Payoff Your Credit Cards

Pay off your credit cards:

If you wanna acheive financial freedom, Pay off your credit cards!!

If your using credit cards, you are utilising the future income today. It is a debt. Any form of debt is a burden for individuals.

Credit card gives interest free credit for 50 days by charging the annual fee.You should be very careful when your utilising the credit card, Few steps to follow for paying off your credit cards.

1) Pay your bills on time to avoid paying late fee and interest. Paying only the minimum due will help avoid penalty but not interest (32% to 40%) on the outstanding dues.

2) If you start paying minimum due amount, you lose interest free credit on the following month. You will end up paying more than what you utilise using cards.Control your expenses and spend as much as you can so that you can pay full by end of the month. Your credit card utilisation should be less than 30% of your income.

3) Never withdraw cash from credit card, you will be charged a fee for cash withdrawal and also interest for the amount withdrawn from day one.

4) Full utilisation of limit , Delayed payment of bills will affect your credit score. It is advised to keep your spending under limit and payment in full.

Proper understanding of your income and expense will help you to avoid using credit cards. start planning your weekly budget and monthly budget

Mentotax recommends to utilise the Investment not linked to financial goals to pay off the credit card bills. Mentotax also advises to you credit cards only for emergencies not for recurring expenses.

Financial independence can be achieved only when your free from debts.

Never fall prey to cashback, reward points and other offers by credit cards. It will keep you under debt always.

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Start Spending Money For Yourself

You can save for future but never forget to  spend some money on things that you love today. We earn for the betterment of our livelihood.

Key to financial freedom is to save and spend with intention

Plan your monthly budget according to your income and expenses. Allot some funds on your monthly budget for personal fun and entertainment. Personal fun includes all things that's brings you and family members together, Good food, Movies, Trips. Things that makes you feel relaxed and composed. Things that boost your productivity and efficiency.

Fun account is the intentional spending account. Mentotax recommends to have dedicated Fun Account ( savings bank account) to finance and track your expenses. It will help you on how much to spend with what you have on hand.

Few people will spend more money and save less. Even there are people who save more and have lot of money but never spend for themselves. It is always advised to save and spend with intension.

"Financial Planning is all about financing your needs and wants today with your needs and wants tomorrow"

If you rewind 5 years down the line gadjets, cars, shares and jewellery will bring less memories compared to the trips and parties you went with family and friends! so spend on things that bring memories and connect with people.

Mentotax recommends you to dedicate 5% of your income for fun account.

Having one's own happiness will nurture you to take next step in life and compete against yourself.

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5Mistakes/Misconceptions to avoid in ELSS Funds Investment

ELSS (Equity Linked Savings Scheme) Funds are the open ended equity mutual fund that helps you to save tax and to grow your investment by capital appreciation.

ELSS are the most preferred tax Savings Avenue for assesses nowadays. There are few mistakes /Misconceptions which has to be avoided while investing in the ELSS Funds.

1) Purchase on Last day of Financial Year:

ELSS Funds purchased during the financial year is allowed to get exempted from income of the Tax Payer under Sec 80 C of Income tax act up to maximum of Rs 1.5 Lakhs. Units of the ELSS Funds has to be in demat/folio before 31^st March of every year.

# Few Investors purchase ELSS Funds on the last minute/last day of Financial Year to avoid taxes. ELSS funds has cut off timing at 2.00 PM on all working days. If it is invested after 2.00 pm on last working day. Allotment of units takes T+1 days by the AMC. So units gets allotted only in the next financial year. This will not qualify for the Income Tax Deductions.

For FY 19-20, Investments made 29^th March 2019 before 2.00 pm gets qualify for the Tax Deductions. Since 30^th and 31^st are holiday for the Mutual Funds.

Mentotax Recommends to Invest in ELSS Funds via SIP to avoid last minute hurdles.

2) Investing in Normal Funds:

In rush to avoid taxes, People invest in normal funds by mistake instead of ELSS Funds in the last minute. Planning your taxes in the beginning of financial year is advisable. Investment in normal funds will not qualify for tax deductions.

# Investing in normal funds by mistake and redeeming it to purchase ELSS Funds is time consuming and involves cost. Normal Funds redemption will take minimum T+2 days for proceeds to hit your account and they carry carry exit load of 1% if it is redeemed before 1 year from date of purchase.

Mentotax advises you to select the ELSS Funds correctly before Investing.

3) Holdings of ELSS Funds

ELSS fund have statutory lock in period of 3 years. Few Investors have misconception that they can claim tax deductions for next 3 years on the investment and holdings in ELSS funds.

# New Investments made during the financial year only will qualify for the tax deductions and Assesse shall not claim tax benefits on the holdings of ELSS Funds purchased during the previous financial years.

4) Lock In for 3 Financial Year:

ELSS Funds invested will have to be held for minimum 3 years from the date of allotments of units. Each Purchase will have compulsory 3 years lock in period.

# Few Investors have misinterpretation that ELSS fund have lock in period of 3 financial year. Units will be available for redemption only if each investment completes 3 year from the date of allotment of units.

