Today, there was a news about 3 months moratorium (which means a temporary relief) benefit on all kind of loans and how investors won’t have to pay their EMI for 3 months. However it was celebrated by investors without understanding it fully.
So I thought of clarifying some doubts regarding it and to share with you that it’s actually not a very big benefit and why most of the investors should not OPT for it.
Let me clarify on what is the EMI moratorium meaning and how does it apply to you?
Meaning of EMI Moratorium
A lot of people in our country might get impacted due to coronavirus and this 21 day lockdown and their incomes and salaries might get impacted. A lot of people may find it very tough to service their EMI on time and there was a need of the hour for some relief. Hence govt has given permission to banks, NBFC’s and housing finance companies to consider an EMI moratorium and pass on the benefit to the customers
Which simply means that it’s not a forced rule, but only a permission given to banks if they want to do it. RBI will not count those missed EMI payments as “defaults” and not count it as NPA (non-performing assets) and also directed banks to not report it to CIBIL and other beaureu
Now it’s up to bank on how they would like to implement it. Banks might pass on the benefit to ALL or some customers. Here are the exact RBI notification wordings you might want to read.
Will your EMI deducted stop ?
No, looks like you will have to apply for this benefit in case you wish to and only when you apply for it, the EMI will then not get deducted. If you just don’t take any action, then the EMI may get auto deducted as always.
A guy names Siddharth told me on twitter that his bank might deduct the EMI (will not pass the benefit) if salary is credited in the account. Here is the conversation snapshot
As I said, this will only happen if you get this benefit from your bank and bank agrees for it. Checkout the tweet below where an investor asked his bank about it and bank person told that it might not be applicable to him if he gets the salary.
Will I pay any interest for those 3 months of moratorium ?
A lot of investors are showing their happiness about this RBI notification and feeling like they are getting some very big benefit. However in reality it’s opposite and it’s suggested for you to NOT take this benefit.
If someone takes this moratorium benefit, they interest will be accruing on the outstanding balance and you will have to pay the interest at the end of 3 months. Their EMI will start getting deducted after 3 months.
What it means is that assume someone has a 30 lacs of home loan, and an EMI of 30,000 (just a random assumption) and interest rate is 8% , then one month interest will be Rs 20,000 (30 lacs * 8% = 2.4 lacs yearly .. Divide that by 12 to get monthly interest = 20,000)
And for 3 months, it will be Rs 60,000 additional simple interest. This additional interest will be added to your outstanding balance and your tenure will go up.
Same is true for outstanding balance on credit cards.
The only benefit you will get here is that you will not be paying any kind of penalty and it won’t be reported to CIBIL.
Update from various banks
Here is a notification from SBI bank and ICICI bank to its customers that interest will still be charged on the outstanding balance if one wants to avail this benefit.
Most of the banks have also clarified that to take this benefit, one has to contact the bank and ask for this benefit. If you don’t take any action, then the EMI will get deducted as usual.
Should you opt for EMI Moratorium benefit?
By now, you must have understood that this benefit is not for someone who is not facing severe financial crunch or whose income/salary is going to go down due to coronavirus impact. So if you can easily pay off your EMI’s, then please do so and don’t opt for this moratorium benefit.
It’s only for someone who is going to see salary loss, job loss and is facing very hard time financially due to this lock down. They are getting TIME from bank side and nothing else.
Do let us know what you feel about it in comments section.
As I write this, Coronavirus is already spreading in India and there have been 148 positive cases in India. 3 people have died.
Coronavirus is spreading across the world and has killed so many across the world (especially China, Italy, Iran, and Spain). A lot of us have bought life and health insurance policies and the natural question you might have is “Does my insurance company cover coronavirus?”
And the good news is the answer to that is “YES”. I also called up the customer care of my term plan and health insurance companies and got a confirmation in audio format which is there below if you want to listen to it.
Almost every life insurance and health insurance policy will be covering coronavirus related claims and policy holders don’t have to worry about it. Even IRDA has issued a guidelines against coronavirus and how insurance companies should deal with it in its recent circular
Life Insurance & Coronavirus (Covid-19)
I just called to the customer care of the insurance company from where I had taken term plan and they told me clearly that the entire claim because of coronavirus will be paid and we do not have to worry about it.
Here is a clarification from Aviva Life Insurance on Coronavirus coverage
Death from these kinds of natural calamities and illnesses are covered in life insurance. So if you have a running life insurance policy, you should not worry about it at all. The claims will be paid
Health Insurance & Coronavirus (Covid-19)
Even in health insurance policies, the claims against expenses for coronavirus treatment and quarantine will be covered. However, when I called my health insurance policy company, they told me that while the treatment in recognized hospital will be surely covered just like other illnesses, the treatment at home will not be covered (this was Religare Care)
Here is a clarification from the customer care of Religare
One of my teammate at the office have the policy with Birla Sun life and they got an SMS which clearly told them that they need not worry about it and its covered. Here is the snapshot of the message –
So, I think you should not worry at all about its covered by your health insurance company, however, you may want to call your company customer care number and verify in case you want to be double sure about it.
