What Not to Do with Your Retirement Funds?
Today we are back with a discussion on some common pitfalls that we should avoid to safeguard our retirement future. Let’s discuss it.
1) Wrong investment decisions and increased tax burden: Retirement is not the end of the tax troubles of your active earning days. You may still have to pay a lot of tax if you don’t invest your money in the right instruments. Be very savvy about choosing your investment avenues.
2) Taking blind bets on stocks: Your retirement fund is linked with your happiness during retired life, and when you try to take bets on stocks without understanding them due to the tips you get from somewhere, it might badly upset your financial well-being. So, don’t gamble with the money that you can’t afford to lose.
3) Avoid liabilities in the retirement years: Liabilities are something that makes us feel insecure and demands regular cash outflows, so best is to clear off all liabilities – loans, family responsibilities, etc – well before you retire.
4) Investing in real estate: Some real estate deals ‘promise’ high returns, but they are never liquid assets. If a project goes wrong, then one could end up with almost no income and an asset that remains frozen.
5) Never make a mistake with your pension commutation: Nobody likes mathematics, but when it comes to our finances, we have to take it seriously. Getting the right pension amount is important to planning out a great retirement. Commute if you should, don’t commute if you shouldn’t. Contact us for an engaging discussion on this if you’re not sure of this aspect.
6) Post-retirement funds should be well diversified: Putting the whole amount in one basket will be dangerous for the rest of your retired life.
(Contributed by Ayushi Gupta, Associate Financial Planner, Team Arjun, Hum Fauji Initiatives)
54EC Bond Purchases Can save You Tax on Sale of Your Property
While planning about capital gains tax saving instruments on the sale of house property, one must not forget 54 EC Bonds.
Capital Gains Bonds can help you save your capital gains tax on the sale of your existing house property. This is a capital gain exemption provided under Section 54 EC. The seller of a house can take advantage of this exemption by purchasing any of the authorized bonds within 6 months of selling the property – NHAI (National Highway Authority of India), REC (Rural Electrification Corporation Limited), PFC (Power Finance Corporation Limited) or IRFC (Indian Railway Finance Corporation Limited) Capital Gains Bonds. Since these bonds are issued by infrastructure companies that are backed by the government, the risk factor is also on these bonds is negligible.
The exemption limit for saving capital gains tax is maximum Rs 50 lakhs in a financial year for a property. These bonds have a lock-in of 5 years. They currently give 5% interest per year which is taxable as your income tax slab. Your principal returned back after the lock-in is fully tax-free.
Want to go ahead with an investment in such bonds?
These bonds are not listed on any stock exchange. Hence, you can buy them directly from the issuer in your demat account or physical form, or can approach us for doing so.
(Contributed by Shaheen Akhtar, Associate Financial Planner – HNI Desk, Team Prithvi, Hum Fauji Initiatives)
India’s Own Digital Currency
The runaway popularity of crypto currencies like Bitcoin and Ethereum, and the danger they pose to the established monetary systems of the world, has pushed the central bankers to look for their own digital currencies. In fact, Bahamas (‘Sand Dollar’) and Nigeria (‘eNira’) have already been around since 2020 while China has already completed its pilot project for their country’s digital currency.
India has set a deadline of 2023 to launch its digital currency. A Central Bank Digital Currency (CBDC) will be legal tender like paper currency with all the characteristics of the existing fiat currency. “Digital currency will lead to a more efficient and cheaper currency management system,” Finance Minister Nirmala Sitharaman said in her Budget speech for 2022-23.
When it starts to circulate, ordinary people – like you and me – will be able to use it just like a conventional rupee. It will work in a similar way to NEFT, IMPS, or a digital wallet, and will be efficient for both, retail and wholesale payments and transactions. You may even send it abroad or use it for a variety of purposes.
CBDC can also gradually bring a cultural shift towards virtual currency by reducing currency handling costs. The increased use of CBDC could be explored for many other financial activities to push the informal economy into formal zone to ensure better tax and regulatory compliance. It can also pave the way for furthering financial inclusion. Eg, the government could transfer subsidies directly to beneficiary’s mobile wallet and this digital money could only be used to buy pre-defined rations.
However, there are concerns too around CBDC. Digital rupees will leave a money trail and the government will be able to trace where and how the money is spent, thereby affecting the privacy of anyone involved in financial transactions. Going forward, it will be interesting to keep an eye on the asset class’ minute and peculiar details.
(Contributed by Shaheen Akhtar, Relationship Manager, Team Arjun, Hum Fauji Initiatives)