It is not enough to bask in the security of your investments. An investment not reviewed is as good as an investment not made. Annual reviewing of investments and assets is of crucial importance. April, the beginning of the current financial year is a good time to meet your financial advisor and review these. Let us have a look at how we can make this financial year count.
How close are you to your goals
Goals are the driving factor which motivates us to invest. An investment in a portfolio aims at fulfillment of a goal in the near or distant future. While planning your tax savings and other investments at the beginning of the financial year, make sure they are aligned with your goals. The total corpus required for the fulfillment of the goal may have increased due to unavoidable factors like inflation. To avoid such a situation an investor needs to decide if any further investments need to be made. Sit with your financial advisor and review your goals along with your investments.
Review and rebalance the portfolio
Reviewing and rebalancing the portfolio is the key to achieving the financial goals. Your investments may have certain percentage in gold, in debts fund, real estate or in equities. Recently, the debt and equity funds did well and therefore the total allocation to these funds should ideally be increased. However, gold and real estate fell substantially. Due to these changes in the market, rebalancing the portfolio becomes crucial. The investments in different asset classes need to be rebalanced keeping in mind your age, risk profile and financial goals. Before selling any asset consult your financial advisor regarding tax implications.
Get rid of non performing investments
Stocks and funds which underperform must be brought to notice. You can axe funds from your portfolio if it has not performed in tandem with its peer group in last 7-8 quarters. Similarly, review the SIPs and check if they are aligned to your goals. If your SIP is for a long term goal then check if it is from the diversified basket. Having a SIP in a sectoral fund could be risky. Similarly, underperforming or expensive stock should also be replaced and substituted with a better performing one. Advice from your financial advisor regarding possible substitutes is desirable.
Kick start your tax planning
As an investor if you are being fashionably late to start your tax planning you lose more than you gain. At the end of the FY if you try and invest lump sum in various tax saving schemes you lose out on the returns the scheme would have generated all round the year. Therefore, start your tax planning from the beginning of the financial year. If you are planning to invest in ELSS start it now preferably through SIP because it diversifies the risk and also takes advantage of the volatility of the equity market. Make the PPF investments in lump sum in the beginning of the year, if possible, so that it starts to accumulate interest. Otherwise, invest in installments by 5th of every month to earn more interest – To know more about this, please read http://goo.gl/sRSxOW. The saying ‘slow and steady wins the race’ is never too clichéd to be applied. Start at the beginning of the year and start steadily. The last minute investments potentially lead to mistakes which might cost you more than saving the tax itself.
Forms 15G or 15H if applicable
Forms 15G and 15H are self declaration forms to be submitted by the taxpayer to the bank for nil deduction of TDS on interest. Be careful while submitting these forms. The Budget 2015 has changed TDS rules. New TDS rules apply to interest income on savings and recurring deposit accounts. Following rules will apply depending upon your age and total income –
Form 15G - If your income is within Rs. 250,000 and age below 60 years
Form 15H - If your income is within Rs. 300,000 and age above 60 years (Senior citizens)
Form 15H - If your income is within Rs. 500,000 and age above 80 years (Very Senior citizens)
Tallying the TDS credits
26AS is a form that contains details of all the taxes that has been deducted on behalf of the taxpayers. Entries in Tax Credit Statements (26AS) are generated when a valid PAN number has been reported in TDS. As an investor you must check that all taxes deducted at source (TDS) have been rightfully credited to you PAN. If you notice a discrepancy, get it rectified by the deductor before filing the IT returns.
How to see the TDS credits? If you are a Net banking customer, you can view the same from your bank website, provided you have furnished your PAN Number in the bank account. Else, visit https://incometaxindiaefiling.gov.in - Locate the Form 26As link on the page and register using your PAN No., Password and Date of Birth. You will now be redirected to the TDS-CPC site – Click on the link at the bottom of the page (Click here to view your Form 26As) – Now choose the Assessment year and see the report. You may download the same in pdf for your records.