Get clarity from your Insurance company
Only the active insurance policies will be cover coronavirus related claims. If someone is in between the purchase of the policy and gets the virus, the policy might not cover it. Please get clarity on this from insurance company. Also on some articles, I read that some health insurance companies may not cover a disease that is declared as an epidemic or pandemic by the World Health Organization (WHO).
So to be double sure about it, it’s better to go through your policies and check this on your own with customer care.
Do let me know what you think about this matter and if you have any more questions.
In the last 1 month alone the markets have corrected by 23% and it was one of the fastest and steepest declines ever in the history of stock markets in India (and globally)
A lot of equity investors are very new to this game and many might be wondering what is going on and why markets are falling?
So in this article, I will just jot down 2 big reasons which are contributing to this steep fall.
Reason #1 – Fear and Panic because of Coronavirus
The biggest reason and the trigger of this huge market falls from the last 1 month is because of the coronavirus.
The entire world is fearful about the spread of this virus and its impact on the world.
In the entire world, the businesses are hugely impacted because of coronavirus. Because of this virus and the fear around it, various factories are shut down and work is stopped. Other companies which needed raw material are not getting it and production is down. Overall manufacturing is HIT.
Which also means that consumption is down and will be down in the near future also and it will only go up slowly over time.
One very simple example is APPLE. Its products get manufactured in China and because China factories is shut down, the apple stock is down because it’s going to hit their profitability.
One more way of understanding coronavirus impact on business is simple meat/poultry businesses especially in India. The demand for Chicken/mutton or other similar items have drastically gone down. No one is buying it. Now imagine the job losses, no sale of associated products like poultry feeds by poultry farms..
Another example is the tourism industry. People are not going on vacations, or booking very less flights, etc. which is directly going to impact so many companies on at a deeper level.
So in general various businesses around the world are impacted and as you might be knowing stock markets chase earnings. Because the future earnings of companies across the world are going to be impacted, the stock markets are just reflecting that today.
Markets are desperately looking for news where we develop some medicine or vaccine for coronavirus which gives some kind of assurance that we will be able to control this virus and further damage.
Reason #2 – Crude Oil Price Crash
Crude oil in international markets has crashed badly.
The oil price was a few days back fell by almost 30% in one single day and hit around $30 per barrel (Oil price in 1947 was $28 per barrel)
This was $120-130 around 10 yrs back and just 2 yrs back it was in $60-70 range.
The huge drop in oil prices also indicates huge slowdown and low demand, even though it’s amazing news for India because we import oil and it’s going to save us billions of dollars in oil bill.
Why is it happening?
Well, its extremely complicated thing for a retail investor like you and me, but for now you should know that there is a price was going on between Russia and Saudi Arabia which has triggered this oil crash. Russia did not honor its promise as per its OPEC promises and now Saudi Arabia is kind of punishing it for going against OPEC and have crashed the prices which as per some analyst is not going up very soon.
You can either read this article or watch this excellent YouTube video to understand about oil crash.
Conclusion
For the last many months, there was a correction expected but the sudden rise of coronavirus has added a new level of fear among investors and the crash happened before people even realize what is happening.
Markets have corrected by a good margin and now we have officially entered into a bear market (above 20% fall is bear market). While no one can catch the bottom and can’t guarantee that more down fall cannot happen, this is surely not the time to sell off your long term money. If it was your short term money, it should not have been there in equity markets at all.
One of the suggestions right now would be to partly invest some money which you don’t need for the next 8-10 yrs and be ready with some cash incase the market falls further from here.
Disclaimer: This is a highly complex topic and I do not claim to be an expert on this matter. I have shared my opinion and my limited understanding, so please feel free to correct me on any point.
A lot of young investors are often confused if it’s really worth saving small chunks of money in the start of their careers?
A lot of investors don’t save enough at the start of their career and wonder if they should start saving only in the future when they are able to save a “respectable” amount like Rs 10,000 or Rs 50,000 a month?
Today I want to let you know why small savings matters!
The #1 benefit of small savings
Does it really matter in long run if you save Rs 2,000 per month for a few years? Even if you do it for 3 yrs, you will just have Rs 60,000-70,000 with you. It’s not a big amount of money.
A lot of people might be able to put a big lump sum in one go to compensate for the pain of taking the effort of saving a small sum of money each month. On top of it, if you ignore saving a small sum of money for a few years, your final wealth will not be drastically different had you saved small amounts.
What you just read above is what a lot of investors think about small saving. It’s a classic mathematical way of looking at it.
However I often tell people that it’s not about the amount, but about the HABIT OF SAVING MONEY.
Cultivate the Habit of Saving
When you start your investments and start investing per month, the bigger benefit is that you are forcing yourself to take out a chunk of your monthly income and invest it somewhere.
