Ways to Utilise Your Tax Refund

Ways to utilise the Tax Refund:

Tax filing season has started, it is always advised to file tax at the earliest and get back the tax refund. Rupee today is more valuable than rupee tomorrow. Mentotax has recommended the following ways to utilise the tax refund.

Boost the Emergency Corpus:

It is always recommended to have emergency corpus equivalent to 6 month salary/expenses. Emergency corpus plays a vital role in financial planning. Every year our salary grows, so you can utilise the tax refund to boost the emergency corpus.

Pay Credit Card Bills:

Employ your tax refund to pay off the credit card dues. Using credit cards will never help you to attain financial freedom. It eats your future income and savings. Mentotax advises to use the tax refund to pay off the credit cards.

Park Your Funds in PPF/NPS/ELSS:

You can park the tax refund in any of the tax saving instruments like PPF/NPS/ELSS. Tax Refund is like extra income to you. Mentotax recommends utilising the funds to reduce the tax burden and thereby increase the return from investments. Your direct return from investments will be up to your tax slab plus return from (PPF/NPS/ELSS) investments.

If you are in 20% Tax bracket and parking funds in PPF, your return from investment will be (20% + 8% =28%).

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Know About The 3'S of Mutual Funds

Mutual Fund is a professionally managed investment fund that pools money from many investors to purchase the securities. There are three important aspects we need to know in mutual funds.

• Systematic Investment Plan
• Systematic Withdrawal Plan
• Systematic Transfer Plan

If these three are used in right manner, Investor can avail lot of benefits and create wealth over the time.

Systematic Investment Plan: Systematic Investment Plan allows you to invest specific sum of amount on regular intervals it can be Weekly, Monthly, Quarterly, and Yearly. In the long time horizon, Disciplined SIP Investments can average the Highs and lows of the market giving investors the better rupee cost averaging and compounding.

• Advantages: SIP can be used as a tool to start funding your financial goals and to accumulate wealth. SIP admits to invest small amount, Reduces market volatility, SIP encourages saving money. Investors need not time the market, flexible for investors to select any regular interval.
• Disadvantages: If any SIP is missed because of Insufficient funds in the investor account, Bank may charge the ECS return fee. It is always advised to keep sufficient funds in your savings account.

Systematic Withdrawal Plan: Systematic Withdrawal Plan is opposite to the Systematic Investment Plan. SWP is a facility offered by mutual funds to redeem Specific units/Specific amount          at regular intervals.  SWP allows the investor to exit the investments for meeting the short term goals and to meet monthly expenses. SWP can be availed Monthly, Quarterly and Yearly.

Systematic Withdrawal Plan can be used in distribution phase of life. SWP to create income from the investments for things like, Monthly income after retirement, Surplus Funds parking, Children Education, Pay Emi, Pay Bills etc .

• Advantages: SWP helps to redeem the investment without any exit load up to certain limit. SWP helps to rebalance the portfolio; Investor can avoid Long Term Capital Gain tax up to Rs 1.00 Lakh on gains redeemed amount per financial year. Better rupee cost averaging on the withdrawn amount.
• Disadvantages: Customer may incur exit load charges if the redeemed amount is higher than the free limit. Investor need to maintain minimum funds with the AMC. Investor will get only returns on the invested portion.

Systematic Transfer Plan: Systematic Transfer Plan is an automated process of moving funds from one fund to another fund. STP helps to mitigate the risk associated and help to deploy money in different funds. When Investor wants to Split the Lump sum credit in one fund to several funds, STP helps to transfer money in various asset classes like equity and Debt.

• Advantages: STP will help you to mitigate the risk wisely and Investor can regularly transfer from high risk exposure to low risk exposure based on risk appetite and age of Investor. Steady Returns and Fixed Income can be generated via STP. Reallocation and Rebalancing of funds can be done using STP
• Disadvantages: Investor may incur Exit load on transfer of funds. Investor needs to maintain minimum investment prescribed by AMC. Debt funds transferred before 3 years attract STCG Tax.

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Attributes of Systematic Investment Plan

Systematic Investment Plan is an investment vehicle offered by Mutual Funds to investors allowing them to invest small amounts regularly. SIP are planned approach towards Investment.

There are various features of systematic Investment Plan.

* Investor can choose Any Date for SIP
* Investor can invest any amount without restriction via SIP
* Investor can increase or decrease SIP amount anytime.
* Investor can redeem partially or fully any time
* Investor can Stop SIP anytime.
* Investor can cancel Sip and Let the funds to grow.
* Investor need not time the market to start SIP.

Mentotax recommends you to invest  via SIP to create wealth in different asset classes.

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Utilise the Best Out of Your Bonus

Bonus season has started!! Appraisals , Yearly Increments and Performance Bonus. Bonus is reward for the excellent contribution you made for the growth of the organisation. This is the month where you get extra credit into your salary account. There are many ways to put your bonus work for you.

Mentotax is here to guide you to utilise the funds wisely.

Plan your family vacation:
You have worked so hard for the year and earned good appraisals. It's time to celebrate the occasion and relax to make yourself powerful. Plan a trip along with family using your bonus.

Pay off Debts:
Paying off the credit card bills, personal loans are recommended as they charge high interest. Utilise the bonus to prepay the debts.

Build Emergency Corpus
Employ your bonus to build the Emergency corpus equivalent to six months expenses of your family. Emergency corpus plays vital role in financial stability.

Invest in yourself:
Use the bonus to enhance your skills, start participating in workshops, seminars, conference. Pay subscribtions to periodicals, Association using the bonus. 

