Category Archives: The Daulat Blog

Imagine you and your peer begin investing at the same time, with identical initial funds and similar investment themes. However, over time, the final amount in your investment portfolios may vary significantly. The key factor influencing this outcome is your mutual fund selection strategy and procedure. But don’t worry, we’ve got you covered! In this blog, we will discuss some fundamental technical facts to help you make informed decisions and navigate through the overwhelming task of choosing the right mutual funds and achieving your wealth creation goals.

Basic Criteria for Mutual Fund Selection

Before delving into the comparison of mutual funds using various matrices, it is essential to grasp the fundamental philosophy and methodology behind mutual fund selection

• Investment Objectives: Understanding your investment objectives forms the cornerstone of effective mutual fund selection. This involves clarifying whether you are seeking long-term capital appreciation, a steady income stream, or a balanced combination of both. Your investment goals will dictate the types of funds you should consider, ensuring that your chosen funds align with your financial aspirations.
• Fund Category & Fund Theme: Mutual funds are categorized based on their investment focus, such as equity, debt, hybrid, and sector-specific funds. Each category comes with its risk-reward profile and characteristics. Evaluating the suitability of a fund category to your investment objectives is essential. For instance, if you’re aiming for higher potential returns and are comfortable with higher volatility, equity funds might be suitable. On the other hand, if stability and regular income are your priorities, debt funds could be more fitting.
• Portfolio Holdings and Asset Allocation: Examining a mutual fund’s portfolio composition and asset allocation strategy provides insight into where your money will be invested. Analyze the types of securities the fund holds, such as stocks, bonds, or other financial instruments. Diversification across different assets can mitigate risks. Understanding how the fund manager allocates assets based on market conditions and their investment strategy is crucial in determining if the fund’s approach aligns with your risk tolerance and objectives.
• Fund Size (AUM – Assets Under Management): The size of a mutual fund, often measured by its Assets Under Management (AUM), can impact its performance and operational efficiency. While a larger AUM might imply stability and resources, a smaller fund could potentially be more agile and responsive to market opportunities. Consider how the fund size may influence factors like liquidity, transaction costs, and the fund’s ability to manage inflows and outflows effectively.
• Fund Manager and House Reputation: The expertise and track record of the fund manager play a pivotal role in a mutual fund’s success. Research the fund manager’s experience, investment philosophy, and performance history. A seasoned and skilled fund manager is more likely to navigate market fluctuations effectively. Additionally, consider the reputation of the fund house or management company. A reputable firm is likely to have well-defined investment processes, risk management practices, and a commitment to investor interests.

Tune into our podcast episode featuring Mr. Samir Arora from Helios Capital Management, where he imparts valuable wisdom and guidance for investors embarking on the mutual fund selection journey. Stream Now!

Comparative Analysis for Mutual Fund Selection

Once the goals and extent of exposure investments have been examined, it becomes crucial to familiarize oneself with certain technical terms to assess the funds presented by a series of mutual fund companies within the same category.

• Expense Ratio:

The expense ratio is a percentage of a mutual fund’s assets that is used to cover its operating expenses. This includes management fees, administrative costs, and other fees. A lower expense ratio is generally more favorable, as it means less of your potential returns are being consumed by fees. It’s important to compare the expense ratios of different funds within the same category to ensure you’re getting good value for your investment.

• Lock-in and Exit Load:

Some mutual funds have a lock-in period during which you cannot redeem your investment. This period can vary depending on the fund. Additionally, mutual funds may have an exit load, which is a fee charged when you redeem your investment before a specified period. Understanding the lock-in period and exit load is important to avoid unexpected fees and to align your investment horizon with your financial goals.

• Rolling Returns:

Rolling returns provide a clearer picture of a mutual fund’s performance over time by calculating the average return over various periods within a specified timeframe. This analysis helps you assess how consistent a fund’s performance has been, especially during different market conditions. It provides insights into the fund’s ability to generate returns across various market cycles.

• Volatility Ratio:

Volatility is a measure of the fluctuations in a mutual fund’s returns over a certain period. A higher volatility ratio (Alha, Sharpe, and Standard Deviation ratios) indicates greater price fluctuations, which can indicate higher risk. Understanding a fund’s volatility helps you gauge its potential for significant price swings and the associated risks. It’s important to align the fund’s volatility with your risk tolerance and investment objectives.

• Tracking Error and Rating:

Tracking error measures the consistency of a mutual fund’s returns compared to its benchmark index. A lower tracking error suggests that the fund closely follows its benchmark, which can be desirable for investors seeking specific market exposure. Additionally, mutual funds are often assigned ratings by agencies that evaluate their historical performance, risk profile, and other factors. These ratings can provide insights into the fund’s past performance and risk-adjusted returns.

Conclusion

Navigating through the intricate process of mutual fund selection might initially seem overwhelming and laborious. However, once you meticulously analyze the aforementioned insights, you will position yourself at an advantage in terms of optimized returns or a substantial corpus over time. Nevertheless, seeking guidance from your mutual fund advisor is recommended for additional clarity and tailoring your portfolio to align with your specific requirements.

The world of investments is constantly evolving, offering a plethora of options to investors. Among these choices, flexicap funds have emerged as a versatile and dynamic option in India. Flexicap fund, also known as flexi-cap fund, is one of the thematic funds among lesser-known funds, that provides a distinctive blend of flexibility and diversity that caters to both conservative and aggressive investors. This blog post aims to delve deeply into the concept of flexicap funds, exploring their characteristics, benefits, potential risks, and their relevance in the Indian investment context.

Understanding Flexicap fund:

Flexicap fund fall within the category of mutual fund that possess the unique feature of investing across various market capitalizations without adhering to any pre-defined allocation to large-cap, mid-cap, or small-cap stocks similar to Hybrid Funds which invests in both equity and debt. This flexibility empowers fund managers to recalibrate the composition of the portfolio based on market conditions, valuations, and growth prospects. In essence, these funds are equipped with the freedom to navigate through different market segments, thereby optimizing returns.

