Financial Cocktail Samosas: Bitesized Money Morsels For You, 21/08/2024

The 2024 Union Budget has introduced significant changes in how long-term capital gains (LTCG) from real estate transactions are taxed, bringing a mixed bag of implications for homeowners and investors.

The Key Changes:

1. No More Indexation Benefits: If you buy a property after July 23, 2024, you won’t be able to adjust your purchase price for inflation when you sell it. This means when you calculate your gains, the amount might be higher, leading to a bigger tax bill.

2. Lower LTCG Tax Rate: The good news? The tax rate on these gains has dropped from 20% to 12.5%. This makes things simpler and can lower the tax for many, especially if you’ve owned your property for a shorter time.

3. Choices for Older Properties: For all the property owners who acquired their assets before July 23, 2024, they have the option to choose between paying a 20% LTCG tax with indexation or a 12.5% tax without indexation. This allows flexibility for property owners to opt for the more beneficial tax regime depending on their specific circumstances.

What Does This Mean for You?
If you’ve held onto your property for a long time, the lower tax rate might offset the loss of indexation benefits. But if you’re a real estate investor with shorter holding periods, you might see a higher tax bill.
These changes have their pros and cons. So it’s important to weigh your options and possibly consult a tax professional to make the best decision for your situation.

(Contributed by Abhilash Rana, Relationship Manager, HNI Desk, Hum Fauji Initiatives)

From Tokyo to Mumbai: The consequences of Japan’s maker turmoil on India

Japan, the land of the rising sun, recently saw its stock market take a sharp dip, taking the world’s stock markets down with it.
What caused this sudden drop? Should Indian investors be worried?
Let’s break it down.

What happened in Japan?
Japan’s market has been on a wild ride. The Bank of Japan‘s easy-money policies had inflated their asset prices, creating a bubble. The Yen was also being used for ‘carry over’ trades wherein yen was being borrowed at a low cost to invest in other currencies and assets offering higher yields. But with BoJ raising its interest rates, the yen strengthened and the carry over trades (where traders used to pitch Yen against the dollar in complicated trading) collapsed leading to big sell-offs. Japanese companies, especially exporters, felt the heat and the Japanese stock markets went down big time. The ripples were echoed across all markets of the world.

How Does This Impact India?
India, with its strong domestic economy, might not feel the direct impact. Our stock market has been doing well despite global challenges. However, no country is completely insulated from global events. A weaker Japanese economy could affect Indian exports in certain select sectors like automobiles and electronics.

You can clearly see the reflection below as India’s market is demonstrating remarkable resilience, continuing its upward trajectory despite Japan’s market volatility.

What Should You Do?
Don’t panic. Markets go up and down—that’s their nature. For long-term investors, these dips can be opportunities to buy good investments at lower prices. It’s essential to stay diversified and consult your financial advisor before making big moves.

While Japan faces challenges, India’s growth remains strong. Stay informed, stay invested, and focus on your long-term financial goals.

(Contributed by Gautam Arora, Relationship Manager, Team Vikrant, Hum Fauji Initiatives)

Turning Uncertainty into Opportunity: How Geopolitical Tensions Influence Your Investments

Question: Why should I choose your suggested debt mutual fund when my FD with a XYZ small finance bank offers higher returns and seems safer?

Our Reply: Both debt mutual funds and fixed deposits (FDs) are good options, but they offer different benefits. An FD is like a locked savings account: you know exactly how much you’ll earn, but you can’t access the money without paying a penalty. Debt mutual funds, on the other hand, are more flexible, allowing you to withdraw your money anytime, usually within 1-3 business days, without penalties.

A key advantage of debt mutual funds is diversification. Instead of putting all your money in one place (like an FD in a single bank), a debt fund spreads your investment across multiple securities. This is ‘not all eggs in one basket’ working for you especially when you refer to the FDs in a ‘small finance’ bank which is typically considered more risky than a large scheduled bank.

It’s also important to note that while FDs in small finance banks are insured by the government for only up to ₹5 lakh under the DICGC (Deposit Insurance and Credit Guarantee Corporation) Scheme , anything above this amount isn’t covered. Debt mutual funds reduce risk by diversifying across various instruments.

Taxes differ too. With FDs, you pay taxes on interest annually, but with debt funds, taxes are only due when you redeem your investment, allowing more potential growth due to compounding applying on the entire amount which otherwise gets taken out to pay annual taxes.

FDs guarantee returns, but if you want more flexibility and possibly better post-tax returns, a debt mutual fund could be a smarter choice. For more details, connect with us! 

(Contributed by Ankit Singh, Financial Planner, Team Prithvi, Hum Fauji Initiatives)