Example:

Investor purchased ELSS Fund on 5^th of April 2019, and units gets allotted on 6^th of April 2019. It will be available for redemption only on 7^th of April 2022. Each Purchase will have 3 year lock in period and not all the investment made on 2019 is available for redemption in 2022. And people also think that it has to be redeemed after 3 years. Your investment grows as long as it is invested.

5) Taxation:

ELSS Funds qualify for the Tax deduction every year on the investments but attracts Long Term Capital Gain (LTCG) Tax of 10% for the redeemed portion in excess of Rs 1.00 Lakh every year.

# Assesse think that ELSS Funds can be redeemed after 3 years without tax liability on the investment and capital appreciation. But it is only allowed up to Rs 1.00 Lakh/Year. If the amount redeemed exceeds Rs 1.00 Lakhs, Tax Payer has to pay 10% LTCG on the proceeds.

Mentotax recommends to Invest in ELSS Funds even though it attracts LTCG Tax of 10% for amount exceeding Rs 1.00 Lakhs because of Potential capital appreciation and Compounded returns in ELSS Funds.

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5 Things to Know Before Investing in ELSS Funds

Equity Linked Saving Scheme (ELSS) are the great options for tax saving investments. ELSS Funds have statutory lock in period of 3 Years. So once the money is invested it cannot be redeemed until the lock in tenure is completed. It is always recommended to analyse and invest in better Elss funds.

Mentotax brings you 5 Things to Know before investing in ELSS Funds:

# AUM Size:

First and foremost thing that you have to look in a ELSS Fund is the Asset Under Management (AUM). AUM is the total assets that the fund is holding in the market. Higher AUM Size indicate the positive and stability of the fund.

# Expense Ratio:

Expense ratio is the fee charged by the Asset management company to manage the assets/investments of the investor. It is otherwise known as funds utilized for operative and administrative expenses of the scheme. Lower expense ratio indicate better the ELSS Funds. Be Specific while selecting ELSS Funds with lesser expense ratio.

# Standard Deviation:

Standard deviation measures the volatility of the returns in relation to the bench marked/Average return. SD Infers how much the fund can deviate from the historical returns of the scheme. If Standard deviation is higher, Volatility of the fund is also higher. Mentotax recommends to prefer the fund with lower Standard deviation.

Example: Standard deviation of the fund is 4% and Average return of the fund is 10%. It refers that fund may give return 6% to 14%

# Sharp Ratio:

Sharp ratio measures risk adjusted return. It helps investor return of investment compared to its risk. Sharp ratio is the average return earned in excess of the risk free rate. Sharp ratio can be used as powerful tool for fund selection and compare between two funds for additional return for the same risk. Greater the sharp ratio, More attractive the risk adjusted return of the fund.

Sharp ratio= (Average Fund Return – Risk free Rate)/Standard deviation of the fund.

# Treynor Ratio:

Treynor ratio is also used for measuring risk adjusted return. It infers returns in excess of what could have been earned on the riskless investment for each unit of risk taken. Treynor ratio indicates the reward to investors for taking the investment risk. Higher the treynor ratio, better is the risk adjusted return of the fund.

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Equity Linked Savings Scheme (ELSS) Funds

Equity Linked Saving Scheme (ELSS) is a type of mutual funds which invest at least 80% of the portfolio in equity instruments. ELSS Investments qualify for the tax benefits under section 80C of income tax act up to maximum of Rs 1,50,000/-

ELSS Fund offers Tax Benefits on the investment because most of the funds are utilised for the economic growth of the country. ELSS funds will have a minimum lock in period of 3 Years. Investing in ELSS has given better returns compared with other small savings instruments like Public Provident Fund (PPF), National Savings Certificate (NSC) etc

Mentotax recommends to Invest in ELSS for the following reasons:

# Save Tax:

Investing in ELSS funds can save tax up to Rs 46800 for person in 30% Tax slab, Rs 31200 for assesse in 20% Tax Slab and Rs 7800 for those who are in 5% Tax Slab.

# Create Wealth:

Elss funds help the investors to create wealth in long term by capital appreciation of the amount invested. Equity has delivered better returns compared to other asset classes over the years

# Short Lock In Period:

ELSS Funds have minimum lock in period of 3 Years. Compared with other small savings instruments like Public Provident Fund (PPF) has got 15 Years.

# Invest Small:

Investors can invest as small as Rs 500/- in ELSS Fund and no maximum cap on investments.

# Compounding Benefits:

ELSS fund delivers compounding benefits on the investment. It is always recommended to invest as early as possible.

#Systematic Approach:

ELSS fund can be invested via Systematic Investment Plan, Investing Regularly for the fixed sum of amount for Pre fixed Tenure. SIP gives better rupee cost averaging.

# Diversification:

ELSS Funds invest in various sectors, Companies across the equity segment. Investing in ELSS is always consider superior compared to direct equity.

# Tax Free Gains:

Capital Gains Up to Rs 1,00,000/- is exempted from Long Term Capital Gain Tax redeemed per financial Year.