Characteristics of Flexicap Fund:

• Dynamic Allocation: The hallmark of flexicap funds lies in their ability to seamlessly shift between large-cap, mid-cap, and small-cap stocks. This reallocation is based on the fund manager’s evaluation of market conditions and growth potential.
• Diverse Portfolio: Flexicap funds offer exposure to a wide array of companies, creating a diversified investment portfolio for investors.
• Risk and Return Potential: These funds hold the promise of higher returns compared to large-cap funds owing to their inclusion of mid-cap and small-cap stocks. However, this potential for elevated returns comes hand in hand with increased volatility and risk.
• Active Management: The expertise of skilled fund managers takes center stage in the active management of flexicap funds. These managers make strategic investment decisions to capitalize on emerging opportunities, making them a crucial factor in the fund’s performance.

Advantages of Flexicap fund:

• Flexibility: Flexicap funds possess the unique trait of adapting to ever-changing market dynamics. This adaptability empowers investors to reap benefits from diverse market segments.
• Diversification: Investors gain exposure to a broad spectrum of companies, reducing the impact of poor performance within any specific sector.
• Active Expertise: Fund managers’ astute decision-making skills are harnessed to make informed investment choices, potentially leading to superior returns.
• Potential for Growth: The inclusion of carefully selected mid-cap and small-cap stocks provides the opportunity for significant growth that might outpace larger companies.
• Liquidity: Given their nature as mutual funds, flexicap funds offer ease of liquidity, allowing investors to buy or sell units on any business day.

Key Considerations for Investing in Flexicap Funds:

• Investment Horizon: Flexicap funds are best suited for investors with a medium to long-term investment horizon. Patience during short-term fluctuations is paramount.
• Risk Tolerance: The diverse investment portfolio of flexicap funds, while offering growth potential, can also entail higher volatility. Investors should assess their risk tolerance and align their choices accordingly.
• Fund Manager Expertise: The track record and expertise of the fund manager play a pivotal role in the fund’s performance. Scrutinizing the fund manager’s historical decisions and performance across market cycles is prudent.
• Diversification Strategy: While inherent diversification is a feature of flexicap funds, investors need to review the fund’s allocation across sectors to ensure a well-balanced portfolio.
• Exit Load and Expense Ratio: An evaluation of the fund’s expense ratio and potential exit loads is crucial. Lower expenses can positively impact overall returns.
• Asset Allocation Strategy: Understanding the historical asset allocation of the fund and its adaptability to shifting market conditions offers insights into its investment strategy.
• Consistent Review: Regularly reviewing the investment portfolio, including flexicap funds, is indispensable. Changes in financial goals or market dynamics may necessitate adjustments.

Why Flexicap Funds Matter in India?

In the context of India’s remarkable financial growth and transformation, flexicap funds have garnered attention for their ability to harness opportunities within the diverse Indian stock market. Their significance in the Indian investment landscape is underscored by the following factors:

• Dynamic Exposure to India’s Growth Story: India’s economic landscape is replete with opportunities across various market capitalizations. Flexicap fund grant investors exposure to both established large-cap companies and emerging mid-cap and small-cap enterprises, enabling them to capitalize on India’s growth trajectory.
• Adaptation to Market Cycles: The Indian stock market is subject to the ebb and flow of market cycles influenced by domestic and global factors. Flexicap fund can adeptly navigate these cycles by adjusting their allocation to different segments, potentially optimizing returns during periods of economic expansion while mitigating losses during downturns.
• Alignment with SEBI Regulations: The introduction of SEBI’s mutual fund categorization framework has instilled structure and clarity into India’s mutual fund landscape. Flexicap fund, as defined by SEBI, ensure a minimum equity exposure, aligning them with the interests of long-term investors seeking equity market participation.
• Portfolio Customization: Flexicap fund empowers fund managers to craft portfolios tailored to sectoral trends, macroeconomic indicators, and market valuations. This customization strives to optimize returns while managing risks.

Conclusion:

In India, flexicap funds offer investors a distinctive investment avenue that amalgamates flexibility, diversification, and active management. These funds cater to investors seeking exposure across multiple market segments while harnessing the acumen of skilled fund managers. Nevertheless, it is imperative for investors to meticulously evaluate the fund house’s track record, the fund manager’s experience, and their own risk tolerance before venturing into flexicap fund. As with any investment endeavor, thorough research coupled with a long-term perspective serves as the compass in navigating the world of flexicap funds. It is prudent to remember that investing is accompanied by inherent risks, thus seeking guidance from mutual fund advisors before making investment decisions is sage advice.

Congratulations on embarking on your investing journey through mutual funds! However, with a plethora of options available, it’s natural to feel overwhelmed and confused. Each types of mutual funds scheme has its unique investment approach and objectives, resulting in varying risk factors and asset allocations.

But fret not! In this blog, we’ve got you covered. We will delve into the various types of mutual fund schemes available in the Indian market, helping you gain a clear understanding of their characteristics and guiding you toward making informed investment decisions.

Points while comparing types of mutual fund schemes

Mutual funds are differentiated on some key factors as discussed below

• Investment Objective

SEBI requires mutual fund houses to disclose and adhere to a specific investment objective for each of their funds. This objective serves as a guiding principle for investors, helping them make informed decisions that align with their financial goals. The investment objective can vary, ranging from tracking a TRI benchmark index for Index funds to participating in the Future & Options market for Arbitrage funds. It is essential for investors to comprehend these investment objectives thoroughly and invest accordingly, ensuring their investments are well-matched to their individual goals and risk preferences.

• Risk Assessment

Each mutual fund scheme comes with a pre-defined investment objective that directly influences the level of risk associated with the fund. This risk profile, in turn, plays a significant role in determining the expense ratio and the fund’s past performance. The fund manager’s expertise is crucial in striking a balance between risk and return, and this expertise comes at a cost. The degree of risk varies significantly across different types of mutual funds, with index funds carrying minimal risk and arbitrage funds being associated with higher risk levels.

