How employee contributions over 2.5 lakhs gets taxed like a FD

Finance Bill 2021 has proposed that employee contributions over 2.5 lakh will be taxed as per slab.

Assume that your EPF balance as on 31st March 2020 is Rs. 10,00,000. The employer contribution is, Rs. 20,000 a month; The employee contribution is Rs. 20,000 a month or Rs. 2,40,000 a year (FY).

In this case, there is no change in rule and nothing need to be done. Suppose the employee decided to invest via VPF Rs. 5000 a month. The total annual contribution by the employee is (5000 x 12) + 2,40,000 = 3,00,000.

If the EPF rate is say 8% then 8% of (3,00,000 – 2,50,000) = Rs. 4000 should be shown as income while filing ITR and this will be taxed as per slab rate.

WHY YOU HAVE HATERS, EVEN IF YOU’RE A NICE PERSON

WHY YOU HAVE HATERS, EVEN IF YOU’RE A NICE PERSON

Are you confused as to why you have haters – because you think you’re truly a nice person?

And YES, you ARE nice!

So, what motivates a hater to hate? And why are they choosing you to hate on?

Below I share many reasons why haters gonna hate – for no good reason at all!

Why nice people have haters?

1. You have haters because you’re popular.

Some people only hate you because of the way other people love you.

Another definition for a hater: “Someone who secretly wishes to be you.”

In a way having haters is a good thing. It’s means you are truly loved.

2. You have haters because you did the work to improve your life.

Your haters don’t want to put in the effort to improve their life. As a result, your success reminds them they are not willing to put in effort to succeed.

Plus, your presence reminds them about what’s wrong with them – and what’s missing in their life – so they hate you.

Basically, it’s the ones who are against you who believe in your power the most.

In many ways these people who hate you are (ironically) your biggest fans. They admire all you’ve accomplished – and are quite simply jealous.

3. You have haters because you have risen above them.People who try to pull you down often do so because they see you as above them.

Perhaps you used to be equals – at about the same level. They feel left behind and trapped at their level of existence – and just don’t like any change in their life.

They want to put you back in your place so that things remain status quo – instead of accepting your status improvements.

They’re hating on you to bring you down – to diminish your power and shine – so as to make themselves feel better.

This reminds me of a terrific Zig Ziglar says: “Don’t be distracted by criticism. Remember the only taste of success some people have is when they take a bite out of you.”

4. You have haters because you’re going through a bad time – and your uneasiness makes them uneasy.

They worry your bad luck is contagious. And/or they just don’t want to put in the effort needed to cheer you up and cheer you on.

Basically…If you want to find out who’s a true friend – screw up or go through a hard time – then see who sticks around.

5. You have haters because they feel they’re missing out on being around you.

Perhaps they once rejected you – in some way – for something. Or…in general, they used to feel you weren’t good enough for them. Then you had the audacity to improve yourself and your life! (How dare you! )

As a result, your haters now feel like they are missing out on the new improved you. They need to still dislike you  – so they don’t feel like they are missing out.

Or maybe you simply are choosing not to socialize with them as often as they want. Or work with them. Or maybe you don’t even know them – and they don’t know how to get to know you – and that bugs them – because they feel they’re missing out being around you.

6. You have haters because you overcame a shared problem.

You used to share a problem in common: overeating, or binge drinking, or toxic romantic partners.

You then found a way to leave the problem behind you – while they are still caught up in the chaos.

Your newfound peace causes them angst, regret and self loathing.

7. You have haters because they hate themselves.

These people are simply not capable of love and connection – with anybody.

Maybe they are a narcissist, sociopath or have some kind of personality disorder. Perhaps they had a terrible childhood – and thereby hurt people want to hurt people. Or they were raised with hateful, judgmental beliefs.

As adults, they never awakened to see the wrongness of these limiting beliefs.

Unfortunately, all of these types of people are mostly comfortable with resentment and drama.

Basically, happy people don’t hate. And people who walk around hating aren’t happy.

WE DON’T MEET PEOPLE BY ACCIDENT. WE MEET FOR A REASON.

WE DON’T MEET PEOPLE BY ACCIDENT. WE MEET FOR A REASON.

I believe you don’t meet people by accident – they come into your life for a reason.

Yes, even the crummy ones.