Reduce your taxes:
Work with your bonus to earn maximum salary to your pocket instead of paying taxes. Invest your bonus in NPS, ELSS Funds, PPF account based on your risk appetite, Time horizon and Tax Slab.

Boost your Insurance Portfolio:
Enhance your term insurance plans and top up your health insurance utilising the bonus. Have a maximum cover so that your family will not face any trouble in your absence.

Start new SIP/STP:
Invest wisely to get maximum out of bonus, park Ur bonus in liquid fund and start STP in equity funds. And enhance your existing SIP by 10% for better returns.

Invest for your childrens future:
Direct the bonus in savings scheme like Suganya Samruthi Yojana, Childrens Fund to save for the child future. Longer the Investment, better is the compounding and return.

Start Investing on New Initiatives:
Utilise the bonus to set up your own band , start a small green house farming for vegetables, Buy a musical instrument , make your home energy efficient to reduce electricity bills, buy a bicycle for cycling , Buydgets to enhance your effeciency.

Mentotax recommends to utilise your bonus wisely and make most out of it. Plan your finances well and attain financial freedom.

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Investing in Bonds

Bonds are the debt instruments which gives fixed income for the investor. Bonds are issued by Government or Corporate Companies to raise money for the new project. Bond issuer is obligated to pay interest and repay the principal upon maturity to the investor. Bonds are used to raise debts, When investor purchase the bonds, they are lending money to the issuer. Issuer will pay  specified rate of interest during the bond term and face value on maturity.

Various Types of Bonds:

1) G-Sec Bonds

2) Corporate Bonds

3) Tax Free Bonds

4) Gold Sovereign Bonds

Benefits of Investing in Bonds:

Bonds provide regular income by interest from issuer. Bonds also provides capital preservation, Issuer repays the principal on maturity of bonds. Investing in Capital Gains in Bonds give you tax exemption on Investment. Investing in bonds gives diversification to your portfolio.

Tax Benefits On Bonds:

Tax on Long Term Capital Gains up to Rs 50 Lakhs can be exempted by investing in 54 EC bonds. Interest on 54EC bonds are taxed as per slab.

Listed Bonds:

Tax on Interest - Taxed at slab rate

Short Term Capital Gains - Taxed at slab rate

Long Term Capital Gains - Taxed at 10% ( More than 1 Year)

Tax Free Bonds:

Tax on Interest - Tax Free

Short Term Capital Gains - Taxed at slab rate

Long Term Capital Gains - Taxed at 10%

(if transferred after 1 year - Listed Bonds)

Long Term Capital Gains - Taxed at 20%

(If transferred after 3 year - Unlisted Bonds)

Mentotax recommends to diversify your portfolio by investing in regular income instruments (Bonds) as per your risk appetite considerating the age factor of investor.

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Power of Compounding

Power of Compounding:

Compounding is simply interest earned on interest. It is also referred as reinvestment of earnings at the same rate of return. Compounding is more powerful tool, it makes your money work harder for you and earn extra penny.

Earlier you start investing, Greater will be the power of Compounding. It provides multiplier effect on Investment.

Stay Invested for longer to enjoy the power of compounding. Even small investment can fetch you better return if invested for longer horizon.

Compounding effect is the eighth wonder of the world. He who understands it, earns it.

Simple Interest:

Formula: (P x N x R)/100

Compound Interest:

Formula: P x (1+R)^N

P - Principle amount

N - Number of years

R - Rate of interest

Let's compare Simple Return Vs Compounded Return

Assume We have invested Rs 1000 in two different accounts. One gives Simple Interest and another gives compounded Interest. Interest rate of both the accounts is 8% and deposited for 20 years.

In Simple Interest, You will earn interest of Rs 80/- at first year and by the end of 20th year your Investment would have grown up to Rs 2600/-

In Compounded Interest, You will earn the same interest of Rs 80/- but next year interest will be added to the principal. You will start earning interest for Rs 1080/-  By end of the 20th year  your Investment would have grown up to Rs 4660/-

That's the power of compounding. For the same period and same amount , Compounded return has delivered better and powerful returns.

Compounding does not provide immediate results. Start investing early and keep invested  to enjoy the benefits.

Mentotax recommends you to invest wisely and as early as possible. Compounding is a magic, your investment should enjoy the magic touch.

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It's Not My Money or Your Money, It's Our Money

Most of us know the importance of discussing  money matters. Nowadays both the members in family are earning, it is always recommend to have good financial planning and healthy money habits. We need to develop attitude to see both income and expenses are shared equally.

Mentotax recommends the following for the healthy family finance:

Include entire family in financial discussion:

Sit down together with family include your children too for jotting down family spending plan and to know your family income. Focus on things that are important for family, you will surely find ways to cut the expenses and improve your savings. Teach money management to children from young age.

Have separate expenses account to monitor the progress. Share equally among the earning members.

Keep Your Life Goals in Front:

It's always important to know, what we need as a family together and ways to acheive it. Financial goals should be clearly defined so that earning members can fund to accomplish the goal. Always remember to keep the life goals in front.

Financial goals may be family vacation, children higher education, children marriage, retirement corpus, buying home,car etc

Save Together, Spend Together and Invest Together

When you have decided on what family is needed, it is always important to save together first and spend later. Funding should be from both the earning members so that importance of goals are felt. It will help family to know the best value of money. Investment decision should be taken wisely based on the income, savings, risk appetite of the family. Start Cultivating Investment habits in children.

Mentotax advises to always have check on the spendings, Improve your savings and Invest the saved amount in best financial products.

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