• Regulatory risks

SEBI has established guidelines that mutual fund houses must adhere to in order to mitigate investor risk. These regulatory measures address various aspects, such as the recent freeze on fund infusion for small-cap funds, the asset allocation requirements for dynamic asset allocation funds, and the tax and legal frameworks applicable to international mutual funds. These measures aim to provide investors with a safer and more transparent investment environment while ensuring compliance with the regulatory standards set by SEBI.

Types of Mutual Funds Scheme

In this blog, we will focus on exploring some lesser-known mutual fund schemes that are not commonly discussed, rather than the typical sector-wise equity mutual funds, debt funds, or index funds. We will shed light on the following unique schemes: 

• Arbitrage Funds

Arbitrage funds are a type of mutual fund that generates income and capital appreciation by taking advantage of short-term price differences between similar securities in different markets. For example, if the price of a stock on the Bombay Stock Exchange is different from the price of the same stock on the National Stock Exchange, an arbitrage fund can buy the stock on the Bombay Stock Exchange and sell it on the National Stock Exchange to make a profit.

Fund Objective: Appreciation from short-term differences in prices 

Risk Assessment: Low risk

Regulatory Risk: Risk discourse 

• Hybrid Mutual Funds

“Hybrid Mutual Funds” bridge the gap for investors prevailing against the barriers of sorting two funds and bearing their individual charges. Hybrid mutual funds, also known as balanced funds, offer a unique combination of asset classes, combining the benefits of equity and debt instruments.

Fund Objective: Bridging the gap between Equity and Debt

Risk Assessment: Medium based on asset allocation

Regulatory Risk: Investment limits and Portfolio diversification

• International Mutual Funds

Diversification of a portfolio is a big win with International mutual funds. With exposure to global markets, your portfolio is bound to be diversified, and you can easily reduce your investment risks. Plus, with country-specific funds or funds that invest in top-performing companies, you can gain access to high-growth companies you would otherwise not have access to. How awesome is that? But, what about currency fluctuations? That’s where international mutual funds cover you. The exposure to different currencies helps you balance and hedge your portfolio against undue risks. Sure, market risks always pose a threat. 

Fund Objective: Exposure to International markets

Risk Assessment: Currency exchange rate

Regulatory Risk: Taxation and Policy Frameworks

• Dynamic asset allocation funds

A mutual fund scheme that adjusts its asset allocations (equity or debt) based on current market conditions and trends is known as a dynamic asset allocation fund or balanced advantage fund. These funds employ an asset allocation strategy where they tweak the investments in securities depending on the conditions of the market. Dynamic mutual funds act as a shield against downswings in the market and they usually lose substantially less amount of money during a time when the markets are down. Hence, these funds are believed to be an ideal investment avenue in the volatile market that seems to be on a bull run.

Fund Objective: Balancing asset allocation according to market volatility 

Risk Assessment: Medium depends on Asset allocation

Regulatory Risk: Portfolio Diversification and Risk Disclosure 

• Low-Risk Mutual funds

Low-risk mutual funds are investment vehicles that prioritize capital preservation and aim to provide stable returns with minimal exposure to market fluctuations. These funds typically invest in assets with historically low volatility, such as government bonds, high-quality corporate bonds, and other stable financial instruments.

Fund Objective: Investment in fixed-income-based securities

Risk Assessment: Lock-in period not for short-term investment

Regulatory Risk: Overleveraging and diversification

Portfolio management plays a crucial role in the journey of building wealth. Investopedia defines it as “the skillful and scientific process of choosing and supervising a collection of investments that align with the client’s, company’s, or institution’s long-term financial goals and risk tolerance.” However, this definition fails to clarify the specific objectives, the responsibilities of a portfolio manager, and how they differ from bank relationship managers. In this blog, we will explore these aspects of the portfolio management process to provide a comprehensive understanding.

Objectives Portfolio Management Process

Maximize Returns:

• Strategic Investment Themes: Portfolio management focuses on carefully selecting investment themes that have the potential to generate the highest possible returns over time. Thorough research, analysis, and evaluation of investment opportunities are conducted to identify assets with strong growth prospects.
• Active Monitoring: Portfolio managers continuously monitor the performance of investments within the portfolio. They stay informed about market trends, economic indicators, and company-specific factors to identify opportunities for maximizing returns. Adjustments and reallocations are made as needed to capitalize on favorable market conditions.

Minimize Risk:

• Risk Assessment: Portfolio managers assess the risk associated with each investment to ensure it aligns with the investor’s risk tolerance. They consider factors such as historical performance, volatility, market conditions, and industry trends to make informed decisions that balance risk and potential reward.
• Diversification: Diversifying investments is a key risk management strategy. By spreading investments across different asset classes, sectors, and geographic regions, portfolio managers aim to reduce the impact of any single investment’s poor performance on the overall portfolio. Diversification helps to minimize risk and potential losses.

Achieve Specific Financial Goals:

• Customized Approach: Portfolio management takes into account the investor’s specific financial goals, whether it’s saving for retirement, funding education, or purchasing a home. The investment strategy is tailored to meet these objectives, considering factors such as investment horizon, income needs, and risk tolerance.
• Long-term Planning: Portfolio managers develop strategies with a long-term perspective, ensuring that investments are aligned with the investor’s timeline for achieving their financial goals. They focus on capital appreciation and income generation, adjusting the portfolio as the investor’s circumstances and goals evolve.

Diversify Investments:

• Asset Allocation: Portfolio managers allocate investments across different asset classes, such as stocks, bonds, real estate, and alternative investments. This diversification helps to spread risk and potential returns across different market segments and investment types.
• Sector and Geographic Diversification: Within each asset class, portfolio managers further diversify by investing in different sectors and geographic regions. This helps to reduce exposure to specific industry risks and regional economic fluctuations, enhancing the overall stability of the portfolio.

Rebalance the Portfolio:

• Regular Assessment: Portfolio managers periodically review the composition and performance of the portfolio. They compare the actual allocation to the target allocation and identify any deviations.
• Adjustments for Alignment: If the portfolio’s asset allocation deviates significantly from the target allocation or if the investor’s financial goals change, portfolio managers make adjustments to rebalance the portfolio. This involves buying or selling assets to realign the portfolio with the desired risk-return profile.

