In the last week of December, I had posted a Blog on the Financial resolutions for the New Year 2019.
As we approach the end of the Financial year and start a New one, it is time once again to think about our financial details, take stock of all that has happened in the year gone by and and plan the way ahead.
Lets start by going through a checklist of financial tasks that you should complete before the start of the New Financial year.
1. File your income tax returns
The final deadline to file tax returns for 2017-18 expires on 31st Enjoy an encumbered use of the income you earn and assets you have accumulated, after a simple act of declaring what your sources of income are, and paying the taxes that are due.
If you still haven’t filed your tax return, do it now. You might have to pay a late fee because of changes introduced in last year’s Budget.
Ensure that your financial life is compliant with the laws of the land. Take professional help if required, But complete that task, providing all the information that is needed.
2. Tax Planning and Investments for the current year
Have you done your 80 C Investments and other tax saving investments for 2018-19? (Check out our earlier blog on the same
You have barely enough time to complete your investments before 31st . Take the necessary steps now to optimize your tax payout. You have very little time to study investment options in detail but please don’t go for insurance policies and other investments that require a multi-year commitment. Your best bet in the limited period left now is ELSS, PPF, Tax saving FDs, NPS etc.
Consult a professional and make the investment to avail the benefit.
3. Make annual portfolio review a ritual
Letting your portfolio unattended is not a strategy but laziness.
Keep track of your NSDL / CAMS statement and keep a record; reconcile the statement with the transactions made and changes in holding, how their values have changed, how much growth have you got and how the proportions are distributed between Debt and Equity.
Get familiar with the details, so that you are in charge.
Consult your Financial Advisor to review your financial goals, as goals change over time, Review performance against your financial goals.
Next review your portfolio not only for returns, but also to rebalance your portfolio based on your Asset allocation strategy.
4. Make your Next year Budget and Fund Flow
Plan your financial requirement for the next year. Make a fund flow of all the expected income and expenses for the next twelve months. If a large expense is coming up, shift the money required to meet the needs, to zero risk investments like liquid or arbitrage fund from Equity, as equity may be volatile in the short term and may have a downside.
Review your SIPs and If you have a monthly investible surplus, enhance your SIP amount or reduce if required.
If a Lumpsum or windfall is expected in the coming year, consult your advisor to plan for the optimal strategy to put that money to work immediately on receipt. ( Check our earlier blog on the subject, https://www.sahayakassociates.in/resources/our-blog/2553-sahayak-associates/sahayak-associates-blog/8356-how-to-handle-a-windfall )
5. Put your money to work
As a first step, Review your Bank accounts, transfer whatever balance that you may have to liquid funds and arbitrage funds to enjoy better returns than your savings account and current account.
Do not let money lie idle while waiting for the right time and ideal investment opportunity. Consult a financial advisor today and decide on your financial goals and the best strategy to achieve those goals based on time horizon and your risk appetite. We associate investing with careful choice but don’t let that be an excuse for delaying your investment plan.
Shift your savings to investment to reap the benefits.
6. Book profits in stocks and equity funds
Long-term capital gains from stocks and equity-oriented funds beyond Rs 1 lakh in a year are now taxable. If you have made long-term capital gains, it is time to book profits in a way that you utilise the Rs 1 lakh tax-free threshold. Sell your stocks and equity funds this week to book a profit of up to Rs 1 lakh and then buy them back in the next financial year.
This simple strategy will reset your buying price upwards and thereby reduce your tax liability when you eventually sell them. This will entail a small 1% cost for stock investors by way of brokerage paid on the sale and purchase transactions. For mutual fund investors there will be no costs because entry loads have been removed and exit loads don’t apply if funds are sold after a year. Consult your advisor so that you can optimize your tax on capital gains.
7. Lock into 3-year FMPs and Debt Funds
Fixed maturity plans (FMPs) of mutual funds are closed-ended debt schemes with a fixed maturity date. Like in the case of debt funds, gains from FMPs held for more than three years are treated as long-term capital gains and taxed at a lower rate of 20% after indexation. The indexation benefit is enhanced if the holding period runs across more than three financial years. Several FMPs available right now will mature in 2022-23, so you will get four years’ indexation even even though the holding period is only 37-38 months.
Similarly, if you invest in Debt Funds before 31st March, 2019 and redeem in April 2022, you will get the indexation benefit of four years, thereby making tax virtually negligible on Debt Fund investment.