Today, a lot of investors are earning good amount of money and they also have a decent surplus, but what is missing is the habit of saving. They have never done it before in life for many years, and now when suddenly they are having surplus which potentially can be invested, they are finding it tough to do that, because they are not able to control themselves with the distraction this world offers them.
Imagine two kids, one of them always saves 5% of his pocket money and spends the rest. Another one spends all his pocket money. This continues for 15 yrs of their life. You can imagine what will be the psychology of both the kids and how it will impact their future.
The same is true for investors after they start their career and earning life.
Small savings compounds and boost your wealth in the future
Small savings might not look big enough at the start, but over the period of time, they compound well and adds to your wealth creation, sometimes big and sometimes small.
So let’s imagine that your future saving scenario looks like this
[su_table responsive=”yes”]
Year
The amount you will save per month
First 10 yrs
Rs 2,000 for 3 yrs, then Rs 3,000 for 3 yrs, then Rs 5,000 for 4 yrs
Next 25 yrs
Rs 20,000 per month (increasing with 8% per year)
[/su_table]
Given the scenario above, imagine two cases
Case 1: You invest in first 10 yrs – Small savings done
Case 2: You DONT invest for first 10 yrs – No small savings done
If you add up all the money which you invested from your pocket in CASE 1 and Case 2, you will find out that the difference is just 2.4%. Yes, incase 1, you will invest 1.77 cr and incase 2, it will be 1.73 cr. Hardly any difference you will say
But when you find out the difference in the wealth created at the end in both cases, it will be a gap of 16%. In the case of Case 1 you will make 7.98 cr, whereas in case 2, you will have 16% less wealth. That’s a decent amount of money.
Below you will see the wealth difference in both the cases.
The above example tells us that if someone is not saving small chunks of money just because they feel it will not be worth it, it’s not the right way of looking at it, because in the long term it will surely help in boosting the wealth one will create.
Small savings also help you in dealing with emergencies
Another benefit of saving small amounts at the start and not waiting for the “right” time is that one will at least start having some amount for emergencies. In our example above, if one invests even small amounts for the first 10 yrs of life, they will have a sizeable amount of Rs 7.2 lacs at least.
This is not a small amount. It can help the investor in dealing with any kind of emergencies. One can even avoid taking loans for things like buying a car, vacation or home appliances.
If nothing happens, it will give a nice feeling to the investor and boost his confidence that it is possible for him to create wealth. Remember to create 1 crore, you need to create the first 10 lacs and to do that you need first 1 lac.
You have to start somewhere.
Don’t delay your investments, else it will cost you later
The more you delay investing, the more you will have to invest in the future to cover up the short fall. Here is a small example I want to share with you
If you invest Rs 10,000 per month for the next 30 yrs (assuming a 12% return and 7% increase in SIP per year), you will be able to create 5.36 crore in 30 yrs.
Do you what happens if you delay by just 5 yrs? In that case, you will create only Rs 2.78 crore. Yes, Only 2.78 crore against 5.36 cr.
And now if you want to reach the same corpus of 5.36 cr, you will have to start with the SIP of Rs 19,300
Cost of Delay Calculator
Below is a simple cost of delay calculator where you can try out different scenarios for yourself and see what will be the impact of delaying the investments.
[WP-Coder id=”20″]
Start Small – It helps you in building the habit of saving
To conclude I would say, starting small has its own benefit. It will develop your habit of savings. If you can’t save Rs 2,000 at the salary of Rs 30,000, it will be equally tough to save Rs. 20,000 at the salary of 1,00,000.
“Investing” is more about your own behavior & not external factors.
Do let us know what you feel about this article? Do you know someone who has been delaying their investments (are you one of them?)
We just entered 2020, and I thought let me pen down some observations of the last decade.
I had started blogging from the last 12 yrs and it’s been quite a long and amazing journey. From a small blog, we are now one of the biggest personal finance websites in India with millions of readers benefitting from our work.
We had conducted dozens of workshops, interacted with thousands of investors and provided paid services to tons of investors across India and abroad.
So I thought that I will share what changes I have seen in the last 10 yrs in the personal finance industry and what are some changes I am expecting in the coming decade.
1. People want to buy “term plan” now
Back in 2009-2010, the concept of the term plan was just launched. Aegon Religare was the first entrant in the space and very few people had heard about term plan. A lot of my time and energy went into convincing people in the comments section to buy a term plan and not a money-back plan.
Unlike today, the advertisements on TV also didn’t mention the word “term plan”.
In the last 10 yrs, term plans have become quite famous and the default choice for evolved investors for their insurance needs. Now everyone “knows” that term plan has to be bought for insurance purposes.
Same is true for Health insurance also
2. Huge awareness about “Mutual funds”
It’s been around 25 yrs when mutual funds were properly launched in India (not considering UTI-64), so even in 2009-10, mutual funds were quite old products, but even during those times, they were not very famous products. It was a big PUSH Product, which means that various advisors and distributors had to spend a lot of energy into sharing about mutual funds and the way it worked.
