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Equity: Large Cap 1 Year 3 Year 5 Year Equity: Multi Cap 1 Year 3 Year 5 Year Hybrid: Equity-Oriented 1 Year 3 Year 5 Year
BEST Mirae Asset India Opp Fund 24.76 18.76 22.02 Motilal Oswal MOSt Focused 30.87 27.9 — Tata Retirement Savings Fund 24.16 20.68 20.03
21
The three-year
JM Multi Strategy Fund 32.74 18.49 20.36 Birla Sun Life Advantage Fund 24.15 21.5 23.53 L&T India Prudence Fund 19.62 17.54 19.94
Motilal Oswal MOSt Focused 25.2 17.73 — Kotak Select Focus Fund 24.29 21.13 22.53 HDFC Balanced Fund 21.61 16.93 19.16
return of Tata India
%
FUNDS Equity: Mid Cap Equity: Tax Planning Debt: Income returns in
past three
Tax Savings Fund is
the highest in its
TO BUY
Mirae Asset Emerg Bluechip 36.57 29.98 32.08 Tata India Tax Savings Fund 23.42 21.17 21.63 SBI Regular Savings Fund 12.87 11.4 10.51
years category.
Canara Robeco Emerging Equ. 32.83 26.99 29.6 Birla Sun Life Tax Relief 96 21.67 20.48 22.74 SBI Magnum Income Fund 12.02 10.7 9.27
Kotak Emerging Equity Scheme 25.52 26.89 26.69 Birla Sun Life Tax Plan 21.1 19.67 21.96 ICICI Pru. Banking & PSU Debt 10.66 10.21 9.72
Figures are % returns. 3-year and 5-year returns are annualised. Source: Value Research
Build a well-diversified
Myths about GST busted
Rumour mills have gone on an overdrive since the launch of GST.
portfolio to grow wealth
It pays to take the mutual fund route to invest in equity
Here’s a reality check for both GST supporters and its detractors Uma Shashikant picking the right stocks. If you spend
your time trying to pick stocks, you will
common accusation many have to allow for the many mistakes you
A
cal body levies, tax in Tamil Nadu will readers make about this col- will make in the process. The learning
NOW IT’S ONE NATION be 48% for tickets up to `100 and 58% for umn is that while it encour- curve is steep and the lessons harsh. If
ONE TAX tickets that cost more. Not surprisingly, ages investing in equity, it you are a first-time investor, choosing to
MYTH: Since GST will re- the cinema hall owners in the state went does not carry specific recom- let money idle in the bank rather than
place all other taxes on all on strike. “Action of the Tamil Nadu mendations about where to invest and invest in equity, you could make expen-
goods and services, we are government is against the spirit of the how much. That kind of specific invest- sive mistakes trying to dabble in stocks.
in a single tax regime. GST and the GST council should take ment advice is quite dangerous, though Equity means the market as a whole or
REALITY: Though this was the original action against it,” says Amit Sarkar, it makes life easier for the investor. Un- the asset class that invests in growing
idea, petroleum products—petrol, die- Partner and Head, Indirect Taxes, BDO less one is a financial adviser, it is simply businesses. That is the orientation you
sel—are still outside GST’s ambit and, India. unethical to reel off names. must keep.
therefore, their tax rates vary signifi- The question is not of expertise, but Second, a portfolio of stocks is better
cantly across states. For example, petrol PRICES WILL SHOOT of the nature of equity investing itself. than individual bets. Since you cannot
is still sold in Mumbai at `74.30 per litre UP Even the most intensive research can foresee the future, you have to begin
(as on 5 July) compared to `63.12 in New MYTH: Personal expens- come up short when unexpected events with a bunch of stocks, and weed out
Delhi. Similarly, some other items, such es will go up on account impact businesses and markets. It is not whatever is going bad as you go along.
as liquor, have also bee kept out of GST of GST making it infla- as if I hold back something precious If you are buying stocks, you should hold
for now. tionary because tax rates have been from the readers of this column; it is just 20-25 equity stocks to be able to cushion
fixed at higher levels—18%, 28%. that I cannot forecast the future. yourself from the wrong decisions you
SMALL BUSINESSES REALITY: Though the GST rates seem A very comforting emotion is the could make. If you cannot construct and
WILL SUFFER high, it is only because the entire tax is sense of control. Investors want to be- manage such a portfolio, buy an equity
MYTH: The life of small now visible to the consumer. Earlier lieve that the equity investments they fund or an index fund. Define your
businessmen will become most taxes—central and state excise, make will behave in a manner that they search thus: You are looking for a port-
difficult under GST because of comput- additional excise, purchase tax, etc.— However, there will be a small can predict, understand, control, and folio of stocks, that will be actively man-
erised billing, need for Internet connec- did not reflect on your bill. If one adds uptick in ‘real’ economic growth therefore not worry much about. When aged to throw out what is not perform-
tivity. up all the taxes, it would have been more due to the improvement in the ing. You can buy and hold a portfolio
REALITY: Shops can do manual billing for most items (ie effective tax rates will ease of doing business. passively, only if someone else is moni-
under GST and Net connectivity is be lower for most products). For exam- toring it for quality.