8. Review the finer details of your investments
There are several little tasks we postpone endlessly and most of us have no inclination to do paperwork for mundane tasks, but this time of the year is a good time to review and take up the unfinished tasks which have been niggling us for a long time.
Do your Estate planning, Prepare a Will, Complete the nomination forms; correct the contact details and email address on your folios; close bank accounts you don’t use; close those inactive trading and demat accounts. Check your CIBIL score and decide on steps to improve the same.
Tighten the nuts and bolts to keep your investment machine running well.
9. Review your Insurance Needs
As a matter of habit and routine, we just renew our insurance policies without giving much thought to our needs and requirement.
The most important thing to check is; Are your family members, especially your spouse aware of all your insurance details and whom to contact in case of an emergency or mishap?
Next, As a first step, review your Health Insurance policy for the amount and kind of cover that you have. Are the critical illnesses covered, is it actually cashless in all respects, are the room charges covered and to what extent?
A top up of a substantial amount may actually work out cheaper than another regular policy from another company.
Next, it is always better to take an independent cover for adult children than continue the same Family cover as earlier. It will not only be cheaper but your adult child can be covered at a much lower cost for a longer period of his/her life.
Next review your Term insurance and Personal accident insurance. Ideally your term /PA cover should be X number of times your annual expense plus any debt or liability that you may have, where X denotes the number of years that your dependents will take to become independent or X may denote the balance life expectancy of your dependent spouse Less your current corpus.
You must always remember that the purpose of Term Insurance is not replacement of wealth but a replacement of income, in case of a mishap. Hence, if you are already retired and have no regular source of income, you don’t need term insurance. Similarly if you already have a sufficient corpus to take care of you and your dependents’ needs, in case of any mishap, there is no point in paying expensive premium to get a life or personal accident cover.
10. Plan your Tax Saving for the Next Year
Most people at least in India invest to save taxes. Definitely, not the most optimal way to invest. You must focus on Tax planning rather than tax saving and tax saving will happen automatically.
Though ELSS is definitely one of the superior Tax saving instruments because of lower lock ins and higher returns, there may be other factors that you need to consider.
Your decision regarding tax saving investment in Debt or Equity will depend on your requirement and where it fits in with your asset allocation strategy. Next is your risk taking ability and your requirement of funds going forward.
You may actually want to follow an asset allocation strategy in your tax saving investments also.
However, the best way to invest in ELSS for your tax savings is to invest through a SIP of Rs 12500 per month, thereby averaging the purchase and reducing volatility and also averaging the lock in period of your tax saving investment.
Don’t wait until next week or next year to start turning those good intentions of yours into a meaningful financial life plan! Don’t fool yourselves by saying you don’t have the time or making many such excuses. (https://www.sahayakassociates.in/resources/our-blog/2553-sahayak-associates/sahayak-associates-blog/8164-common-excuses-for-not-investing )
Start now, fix an appointment with your financial advisor so that you can start the new financial year on a good note in line with your financial goals.
Happy Investing, Have a great financial year ahead.
Stay Blessed Forever
Note: All information provided in this blog is for educational purposes only and does not constitute any professional advise or service. Readers are requested to consult a financial advisor before investing as investments are subject to Market Risks.
| About The author Sandeep Sahni Sandeep is an alum of IIM Lucknow with a Post Graduate Degree (MBA class of 1988). His also an alum of Shri Ram College of Commerce, Delhi University (B.Com. Hons. class of 1985.) Sandeep’s investing experience and study of the Financial Markets spans over 30 years. He is based in Chandigarh and has been advising more than 500 clients across the globe on Financial Planning and Wealth Management. He has promoted “Sahayak Gurukul” which is an attempt to share thoughts and knowledge on aspects related to Personal Finance and Wealth Management. Sahayak Gurukul provides financial insights into the markets, economy and Investments. Whether you are new to the personal finance domain or a professional looking to make your money work for you, the Sahayak Gurukul blogs and workshops are curated to demystify investing, simplify complex personal finance topics and help investors make better decisions about their money. Alongside, Sandeep conducts regular Investor Awareness Programs and workshops for Training of Mutual Fund Distributors, and workshops and seminars on Financial Planning for Corporate groups, Teachers, Doctors and Other professionals. Through his interactions and workshops, Sandeep works towards breaking the myths and illusions about money and finance. He also writes a well read blog; https://sahayakgurukul.blogspot.com He has also conducted presentations, workshops and guest lectures at Management institutes for students on Financial Planning and Wealth Creation. He can be reached at:
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