If a relationship doesn’t survive the test of time, it doesn’t mean it still wasn’t meant to be.

Not all encounters with people are supposed to last forever. 

Sometimes the “forever” is not the person – but what we gain from them.

There’s a synchronicity and purpose for each person you meet. Both our positive encounters with people and the negative, challenging encounters we suffer through.

Below are some insightful reasons why we don’t meet people by accident.

We meet people for a reason.

1.Some people are “bridges.”

These people are not meant to last for the long road ahead. They are an enjoyable pathway to get us to where we need to go.

These people are needed to arrive exactly at the time and place you met them – to transport you to the next level of your life journey.

You meet these people for a reason – even if they are only here for a season.

2.Some people are “roadblocks” and “re-directors.”

These people come into your life to delay you – for both little things and big things.

For example, you might have a conversation with someone – which then delays you and prevents you from getting into a bus accident.

Or you might spend time with someone – and this time spent creates a “time hiccup” which delays you – so you wind up meeting a new, amazing, romantic partner.

You might have heard the expression, “Sometimes rejection is a redirection to something better.” Well, that’s what these people do. They might show up as a rejector – but they are a redirector.

3. Some people are “assignments” and “teachers.”

Often your tormentors double duty as your mentors.

They are here to teach you important life lessons – via the process of pain – which helps you to grow who you are.

Their “crisis pain” creates the “crisis fuel” you need – to motivate a necessary change you didn’t want to put in the effort to make.

Plus, some people are just straight-up inspiring teachers – who teach you life lessons in a more loving manner.

4. Some people are “angels”

These people are here to protect you and remind you to stay safe and stay self loving.

They are “guardian angels” of some sort.

Their purpose: Make sure that you do not stray too far from the path you are meant to be on.

In times of need and desperation they help you – when others are not there for you.

5. Some people are “guideposts.”

They represent and symbolize something you want.

Their purpose: Motivate you to keep pursuing what you want – and stay on track.

Their presence helps to make sure you stay awake, energized and committed to moving forward on your soul’s true-to-you journey.

6. Some people are your “tribe.”

These are the ones who are here to stay the long haul.

These people are far and few between – but they are the ones who are loyally there for you during tough times and celebratory times.

They see you clearly and accept you as your “flawesome” self.

Tribe members support you when you are invisible to others.

Tribe members root for you with a pure heart – when others might feel competitive or jealous.

Gold vs Equity

Gold vs Equity

If you hear any Investment expert he will always say Gold is not a true investment asset, Its an alternate asset, best hedge against uncertainty, one should not have allocation more than 5% to 8% of his total portfolio etc etc. About equity it is said, it is the best growth asset, will give you best return in long term, maximum allocation should be in equity etc etc.

All textbook theories do not work in today’s practical world which is becoming impure day by day. How long we will live, talk and believe in old concepts. Why not examine the things in realities of today life. Equity in textbook and in theory is same everywhere but the risk has increased more in India than many developed countries. 

When I look at almost 100 years of gold price movement the maximum fall has been from 1962 to 1964 and then rise again ,1997 to 1998 and then rise again, There has been some more occasions where there has been year to year fall in price but marginal but that has risen quickly back to same old level. Only these are the two periods where it took sone 3-5 years to reach back same old price level. When I compare same with Equity (Sensex movement), year to year variability has been much more. The best of the companies index has been more volatile than Gold. In very long term Sensex might have given higher return that Gold but the same can not be said now in long term (10 years period).

My concern is not past but future now. Risk in Equity is increasing manifold times vis a vis Gold. The way integrity of Promoters and Management of many companies under doubt, the way Banks yet to learn lesson on proper due diligence on Corporate loans and above all the increasing number of corrupt politicians and their nexus with corrupt promoters clearly being visible I feel risk in equity is increasing. Text book and theoreticians will only talk of economic risk, business risk and market risk. Where some one is talking of integrity risk? This is the biggest risk. Facts and figures are being manipulated to portray as business and market risk. A profit-making company suddenly default where even the best of auditors have been found to have manipulated the financial statements of the company. The law is so weak that from a naked eye one can see company net-worth has depleted but at the same time promoter personal wealth has grown manifold times. Hire the most expensive lawyer, drag the case for decades in court and live king size life is the mantra what many default promoters are following. With universe of quality company reducing choice risk is increasing.