​​Tax Efficiency: Portfolio management incorporates tax-efficient strategies to optimize after-tax returns and minimize tax liabilities. This may involve utilizing tax-efficient investment vehicles, tax harvesting techniques, and maximizing tax-advantaged accounts to enhance wealth creation.

Portfolio Management Service

After employing a portfolio manager, it is important to establish a framework for ongoing communication, monitoring, and evaluation to ensure the effectiveness of portfolio management. Here are some key steps to consider:

• Define Expectations: Clearly communicate your investment objectives, risk tolerance, and any specific requirements or constraints to the portfolio manager. This will help set the foundation for the manager’s decision-making process.
• Regular Performance Reviews: Schedule regular meetings or reviews with the portfolio manager to discuss the performance of the portfolio. Assess whether the returns align with your goals and expectations. Evaluate the manager’s investment decisions, risk management strategies, and overall portfolio performance.
• Communication and Transparency: Maintain open lines of communication with the portfolio manager. Discuss any changes in your financial situation, risk appetite, or investment objectives that may impact the portfolio. The portfolio manager should provide updates on investment strategy, market conditions, and any adjustments made to the portfolio.
• Monitor Portfolio Activity: Stay informed about the portfolio’s holdings, asset allocation, and any significant changes made by the portfolio manager. Review transaction reports, portfolio statements, and performance reports to ensure transparency and track progress toward your goals.
• Evaluate Risk Management: Assess how effectively the portfolio manager is managing risk. Review the risk management techniques employed, such as diversification, hedging strategies, and risk assessment processes. Evaluate whether the risk level aligns with your risk tolerance and if the manager is taking appropriate measures to protect the portfolio.
• Revisit Investment Objectives: Periodically reassess your investment objectives and discuss any changes with the portfolio manager. This may involve adjusting the asset allocation, investment strategy, or rebalancing the portfolio to realign with your evolving goals.
• Seek Additional Expertise: Consider engaging a third-party advisor or consultant to conduct periodic reviews or audits of the portfolio manager’s performance. This independent perspective can provide valuable insights and ensure the portfolio manager is meeting your expectations.
• Evaluate Fees and Costs: Review the fees and costs associated with the portfolio management services. Assess whether the fees are reasonable based on the level of service provided and the performance of the portfolio.
• Stay Informed: Continuously educate yourself about investment trends, market conditions, and economic factors that may impact your portfolio. This will allow you to actively participate in discussions with the portfolio manager and make informed decisions.

Portfolio Manager vs Bank’s Relationship Manager

You may have received multiple notifications from your branch manager urging you to choose their portfolio management scheme. However, it is recommended to consider a portfolio management agency for the following reasons:

• Scope of Services: Bank relationship managers typically provide a wide range of financial services beyond investment management, such as banking, lending, estate planning, and insurance. They take a holistic approach to managing your financial affairs. Portfolio managers, on the other hand, primarily focus on investment management and optimizing your portfolio.
• Specialization and Expertise: Portfolio managers often have specialized knowledge and expertise in investment strategies, asset classes, or market sectors. They may offer a more in-depth understanding of investment opportunities and can tailor strategies to meet specific investment goals. Bank relationship managers may have a broader understanding of financial services but may not possess the same level of specialization.
• Access to Research and Resources: Banks typically have extensive research departments, providing bank relationship managers with access to in-house research, market insights, and investment recommendations. This can be an advantage in terms of comprehensive analysis and access to resources. Portfolio managers, depending on their affiliations or networks, may have access to external research sources or collaborations.
• Independence and Objectivity: Portfolio managers, especially those working independently or for specialized firms, can offer an independent perspective and avoid conflicts of interest associated with promoting in-house financial products. Bank relationship managers may have an incentive to promote the bank’s proprietary products, potentially creating a conflict between their advice and your best interests.
• Personalization and Accessibility: Portfolio managers often work with a limited number of clients, allowing for more personalized attention and direct access to the manager. Bank relationship managers may have a larger client base, potentially limiting their availability and ability to provide individualized attention.
• Regulatory Oversight and Investor Protection: Banks are subject to strict regulatory oversight and have investor protection measures in place, providing a certain level of security. However, this may vary depending on the jurisdiction and specific bank. Portfolio managers may be regulated by different bodies or have affiliations with industry organizations that offer investor protection.
• Fee Structure: Fee structures can vary between bank relationship managers and portfolio managers. Banks may have set fee schedules, while portfolio managers often negotiate fees based on the services provided. It’s important to understand the fee structure, including management fees, performance fees, and any additional charges, to assess the cost-effectiveness of the services.

Ultimately

The primary aim of the portfolio management process is to ensure both capital protection and appreciation. It involves maximizing returns, ensuring tax efficiency, diversifying investments, and balancing funds. To maintain a healthy portfolio that aligns with their financial planning goals, investors must diligently manage their investments. Given the complexity involved, portfolio management is best handled by experts.

Achieve your financial goals with Daulat: Take control and optimize your portfolio.

Inflation is a phrase you must’ve heard frequently in the news. But do you truly know what it means and what are the effects of inflation on your finances and asset management and how to beat inflation? In simple terms, inflation is the pace at which prices rise, and it directly influences the purchasing power of your money.

Inflation influences the cost of living and how much money you spend on necessities. It also impacts your long-term financial goals, such as retirement and children’s schooling. If you want to know more about inflation and secure your economic interests, you’ve clicked the correct link!

This blog post sheds light on how inflation impacts budget and finance and provides smart and simple ways to preserve your money to curb and beat inflation. So, let’s get started.

Growing Prices & Their Effect on the Worth of Your Money

The pace at which prices rise varies based on a variety of factors, including economic development, government policy, and world events. The Consumer Price Index (CPI), which measures the cost of goods and services over time, may be used to gauge inflation.

When prices rise, the purchasing power of your money falls, which means you can buy less than previously. This might result in a decline in buying power and a lower level of living.