Does your life cover, cover you enough
The life insurance needs of an investor and the family he/she is protecting keeps on changing. A birth of a child or the increase in earning will require an investor to increase the life cover. The inflation being constantly on rise, the cover that was adequate 5-10 years ago is not adequate today. Investors must assess that the adequate insurance cover should take care of the future expenses like marriage and higher education of children, in his/her absence. Buy additional term insurance cover if required.
Do not over estimate your current healthy conditions
Like life insurance, as an investor you must reassess your health insurance needs. As an investor you must pick a health insurance or Mediclaim policy that covers enough after accounting for the exclusion causes. In case you are switching jobs and the current job has a reduced employee health cover or none at all, you will have to increase your health cover. The same applies if you are switching from a salaried job to entrepreneurship. You must also assess if the Mediclaim policy you have is one that is the best suited for your needs.
Started preparing for retirement
It is never too early to start planning for your retirement. Do not let your early years deter you from planning for your retirement. The Budget has proposed an additional deduction of Rs. 50,000 under Section 80CCD(1B), over and above the Rs. 1.5 lac 80C limit, if you invest in National pension Scheme (NPS) now.
If you are a resident Indian or NRI aged between 18-55 years, you can open an NPS account. There are two types of NPS Accounts. The first type is the Tier 1 account. The minimum investment amount per year is Rs.6,000 with no maximum limit. Withdrawals are not allowed from Tier 1 account. The second type of NPS account is the Tier 2 account. The minimum investment amount per year is Rs. 1,000. Withdrawals are permitted from Tier 2 account. However, an individual must have a Tier 1 account, in order to open a Tier 2 account.
Under NPS, how your money will be invested will be dependent on your choice. There are three types of funds:
Asset Class E - Investments in predominantly equity market instruments.
Asset Class C - investments in fixed income instruments other than Government securities.
Asset Class G - investments in Government securities.
You can choose to invest your entire wealth in C or G asset classes and up to a maximum of 50% in equity (Asset class E). However, NPS also offers an ‘Auto Choice’ option, where the investments will be made in a life-cycle fund. Here, the fraction of funds invested across three asset classes will be determined by a pre-defined portfolio.
However, you cannot withdraw the corpus till age 60 and at least minimum 40% of the maturity corpus must be put into an annuity to get monthly income which will be taxable.
Open Sukanya Samridhi Account if you have a daughter below age 11
This scheme is launched as a part of the “Beti Bachao Beti Padao” Yojana. The account can be opened in authorized bank branches or post offices by the guardian in the name of the girl child until she attains the age of 10. A one year relaxation on the age has been given this year. Only one account is allowed for a girl child. The parents/ legal guardian cannot open more than two accounts i.e., maximum of two children.
With an initial and minimum investment of Rs.1000/- this account can be opened. Thereafter any amount in multiples of Rs.100 can be deposited. Maximum of Rs. 1.5 lakh can be deposited in one financial year. Interest rates will be declared every year, for the current year, government has declared paying 9.1 per cent interest.
The account remains operative for 21 years from opening or till marriage of the girl child after reaching the age of 18, whichever is earlier. Tax under 80C of the Income Tax Act is deductible up to Rs.1.5 lakhs. In fact, not only the principal investment, but also the interest that the account earns would be tax exempted.
File Tax return in time
The deadline for filing IT returns evokes much panic and fear. Avoid this by preparing your papers at the beginning of the FY which includes checking Form 26As, reconciling your bank accounts, preparing a list of investments made under different sections, downloading your Form 16 or 16As, before filing it well before the dead line of 31st July 2015. This is also the time when you should check if the refunds (if any) pertaining to the last year have been received by you/ credited to your bank account or not?
At the beginning of the financial year if you do the hard work of reviewing and rebalancing then you can relax for the rest of the year. As an investor you realize that your money is working hard for you. The various goals will be comfortably fulfilled without burning a hole in your pockets because of the financial planning that has been done.