When I look at Gold there is no such risk as above. Today one has range of products to invest in. From Gold ETF, Gold Fund to Sovereign Gold Bond to Physical Gold to Gold saving schemes. The biggest risk is always of purity but now that is also resolved in whatever way you go. Physical gold is now duly certified one. Investment through financial route takes care of theft, storage etc. With respect to volatility or negative return Gold is less volatile and more stable than Equity. Gold has given stable to good return in mid to long term. Yes, may be if 15, 20 years and above period Equity has given better return but can that be said same going forward? Let’s look at the other risk aspects of Gold more from demand vs supply aspect. Demand has been growing considering existing customary norms (marriage, festivals, gifts etc) catalysed by growing population and their increasing personal income. On supply side it has not been supplemented by discovery of many new Gold mines. So growth in Demand exceeds growth in supply. Based on simple economics principle prices of Gold will have normal growth. It’s the uncertainty factor or flight for safety sentiment factor that accelerates the normal growth in short term ( as seen last 2 years ) which gets corrected later on. So stable return is what one has found in gold in mid to long term.

One reason as to why there have been so many advocates of equity and not gold is simply because the fortune of many (Fund houses, Stock brokers) is correlated more with equity than Gold. Gold advertisement has always been passive as compared to equity.

 

Let’s relook this 5% to 8% allocation myth and need to think if allocation to be increased? As a investor one should look to the asset or investment product which is more suitable in mid to long term as an alternative to equity. In all probability there will be correction in Gold price as has appreciated phenomenally last 2 years but I am not saying to look for short term. May be after massive correction it can become an opportunity for investment with higher allocation.

What is the best investment strategy today?

We are amidst uncertain times. 

And sailing through such turbulent waters, there is a definite need for an individual to understand that short-term portfolio volatility is naturally inevitable. 

The stock market and economy, in my opinion, are presently at the bottom and focussed global efforts to fight the ongoing pandemic shall eventually be positive. Until then, the stock market might swing sideways over the near term. 

Investors should consider investing in staggered manner. I appeal to investors to stay vigilant and not be emotional about profit/loss. An April-like surge shouldn’t be bought into, and a March-type fall shouldn’t be sold into. 

Volatility will accompany supply and demand shocks like reduced demand for automobiles, real estate, and luxury goods, and increased pressure on the healthcare and e-commerce sectors as the economy continues to recover at its pace. 

If we look at the broader asset classes available, while bonds and gold have been outperforming since the crash, large-cap equities seem to be on the way back up. Mid and small caps are lagging the larger stocks. Among equities, stocks offering optimum value and low exposure to volatility could be selected from the preferred sectors, for investment like Healthcare and FMCG. 

Given this backdrop, one may resort to a moderate risk portfolio with a small allocation to sovereign bonds along with a minimal exposure to international markets. The options amongst fixed income could be: 

• Tax-free bonds from the secondary market 
• 7.75% Government of India taxable bonds 2018 
• Bank fixed deposits Corporate fixed deposits (pertaining to large institutions) 
• PSU Perpetual Bonds like SBI, PNB and BOB 
• Mutual Funds: Wherein capital protection is given a premier preference i.e. specific categories such as Short-Term Debt Funds, Arbitrage Funds, along with Overnight and Arbitrage Funds.

An investor must maintain the stance of asset allocation over aggressive or conservative calls. Over the next two years, investors may have to be flexible and active with their investments. It is imperative to liaise with your adviser and chalk out an action plan.

"This time it's different"- Bear Markets And What We Can Learn From History

April 2020 - The uncertainty and panic surrounding the Covid-19 crisis has led to rollercoaster stock markets. The extreme volatility is worrying for investors and one question I am frequently being asked is “Have we seen the bottom yet?”

At this point the answer to this question is guess work. It all depends on how quickly we are able to contain the virus, how quickly a cure and a vaccine can be found and how quickly regular economic activity can be resumed.

However, since I first started investing in Emerging Markets back in 1987 we have experienced a number of crises and bear markets including the Asian financial crisis, the subprime mortgage crisis and others. We have also witnessed and profited from the recoveries that followed. While this particular crisis is unique in the scale of the actions taken by governments around the world and their effect on economic activity, as regards to the reactions of stock market investors around the globe there are similarities to previous stock market crashes.