Impact of Inflation on Personal Finance

Inflation affects your investments and personal finance in a variety of ways:-

• For starters, the value of money falls, which means it can purchase less than before. This might increase the expense of living while decreasing the standard of living.
• Secondly, the cost of basic necessities such as food, shelter, and transportation rises. This might result in less discretionary income and a rise in debt.
• Also, long-term aspirations like retirement savings, children’s education, and other future goals become more challenging to plan for because the value of your money will be worth less in the future.
• Other avenues which get affected by inflation are government policies, investment values, interest rates, etc. Everything is related to your personal finances in some or the other way.

Smart Financial Moves to Beat Inflation

Now that you understand how inflation impacts budget and finance, you can make out that it is utterly important to be prepared to combat it. Here’s how! 

• To fight inflation, diversify your investment portfolio with stocks, bonds, gold, and real estate. These investments can act as a hedge against inflation by yielding more significant returns than the rate of inflation.
• Another alternative is to invest in inflation-protected securities. These securities are meant to keep up with inflation, guaranteeing that the value of your investment remains stable over time.
• Making tweaks to your financial plans to deal with increasing prices might also be beneficial.
• Reduced costs, increased income, and the creation of a budget can help you manage the consequences of inflation on your personal finances.

Simple Steps to Safeguard Your Money During Inflation

It is critical to safeguard your money during inflation. Following are some straightforward yet simple ways to flourish economically despite inflation:-

• Always track your spending and build a budget. This will assist you in identifying areas where you may cut costs and boost savings.
• Furthermore, staying up to speed on inflation patterns and developments will help you remain ahead of the curve.
• You can stay informed by reading financial news and keeping an eye on economic variables that influence inflation, such as interest rates, GDP, and unemployment rates.

A Smart Financial Flexibility Option – Digital Loans

It is normal to face a cash crunch during inflation. However, there are ways to swim through these gloomy days. Digital loans can lessen the burden of your financial difficulties. They are simple to get and can give fast funds in times of need.

And as the name suggests, the entire loan procedure can be completed digitally via the lender’s website or mobile app. So, you don’t need to visit a bank multiple times and wait for days for approval. Digital loans are quick, swift, and super flexible.

They also provide multiple repayment alternatives with low-interest rates. Digital loans can give the financial assistance you need to manage the effects of inflation on your personal finances, whether you need money for an emergency or to pay unforeseen costs.

To conclude, inflation is an unavoidable aspect of personal finance and asset management. Understanding how it affects your financial decisions and taking proactive steps to limit its impacts is critical. You can protect your money and preserve your financial future by investing in assets that grow in value over time.

Diversifying your portfolio and keeping a careful watch on inflation rates are also highly recommended by experts. At the end of the day, it all comes down to being informed, adaptive, and smart in your approach to managing your finances in the face of an ever-changing economic situation.

Author Bio:

Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at shiv@freo.money 

The Budget of 2023 has introduced a new tax regime, and as the deadline for filing taxes is approaching, individuals must assess their position and decide between the old and new tax regimes based on their interests and plan their financials. In this discussion, we will compare the two tax regimes and help calculate their tax liabilities. To calculate your tax liability under each rule, you will need to gather the necessary financial information, including your income, deductions, exemptions, and investments. With this data, you can utilize online tax calculators or consult with a tax professional who can help you determine the tax payable under both regimes. You can make an informed decision based on your interests and financial goals by comparing the results.

Key Differences between old and new tax regime

The primary distinction between the two tax regimes lies in the distribution of tax slabs. The old tax regime consists of 7 slabs, while the new regime has 4 slabs. To provide further clarification, I have prepared a chart illustrating the tax slabs under each regime.

Apart from changes in tax slab, the following deductions can be claimed under the new tax regime for calculating liable tax payable income:

• Standard Deduction: Similar to the old regime, the new regime allows for a standard deduction of up to Rs 50,000 under Form 16. This deduction reduces the taxable income for all individuals.
• Family Pension: Under the new regime, individuals receiving family pensions can claim a deduction of either Rs 15,000 or one-third of the pension amount, whichever is lower. This deduction helps reduce the taxable portion of the family pension.
• Surcharge: Individuals with a salary above Rs 50 lakhs will be subject to a surcharge of 4%. The surcharge is an additional tax imposed on top of the regular tax liability for high-income earners.
• Rebate under Section 87A: The new regime allows for a rebate of up to Rs 25,000 under Section 87A. This rebate is applicable for individuals with a total income below a specified threshold, helping to reduce the tax liability further.
• No Deductions for House Rent Allowance, Home Loan Interest, and tax saving Investments: Unlike the old regime, the new regime does not provide deductions for House Rent Allowance (HRA)& home loan interest (Sec 54), and investments made under Section 80C & 80D  (such as ELSS, NPS, SSY). These deductions were previously available in the old regime to reduce taxable income.

The old tax regime included the following more deductions, which now have been omitted under the new tax regime: 

• Deduction for medical expenses: This deduction is available to taxpayers who incur medical expenses for themselves, their spouse, their dependent children, and their parents. The deduction is equal to the actual amount of medical expenses incurred, up to a maximum of Rs. 50,000.
• Deduction for donations to charitable organizations: This deduction is available to taxpayers who donate to charitable organizations. The deduction is equal to the actual amount of donation made, up to a maximum of 50% of the taxpayer’s adjusted gross income.

Case-Based Calculation:

We have taken two scenarios to elaborate on the difference between regimes and investors can calculate their tax liability based upon insights from the following scenarios.

