Financial Planning : The Key to Your Wealth-Generating Potential

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The majority of us either choose traditional tax saving instruments or delegate the planning to our CAs. But things have been changing in the last few years, especially with the rise in popularity of mutual funds’ tax-saving ELSS schemes. People are still choosing Public Provident Funds or five-year FDs over products like ELSS to save taxes.

WHAT EXACTLY IS FINANCIAL PLANNING?

Making a plan for your future, specifically one that addresses how you will handle your finances and be ready for all potential expenses and problems, is known as financial planning. The process of thoroughly analysing your financial situation and creating a customised financial plan to achieve your objectives is known as financial planning.

So, when you plan your finances, you usually have to think about the different aspects of money, like investments, taxes, savings, retirement, your estate, insurance, and more.

The Mechanics of Financial Planning

The steps listed below will help you better plan your finances –

Identifying your financial objectives

To accomplish this, it is necessary to conduct a financial analysis and make a list of the monetary objectives that need to be met. These objectives can also be broken down into short-term, medium-term, and long-term categories.

Putting into action and evaluating

When you have invested in the right financial instruments based on your preferences, it is important to review your portfolio on a regular basis. This helps make sure that the performance of the portfolio is in line with the planned strategies.

What Exactly Is Tax Planning?

Taxes can significantly reduce your annual earnings. In response, tax planning is a legitimate strategy for minimising taxable income in a given fiscal year. It can help you minimise your tax burden by making the most of available exemptions, deductions, and benefits. It involves examining one’s financial situation from the perspective of tax efficiency.

The Mechanics of a Tax Planning

Assessing your investments from a tax perspective is a component of tax planning. As a result, it assists you in lowering your tax obligation. Reducing your tax liability is one way to increase your after-tax income. The money you’ll save on taxes can be put to better use by investing or covering other essentials.

There are three distinct types of tax planning –

Planning with a goal

This aims to take full advantage of the benefits provided by the relevant sections of the Income Tax Act of 1961. These advantages include a deduction from gross total income and exemption from certain types of income.

Planning without a strategy

With this strategy, the tax planner utilises the relevant and important legal provisions and tax benefit exclusions to make plans that are in accordance with the law.

Short-term and long-term planning

The time frame of a short-term plan is typically one fiscal year. They consist of making an investment in a specific tax-saving instrument that is eligible for tax deductions. In contrast, long-term strategies cover a longer duration. For example, transferring an asset without consideration to a minor child necessitates the accumulation of income until the minor reaches the age of majority, which is 18 years.

Multi-cap funds are considered equity-oriented funds under the tax provision because their investment strategy involves allocating 25% in large-cap companies, 25% in mid-cap companies, and 25% in small-cap companies, and the rest of the 25% is also in equity, depending on the sole discretion of the fund manager. Whereas, if the dividend income from a mutual fund exceeds Rs. 5,000, 10% TDS (Tax Deduction at Source) will be withheld from the dividends. This is in addition to the investor’s regular tax rate.

RETURNS OF SOME GOOD PERFORMING MULTI-CAP FUNDS

Data Source – Advisorkhoj, data as per 20th January 2023, Disclaimer: Mutual funds are subject to market risks. Past performance may or may not be sustained in the future.

When an investor sells their units of a mutual fund for a profit, they will be subject to capital gains tax on the appreciation in value. Investments held for less than a year generate short-term capital gains (STCG), which are taxed at 15% (plus applicable cess and surcharge).

However, if these mutual fund units were held for a year or longer, the gains would be considered long-term capital gains (LTCG).

After an annual exemption of Rs. 1 lakh towards such gains, the tax rate on the sale or redemption of equity shares or equity-oriented mutual funds is 10% (plus applicable cess and surcharge).

PERFORMANCE COMPARISION OF INVESTMENT IN MULTI-CAP FUNDS V/S FIXED DEPOST, GOLD & PPF

Data Source – Advisorkhoj, data as per 21th January 2023, Disclaimer: Mutual funds are subject to market risks. Past performance may or may not be sustained in the future.

GRAPHICAL REPRESENTATION OF THE PERFORMANCE COMPARISION

Data Source – Advisorkhoj, data as per 21th January 2023, Disclaimer: Mutual funds are subject to market risks. Past performance may or may not be sustained in the future.

• In the year 2017, an investor had invested ₹100,000 in the Quant Active Fund Gr and the current value of his investment as of 20th January, 2023 is ₹299,965, with the CAGR of 21.19% since its inception. The total amount of profit he earned during this period is ₹199,965.

In the year 2017, an investor had invested ₹100,000 in the Mahindra Manulife Multi Cap Badhat Yojana Reg Gr Fund and the current value of his investment as of 20th January, 2023 is ₹207,567, with the CAGR of 13.72% since its inception. The total amount of profit he earned during this period is ₹107,567.

In the year 2017, an investor had invested ₹100,000 in the Nippon India Multi Cap Gr Gr Fund and the current value of his investment as of 20th January, 2023 is ₹200,362, with the CAGR of 12.93% since its inception. The total amount of profit he earned during this period is ₹100,362.

However, the returns on a ₹100,000 investment in a multi-cap fund are much higher than those from the same amount invested in a fixed deposit, gold, or a PPF in the same year.

When a person invests in multi-cap funds for a longer period of time with the intention of achieving a particular goal, he or she will get the benefit of a financial tour of investments in various market caps. In addition, investing for a longer period of time will exempt a certain investment amount from taxation.

In this way, when a person invests in multi-cap funds for a longer period of time with the intention of achieving a particular goal, he or she will get the benefit of the combined return and taxation.

TATA Mutual Fund has come up with a unique chance for you to explore investment in various market caps through its new fund offer, the “TATA Multicap Fund,” which is going to launch on January 16, 2023. It is an open-ended equity scheme that will invest in large-cap, mid-cap, and small-cap stocks, providing a disciplined tour around all market caps. The new fund offer (NFO) will remain open until January 30, 2023.

Invest in TATA Multicap Fund NFO now for just ₹10 per unit with Swaraj FinPro. Contact Swaraj FinPro today!

We look forward to a new investment with you this year.

Regards,
Ajay Kumar Jain,
CMD
Swaraj FinPro Pvt. Ltd.
+919993025625   (Call or WhatsApp)

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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