Some say that this bear market is unique and we have never experienced anything like this before. But it’s important to remember that, as someone once said: “This time is different’ are the most expensive words in the world.” Human behaviour tends to follow predictable patterns because of built-in emotions that make us human.

So what can we learn from history that will enable us to make better investment decisions in times of crisis?  Looking at previous bear markets can provide some indication on what we might expect in the current market environment and going forward. Therefore we took some time to study 11 stock markets (U.S, U.K., Turkey, Korea, China, Taiwan, Brazil,  Japan, Thailand, India and Hong Kong ) and their bear markets since the end of the 1980s. We have not included the current bear market since it may not have ended yet.

The Global Picture

We define a bear market as a decline of 20% or more over a period of at least two months. If this was followed by a 20% rise over a period of at least two months we considered a subsequent fall of 20% or more a new bear market. Because international investors are usually more interested in U.S. Dollar returns we have chosen USD indices rather than the local currency ones.

Based on these indices the average bear market decline was about 49% across all markets but the declines ranged from a low of 23% to a high of 92%. In terms of the length of time a bear market lasted (from the peak of the bull market to the lowest point in the bear phase) on average over a year, to be precise about 15 months. But the range was from a few months to over three years. As one would expect the Emerging Markets proved more volatile than the developed markets with more bear markets, a higher average decline of 51% and a shorter duration of about one year.

But let’s have a look at the individual markets. (Please note we are not yet counting the recent market downturn).

U.S.

Examining the world’s largest market, the U.S., we focused on the S&P 500 Index and found that since 1987 the market experienced only three bear markets, excluding the current one. Those three bear markets averaged a 47% decline and ranged between a low of 34% and a high of 57%. The length of time of the bear markets ranged between three months and three years and averaged 17 months.

U.K.

In the U.K. the market (in USD terms) was more volatile than in the U.S. Since 1987 the FTSE 100 Index (USD) experienced six bear markets with declines ranging between 65% and 23% with the average being 38%. Like the U.S. the average length of time was 17 months for the bear markets with a range of 4 months to three years.

Turkey

Turning to emerging markets, we found that the Turkish market was highly volatile. This is one reason why this market has been very attractive to some investors who love volatility since it provides them with more opportunities.  

During the time period starting in 1988 the Turkish market experienced 10 bear markets which showed an average decline of 64% with a range of between 81% and 46%. The average length of the bear markets was 14 months but ranged between a high of three years and a low of 4 months.

Korea

Next on our list was Korea, another volatile market with nine bear markets. Those bear markets averaged a decline of 49% ranging from a low of 27% to a high of 86%. The average time length of all the bear markets was 17 months and ranged between 4 months and three years.

China

We found that the China market had a total of eight bear markets averaging a decline of 56% and ranging between a low of 33% to a high of 82%. The average length of time was 14 months with the longest period being more than two years and the shortest five months.

Taiwan

We would expect the Taiwan market with its economy so closely tied to China to perform similarly but that was not the case. The Taiwan market proved to be more volatile with 11 bear markets between 1988 and 2019. The average decline was lower than in China with 48% ranging between a high of 80% and a low of 23%. The length of the bear markets ranged between a few months and almost two years with the average being 11 months.

Brazil

The Brazilian market experienced 11 bear markets during the period averaging 56% decline and ranging between a decline of 75% and 35%. Average time length was 12 months ranging between a few months and almost three years.

India

In India, the market experienced nine bear markets averaging a decline of 44% ranging between a high of 71% and a low of 24%. The average time length for the Indian markets was a little over one year.

Japan

In Japan there were seven bear markets averaging a decline of 42% and ranging between a fall of 62% to 24%. The longest bear market in Japan lasted more than three years and the shortest 9 months with the average at 24 months.

Thailand

The Thai market was rather volatile with ten bear markets averaging a decline of 46% and ranging between a high fall of 92% and a low of 24%. The average length of time was nine months.

Hong Kong

The last market we looked at was the Hong Kong stock market, which witnessed eight bear markets since 1987. The average decline was 45% with a high of 64% and a low of 21%. The average length was 13 months.

What lessons can we draw from history?