Scenario 1

Suppose an individual, with an annual income of 7.5lakhs, who has investment under tax saving schemes and doesn’t claim HRA:

Old Tax Regime:

Income:  7,50,000

Standard Deduction: 50,000

Additional Deduction: 1,50,000 (under 80C)

Total liable Income: 5,50,000

Tax liable: 22,500

New Tax Regime:

Income: 7,50,00

Standard Deduction: 50,000

Additional Deduction: –

Total liable Income: 7,00,000

Rebate: 25,000

Tax liable: 0 (according to new tax slab)

Here, it is beneficial to opt for the new tax regime

Scenario 2

Suppose an individual, with an annual income of 15.5lakhs, who has investment under tax saving schemes and claims home loan interest deductions for a self-occupied property:

Old Tax Regime:

Income: 15,00,000

Standard Deduction: 50,000

Additional Deduction:  2,00,000 (Sec 54)

                                       1,50,000 (Sec 80C)

                                       50,000 (Sec 80D)

Total liable Income: 10,50,000

Tax liable: 1,27,500

New Tax Regime:

Income: 15,00,000

Standard Deduction: 50,000

Additional Deduction:  –

Total liable Income: 14,50,000

Tax liable: 1,40,000

Here, it is beneficial to opt for the old tax regime

Conclusion:

Now as you are well equipped with the differences between the old and new tax regimes, contact your financial advisor. Both tax regimes have got their own benefits, it all boils down to deductions claimed by you. Assess your financial liability and income statements, calculate your deductions accordingly, and file your ITR before the due date.

Decide fast and early, anyways from next fiscal year the new tax regime would be the only option and hence become a mandate.

As individuals enter their golden years, financial stability becomes a primary concern. To ensure a secure future, senior citizens often seek investment options that offer safety, steady income, and attractive returns. One such avenue that caters specifically to the needs of retirees is the Senior Citizen Savings Scheme (SCSS). In this blog post, we will explore the features, benefits, and key considerations of the SCSS, shedding light on why it has become a popular choice among senior citizens.

What is the Senior Citizen Savings Scheme(SCSS)?

The Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme provided by the Indian postal department, specifically designed to offer senior citizens a consistent income during their retirement years. The scheme offers a predetermined fixed interest rate, currently set at 8.2% per annum, with interest payments disbursed on a quarterly basis, ensuring a stable and regular income flow.

The SCSS presents a relatively secure investment opportunity, given its government backing. Even in the unlikely event of default by the postal department, investors are safeguarded against the loss of their principal amount.

Benefits of the Senior Citizen Savings Scheme (SCSS) 

• Fixed Interest Rate: The Senior Citizen Savings Scheme (SCSS) offers a steadfast annual interest rate of 8.2% (currently). This feature guarantees a predictable income for investors, as they can rely on earning a specific amount each year.
• Regular Income: The interest accrued from the SCSS is disbursed on a quarterly basis, ensuring a consistent and regular stream of income. This regular income can prove beneficial for senior citizens, assisting them in meeting their financial requirements without interruptions.
• Government Backing: The SCSS is supported by the government, providing a high level of assurance regarding the safety of the principal amount invested. The government’s backing mitigates the risk of losing the invested capital, instilling confidence in individuals who opt for this savings scheme.
• Tax Benefits: While the interest earned through the SCSS is subject to taxation, it can be claimed for tax benefits under Section 80C of the Income Tax Act. This provision enables investors to deduct up to ₹1.5 lakhs of the interest earned on their SCSS investment from their taxable income, potentially reducing their overall tax liability.
• Minimum Investment: The SCSS mandates a minimum investment of ₹1,000. This entry point facilitates accessibility to a wide range of individuals, allowing them to participate in the scheme with a relatively modest initial investment.
• Maximum Investment: The SCSS sets a maximum investment limit of ₹30 lahks per individual. This upper limit ensures a balanced approach to investment, allowing individuals to allocate their funds judiciously across multiple financial instruments.
• Tenure: The SCSS operates within a fixed tenure of 5 years, during which investors can capitalize on the scheme’s benefits. Additionally, investors have the flexibility to extend their tenure by an additional 3 years, granting them an extended period to maximize their returns.
• Transferability: A notable advantage of the SCSS is its transferability across different locations within India. This feature provides convenience for investors who may relocate or prefer to manage their accounts from a different geographical area, ensuring a seamless transition without affecting the continuity of their investment.

Withdrawal rules of SCSS

Withdrawal Timeframe and Penalty:

• Premature withdrawal from the SCSS account is allowed after one year from the date of opening. However, a penalty of 1% of the withdrawn amount will be levied.
• If the withdrawal occurs between one and two years, a penalty of 1.5% of the withdrawn amount will be imposed.
• If the withdrawal is made before the completion of one year, no interest will be payable, and any interest already paid will be deducted from the principal amount.

Procedure for Premature Withdrawal:

• To initiate a premature withdrawal, an application in Form E must be submitted.
• The application for premature withdrawal should be submitted to the post office where the SCSS account was opened.
• The post office will process the withdrawal application and release the funds after deducting the applicable penalty.

Exceptions to Premature Withdrawal Rules:

• In the event of the account holder’s demise, the funds can be withdrawn without any penalty.
• If the pledged account holder is a Gazetted officer and forfeiture occurs, the funds can be withdrawn without any penalty.
• Withdrawal without penalty can also be authorized by a court order.

A comparative view of different schemes 

We have discussed, Pradhan Mantri Vaya Vandana Yojana in detail on our blog. It is also a pension scheme under the government of India, with some similarities and unique propositions to senior citizens saving scheme. Here we have compared the schemes on some parameters.

Investors need to access their financial standing and choose their government-backed scheme for a secure future.

To sum it all

Senior Citizen Savings Scheme is a commendable government initiative aimed at providing vital support to senior citizens in securing their retirement. This scheme serves as an additional safety net, working in conjunction with the Employee Pension Scheme, offering an attractive annualized return of 8.2% with a mandatory 5-year lock-in period. Notably, investors can utilize their gratuity fund received upon retirement for compounding, benefiting from its enhanced security compared to equity funding.

However, it is essential for potential investors to exercise prudence and diligently assess their financial obligations and planning before committing to this scheme. Sound financial decision-making is crucial to ensure that this investment aligns with individual circumstances and requirements.

That concludes our discussion on this topic. We invite you to explore our captivating blog, where we delve into the revolutionary era of digital currency, specifically focusing on the e-rupee. Stay engaged with the latest insights and developments in this dynamic realm by visiting our blog.

