| Investing | |
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| 'Risk-free' just got riskier. Give your portfolio a healthy dose of equity. | |
| by Rajesh Gajra, Tejas P. Bhope and Vishal Chhabria (@outlookmoney.com) 1998. You have your financial plan all charted out, and you’re sitting pretty. Not for you the horrors of a stock market scam (1992 is still fresh in investing memory) or a company deposits scam (the CRB case). You’re pretty well insulated even from the overall recession in the economy, thanks to your investments in a clutch of small savings schemes and infrastructure bonds. You not only get double-digit returns from these investments, you get preferential tax treatment–interest on your PPF investment is totally exempt from tax, and that from post office schemes, NSC and bank deposits gets relief of up toRs 12,000 under Section 80L. Even better, the 20 per cent tax rebate under Section 88 means that your investments in NSC and PPF give you returns of 15.5 per cent instead of the official 12 per cent. Things are going great and likely to stay that way, you think, and go into a virtual coma for the next six years as far as investing is concerned. 2005. The buzz is so loud, you wake with a start. Have you gone mad or has the world turned topsy-turvy? Policy changes, new regulations, newer trading mechanisms... In a little over half a decade, there have been so many developments in the investing world that virtually every aspect of your personal finance–from the way your salary is structured, to how much tax you’ll pay, to your choice of tax-savers, to the returns you get on investments–must be reviewed. Thanks to changes in income tax rules, your small savings investments now fetch returns of 8 per cent, so you get Rs 8,000 on a Rs 1 lakh investment in NSC (seven years ago, you got Rs 12,000). And even that is taxed, so you effectively get Rs 5,600. Factor in inflation (currently at 5 per cent), and your returns will dwindle further. Standard deduction has been scrapped, and thanks to the new fringe benefits tax, your employer has hastily restructured your salary to exclude all tax-free perquisites. Deductions of up to Rs 1 lakh are now available under Sec. 80C against equivalent amounts invested in thePPF, NSC, life policies, equity-linked savings schemes (ELSS) and other qualifying instruments. And people across income levels and tax slabs get the same benefit. In the highest tax bracket, this means you’ll save Rs 30,000 instead of Rs 15,000 you would have saved earlier via rebates under Sec. 88. You may wonder where things will go from here. Quovadis? Historians say that to know the future, you must study the past. For the past seven years, we’ve been predicting these changes and have tried to prepare you for them. Now, we look at recent developments, and predict where we are headed. | |
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