Despite there being no changes in income taxes, Budget 2021 has implications for your investment portfolio. While equities have been on fire since the Budget announcement, the debt markets have taken on the chin.
Here’s how you should approach your investments, for the rest of 2021.
Equity market rally not reason to gamble
Between January 29 and February 3, the Nifty index rose 8.47 percent. The broad-based rally in equities towards the latter half of last year got a boost from Budget 2021. The increasing shift to the organized sector after the lockdown, a pro-growth government keen to spend on infrastructure & core sectors and low cost of funds for corporates are positives for stocks in the medium term.
Over the last one year, mid-cap funds gave 23.31 percent returns. Small cap funds delivered 25.78 percent returns, while large-cap funds gave 21.53 percent, as per Value Research data.
Investors must keep their future expectations in check. Whenever there are market corrections, deploy small lump-sums. Else, it’s best to stagger your purchases in multi-cap or flexi-cap schemes. Though Budget 2021 holds promise for many themes, beginners are better off avoiding thematic offerings.
If you have heavy profits from your equity mutual funds, it doesn’t mean you have to sell your holdings. A better approach is to stick to asset allocation: this helps you to sell in a disciplined manner.You can take some profits if your asset allocation pattern demands so and allocate that money to other asset classes such as gold, which are undervalued, in line with your asset allocation based on your risk profile.
Interest rate cuts may soon come to an end
The bond markets rallied for the past three years. Budget 2021 brought in a reality check. The government borrowing plans for financial year 2021-22 outlined in Budget 2021 has meant that interest rates may begin to rise eventually.
Still, do not sell your debt funds. It is important to stick to your intended investment horizon to ride through the volatile phase. There is ample liquidity in financial markets and Reserve Bank of India is expected to take time before hiking rates.
Avoid investing in long-term bond and long-term government securities funds now. Stick to short term bond funds. Though bond funds have done well in the recent past, investors are better off moderating their return expectations going forward.
Well-managed credit risk funds can be looked at as yields on ‘AA’ and below rated bonds are expected to continue their downward move reducing the gap between them and their AAA rated counterparts. Credit risk funds are, of course, for investors with a high risk appetite.
Avoid chasing returns by getting into unrated fixed deposits or bonds.
Gold rally subdued
The yellow metal has posted subdued performance in recent past. Domestic prices of gold lost 10.3 per cent in last six months. Union Budget 2021 has proposed a cut in customs duty on gold to 7.5 percent from 12 percent. It further imposed agriculture and infrastructure development cess on imported gold. Cut in customs duty has led to drop in value of gold held. However in the medium term, gold prices should appreciate due to ample liquidity in the financial system and gold’s ability to act as a portfolio hedge in uncertain times.
Ideally allocate 5 to 10 percent of your investment portfolio to gold. Opt for gold exchange traded funds (or gold fund of funds if you do not have a demat account) or sovereign gold bonds.
What should investors do?
Take stock of your asset allocation. Irrespective of where the markets go from here on, this should be your anchor. Instead of booking profits haphazardly, use market movements to re-allocate your assets. For instance, if the equity share in your portfolio has gone up, move some assets to either gold or debt. Or, if you have some expenses coming up, in say the next 6-9 months, then it’s better to take some money off the table and shift to liquid or overnight funds or your bank account.
Here’s how you should approach your investments, for the rest of 2021.
Equity market rally not reason to gamble
Between January 29 and February 3, the Nifty index rose 8.47 percent. The broad-based rally in equities towards the latter half of last year got a boost from Budget 2021. The increasing shift to the organized sector after the lockdown, a pro-growth government keen to spend on infrastructure & core sectors and low cost of funds for corporates are positives for stocks in the medium term.
Over the last one year, mid-cap funds gave 23.31 percent returns. Small cap funds delivered 25.78 percent returns, while large-cap funds gave 21.53 percent, as per Value Research data.
Investors must keep their future expectations in check. Whenever there are market corrections, deploy small lump-sums. Else, it’s best to stagger your purchases in multi-cap or flexi-cap schemes. Though Budget 2021 holds promise for many themes, beginners are better off avoiding thematic offerings.
If you have heavy profits from your equity mutual funds, it doesn’t mean you have to sell your holdings. A better approach is to stick to asset allocation: this helps you to sell in a disciplined manner.You can take some profits if your asset allocation pattern demands so and allocate that money to other asset classes such as gold, which are undervalued, in line with your asset allocation based on your risk profile.
Interest rate cuts may soon come to an end
The bond markets rallied for the past three years. Budget 2021 brought in a reality check. The government borrowing plans for financial year 2021-22 outlined in Budget 2021 has meant that interest rates may begin to rise eventually.