Employee Pension Scheme (EPS) is a retirement scheme provided by the government of India for employees in the organized sector like the Atal Pension Yojana for the unorganized sector. EPS is a social security scheme that aims to provide financial stability to retired employees. It enables them to live a life of comfort and security, without having to worry about their financial needs.

Under the EPS, employees who are a part of the Employees’ Provident Fund (EPF) scheme are eligible for pension benefits. However, not everyone can enjoy these benefits. To be eligible for the EPS, an employee must have completed at least 10 years of eligible service and have contributed to the scheme for a minimum period of 10 years. So, some criteria must be fulfilled to get the pension. 

The contributions to the Employee Pension Scheme are made jointly by the employer and the employee. The employer is required to contribute 8.33% of the employee’s salary to the EPS, subject to a maximum amount of Rs. 1,250 per month. The employee, on the other hand, contributes 12% of their salary to the EPF, out of which a portion goes towards the EPS. 

Benefits of the Employee Pension Scheme

EPS serves as a valuable retirement planning tool for Indian employees, fostering a secure and financially independent future. To fully grasp the advantages of EPS, consider the following additional details:

• The minimum pension of Rs. 1,000 per month applies to all EPS members, irrespective of their age, salary, or years of service.
• Death benefits are payable to the spouse and dependents of the deceased member, calculated based on the member’s average monthly salary during their last 10 years of service.
• Disability benefits are paid to disabled members, calculated based on their average monthly salary during the last 10 years of service.
• Tax benefits are available to all EPS members, with contributions qualifying for a deduction under Section 80C of the Income Tax Act, and pension payments being tax-free.
• Unlike defined contribution schemes, EPS operates as a defined benefit scheme, ensuring a fixed and guaranteed pension amount, independent of the member’s contributions and investment performance.

Withdrawal Rules of Employee Pension Scheme

Withdrawal under the Employee Pension Scheme (EPS) is applicable under specific circumstances, ensuring financial support for employees during various life events. These circumstances include:

• Retirement at the age of 58, with a full pension entitlement.
• Early retirement at the age of 50, with a reduced pension.
• In the event of the employee’s death, providing death benefits for their spouse and dependents.
• On becoming disabled, granting disability benefits to the employee.

When an employee chooses to withdraw their EPS benefits before the age of 58, the pension amount they receive will be reduced. The calculation of the reduced pension considers the employee’s age at the time of withdrawal, the number of years of service, and the average monthly salary during the last 10 years of service.

In the unfortunate event of an employee’s death, their spouse and dependents may be eligible for death benefits. The calculation of these benefits takes into account the employee’s age at the time of death, the number of years of service, and the average monthly salary during the last 10 years of service.

Similarly, if an employee becomes disabled, they may be eligible for disability benefits. The calculation of these benefits considers the employee’s age at the time of disability, the number of years of service, and the average monthly salary during the last 10 years of service.

To initiate the withdrawal of EPS benefits, employees are required to submit Form 10C to the Employees’ Provident Fund Organization (EPFO). This form can be submitted either online or at any EPFO office.

Here are additional details about the withdrawal rules of EPS:

• Employees who have not completed 10 years of service can only withdraw their EPS benefits if they have been unemployed for more than two months.
• The amount of EPS withdrawal is calculated based on the average monthly salary earned by the employee during the last 10 years of service.
• The maximum withdrawal amount from the EPS is set at Rs. 1,00,000.
• Employees who choose to withdraw their EPS benefits before the age of 58 will be subject to a withdrawal penalty.

These withdrawal rules provide a framework for employees to access their EPS benefits following their circumstances and needs. It ensures that employees are supported financially during significant life events while considering their years of service and average salary during the last 10 years.

Tax Benefits of the Scheme

The Employee Pension Scheme (EPS) offers several tax benefits, which can help you to save money on your income tax bill.

• Contributions to the EPS are tax-deductible: The contributions that you make to the EPS are eligible for a deduction under Section 80C of the Income Tax Act. This means that you can reduce your taxable income by the amount of your contributions.
• Pension payments are tax-free: The pension payments that you receive under the EPS are tax-free. This means that you will not have to pay any income tax on the money that you receive from the scheme.
• Death benefits are tax-free: The death benefits that your spouse or dependents receive under the EPS are tax-free. This means that they will not have to pay any income tax on the money that they receive from the scheme.

These tax benefits can make the EPS a very attractive retirement planning option. If you are considering saving for retirement, you should factor in the tax benefits of the EPS.

Here are some additional details about the tax benefits of the EPS:

• The tax deduction for contributions to the EPS is limited to Rs. 1.5 lakh per year.
• The tax exemption for pension payments under the EPS applies only to the basic pension. Any additional benefits, such as dearness allowance or gratuity, are taxable.
• The tax exemption for death benefits under the EPS applies only to the basic death benefit. Any additional benefits, such as dependents’ pension, are taxable.

Unique Benefits of the Scheme 

Similar to that of Pradhan Mantri Vaya Vandana Yojana, the Employee Pension Scheme (EPS) provides valuable death and disability benefits to eligible individuals. Let’s take a closer look at these benefits:

Death Benefits: In the unfortunate event of an employee’s demise, their spouse and dependents may qualify for death benefits. The quantum of death benefits is determined as follows:

• Spouse: 50% of the member’s pensionable salary
• Children: 25% of the member’s pensionable salary per child, with a maximum of two children
• Parents: 10% of the member’s pensionable salary per parent

Disability Benefits: In the case of an employee’s total disability, they may be eligible for disability benefits. The amount of disability benefits is calculated as follows:

• 60% of the member’s pensionable salary

The death and disability benefits provided by the EPS become payable from the date of the member’s death or disability. These benefits are directly disbursed to the spouse or dependents of the deceased or disabled member.