No TV ads ever mentioned about mutual funds. Even the use of technology was quite slow, so there was no concept of online investing, online redemptions, etc, and processing of KYC used to take months.
With the “Mutual fund Sahi hai” campaign for the past few years, mutual funds have become a buzz word and everyone has at least heard about “mutual funds”. Now investors flock to online apps and are willing to invest in mutual funds. From Rs 5 lacs crore AUM in 2010, the current AUM is 27 lacs crore in mutual funds. That’s an impressive 18% CAGR growth.
3. Trust issues with ULIPS
Back in 2010, there were horror stories of ULIP misselling. I used to get so many comments about how people were missold ULIPs product and they were not getting back their money.
Somewhere in 2014-15 that episode ended and investors just stopped even touching ULIPS. Now ULIPS have made a comeback with much better structures and they are way better than what they were used to be.
Now if you buy ULIPS, they are not that bad, however, I still do not buy the argument that ULIPS are great products now (more on that later). Subra has done a wonderful write up on ULIP’s here
4. Dependence on Loans has increased
Compared to the last decade, we can clearly see the usage of credit for various things in life. Start from vacations, cars, houses, furniture, and even mobile phones. You name it and it’s all available on credit.
You can even buy a Rs 4,000 saree in Varanasi shops and pay in 6 easy installments. Bajaj finance has made sure that it’s possible now. You can clearly see the trend of over-dependence on credit in such a way that the stock prices of Bajaj finance have gone up.
5. Financial Planning + Goals Planning becoming famous
The buzz about “financial goals” and “financial planning” is more now. Back in 2010, financial planning was an alien word. It looked like someone is trying to cheat you and make money without providing anything valuable. But the financial planning community has made sure that the word “Financial planning” reaches more and more people.
Today’s urban investors are thinking of various goals and now to “plan” for it. It’s very common to hear people saying that they want to invest for the future education of their children” and “retirement”.
6. More Choices and confusion for investors
Compared to the last 10 yrs, now we have too many products and services, and many people claiming to work for investor’s interests. We have advanced products like Robo advisory, small case, and whatnot.
The world of personal finance has become more complex now compared to the past which also increases the chances of an investor making more mistakes and at the same time also pick better options for themselves if they have proper understanding.
7. More spending on lifestyle
I remember, in 2010 I was in Bangalore and I saved close to 60% of my income. There were very few avenues to spend and the maximum, I did watch movies in the theatre and went on treks.
Investors have also moved from the category of “savers” to “spender’s first, then savers later”. We now have online shopping, food on delivery, international vacations on EMI’s, etc ..
8. Moving from Physical assets to Financial Assets
While the pace is slow now and we still have a long way to go. People are moving from physical assets (gold + real estate) to Financial assets (equity mutual funds, stocks, PPF, FD). As per a Karvy report, in 2014 around 48% of assets held by Indians were physical, but in 2018, it came down to 40%.
The mutual funds itself has gained from 3% to 6%, and direct equity went up from 21% to 24%, however, we still have a long way to go in this space
9. Online Wallets + Cash backs are a way of life
In the last 10 yrs, I saw the emergence of online shopping websites like Amazon and homegrown Flipkart. We saw uber and ola in our lives and are also seeing how swiggy and Zomato are changing the way we are having our food.
All these apps brought the concept of online wallets and cashback which in my opinion is doing more harm to us than helping us. It’s more of a marketing tactic and making sure that clients are always in the maze of collecting points/cash back to spend it for the next order.
Most of the websites have stopped giving “discounts” and instead give “cashbacks” which is nothing but a future discount. This means that you will have to again spend and in total, the amount of benefit for you is often less than what your mind perceives. And stop thinking that you “found” an awesome coupon, it’s actually given to you by companies to make sure you feel better while transactions. It’s just pampering!
10. Online Frauds and Scams have increased manifold
Online transactions like net banking, mobile payments, and use of debit and credit card has increased in many folds in India in the last decade. Which also gave rise to online frauds and scams. The most vulnerable were the senior citizens and those people who had very less understanding of how banks and insurance companies work.
Many people got a call in the name of RBI, IRDA and SBI bank where the fraudster tried to gain access to their OTP and other critical details and many people lost a big amount to these frauds.
In last few years, there are platforms that are promoting the concept of Robo-advisory. I think delivering advice through algorithms is an idea worth trying and looks cool. There are certainly some aspects of advice that can be delivered through automation, but there will always be some aspects of advisory which would need a human element.
Here is Robo-advisor definition from Investopedia
“Robo advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo advisor collects information from clients about their financial situation and future goals through an online survey, and then uses the data to offer advice and/or automatically invest client assets.”
After all, investors are humans and they have feelings. We need someone to talk to, share our insecurities and also take human-advice. Robo-advisory is great in all aspects which are pure formula based, but wherever human emotions will come, you would need a human there, unless you yourself are a robot!
