You want a dream car, you want a dream vacation, you want a dream home and you want a dream life. But then you wake up. You look at your pocket and you wonder if your dreams will ever come true.

Don’t lose hope! Dreams are attainable once you set your mind to it. A little bit of saving, and some patience, that is all you need to make all your dreams come true. And of course, you also need to do a thorough financial assessment of your earnings and their distance from your dreams. Financial Assessment in India is a relatively new term.

Financial Assessment Includes:

• Cash Flow management- how much cash you really need for your fixed and variable expenses, and how much you can save.
• Investment decisions- how to get maximum returns from your capital. This also includes minimizing your tax liability.
• Future planning- for you and your family’s requirements - in the short, medium as well as the long-term.

Remember how you used to save in your piggy bank for that one special toy?

Financial assessment is a grown up version of that kind of planning. It takes into account the various life events, foreseeable and unforeseen. What it does is realistically analyze your income, adjusts it to expenditure and inflation, and then tells you how you can save to fulfill your dreams, one step at a time. Take this ladder to your dreams.

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Property is an attractive investment option for long term gains. But you must pay the taxes.

If you’re selling property less than three years after acquisition, you are liable for short-term Capital Gains Tax. Selling after three years of acquisition, you’ll be liable for Long-term Capital Gains Tax. However, the Income Tax Act provides the following exemptions for LTCG Tax:

• Capital Gain Bonds in India:

You can invest a total of Rs. 50 lakh in the bonds of NHAI and REC to claim exemption under Section 54 EC. Investing in these gets you a 6% return. And, instead of your gains, only the interest earned on them is taxable at maturity.

•Investing in another property from the gains of the sale:

1.You must invest the gains from the property sale in a residential property within 2 years from sale.

2. Or, you can construct another house within a 3-year period, counting from 1 year before sale, and the gains should be invested in it.

The point to remember is that you should not own any house other than the one you are investing in to claim exemption under Section 54/54F.

•Capital Gain Account Scheme:

If you wouldn’t invest in Capital Gain Bonds or property, then you can temporarily put your funds in a CGAS account for up to 3 years and withdraw only for the purpose of property investment.

So, no more worrying about the taxman when you sell your property henceforth.

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Direct participation in the equity markets is very risky. However, it requires considerable caution. Chances are that if you go in without thinking, nothing can stop your ship from sinking. Yet it requires constant dedication and vigilance, and who has that kind of time, right? In such a scenario, invest in Mutual Funds; because the fund managers will do the thinking for you, and they’ve got all the time and expertise to do it well. Like they say, choose the manager, not the fund.

But before you decide to invest in Mutual Funds, take note of these 5 points:

1.    SIP is best: Systematic Investment Plans, where small monthly investments are made on your behalf in the Mutual Fund of your choice, have proven to generate better returns over a long-term.

2.    Diversification: For a smaller investment amount, you get invested in various sectors and different stocks.

3.    Timing not relevant: With Mutual Funds, you get more units when NAV is down. In the long run, whether the markets are down or up, you profit.

4.    Fees & Charges: Carefully check whether your profits aren’t being squandered in entry & exit loads, switching charges, annual expenses, service costs etc.

5.    Tax benefits: Taxes might gobble up all your gains, or even increase your liabilities. So carefully go through which sections of the IT Act apply when you invest in Mutual Funds.

Think long-term, think better returns, think Mutual Funds.

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Creative: I am a 25-year-old woman and just started working. How should I plan my financials?

Answer: Early on in career, identify your immediate and long-term priorities. Pay-checks in the initial months of your career should go towards creating and bolstering an emergency fund which should be at least 6 months of household expense. This would be to avoid financial mishaps in career jolts and meeting exigencies. Keep 3 months amount in savings account and rest in short-term or liquid Mutual Funds. Once you have set up your contingency fund, it is time to cover risks, primarily to life and health, including parent’s health if they are dependant on you. Have more queries? Feel free to write to us.

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Question: At age 35, my annual salary package is Rs. 5 lakh. I have prior investment of nearly Rs. 80,000 in MFs. But I want to make fresh investments in the form of pension plans. Which type of pension plan is right for me?

Answer: Pension plans can be bought from MFs or life insurance companies. There are 3 pension focused plans from MFs – 2 are balanced funds & other one is equity-oriented. In MF pension plans (PPs), there is only the growth phase & after certain years, they would give you a lumpsum amount, not the regular pension. Life insurance companies offer PPs with varied asset allocation. You may keep even 100% in equity or debt. It’s always better to diversify. For your retirement needs, create a separate portfolio & spread among the variants. Keep tax benefits in perspective & create wealth for your retirement. Have more queries? Feel free to write to us.

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