Still, do not sell your debt funds. It is important to stick to your intended investment horizon to ride through the volatile phase. There is ample liquidity in financial markets and Reserve Bank of India is expected to take time before hiking rates.
Avoid investing in long-term bond and long-term government securities funds now. Stick to short term bond funds. Though bond funds have done well in the recent past, investors are better off moderating their return expectations going forward.
Well-managed credit risk funds can be looked at as yields on ‘AA’ and below rated bonds are expected to continue their downward move reducing the gap between them and their AAA rated counterparts. Credit risk funds are, of course, for investors with a high risk appetite.
Avoid chasing returns by getting into unrated fixed deposits or bonds.
Gold rally subdued
The yellow metal has posted subdued performance in recent past. Domestic prices of gold lost 10.3 per cent in last six months. Union Budget 2021 has proposed a cut in customs duty on gold to 7.5 percent from 12 percent. It further imposed agriculture and infrastructure development cess on imported gold. Cut in customs duty has led to drop in value of gold held. However in the medium term, gold prices should appreciate due to ample liquidity in the financial system and gold’s ability to act as a portfolio hedge in uncertain times.
Ideally allocate 5 to 10 percent of your investment portfolio to gold. Opt for gold exchange traded funds (or gold fund of funds if you do not have a demat account) or sovereign gold bonds.
What should investors do?
Take stock of your asset allocation. Irrespective of where the markets go from here on, this should be your anchor. Instead of booking profits haphazardly, use market movements to re-allocate your assets. For instance, if the equity share in your portfolio has gone up, move some assets to either gold or debt. Or, if you have some expenses coming up, in say the next 6-9 months, then it’s better to take some money off the table and shift to liquid or overnight funds or your bank account.
The theme of the Budget 2021 is mainly Infrastructure, Public Health and Privatisation. Further, it is a step towards fulfilling the vision of ‘Aatmanirbhar Bharat’. It is heartening to note that the FM has not introduced any new taxes including surcharge/cess due to Covid19 pandemic, but has also kept unchanged the current income slabs and tax rates as well as exemptions/deductions applicable to individual taxpayers.
Exemption from filing I-T returns for those aged 75 and above
Budget 2021 has exempted resident senior citizens (being at least 75 years in age) from filing tax return if he/she is having pension and interest income from same bank subject to satisfaction of following conditions:
-The bank should be a specified bank (i.e. to be notified by government)
-The taxpayer is required to furnish a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed
-The bank will be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act and deduct income tax based on rates in force.
Relaxation to NRIs in respect of foreign retirement accounts
When NRIs return to India, they face challenges in respect of accrued incomes in their FRAs (foreign retirement accounts) as such income gets taxed in the overseas country on receipt basis or on withdrawal as well as in India on accrual basis, where the person is a Resident of India. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. In view of the same, the government has proposed to insert a new section 89A of the Income-tax Act, 1961 (‘the Act’) wherein rules for avoiding double taxation will be notified.
This new section will be applicable to a person who is resident in India, who had opened a specified account in a notified country while being non-resident in India and resident in that country. Such specified account should be maintained for retirement benefits and the income from which should not be taxable on accrual basis but at the time of withdrawal or redemption in the overseas country. One would have to wait for the rules in this regard, to further clarify on the manner of taxation of such income.
Taxability of interest on EPF / RPF where income is exempt
Currently, the interest earned on Provident Fund (i.e. set-up under the Provident Funds Act, 1925 or any recognised provident fund) is exempt under section 10(11) / section 10(12) of the Act subject to certain conditions. This exemption did not have any threshold limit. Hence, employees were making higher voluntary contributions to the PF fund as the interest was considered tax exempt. Accordingly, it is now proposed that interest in respect of employee contributions made upto Rs 250,000 per annum will be exempt. Any interest earned above such limit would be taxable.
Advance tax payment on dividend income
Interest under section 234C of the Act is applicable to taxpayers who have delayed / failed to make advance tax payments by due dates on their estimated taxable income.
A relaxation to the interest under section 234C of the Act was available to some categories of income (such as capital gains) where it was not possible to determine the income value till the income was realised. Such relaxation is proposed to be provided in case of dividend income. Accordingly, advance tax liability on dividend income shall arise only after the declaration / payment of dividend.
Pre-filling of tax returns
Currently, the details of salary income, tax payments, TDS, etc. already come pre-filled in income tax return forms. To further ease filing of returns for the taxpayers, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also come pre-filled in the tax return forms.
