I am a sucker for beginnings (and resolutions that accompany them).
I like January because I can draw up a list of resolutions right from losing weight to exercising and not falling in love with pompous, self-absorbed men.
June, which is when my birthday falls, is the time I focus on being a nicer person and giving more time to my family as I am slowly (but surely) ageing.
We also have April, the start of the financial year. Here my energy is channelled towards money. How to make it and how to save on tax.
And here's my list for fiscal year 2006-07.
1. I will start my tax planning for investments NOW!
No more last minute hurrying and scurrying in a desperate attempt to save tax. This time I will be more organised. I will start my planning right away.
That means a good look at Section 80C. In case you were unaware, investments made under this section are eligible for an income deduction up to Rs 1,00,000.
The chosen few to feature under this section are:
~ National Savings Certificate
~ Public Provident Fund
~ Equity Linked Saving Schemes of mutual funds
~ Infrastructure bonds
~ Premiums paid for life insurance and pension plans.
Of these, I have no intention of investing in infrastruture bonds which pay a low rate of interest compared to NSC and PPF.
Before you pounce on me to remind me that principal payments on home loans and expenses on children's tuition fees are also included, let me assure you I have had no lapse of memory. I am only focusing on investments here.
2. I will make the most of my mutual fund investment
ELSS are mutual funds that invest in stocks but which offer a tax benefit. They have a lock-in period of three years.
With the stock market so volatile, I am afraid to make a lump-sum investment. I prefer investing my money over a period of time. This helps average the cost.
Let me explain.
The price of a unit of a mutual fund, referred to as the Net Asset Value, depends on the state of the stock market and the prices of the stocks the fund has invested in.
When the market is high, the NAV shoots up and when it is down, the NAV dips. If I invest a small amount every single month in the fund, I buy units when they are high and when they are low. This averages the cost, else I may end up buying the units at a very high price.
This is referred to as a Systematic Investment Plan.
I plan to start one right away and put in Rs 2,000 in a fund of my choice every month. So, by the end of the financial year, I would have invested Rs 24,000 in an ELSS (Rs 2,000 every month from April to March).
If I delay, I will have fewer months to invest and get this benefit.
3. I will invest in PPF right away
The PPF is the darling of the investors. When you invest in it, you get the benefit under Section 80C. On maturity, the interest is not taxed. What's more, you get the highest interest rate currently in the market -- 8% per annum. This is one of the safest investments since it is backed by the government.
The limitation for many is that there is an upper cap of Rs 70,000 per annum.
If I invest now, I get the interest calculated for all the 12 months of the financial year. So why delay?
Even if don't have Rs 70,000 to put in now (I actually don't), I shall invest what I can afford now and, later in the year, if I can cough up some more savings, I will invest those too. But, I will start now.
4. No more leaving money idle in a savings account
That does not mean I will not leave anything in the bank. I will. But I will put it in what banks refer to as a 'fixed deposit linked savings account'. This means I put the money in a fixed deposit which is linked to my savings account.
Let's say I put Rs 20,000 in such a fixed deposit. And I have only Rs 5,000 in my savings account. I make a cheque payment to someone for Rs 7,000. The bank will pay up Rs 5,000 from my savings account and will pull out Rs 2,000 from my fixed deposit. The balance Rs 18,000 (Rs 20,000 Rs 2,000) will continue as a fixed deposit.
This way I have money to spend but it also earns more than 3.5% per annum, which is what a savings account offers.
5. I will assess my overall investments
My PPF investment assures me of a safe and fixed return, while my ELSS helps me dabble in the stock market.
That brings me to insurance and retirement. I better take a good look at some pension plans from various companies and scrutinise a few insurance schemes.
I refuse to run around at the last minute (by which I mean March 2007) trying to get a scheme that suits me.
Well, that's all from me.
Any fiscal resolutions you plan to make for this financial year? Do share it with us. Who knows, I may even add them to my list.