So what can we learn from the above? We can see that on average bear markets declined by about 50%. The developed markets declined even less on average. In terms of the length, a bear market lasted on average more than a year. Bear markets in emerging markets were on average lasting shorter than bear markets in developed markets. This is important, as I believe the critical question is not only what the bottom is but how long it will last. You will need the cash reserves to continue to gradually buy and hold for what may seem like a long time.

So at what stage are we now? Most markets went down between 20 and 30% so much less than the average 50% we have seen above. The market swings have been wild on the upside and the downside. As I write this piece the indexes might already have moved higher or lower.

This kind of volatility is not unusual. If we look at the behaviour of the indices in bear markets we see that this sort of up and down is part of the game. So unfortunately the recent positive movement in many markets does not necessarily mean that we will see a continuous upward trend. There will always be backtracking and corrections along the way. This seems to be confirmed by the historical data from previous bear markets. However, the figures mentioned above are averages and averages are exactly that. The range can be wide. Many bear markets went down far less than 50% so it’s probably a good time to start nibbling but leave enough firepower to continue buying if the markets retreat more.

The full economic cost of the shutdowns around the world can not be accurately assessed and will, of course, be quite different from one industry to another and one company to another.  We merely need to keep our eye on the long term developments and take an optimistic stance: Of the many years since 1987 when I’ve been investing in emerging markets all over the world I can say that there are two conclusions that I can confidently ascribe to: (1) all emerging markets experience bear markets, and (2) all emerging markets recover from those bear markets and experience a bull market. It’s very much like the conclusions of Arnold Toynbee, the famous historian and scholar of civilisations since ancient times. After all the years of study he said that there were two conclusions that he could ascribe to:  First, all civilisations rise and, second, all civilisations fall. The wonderful thing about this phenomenon in emerging markets is that the rise and fall of the markets is relatively frequent and the bear markets tend to be shorter than the bull markets. So if you are a patient and disciplined investor you can purchase bargain stocks in the bear phases when everyone else is selling.

At the rate the coronavirus is spreading globally there might be worse to come but stock markets are starting to price that in. And given the efforts now undertaken by governments, central banks and scientists to contain the crisis I am confident we will see containment followed by a recovery on the horizon but as history teaches us it might not be for another one or two years.

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ETF or Index Fund?

Should one invest in an Exchange Traded Fund (ETF) or an index fund?  

The decision depends on the need of the investor. 

A corporate treasury who has done derivative trades would prefer an ETF because they get real-time prices to exit and enter. 

Retail investors who wish to invest for the long term and are not concerned with intraday prices, would prefer index funds. 

Further, if one wants to opt for a systematic investment plan (SIP), then an index fund is the right vehicle, not an ETF. 

For first time investors, the simplicity and low-cost structure is a good starting point.  Even if they do not have a demat account or a stock broking account, they can access the equity market via an index fund. 

Keeping aside retail investors, a few entities such as certain trusts, cooperative societies and some corporate entities, whose existing articles do not permit the operating of a trading and demat account, would opt for index funds. 

In the current volatile markets, many institutional treasuries and family offices are taking tactical calls on the equity market by investing via low cost, exit load free index funds. A few suggestions to keep in mind when investing: 

• When considering allocation to passive funds, it need not be to the exclusion of active funds. An investor can invest in both, active and passive funds. Don’t view passive funds as a competing strategy but rather, a complementary strategy. 
• Investors should avoid passive funds based on mid- and small-cap themes. It is in these segments, which is often under-researched, that the potential to outperform the benchmark or generate alpha exists. Mid and small cap allocation can be in active funds. 
• In ETFs, there is often a difference between the fair value of an ETF and the prices quoted on the exchanges. This is all the more evident if there is inadequate liquidity on the exchange. Hence investors should review the past trading volumes of an ETF before investing in it. 
• Investors can also easily check the real-time INAV (indicative NAV) before executing a trade on the exchange – the INAV which indicates a real-time fair value per unit is mandatorily published on the website of the AMC. If a retail investor wants to exit and if he/she doesn’t get the fair value, then the overall investment experience is bad. Hence investors should look for ETFs where the divergence between INAV and the price traded is minimum. 
• In an ETF, investors need to look beyond the total expense ratio, or TER. They must look at the total cost of ownership, or TCO. This includes all expenses (brokerage, taxes paid on buy and sell transactions on the stock exchange, annual demat account charges, bid/offer spread, etc.).