What do I expect in the next decade?
I am not an expert in predictions, but still, I will try it out. Here are a few things which my gut feeling says may happen in the next decade (read around 2030)
Rise of Professional Advice – The more we interact with people who leave their inquiry with us for financial planning, we are very convinced that people are not able to manage their own financial lives. They need professional help once they have reached a certain net worth. You might be having a Rs 10 lacs portfolio today and you might be managing it, but once it becomes Rs 1 crore portfolio, you can understand that it could have been 1.5 crores with professional help.
Rise of materialism – We as a country have not seen huge spendings at home and we have been traditionally savers. We are now opening up to spending and I can see we are also enjoying it. While the incomes are increasing, the avenues to spend are also going up and I can sense that we will be spending too much on brands, enjoyment, eating out, international vacations and whatnot. We will celebrate possessions more and more in the come decade. Here I am talking about the overall country as a whole.
Retirement Time-bomb – In my latest talk with Subra, he mentioned that the retirement crisis is right in front of us even now, not just in the future. We have a penniless parent to take care of even now, but it’s not visible because they are living with the earnings of their son/daughter and it’s not visible. With families getting more and more fragmented in the future, we will see more and more senior citizens without much of retirement savings and it will ring an alarm bell-like no before.
Mutual Funds will be a big thing – Mutual funds revolution has just begun in India. Even right now, the number of people who invest in equities is just 2-3% of the total population. A big part of our population has to still invest and when that happens, we will see massive growth in mutual funds (and other space too).
Heavy changes in Economy and Infrastructure – We are standing today at the same place, where China was in the ’90s. We have very huge potential when it comes to Infrastructure building and we are already on it, though it is not going in a smooth way as compared to China. We will see a lot more highway’s, Metro, rural infrastructure coming up and much bigger and high rise buildings all over the place. Our economy is already near the J-curve and over the next decade we will see tremendous growth as the next lot of population will enter into jobs and move from small villages/cities to bigger ones.
As of now, I could think of these 4 points – but I would like to hear from you about your opinion on what all we will see in the coming decade!
For last so many days before the budget, there was this noise and expectations around raising 80C limits, change in tax slabs, and reversal of Long term capital gains tax on equity or at least giving the benefit of Indexation in equity taxation.
However, nothing like that happened.
Infact, things have become more complicated for investors while I think the govt intention was to make it simple. So let me jot down all the relevant points and important news items.
A new (and optional) tax slab is introduced now which has lower tax rates compared to old one. The investor will have choice of either staying with the old slabs along with various exemptions and deductions they used to enjoy, or they can shift to new slabs without any exemptions/deductions.
New Income tax slab rates
[su_table responsive=”yes”]
Tax Slab
Tax Rate
Below 2.5 Lacs
No Tax
2.5 Lacs- 5.0 Lacs
5%
5.0 Lacs- 7.5 Lacs
10%
7.5 Lacs – 10.0 Lacs
15%
10.0 Lacs – 12.5 Lacs
20%
12.5 Lacs – 15.0 Lacs
25%
Above 15 Lacs
30%
[/su_table]
Education cess @4% on the tax amount
Surcharge of 10% applicable if income > 50 Lacs and 15% if income > 1 Cr
Old Income tax slab rates (for those below 60 yrs.)
[su_table responsive=”yes”]
Tax Slab
Tax Rate
Below 2.5 Lacs
No Tax
2.5 Lacs- 5.0 Lacs
5%
5.0 Lacs- 10 Lacs
20%
Above 10 Lacs
30%
[/su_table]
Which tax slab is better?
Basically the new tax slabs are of not much to those who take benefit of various deductions and benefits anyways, because they are able to bring down their taxable income by some decent margin. Only those who have income range of 6-9 lacs and do not take benefit of any exemption/deduction will benefit from the new slabs.
Example 1 – Let’s see an example here and calculate the tax to be paid under old and new system.
Income : Rs 15,00,000
80C – Rs 1,50,000
Home Loan Interest – Rs 2,00,000
Medical Insurance – Rs 20,000
Standard Deduction – Rs 50,000
Calculation of Tax under OLD SLABS
You can see that here, the taxable income will come down by 4.2 lacs directly. So under the old slab system, the taxable income will be Rs 10.8 Lacs (15 lacs – 4.2 lacs)
Let’s see tax calculations
[su_table responsive=”yes”]
Slab
Slab Higher Amount
Income Tax Rate
Taxable Income under Slab
Tax
0 – 2.5 Lacs
250000
0%
250000
0
2.5 – 5 lacs
500000
5%
250000
12500
5 – 10 Lacs
1000000
20%
500000
100000
Above 10 lacs
No Limit
30%
80000
24000
Income Tax
136500
Education Cess @4%
5460
Surcharge
0
Total Tax
141960
[/su_table] Calculation of Tax under NEW SLABS
In new slab, there is no way of getting any deductions/benefits , so let’s directly jump into the tax calculations
[su_table responsive=”yes”]
Slab
Slab Higher Amount
Income Tax Rate
Taxable Income under Slab
Tax
0 – 2.5 lacs
250000
0%
250000
0
2.5 – 5 lacs
500000
5%
250000
12500
5 – 7.5 Lacs
750000
10%
250000
25000
7.5 – 10 lacs
1000000
15%
250000
37500
10 – 12.5 Lacs
1250000
20%
250000
50000
12.5 – 15 Lacs
1500000
25%
250000
62500
Above 15 lacs
No Limit
30%
0
0
Income Tax
187500
Education Cess @4%
7500
Surcharge
0
Total Tax
195000
[/su_table]
Which tax system is better – Old or New?
