The Union Budget 2021 announced taxation on income earned on contributions in excess of Rs 2.50 lakh per annum (i.e. Rs 20,834/-) made to PF (Rs 5 lakh in some cases). Savers are worried and frustrated that their safest investment option will yield lower returns from April 2021 onwards. This has opened up a huge opportunity for the savers to become investors.
The government invests these funds in low yield debt instruments. Since 2015, he has started investing in equities. The provident fund acts as a social security and the government sees that the interest rate exceeds the returns it generates from its investments. This mismatch is putting pressure on government finances; So he decided to tax the excess contribution.
India is one of the most sought after emerging economies in the world today. Global investors are increasing their allocation to India as it is projected to become the third largest economy in the coming decades. Covid-19 has put brakes on global investment in China and taking advantage of the situation, India has announced various PLI schemes to attract investments. in manufacturing. This will not only attract huge investments but also generate employment and increase consumption. This is a structural change that will take time to gain acceptance and deliver results.
Have you ever felt that you are a major source of wealth creation for the world’s richest people? Think who are the consumers of products/services sold by companies/brands like Microsoft, Amazon, Jio, Samsung, Maruti etc.? Owned by the richest people in the world. We regularly consume products/services from over 100 companies/brands.
The question is, do these companies sell at cost or at a profit? The answer is clearly on the profit that goes to its shareholder.
Now that you work so hard to earn a living (remember, your employer is hiring you to make a profit and not to donate) and on maintaining a certain lifestyle (one that makes a profit to others) So why not take this opportunity to look at the other side of the coin too?
What are our options now?
This announcement provides an opportunity for you to rethink your financial future. Do you still want to be a saver or an investor? Depending on your goals, you can be both a saver and an investor. Take advantage of this opportunity to participate in the growth story of India. Take advantage of the opportunity to be a part owner of the world’s largest companies. Make the right investments and reap the rewards not only for yourself but also for your future generations. (Take inspiration from stalwarts like Dhirubhai Ambani, Birla, Godrej or Tata, whose 3rd/4th generation is reaping the benefits of early investment).
For an investor to have confidence in the system, it is very important to have a strong and dynamic regulatory framework. The regulatory framework has evolved over the years and has worked towards eliminating corrupt practices. However, this does not take away the fact that in future we will not see scams, frauds etc.
Work towards wealth creation rather than wealth accumulation. Contact an expert to manage your financial dealings and discipline and not to manage your money. Money if put in the right way requires no help and can’t manage the markets, it goes its own way.
If a saver saves Rs.10000/- per month (total amount invested Rs.24,00,000/-) in a debt instrument for 240 months and the instrument assures a fixed return of 8% per annum, then the maturity Price will be Rs.59, 30,000/- [figures rounded off]
If an investor invests Rs.10,000/- per month (total amount invests Rs.24,00,000/-) in an equity instrument for 240 months without the assurance of any fixed return, the likely market value in various return scenarios is [figures rounded off]
- @ 6% = Rs.46,43,000/-
- @ 8% = Rs.59,30,000/-
- @ 10% = Rs.76,56,000/-
- @ 12% = Rs.99,91,000/-
- @ 15% = Rs.1,51,59,000/- [FYI..Sensex has delivered a CAGR of 15% (+) since inception]
The worst-performing equity mutual funds have delivered almost the same returns as the highest interest-bearing debt instruments in the past (10 year period). Equity investments do not guarantee any fixed returns and are subject to market risks. An equity option should be considered if one has an investment horizon of 10 years and above.
“It is risky to take a risk or is it risky not to take a risk?”
Views are personal: The author is Sudarshan Rungta, CEO, Rungta Securities Pvt Ltd.
Disclaimer: The views expressed are those of the author and are personal. TAML may or may not subscribe to it. The views expressed in this article/video are in no way trying to predict the markets or their timing. The views expressed are for informational purposes only and do not imply any investment, legal or taxation advice. Any action taken by you based on the information contained herein is your sole responsibility and Tata Asset Management will not be liable in any way for such consequences. action taken by you.
Mutual fund investments are subject to market risks, read all the documents related to the scheme carefully.
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