Here are some additional essential details concerning the death and disability benefits of the EPS:

• The death and disability benefits are payable even if the member has not completed 10 years of service.
• The death and disability benefits received under the EPS are exempt from taxation.
• If the member passes away after retirement and is already receiving a pension, the death benefits will be paid to the surviving spouse and dependents.
• If the member becomes disabled after retirement and is already receiving a pension, disability benefits will be provided to the disabled member.
• Should you have any queries or concerns regarding the death and disability benefits offered by the EPS, it is advisable to seek guidance from an EPFO officer.

Understanding the death and disability benefits available through the EPS is crucial to ensure financial security for both employees and their loved ones. By familiarizing ourselves with these provisions, we can make informed decisions and better protect our futures.

Conclusion

Employee Pension Scheme is one of the government-backed investment schemes, is a crucial part of retirement planning, and can not be skipped. The assured interest of 8.33 per annum and a minimum contribution of 1250 per month, both from you and your employer lays the foundation for a financially secured future. 

The most unique feature scheme provides is valuable death and disability benefits to eligible individuals, ensuring financial support during challenging times. Death benefits are calculated based on the member’s pensionable salary and disbursed to the spouse, children, and parents, while disability benefits are calculated as a percentage of the member’s pensionable salary.

Understanding the EPS and its benefits is crucial for individuals planning their retirement and seeking financial security. By familiarizing themselves with the scheme’s provisions, employees can make informed decisions and protect their future well-being.

So, you’ve decided to expand your mutual fund portfolio to international mutual funds! Great decision. But before we dive into the pool of potential profits and risks, let’s first understand what international mutual funds are. International mutual funds invest in companies outside of India, allowing you to diversify your investments and gain exposure to global markets. They are essential because they offer a chance to invest in top-performing companies. 

However, before investing, there are a few factors you need to keep in mind. Exchange rate risk, market risk, political risk, and regulatory risks need to be considered before putting your money into international mutual funds. There are different types of international mutual funds available in India, such as global funds, regional funds, and country-specific funds. Each fund has its unique investment objective and strategy. Now that you have a basic understanding let’s dive deeper.

What are International Mutual Funds?

Diversification of a portfolio is a big win with International mutual funds. With exposure to global markets, your portfolio is bound to be diversified, and you can easily reduce your investment risks. Plus, with country-specific funds or funds that invest in top-performing companies, you can gain access to high-growth companies you would otherwise not have access to. How awesome is that? But, what about currency fluctuations? That’s where international mutual funds cover you. The exposure to different currencies helps you balance and hedge your portfolio against undue risks. Sure, market risks always pose a threat. That’s why it is essential to research and invest in the right fund that matches your investment goals and financial planning.

Risks Associated with International Mutual Funds

Let’s get to the downside of investing in International Mutual Funds. There are risks associated but we’ll make sure you know how to manage them.

• Currency Exchange Rate Risk: International mutual funds invest in assets denominated in different currencies. Changes in currency exchange rates can impact the fund’s returns.
• Geopolitical Risk: Factors such as changes in government policies, political instability, trade disputes, economic sanctions, and geopolitical conflicts can have a profound effect on the performance of international mutual funds. These events can cause market disruptions, volatility, and potentially negative consequences for investments in affected regions.
• Regulatory Risk: Regulatory risk arises from changes in regulations and legal frameworks in different countries. Each country has its own set of rules governing financial markets, investments, and investor protection. Changes in regulations, tax policies, or legal systems can impact the operations, profitability, and investment opportunities of international mutual funds. 
• Market Volatility: International markets can exhibit higher volatility compared to domestic markets. Economic conditions, political events, investor sentiment, and market-specific factors can contribute to increased volatility. Market volatility can impact the performance of international mutual funds, leading to fluctuations in their net asset value (NAV).
• Management and Performance Risk: The performance of international mutual funds is influenced by the decisions and expertise of the fund manager or management team. The skill and experience of the manager in navigating international markets, analyzing opportunities, and managing risks are crucial factors.

Factors to be considered before investing

• Fund Strategy and Focus: Understand the fund’s investment strategy and focus. Some international mutual funds may focus on specific regions, countries, sectors, or themes. Evaluate whether the fund’s strategy matches your investment preferences and aligns with your views on global markets.
• Fund Performance and Track Record: Review the historical performance of the fund over different periods. Compare the fund’s performance to relevant benchmarks and peer group funds. However, remember that past performance does not guarantee future results.
• Fund Expenses: Consider the fees and expenses associated with the fund. Review the expense ratio, which includes management fees, administrative costs, and other charges. Lower expense ratios can have a positive impact on investment returns over the long term.
• Fund Size and Liquidity: Evaluate the size of the fund and its liquidity. Larger funds may offer more stability and resources, while smaller funds might be more nimble. Assess the fund’s liquidity, ensuring it has sufficient assets and trading volume to facilitate buying or selling shares without significant price impact.
• Fund Holdings and Diversification: Analyze the fund’s holdings and diversification. Look for well-diversified funds that invest across different regions, industries, and market caps. Diversification helps mitigate specific risks associated with individual countries or sectors.

Taxation on International Mutual Funds

• Short-term capital gains: If you redeem your international fund investment within three years, it is termed a short-term capital gain. These gains or profits are added to your income and are taxed according to the tax bracket you fall in.
• Marginal Tax Slab: And, if you redeem your mutual fund after three or more years, then your returns are taxed on based on your income tax slab.
• Dividends: Dividends from international mutual funds are taxed as per the dividend distribution tax (DDT) rules. This means that dividends are taxed at a flat rate of 15%.
• Foreign tax credit: If you have to pay taxes on your international mutual fund investment in the country where the fund is domiciled, you may be able to claim a foreign tax credit in India. This will reduce your tax liability in India.

Previously, international mutual funds also gained indexation benefits.

Comparative View on Some Funds**

**Conduct your research

Conclusion

Congratulations! If you have made it to the end of this guide, you are now equipped with everything you need to know about international mutual funds. From what they are and why they are important to the benefits and risks associated with investing in them, we have covered it all. We have also provided you with information on how to invest in international mutual funds in India, the tax implications, and frequently asked questions. Now go forth and invest wisely, contact your mutual fund advisor, but remember, always do your research before making any investment decisions. Happy investing!