Old slab tax is Rs. 1,41,960
New slab tax is Rs. 1,95,000
Difference of Rs. 53,040
We can clearly see that the tax is lesser in the older system, compared to the newer system.
Important Points
You can choose each year which tax system you want to choose from – New vs Old. However this choice is only those, who do not have a BUSINESS INCOME. For those who have any kind of business income, will not be able to switch back to the other system once they have done it.
Remember, that there is a tax rebate under sec 87A in both new and old tax slabs where a person earning up to Rs 5 lacs gets a tax rebate of Rs 12,500, which technically means that if someone’s taxable income is less than 5 lacs, then they will have to not pay any tax.
2. No Deductions or Exemptions under New Tax Regime
I have already mentioned this, but if one chooses the new tax regime, they will not be able to take benefit of following things
80C investments (PPF, ELSS, EPF, Life Insurance Premium)
Medical Insurance Premium
Home Loan Interest
HRA
LTA
Standard Deduction of Rs 50,000
Extra 50,000 deduction for NPS (apart from 80C limit)
Donations under 80G
Education Loan Interest
Note that you can still put your money in all those 80C investment products and medical insurance etc., but you will not be able to take tax benefits (not for those who stick with old system)
However, the employer contribution to NPS and EPF is still tax free up to 7.5 lacs per year. So you can ask your employer to contribute more on your behalf in these two things.
3. NRI definition change + Taxation Rule
There was too much confusion around new rules for NRI’s for the whole day and twitter saw many people debating if many NRI’s especially from Middle east will have to pay taxes in India or not.
Here is what the new rule says –
“If a person is not resident of any country, then they are deemed to be a resident of India and they will be taxed on their global income”
There are a lot of citizens of India, who stay in different countries for small period of time and technically are not resident of any country and hence don’t pay any taxes. Those investors will not have to pay the TAX in India for their global income.
This is different than those investors who are living in countries like UAE etc. where there is ZERO tax. Because they are a “tax resident” of these countries. They are just not paying tax because the law is like that. So these kinds of investors don’t have to worry at all, and nothing changes for them. Check out the video clarification from officials
Now as per the new rule, a person has to stay out of India for more than 240 days to qualify as an NRI, against the old limit of 182 days.
4. Dividends will be taxable in the hands of investors
The DDT (dividend distribution tax) is now abolished and the dividends will now be taxed in the hands of investors as per their slab rates.
Till now the DDT rates for companies was 20.35%. So every investor who got any kind of dividend took that kind of hit indirectly (even thought it was tax free in investors hands).
This is not great news for those who are in higher tax bracket, because they will pay higher tax now compared to what they paid earlier and now there will be additional headache to track and mention all dividend income while filing tax returns.
There will be TDS @10% deducted by mutual funds, if the dividend to be given is more than Rs 5,000 in a financial year to an investor.
Important Update : There was a big confusion around investors and advisors community that TDS of 10% will also be applicable on redemption from mutual funds or not? But the govt has already clarified that the TDS is only applicable on mutual funds dividend and nothing else. Any redemptions you do from mutual funds, that will not attract any TDS for residents (for NRI’s , the TDS is already there since long time)
5. Banks Deposit Insurance raised from 1 lacs to Rs 5 lacs
The insurance on your bank deposits have gone up from Rs 1 lacs to Rs 5 lacs. This was much needed change and finally it’s done. Recently we saw the problems in PMC bank (the bank is not yet closed or shut, hence the insurance will still not apply there)
Conclusion
As govt said, they want to simplify taxation rules in long run and I feel over next 5-6 yrs, they will slowly try to remove the old system of deductions and exemptions with lesser tax rates coming in.
However I feel, most of the investors needs that carrot of “tax saving” for investments otherwise they don’t do it.
While, its correct that one should invest anyways whether there is tax benefit or not, but when you go to ground level and see, the reality is that people need that nudge to invest. We need to trick them for their own benefit, else they will not think of investments.
From that point, it might be a bad news.
Also, for some years, we will see this confusion of old vs new tax rules and which one should we be choosing, but this can’t continue forever and eventually we will have a single tax system and you guess it right, it will be the new one.
Let me know what are your comments on this budget and how do you see it?
