Financial Cocktail Samosas: Bitesized Money Morsels For You, 15/02/2023

Which Tax Regime for You After Budget 2023 – Old or New?

The budget has been released with the introduction of big favourable changes to the new tax regime, further confusing the issue – which tax regime you should opt for now?

Under the old tax regime, you were allowed to claim various deductions and reduce your tax liability. On the other hand, the new tax regime has a more favourable (lower) tax rate. Additionally, you are not required to pay any taxes if your income is up to 7 lakhs. However, you will have to forego most deductions and exemptions, including those under Section 80C (maximum of ₹1.5 lakhs) that can be claimed by investing in specified financial products, Section 80D for health insurance premium paid, exemption on interest of home loan, etc.

Choosing between the old and new tax regime depends on the total amount of deductions and exemptions you are availing of in a financial year and how much you save.

So, Which Tax Regime Would Be Good For You?
When you claim fewer or no deductions and exemptions, the new tax regime may be more beneficial for you. Conversely, for an individual with a higher income and eligible for deductions and exemptions, the old tax regime may prove to be more advantageous.

Therefore, it is necessary for you to compile a list of all your deductions and exemptions that you actually claim in the next financial year, FY 2023-24. You can then compare the tax you will need to pay by entering the relevant details into tax calculators for both regimes and determining which one is more suitable for you.

If you are a Hum Fauji client, the way ahead is much simpler for you. Please consult your financial planner and he/she would be glad to assist you. Just provide your estimated details, your planner will perform the calculations for you and help you plan for the next year with respect to the course of action you should follow.

(Contributed by Yogesh Gola, Financial Planner, Team Vikrant, Hum Fauji Initiatives)

Breaking the MYTHs of Mutual Funds with FACTs

Despite numerous investment options available, Mutual Funds (MFs) are still considered one of the best and most convenient ways to invest your money. One of the biggest advantages is that your funds will be professionally managed by experienced fund managers who have conducted thorough market research. It is one of the most popular investment options in India.

However, popularity comes with certain misconceptions and myths. The investment industry, like any other, is not immune to rumours and false information. Below are some of the common myths about MFs that abound and need to be debunked.

Myth 1: To Invest in MFs, One Needs a Substantial Amount of Money.

Fact: Investing in MFs does not require a large amount of money, though there is no limit on the maximum investment amount. Rs 5000 is considered a bulk investment in MFs! Through Systematic Investment Plans (SIPs), investors can start investing with as little as Rs. 500. This means that one does not have to be wealthy to invest in MFs. In fact, MFs are the most suited all-encompassing investment avenue for the common person in India.

Myth 2: Mutual Fund schemes having lower NAV (Net Asset Value) are better.

Fact: Regardless of whether you choose to invest in small-cap or large-cap MFs or any other MF scheme, NAV is the total value at that time of all the underlying assets that make up the fund. The difference in a mutual fund’s NAV between two distinct periods reflects the performance of the fund. As a result, comparing the NAVs of different MFs does not determine the choice of a particular mutual fund. The NAV of an MF and the market price of a stock are two totally different concepts and should not be confused.

Myth 3: New Fund Offer (NFO) means a MF is available cheaply.

Fact: NFO is just the starting point of the journey of a new MF. How it will perform in due course of time will entirely depend on how well it is managed. If it doesn’t perform well, its NAV can even go negative. So, investing in an NFO is like taking a bet on a newly born baby that she will become the Prime Minister of India or Sania Mirza when she grows up! Just stay away from all NFOs irrespective of the hype created by them in the media. Invest in MFs once they have at least 3 years of track-record to show.

Myth 4: Buying top-rated schemes ensure better returns:

Fact: MF schemes are rated based on their performance over a time period that is subject to market changes. Top-ranked schemes may or may not retain their ranking in the future. Regular monitoring of its strategy, performance and stock holdings is very important and cannot be overlooked.

When handled correctly, investing in MFs can be one of the best ways to grow your wealth. Make informed investment decisions and shun sources like Whatsapp forwards and 24X7 TV channels to make important investment decisions.

(Contributed by Ujjawal Dubey, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)

Framework for Sovereign Green Bonds (SGrB)

In the Government’s first-ever debt offering to raise money for green initiatives, the Reserve Bank of India has issued 160 billion rupees worth of Sovereign Green Bonds in two tranches.

What are sovereign green bonds?
According to the World Bank, a green bond is a debt security that is issued to raise money for initiatives that are beneficial to the environment and the climate. Governments offer sovereign green bonds to raise money for these initiatives. The proceeds get deployed in public sector projects which help in reducing the carbon intensity of the economy.

The Projects in which government will invest
The framework includes investments in projects for renewable energy sources like solar, wind, biomass, and hydropower as well as initiatives for urban rail transit, green construction, and pollution prevention and control. Projects which use fossil fuels, nuclear energy, and direct waste incineration were disallowed by the government.

How are green bonds issued?
The government has sold some green bonds in two tranches of Rs 8,000 crore each through two auctions already. More may follow soon. These bonds, which can be traded similarly to other government bonds, will have maturities of five and ten years.

Want to know more about caring for our environment through these Green Bonds?
You may read these two recently published articles with inputs by our CEO, Col Sanjeev Govila (retd):-

(Contributed by Sweta Kumari, Financial Planner, Team Arjun. Hum Fauji Initiatives)

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