Financial Cocktail Samosas: Bitesized Money Morsels For You, 14/06/2023

You often get messages and calls from your bank asking you to increase the credit limit for free. Let’s see if you should do so?

Pros of Increasing Credit Card Limit:

🟢 Lower Credit Utilization Ratio: Increasing your credit limit can lower your credit utilization ratio, which is the percentage of your available credit that you’re currently using. It has a positive impact on your credit score, as it demonstrates responsible credit management.

🟢 Financial Flexibility: Increasing your credit card limit can provide you with additional financial flexibility. It can act as a safety net for unexpected expenses or emergencies when you need extra funds.

🟢 Rewards and Benefits: Some credit cards offer attractive rewards programs, cashback incentives, or other benefits tied to increased spending. By increasing your credit limit, you can take advantage of these rewards and potentially earn more value from your card.

Cons of Increasing Credit Card Limit:

🔴 The temptation to Overspend: Having a higher credit limit may lead to an increased risk of accumulating debt that you may struggle to repay, especially if you have poor spending habits or lack financial discipline.

🔴 Potential Debt Burden: Increasing your credit card limit without a clear repayment plan can lead to increased debt burdens and financial strain. It’s important to use credit responsibly and avoid accumulating excessive debt that you may struggle to repay.

Before deciding to increase your credit card limit, carefully consider your financial habits, spending discipline, and ability to manage debt responsibly. It’s crucial to use credit cards as a tool for convenience and financial management rather than a means to live beyond your means.

(Contributed by Abhilash S Rana, Financial Planner, Team HNI Desk, Hum Fauji Initiatives)

The last Union Budget has made the new tax regime very attractive and lot many people are likely to shift to it. However, the fact that the new tax regime does not give the 80C tax benefits, under which the mutual funds’ ELSS (Equity Linked Savings Scheme) falls, as also many of the favourite other tax saving schemes like life insurance, PPF, EPF etc, a natural question is – should you continue with your ELSS scheme?

Should you stop investing in ELSS funds, if you have opted for the New Income Tax regime?

ELSS is a pure equity mutual fund. In our opinion, its lock-in feature is a positive point for it. Equity mutual funds are recommended for a time horizon of at least 5 years. Hence, the compulsory 3-year lock-in of ELSS is not at all a point of concern. Its lock-in period brings much-needed discipline among investors and helps keep market-linked anxieties at bay.

Another advantage of ELSS is that, since the fund manager knows that the money in an ELSS fund comes for a long term due to the lock-in, he/she takes a long-term view of the investments and that is precisely what an equity investment needs. That is why you would typically find ELSS schemes faring better than most other diversified equity funds.

So, what do we recommend to you if you’re planning to transit to the New Tax Regime?

We recommend you continue with your ELSS SIPs and also continue with the part of investments in ELSS which are out of the 3-year lock-in. We strongly believe that they are good as an investment by themselves even though you would not get tax deductions out of it. Please treat it now as a good investment product rather than something meant for tax saving only.

(Contributed by Gautam Arora, Associate Financial Planner, Team Sukhoi, Hum Fauji Initiatives)

Takeoff is Easy, but Landing Is Crucial: A Guide to Successful Investing

🟢 Takeoff: Choosing Wisely
When you’re planning a trip, you carefully choose your destination and consider factors like weather, activities, and of course, the budget. Similarly, in investing, you should define your financial goals and assess your risk tolerance. Once you know what you’re working towards, you can diversify your investment portfolio with different assets, such as stocks, bonds, and real estate.

🟢 Flight: Monitoring and Adjusting
During a trip, you stay informed about weather changes or unexpected events. Similarly, in investing, you should regularly evaluate the performance of your investments. Keep an eye on market trends, economic indicators, and company news that may affect your portfolio. If you notice any deviations from your goals or shifts in the market, consider rebalancing your portfolio.

🟢 Landing: Finally Achieving Goals – the most important part of the Journey
As your trip nears its end, it’s time to enjoy the destination. Similarly, in investing, as you approach your financial goals, you should consider your time horizon. If you’re close to retirement or achieving a short-term goal, gradually shift investments to more stable options. Plan your exit strategy, determining how and when to liquidate your investments to fund your goals. Seeking professional guidance can help you navigate any uncertainties and make informed decisions.

Conclusion

In the world of investing, takeoff is optional, but landing is compulsory. Choose investments wisely, monitor their performance, and make necessary adjustments. With the right mindset and informed decisions, you can achieve your financial goals and enjoy a prosperous investment journey.

(Contributed by Ankit Kumar Singh, Associate Financial Planner, Team Sukhoi, Hum Fauji Initiatives)

What Did Our Clients Ask Us in the Past 7 Days?

Question1. Should I redeem my whole portfolio with this recession/global uncertainty fear looming large and reinvest when the market is at its bottom to get the best rates?

Making investment decisions in uncertain times, such as a recession, can be challenging. It’s important to remember that the financial markets can be unpredictable, and attempting to time the market will lead you to make imprudent decisions. The only thing that will happen, if we try to do so, is that we will interfere with the process of compounding and ‘donate’ a lot to nation-building by giving high capital gains taxes.

In the words of the Godfather of investments, Warren Buffett, “One should always be fearful when others are greedy and greedy when others are fearful”.

The markets have always gone up over the long term. So, if your investment horizon is between 5 to 15 years, there is only one direction in which your corpus is headed – UP⬆️

Remember that markets tend to go through cycles, including periods of recession and recovery. Trying to time the market can be challenging and almost impossible – long-term investing tends to yield far better results than short-term speculation.

Question2. My son is 5 years old as of now. Which is the best-recommended investment option for planning for my child’s education coming up after 15 years?

Investing for a child’s future is one of the biggest goals of every parent. Let’s evaluate the popular investments option available in India to invest for your son:-

1️⃣ FDs: Poor returns and heavy losses due to taxation. Ultimately ‘negative’ post-tax-and-inflation returns.
2️⃣ Insurance Policies: It is the worst choice for investment purposes. It has a small insurance component that your child doesn’t need and has bad investment options clubbed with it.
3️⃣ Provident Funds: Reasonable returns but returns of about 7-8% per annum are not adequate to beat the way inflation and education costs are rising.
4️⃣ Mutual Funds: Only equity (stock) based investments can meet your child’s education requirements because the long-term returns will typically be double of inflation rates and a small 10% tax will still ensure your money grows in net terms. Equity Mutual Funds with a SIP facility would meet the requirement in the best manner.

You can open an investment account in your child’s name where you can make investments in the combination of lock-in free equity funds and/or locked children-oriented mutual funds. This will help prevent impulsive decisions based on short-term market volatility and follow the profitable disciplined approach of investments by default.

(Contributed by Team Vikrant, Hum Fauji Initiatives)