IRDA has recently announced the launch of health insurance policy called “Arogya Sanjeevani Policy” (official link) which will have standard features which are required by a common man for his health insurance requirement.
IRDA thought of a standard policy which will be exactly same across insurers with similar features. In this review, I plan to give you details of this policy.
What is Arogya Sanjeevani Policy?
It’s a standard health insurance policy for a common man with standard features. It will be offered by all health insurance companies in India starting from 1st April, 2020 onwards. The name of the policy will be ‘Arogya Sanjeevani Policy – Insurance company name’. The premium, however, may be set by the insurers on their own.
The existing health insurance policies in market are quite complex at times with fancy features and differ from each other so much that a normal investor finds it very tough to choose a suitable policy. Hence IRDA came with this policy.
Who can buy the policy and for whom?
Any person whose age is between 18 and 65 yrs can take this policy. Either the person can buy an individual policy or buy the family floater option if one wants to cover other family members.
“Family” here means
Spouse
Parents
Parents-In-Law
Dependent children between 3 months to 25 years (natural or adopted)
Note that any children who are above 18 yrs and financially independent will not be eligible for family floater.
Features Arogya Sanjeevani Policy
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Feature
Explanation
Sum Assured
The minimum sum assured is Rs 1 Lac and maximum sum assured is Rs 5 Lacs (in the multiple of 50,000)
Premium Payment Frequency
Premiums can be paid on a monthly, quarterly, half-yearly and on a yearly basis. It will be a 1 yr policy renewable each year
Cashless Benefit
Yes, there is cashless benefit under this policy
Maternity Benefit
Not Available
Renewability
Lifetime renewability is available in this policy.
Minimum & Maximum Age
The minimum entry age for the principal insured is 18 years and the maximum entry age is 65 years.
Waiting Period
30 days of waiting period. Hence no claim will be paid in first 30 days after buying policy
Co-payment
A fixed copay for 5% is applicable for all ages in this policy.
Portability
Yes, the policy offers the portability option to other health insurance companies
Ambulance Charges
Max Rs. 2000 per hospitalization
Pre & post Hospitalization
30 days Pre Hospitalization & 60 days Post Hospitalization expenses
Ayush Treatment
Yes, it’s Available.
AYUSH means all treatments related to Ayurvedic, Yoga, and Naturopathy, Unani, Siddha, Homeopathy
Waiting Periods
There are 2 types of waiting periods, 24 months and 48 months.
Most of the illness have only 24 months of waiting period, but two of them have 48 months of waiting period.
Sub Limits
For hospitalization expenses like room, boarding, nursing expenses up to 2% of Sum Assured or a maximum of Rs.5,000 per day.
ICU/ICCU expenses will also be provided up to 5% of sum assured or a maximum of Rs.10,000 per day.
Sub-limits of cataract surgery are equal to actual expenses i.e. 25% sum assured or Rs 4 lakhs, whichever is lower.
NCB (No Claim Bonus)
NCB (No Claim Bonus) of 5% for each year up to 50% of the sum assured is covered.
Riders
Not Available
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Policy Cancellation and Refunds
You can cancel the policy subject to following refund options
If you cancel within 30 days, you will get 75% premiums back
If you cancel from 31 to 90 days, then you get 50% premiums back
If you cancel between 3 months to 6 months, then you get 25% premiums back
After 6 months, you get NO refund
Is there any grace period in the policy?
Yes, For a yearly premium payment, 30 days grace period is allowed and for other modes of premium payment 15 days grace period is allowed.
The main exclusion is the maternity treatment expenses, but even treatments related to weight loss, change of gender, plastic surgery, hazardous adventure sports, breach of law or due to war, etc are excluded from the policy.
Good points of Arogya Sanjeevani Policy
All main features are available in the policy which is required by any investor
The policy has standard features, so no chance of getting confused when comparing the premiums of different companies
It’s my guess, but the premiums of this policy would not be very high as copay is there in this policy and no complicated features exist. Also there is a very large market for this policy hence all insurance companies will compete with each other to keep premiums down
Its a no brainer policy for someone who wants to buy a “decent policy”
You can buy multiple Arogya Sanjeevani Policy from different insurers
Should you buy Arogya Sanjeevani Policy?
At the end, let me answer this important question.
Health Insurance is a long term product, and if you can afford the permission, you should go for a base policy which is very strong overall. I suggest one to go for a 10-15 lacs of base cover and extend the cover using super top up policies beyond that.
Overall Arogya sanjeevani policy is decent for a common man who wants a good enough health insurance policy which works. It’s like the Jan Dhan account which has all the decent features. However there are few things which are the issues
5% copay
Sub limits of room rent
Maximum Sum assured limit of Rs 5 lacs
30 days of waiting period
Hence, I would suggest to explore other health insurance policies which give option to take a higher sum assured and may also not have copay limits.
We also need to wait for couple of more months to see how this policy launch turns out to be and what kind of premiums will be charged by various companies. Overall, it’s a very positive development in health insurance space and this policy will give an opportunity to people from lower sections of society to buy a good enough health insurance policy.