needed only at the time of filing month- ple, the price of chicken dish in Kerala CORPORATES MAY Third, equity investing involves both
ly return and can be managed from a should fall because there was a 14.5% TRY TO PROFITEER strategic and tactical choices. For exam-
cyber cafe. tax on live chicken earlier, which has BUT GOVT WON’T ple, if your intention is to be invested in
come down to zero now under GST. MYTH: Business will large companies that are market leaders
NO TAX OTHER THAN try to rob you of the GST benefits, but charged twice, if you make pay- in their segment, an investment in a
GST IS NOW A REALITY ECONOMIC GROWTH the government won’t make money at ments via credit card. large-cap equity fund or a narrow index
MYTH: For every good or WILL RISE your expense. REALITY: There is no additional GST like the Nifty will serve your purpose.
service that has been MYTH: GST will push up REALITY: Some state governments are for credit card payments and the You will find that large-cap funds tacti-
brought under GST, there the economic growth. also acting greedy and not passing on confusion arose only because there cally modify their holdings in sectors
won’t be any additional tax. REALITY: Real economic the GST benefits to consumers. For ex- is GST on additional fees—conveni- and stocks to do better than the index.
REALITY: GST only subsumes central growth comes from both ample, the Maharashtra government ence charges—levied by companies. The choices in equity funds and indices
and state taxes and the levies charged organised and unorganised sectors. Tax has increased the vehicle registration For example, you make a `10,000 pay- expands this choice of tactical holdings
by local bodies are still outside its am- evasion becomes diffi-cult in GST, so tax by 2% after auto firms passed on the ment and a company charges `50 as further, to mid-cap stocks, small-cap
bit. Using this loophole, the Tamil Nadu cost advantage of unorganised sector GST benefit by cutting prices by 2-3%. convenience fee for helping you stocks, themes and sectors. Take a pyra-
government has allowed its local bodies goes and this will result in some busi- make the payment via the credit mid approach—more in strategic choic-
to charge 30% tax on movie tickets over nesses shifting to the or-ganised sector. PAY GST TWICE card, you have to pay 18% GST on es at the bottom and a tapered smaller
and above GST. GST is 18% for movie So, what happens will not be an in in- FOR CARD PAY- that fee too—earlier you paid a 15% holding in tactical portfolios.
tickets up to `100 and 28% for tickets that crease in ‘real’ economic growth but an MENTS tax on it. So the 3% increase is very Fourth, the process of selecting a
GETTY IMAGES
cost more than `100. But be-cause of lo- increase in ‘recorded’ economic growth. MYTH: GST will be small—just `1.5 on `50. specific fund can be simplified. Each
they realise that things could go wrong; fund house offers a lengthy list of prod-
that their money could be at risk; or that ucts, but you are looking specifically for
R long phase in your life that can tion rate of 5%, if you want to pre- The situation is very different tage in this case is, no matter how guidance for equity and debt allocation
last up to 35 years. During those serve the real value of your princi- in equity-backed mutual funds. Un- high your savings and expenditure, decisions.
decades, inflation will cut down pal, you must leave `1.05 crore in like deposits, they are high-earning it’s all tax free.
the value of your savings ruth- the bank. That leaves `2 lakh that but volatile. In any given year, the A small but growing number of As per this rule, one should take 100
lessly. If your savings do not earn you can withdraw to spend over an returns could be high or low, but people have begun to understand and subtract the current age, the
enough, you are going to run out of them
within your lifetime. How can you pre-
year, which is `16,666 a month. Is
that enough? For a middle class
over five to to seven years or more,
they comfortably exceed inflation
and appreciate this idea and have
started doing it.
2 resulting number is the percentage that
must be allocated to equities and
vent this from happening? The first part person, surely not. by 6-7% or even more. The returns They tend to be those who have remaining to the debt asset class.
is to save enough during your working The interesting thing is that may fluctuate in individual years, used equity funds as their savings
years and invest the savings in equity- this calculation does not change and that’s something that the saver vehicle anyway and are used to the
backed mutual funds. The second part is has to put up with, but the threat idea of ignoring short-term volatil-
GETTY IMAGES
even when interest rates rise be- As the age increases the allocation to
about deriving income from these sav-
ings after you have retired.
The basic requirement is self-evident:
cause inflation and interest track
each other quite closely.
Further, there have been peri-
of old age poverty does not exist.
In such funds, one can comfort-
ably withdraw 4% a year and still
ity in the interest of long-term
gains. However, the vast majority
of Indian retirees are still wedded
3 equities keeps declining, reducing
volatility and risk of the portfolio.
you should spend only that part of your ods of time when the fixed income have a comfortable safety margin. to the mythical safety that deposits
investment returns that exceed the infla- interest rate has been below the On top of that, there is no income provide and end up facing tragic
tion rate. The single most important inflation rate. Moreover, income tax. As long as the period of invest- problems as they grow older. This rule might be a good starting point,
thing to understand is that you must tax has to be paid whether you ment is greater than one year, re- There’s no need for you to be one but it is not aligned with the financial
reserve the real, inflation-adjusted value
of your principal, and not just the nomi- your retirement savings. You place
realise the returns or not.
There can be a situation when
turns from equity funds are com-
pletely tax free. This means that to
of them.
The author has written about per-
4 goals which are the actual purpose of
creating a financial portfolio and
nal face value. So how do you do this? it in a bank fixed deposit. A year later, it the interest rate barely exceeds the have a given monthly expenditure sonal finance for more than two dec- building a corpus.
Let’s take a simplified example. Sup- is worth `1.07 crore. So you have earned inflation rate and the income tax through equity funds, you need just ades. He is the Founder and CEO of
pose you retire today with say `1 crore as `7 lakh, which you can spend, right? Not on the interest effectively reduces half the investment that you would Value Research