaneutralstand."Youwillneeda
substantialamountforthedownpayment.It'snotrealistictosetthegoalof
buyingahousein2016ifyoustartsavingnowforthedownpayment.Begin
scoutingforpropertyonlyafteryouaccumulateasizeableamount,"says
PankajMathpal,MD,OptimaMoneyManagers.

Buyingapropertyisalsoalongtermcommitmentifyouaretakingaloan."You
needtoensurethatnotonlydoyouhavefundsfordownpayment,butarealso
inasecurejobtofundtheEMIsforthenext20oddyears,"saysSunder.
Thoughtherearetaxadvantages,theykickinonlyafteryougetthepossession
ofthehouse.Therearemanyfrictionalcoststoo.Takealltheseinto
considerationbeforemakingthepurchase.
9.Buildbufferofcash
Marketsarejitteryandyoushouldbereadywithcashtograbbargains.

Themarketisnotlookingverystable.AratehikeintheUSandpoorresultsby
IndiaInccouldresultinafurthermarketfall.However,youmightnotbeableto
takeadvantageofthedipifyoudonothavesurpluscashtoinvestwith.So,it
mightbeagoodideatostartbuildingabufferofcashtousewithwhenthe
marketsgodownfurther.Itcouldbeyouropportunitytobuycheapandsell
high.
Althougheverysecondfinancialplanneragreedwiththisstrategy,oneinthree
alsowarnedagainsttherisksofdoingso."TheUSratehikeisamuchtalked
abouteventandthemarketmighthaveeffectivelypricedinafairbitofthe
adversemovementthatthiscouldresultin.Also,poorresultshavealottodo
withbothmicro(highleverageandinterestburdens)andmacrofactors(weak
economiesgloballyandlowdomesticdemand).Again,thisissomethingthat
themarketisawareof,"saysNavlakhiofInternationalMoneyMatters.
Theplanners'argumentagainstthestrategyisthatnooneisanexpertat
timingthemarket.Investingregularlyistheonlygoodstrategyforlongterm
investorslookingtobuildwealth."Thereisnoperfecttimetobuyandnobody
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canforecastthefutureaccurately.Abetterstrategytotakeadvantageofthe
downturnwouldbetostartinvestingimmediatelyanddosointranchesoverthe
next23months,"saysBhave.
10.Secureafamily'sfuture
Buysocialsecurityschemesforyourmaid,driver,watchman,sweeper,etc.

Spreadhappinessandbeginthenewyearwithagooddeed.Helpyour
householdstafftoopenaJanDhanaccountandintroducethemtosocial
securityschemes,suchastheAtalPensionYojana,PradhanMantriJeevan
JyotiBimaYojana(LifeInsurance)andthePradhanMantriSurakshaBima
Yojana.

Financialplannershavealsogivenaresoundingthumbsupforthismove.
"Whileitisthegovernment'sjobtointroducesuchschemes,itisour
responsibilitytospreadawarenessamongtheuneducatedhouseholdstaffand
insurethemundertheseschemes,"saysBhave.
However,itwillrequiremorethanjustconvincingthemtoinvestinthese
schemes.Youmighthavetostepinandmakethefirstinvestmentontheir
behalf.ItwillcostyoulessthanbelowRs2,000peryear(seetable).Oncethey
getin,itiseasiertoconvincethemtocontinuewithit.

READMORE: NPS|mutualfund|moneymoves|house|ETWealth|debtfunds|2016

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READMORE: NPS|mutualfund|moneymoves|house|ETWealth|debtfunds|2016

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