Do you want to know how to save money to do what you love in life?
I recently did a 49 min audio podcast with Sanjay Khandelwal of The Break School. The podcast is mainly aimed at those who want to do something on their own by quitting their jobs, but they get stopped because of a lack of money & planning or fear of starting out. The podcast will also help those who want to know some of the best principles of savings and investing. Please listen to the podcast below
Here are the 11 things we discussed in the podcast?
Why did you start Jago Investor ( 02 min, 48 Sec)
Two biggest challenges in last 10 years in building Jago Investor ( 05 min, 43 Sec)
What have been your 3 biggest learning as a personal finance coach? ( 06 min, 54 Sec)
Have you come across people who wanted to quit their job and be freelancers or be on their own? What do you think holds them back?
Is it just money or something more? ( 10 min, 47 Sec)
What kind of habits makes people spend more and save less? ( 15 min, 11 Sec)
Do e-wallets increase our propensity to spend ( 21 min, 49 Sec)?
How can personal finance help? And how does it not help? ( 26 min, 11 Sec)
Can you share 3 to 4 financial concepts that layperson must be aware of? (30 min, 30 Sec)
How much money does one really need? (35 min, 33 Sec)Are there any misconceptions/Illusion that people have with respect to money? ( 39 min, 38 Sec)
Can you suggest a basic Financial Plan for someone who wants to quit her job in two years and start a blog? What are the things that the person must look at? ( 41 min, 05 Sec)
Please share what you think about the podcast after listening to it?
A total of 120 people voted on the question and I got the answer somewhere on the lines of what I have always believed in.
Are Happiness and Convenience the same?
A lot of people confuse “convenience” with “happiness” and hence believe that getting ultra-rich will make them very happy in life. They don’t realize that when they will get ultra-rich, they will be able to afford everything from nice house to amazing vacations, all the gadgets they want and fancy cars.
This all will make their life super easy and they will not be worrying about anything in life which can be bought with money.
But that’s not “happiness”, its “Convenience”
Money and Happiness
There are many books written on the topic of money and happiness and there is tons of research to conclude now that an increase in happiness you get out of having more and more money keeps diminishing over time.
So may be quite unhappy when you are poor because you are frustrated and have no idea where the next meal will come from.
Going from Rs 10,000 to Rs 1,00,000 (increase of 90,000) is very different than going from Rs 1,00,000 to 2,00,000.
Your life style will not drastically change if you earn 20 lacs a month instead of 6 lacs a month. But it surely is a big change from Rs 20,000 a month to 80,000 a month.
Out of 120 people who voted on my tweet, 76% people choose “more convenience” as their answer and only 12% choose “more happiness”. I am sure people who choose “more happiness” still need to see a good salary in life
I personally think that you surely need to aim to build great wealth and aim for huge income because more money will surely be better than less money in life. At least you have one less thing to worry in life and that is MONEY.
Around 12% people also voted for “more worries” as their answer. Money can also bring trouble in life at times, especially if you are not ready to share the fruits of wealth with others and if you have no idea how to extract happiness out of your money.
There are many examples on earth where people have done suicide and gone mad while their bank accounts had millions. Remember that unhappiness can come from various sources like relationships, health, how you feel about yourself, family issues and money.
What do you think about this topic?
Please share your thoughts about “What does more money give you in life?”.
Let me make it clear that above points are my personal thoughts about money and I accept that different people have a different experience in life which shapes their relationship with money. I would love to see how people think about this topic.
Jagoinvestor completed 10 yrs recently and it was a wonderful experience for these 10 yrs writing so many articles, working with thousands of investors.
While I was at my Ahmedabad office recently, I and my partner Nandish thought of an idea. We were discussing our kids (I have 1.5 yrs daughter and his son is 7 yrs old) and their future. We were wondering what kind of things we would like to teach our kids so that they can have a great financial life or life in general.
Here are those 10 lessons… Do listen to the whole talk
So we thought about why to keep things private and not share the 10 lessons we would like to pass on to our kids which can help them greatly when they start their own financial life many years in the future from now.
These 10 lessons are not those regular “start early” and “take your health insurance” kind of points. We are talking about some solid lessons which are going to impact your life overall. It’s more of a RICH mindset vs Average Mindset lessons.
Here are the topics we discussed in the video:
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1) Future is an Illusion
2) Target Financial Freedom in 10 yrs
3) Speak the language of NETWORTH
4) Focus on your Health
5) Be Coachable
6) Always think in terms of Milestones
7) Look at life in sum-total
8) Slow down to Speed up
9) Be a student of Life
10) Always tell the Truth
11) Don’t Listen to Your Inner Voice (Bonus lesson)
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Incase you have any thing to add to these 10 points, we would love to listen about your thoughts in the comments section.
We owe our success and whatever we have achieved to all our readers, our teams and our teachers.