# Inflation Beating Returns:

Inflation Is the general rise of Price levels. ELSS Funds Outperformed inflation beating returns compared to other traditional investments like Bank FD etc

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Guide to Mutual Fund Investment – Part 2

Yesterday, we have read about framework of mutual funds and how to start mutual fund investments.

Mentotax will guide us to various types of mutual funds available for investment

Mutual Funds are classified based on structure, Asset Class, Market Capitalisation, Investment Objectives, Solution Oriented funds.

# Based on Structure:

Open Ended Funds:

Open ended funds are open for investors to enter or exit at any time. Open funds are more liquid and easily available for purchase/redeem.

Close Ended Funds:

Close ended funds have fixed maturity. Funds can be purchased only through NFO(New Fund Offer). And few funds trade post NFO in stock exchange. Close ended fund are less liquid compared with open ended funds

Interval Funds:

Interval Funds have both the characteristics of Open ended and close ended funds. Interval funds have fixed maturity but fund will be open for investors to buy/Sell during transaction period. Transaction Period is when the fund scheme become open ended, will be available for repurchase and redemption.

# Based on Asset Class:

Equity Funds:

Equity funds of the mutual fund scheme invests in the equity instruments issued by the company. These funds have more than 65% of exposure in the equity instruments. Equity funds target long term appreciation from the gains in the value of securities held. Equity funds are further classified into various categories based on Market Capitalization, Sector Funds, ELSS.

Debt Fund:

Debt Funds of the mutual fund scheme invests in the debt instruments issued by the governments, Companies. These funds invest more than 65% in the debt Instruments. Debt funds represents Income oriented asset, and generate regular income in the form of interest. Debt funds are further classified based on tenure, Issuer, Investment Strategy.

Hybrid Funds:

Hybrid funds of the scheme invest in both the equity and debt instruments based on the objective of the fund. Risk and return of the funds depends on the allocation of funds. Risk and return is higher if equity exposure is higher. Hybrid Funds are classified further based on Conservative, balanced, Aggressive funds.

# Based on Investment Objective:

Growth Funds:

Growth fund scheme invest the money in the equity instruments and it provides capital appreciation for the investors in the long term.

Income Funds:

Income fund scheme invest the money in debt instruments of the company, Government and it provided regular income and capital protection for the investors.

Liquid Funds:

Liquid fund scheme invest the money in the T-Bills, Commercial Papers issued by the companies and It provides reasonable returns with more liquidity.

# Based on Solutions Oriented Schemes:

Retirement Fund:

Retirement fund is an open ended solution oriented fund. It has 5 Year Lock in period for the investment. It provides capital appreciation and regular income.

Children Fund:

Children fund is an open ended Solution oriented fund. It invest in wide spectrum of securities. It has 5 year lock in or until child attains majority whichever is earlier. It provides capital appreciation on investments.

There are lot more classification of funds. We will learn as we proceed further.

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Guide To Mutual Fund Investment

Mutual fund is an entity that pools money from many investors to purchase securities like company shares, Bonds, Commercial Papers, Sovereign Bonds etc. Capital collected by the mutual fund is professionally managed by the Fund Manager. Mutual Fund in India is regulated by Securities and Exchange Board of India. AMFI (Association of Mutual Funds in India) is a self-regulatory organisation which governs the professional and ethical standards and also promotes mutual funds.

Few might be aware of Asset management companies, but what about the other companies involved in mutual fund?? Come Lets Learn!! Mentotax will guide you.

Mutual Fund is formed as a Trust, Trust is governed by trust deed and Trust Acts through trustees. Trust is created by one or more sponsors, beneficiaries of the trust are the investors who has pooled money for the common objective.Trustees appoint Asset Management Company to handle the day to day operations of the fund. Securities (Shares, Gold, Bonds, etc) of the mutual fund are held by the custodians appointed by the trustees. Investors has the flexibility to invest in various schemes of mutual fund, Investors records and holdings are maintained by Registrar and Transfer agents appointed by AMC.

Lets see about SBI Mutual Fund:

Mutual Fund            SBI Mutual Fund

Sponsor                    State Bank of India

Trustee                     SBI Mutual Fund Trustee Company Pvt Ltd

AMC                         SBI Fund Management Pvt Ltd

Custodian                 SBI Global Securities Pvt Ltd

RTA                          Computer Age Management Services (CAMS) Pvt Ltd.

Mutual Fund advantages:

Professionally Managed by Fund Managers, Well regulated by SEBI, Liquidity, Diversification of funds,Transparency, Affordability, Tax Deductions, and Systematic Approach to Investments.

Mutual Fund offers various types of funds based on the asset class, Structure, Investment Objectives, and Solution Oriented Funds.

How to Start Investing in Mutual Fund?

To start investing in Mutual Fund, Investor must undergo the Central Know Your Customer (CKYC). It is a one-time Identity verification process. Investor needs to submit the identity and address proof to complete the KYC. Central KYC is an initiative by Government of India which eliminates the burden of producing KYC documents and getting verified every time investors deals with financial entity. CKYC Records are maintained by CERSAI. Once CKYC of the investor is completed, He/She can invest in any mutual fund in India.

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