Bonds as safe investment avenues

Bonds are safe and lucrative investment avenues which investors are not generally aware of. Some popular bonds available in the markets are:

A bond is a fixed income instrument carrying a rate of interest and is issued for a fixed tenure similar to a FD.

Sovereign Gold Bond adds ‘Gold’ to your portfolio that will provide regular interest income along with capital appreciation as per the Gold price movement.

Tax Free Bonds: As the name suggests, the interest income from tax free bonds is tax free.

State Guarantee Bonds: When long term FDs are providing interest in the range of 5-6.5% p.a and are insured up to Rs. 5 lacs only, these guaranteed state govt bonds are a good investment option to diversify your portfolio.

RBI Floating Rate Savings Bond: Investors looking for 100% safety and ready to compromise with tax efficiency and liquidity can opt for this investment option.

Also remember that Systematic Withdrawal Plan (SWP) in debt mutual funds will be far better in terms of tax efficient returns, flexibility and liquidity compared to any other investment avenue providing a regular flow of income.

(Contributed by Priya Goel, Associate Financial Planner, Team Sukhoi, Hum Fauji Initiatives)

What to do with Capital Gains from selling a residential property?

Managing any investment-oriented property has always been a big task. Liquidity issues, nominal rental income, maintenance headaches etc are major challenges faced by the real estate investors. In addition to this, once the investor disposes off the property, another monster challenge of “Capital Gains Tax on Selling of the property” has to be dealt with. Negligence on this part could attract heavy tax penalty. Way of dealing with it is as follows.

If a residential property is sold within two years of buying it, any profit from the transaction is treated as short-term capital gain. This is added to the total income of the owner and taxed according to the slab rate applicable to him.

If you sell after two years, the profit is treated as long-term capital gains and taxed at 20% after indexation. Indexation takes into account the inflation during the holding period and accordingly adjusts the purchase price, thereby decreasing the tax burden for the seller. There are other benefits too as below.

Expenses incurred on repairs and renovations of permanent nature can be indexed and added to the cost of acquisition of the house while computing long-term capital gains. Also, the interest paid during the pre-construction period of the house can be added to the cost.

There is no tax to be paid if you use the entire gain from the transaction to buy another house within two years or construct one within three years. But the property should have been bought in the name of the seller.

If you are not keen to lock-in your gains from sale of the house in another property, you can claim exemption under Section 54EC by investing the long-term capital gains for three years in bonds of specified PSUs within six months of selling the house. However, one can invest only up to Rs 50 lakhs in these bonds in a financial year

Apart from this, sellers also have the option to set off the long-term capital gains from sale of a house against any long-term loss from the sale of other assets. These losses can even be carried forward over the next eight years. The owner can claim these various exemptions only in case of long-term capital gains, and not for short-term gains.

However, tax on short-term capital gains can only be set off against any short-term loss from the sale of other assets such as stocks, gold or another property.

If you are unable to reinvest the long term capital gains in another house or bonds before filing your tax return for the financial year in which the sale took place, you can deposit the balance amount in the Capital Gains Account Scheme and carry it forward as per rules.

(Contributed by Prateek Rediwal, Associate Financial Planner, Team Sukhoi, Hum Fauji Initiatives)

It’s simple till we complicate it..!!

We come across various people in our routine life. Some are happy about their life, some are pretending to be happy, some are always in stress and keep complaining, and some don’t know either way. People who enjoy the life just follow some simple principles:

  1. a) Clarity of Goals makes the life easy and happy:People now a days are confused about their career, goals and relationships which is the main reason behind their anxiety, unhappiness and mental stress. Frequent change of goals due to some difficulties being faced serves no purpose and ends up in a cobweb of anxieties. There is a famous quote, ‘If the plan doesn’t work, change the plan, but not the goal’. One should take his/her time or take proper assistance in deciding upon their crucial goals.
  1. b) Disciplined step-by-step approach to achieve the goal:There is no shortcut to achieve the goal. People who emphasize on shortcuts ruin their goals and are left with only repentance in the end. Patience and discipline are the key pillars of any goal achievement.
  1. c) Trust the process and advisor:A student does not become a good employee, businessman or even a human being in a day. There is a complete process of primary education followed by secondary education and higher/professional education and the most important component throughout the process is the teacher and your trust on the teacher.

Financial Planning is also simple unless and until we make it complicated. Clarity of goals, patience and disciplined step-by-step approach to achieve the goals and, most importantly, the trust on the process followed by the advisor and on the advisor himself/herself will make you live a stress free and happy life.

For any financial planning related assistance please let us know – we would be happy to connect with you.

(Contributed by Jatin Uppal, Deputy Manager, Hum Fauji Initiatives)

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