Financial Cocktail Samosas: Bitesized Money Morsels For You, 26/04/2023

2023 – A Year of Financial Opportunities

Let’s take a ride back a year or two – the world was upside down and whatever worst you could think of had happened in terms of geopolitics, inflation, and interest rates. Think of any bad news and it happened in 2020-22.

Despite this, the financial markets were almost neutral in terms of growth. As the markets are forward-looking, most probably, right now we have already witnessed the worst declines in equity markets. India continues to have the highest growth estimates internationally, and investors hold an optimistic view of the Indian economy.

Investors shouldn’t worry despite the current volatile period in the Indian equities markets. Instead, they should take it as another opportunity available and think about investing gradually through the ubiquitous systematic investment plans (SIPs) which enable the investment to ease out the effects of market volatility.

Inflation has fallen below the normal range, allowing the RBI to pivot away from aggressive rate hikes before the economy slides into a recession. Declining inflation will boost real incomes and demand.

On the safer side of investing, debt mutual funds with a longer maturity, such as medium-term funds, would potentially perform better. This is because they have more yield potential and stand to gain more from a decline in interest rates if and when it occurs, which is just a matter of time now.

(Contributed by Aman Goyal, Financial Planner, Team Prithvi, Hum Fauji Initiatives)

Value of things is Realized Only When they are Gone..!!

Debt Mutual Funds (investing in Govt Bonds, Corporate Bonds, etc) are used to enjoy indexation benefits (inflation-adjusted cost benefits – the Long-Term Capital Gain) if held for 3 years or more.

LTCG was taxable at a concessional 20% tax rate rather than an individual’s income slab rate. This could reduce the overall tax liability of an individual by up to 75%. Debt Mutual Funds if held for less than 3 years were taxable at respective income tax slab rates as per Short Term Capital Gain taxation.

This Long-Term Capital Gain benefit has been removed from 01st April 2023 onwards as per the amendment to the Finance Bill 2023.

How we should take it?
Firstly, we all need to understand that subsidies/incentives/tax benefits are not permanent. They are provided just to increase the awareness of a financial product amongst the general public or to support an idea in the initial stages. Once the motive of awareness is served, the benefits/incentives are withdrawn. Not only mutual funds, but the same thing is also happening with insurance, home loans, education loans, etc too.

Whether you should invest in debt mutual funds or not now?
Just because some tax benefits are removed, nobody will stop taking health insurance, life insurance, home loan, and similarly investing in an excellent safe option like a debt mutual fund. Debt MF, like any other investment product, follows a certain risk-return matrix and fulfills the following requirements of financial planning:

a) Maintaining correct asset allocation in the portfolio as per the risk appetite and goals of investors.
b) Proper diversification across multiple asset classes as per the basic investment fundamental of ‘not putting all eggs in one basket’.

Is there any Tax benefit still associated with Debt MFs? 
Debt MFs are treated as capital assets and taxed only when you sell them like in the case of real estate and unlike the bank or corporate FDs whose interest is taxed even if notionally earned. There is no TDS too for resident Indians. Also, the gains of debt MFs can be set off against the losses of other capital assets like shares, other Mutual Funds (Equity/Debt), bonds, jewelry, gold, etc as per Section 54F of the Income Tax Act, 1961.
Hence, your investments in Debt Mutual Funds can be completely tax-free if planned properly or if you’re aware of this tax provision.
Still, we would like to emphasize that these benefits are merely by-products and not the main recipe of debt MFs. The fact remains that debt MFs are good investments by themselves even if all tax benefits are taken away.

Are you aware of the M-A-S-S-I-V-E opportunity available right now in Debt MFs?
The interest rates are at their peak and soon they will start declining as inflation comes down. Many investors, largely due to our constant financial education initiatives lately, have started taking long-term bank and corporate FDs to lock in the current high rates for some time.

But do you know that there’s an even much bigger opportunity available there? What if you have your investment in high-safety investments and their returns will INCREASE as interest rates go down?

This is the Mark-To-Market (M2M) effect which even most of the financial advisors in the country have not grasped the importance of till today.
And the time is almost near when this opportunity will not be as good as it is right now…

Do you know that investors in our Debt Opportunity Portfolio (DOP) are currently experiencing an unprecedented 12% plus annualized returns on their very safe, long-term investment done last month due to the M2M effect of RBI merely stopping further rate hikes?

With our 13 years of experience being one of the foremost financial planning companies in the country, we can tell you that this is a rare opportunity that is available just for a short while more. The early birds have caught the worm. We expect our DOP to give you a consistent about 8.5-9% in the long run OF 3-5 years with the highest safety and being invested in the best of Govt Bonds, Corporate FDs, and bank FD equivalents.

Be the early bird that catches the worm now.

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

Artificial intelligence (AI) is already changing the way we live, work, and socialize. The rapid rise of AI has led to concerns about the future of many professions, including financial advisors. Despite the advancement of AI in every sector, it is unlikely that financial advisors will ever be completely replaced by robo-advisors or AI the way innumerable medical portals haven’t led to doctors being replaced. Here are some reasons why:

Personalized service: Financial planning can be completely different for two persons of the same age and financial background. Financial advisors provide personalized service to their clients, taking into account their unique financial goals, risk tolerance, and investment preferences. While robo-advisors can provide automated investment advice, they lack the human touch that is essential for building trust and rapport with clients.

Complex financial planning: Financial planning involves more than just investing. It includes tax planning, estate planning, retirement planning, and risk management. These are complex areas that require human expertise and judgment. While AI can assist with data analysis and modelling, it cannot replace the experience and judgment of a human advisor.

Emotional support: Investing is essentially an emotional experience, especially during times of market volatility. A human advisor can provide emotional support and guidance to help clients stay focused on their long-term goals. On the other hand, AI lacks the empathy and emotional intelligence that is essential for providing the crucial emotional support. Managing emotions that arise out of financial decisions is beyond the scope and competence of an AI chatbot.

No Accountability or Ability to Adjust: Trust and confidence are crucial components of a successful financial advisory relationship. Clients often place a high value on the trust they have in their advisors and the confidence they have in their advice. Building this trust and confidence requires human interaction and the ability to establish a personal connection with clients, which may be difficult to replicate with AI.

In conclusion, while AI can certainly enhance the capabilities of financial advisors, it is unlikely to replace them entirely. The human touch, emotional support, expertise, and trust provided by human advisors are critical components of successful financial planning and cannot be fully replicated by AI.

(Contributed by Manish Kumar, Relationship Manager, Team Vikrant, Hum Fauji Initiatives)

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