Due dates for filing the belated or revised tax returns
It is proposed that the last date for filing of belated or revised returns of income is reduced by three months. For example, the due date for filing the belated / revised India tax return for FY 2021-22 as per the current laws would have been 31 March 2023 (i.e. till the end of the assessment year) or before the completion of the assessment, whichever is earlier. The due date in this case is now proposed to be 31 December 2022.
Extension of tax incentive for affordable housing scheme
Budget 2020 had introduced an additional deduction up to Rs 150,000 for interest on loans taken by first home buyers for purchase of residential property whose stamp duty value did not exceed Rs 45 lakhs (subject to certain conditions). The deduction was eligible only if the loan was sanctioned during the period 1 April 2019 to 31 March 2021. The eligibility period for sanctioning the loan is proposed to be extended to 31 March 2022
Amendments pertaining to assessments / appeals
Budget 2021 has proposed various amendments to reduce the length of the assessment and appeal proceedings to mitigate the genuine hardship faced by the taxpayers:
-Number of prior tax years for a notice for reassessment of income to be issued, has now been proposed to be reduced to three years from the end of assessment year, from the earlier six years, except in few cases where the amount of escaped income is likely to amount to Rs 50 lakhs or more. In such cases, notice can be issued up to ten years from the end of the relevant assessment year (subject to necessary approvals).
-Provision for Faceless Proceedings with the Income-tax Appellate Tribunal
-To further reduce litigation for small taxpayers, a Dispute Resolution Committee is proposed to be set up wherein any taxpayer with a taxable income up to Rs 50 lakh and disputed income up to Rs 10 lakh shall be eligible to approach the Committee.
-In line with the change in the due dates for filing the belated or revised tax returns, a similar reduction of three months is proposed for time limit of completing scrutiny assessment. Accordingly, the due date for completing the assessment for FY 2021-22 would be 31 December 2023 (i.e. nine months from the end of the assessment year in which the income was first assessable).
Exemption from filing I-T returns for those aged 75 and above
Budget 2021 has exempted resident senior citizens (being at least 75 years in age) from filing tax return if he/she is having pension and interest income from same bank subject to satisfaction of following conditions:
-The bank should be a specified bank (i.e. to be notified by government)
-The taxpayer is required to furnish a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed
-The bank will be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act and deduct income tax based on rates in force.
Relaxation to NRIs in respect of foreign retirement accounts
When NRIs return to India, they face challenges in respect of accrued incomes in their FRAs (foreign retirement accounts) as such income gets taxed in the overseas country on receipt basis or on withdrawal as well as in India on accrual basis, where the person is a Resident of India. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. In view of the same, the government has proposed to insert a new section 89A of the Income-tax Act, 1961 (‘the Act’) wherein rules for avoiding double taxation will be notified.
This new section will be applicable to a person who is resident in India, who had opened a specified account in a notified country while being non-resident in India and resident in that country. Such specified account should be maintained for retirement benefits and the income from which should not be taxable on accrual basis but at the time of withdrawal or redemption in the overseas country. One would have to wait for the rules in this regard, to further clarify on the manner of taxation of such income.
Taxability of interest on EPF / RPF where income is exempt
Currently, the interest earned on Provident Fund (i.e. set-up under the Provident Funds Act, 1925 or any recognised provident fund) is exempt under section 10(11) / section 10(12) of the Act subject to certain conditions. This exemption did not have any threshold limit. Hence, employees were making higher voluntary contributions to the PF fund as the interest was considered tax exempt. Accordingly, it is now proposed that interest in respect of employee contributions made upto Rs 250,000 per annum will be exempt. Any interest earned above such limit would be taxable.
Advance tax payment on dividend income
Interest under section 234C of the Act is applicable to taxpayers who have delayed / failed to make advance tax payments by due dates on their estimated taxable income.
A relaxation to the interest under section 234C of the Act was available to some categories of income (such as capital gains) where it was not possible to determine the income value till the income was realised. Such relaxation is proposed to be provided in case of dividend income. Accordingly, advance tax liability on dividend income shall arise only after the declaration / payment of dividend.
Pre-filling of tax returns
Currently, the details of salary income, tax payments, TDS, etc. already come pre-filled in income tax return forms. To further ease filing of returns for the taxpayers, details of capital gains from listed securities, dividend income, and interest from banks, post office, etc. will also come pre-filled in the tax return forms.
Due dates for filing the belated or revised tax returns
It is proposed that the last date for filing of belated or revised returns of income is reduced by three months. For example, the due date for filing the belated / revised India tax return for FY 2021-22 as per the current laws would have been 31 March 2023 (i.e. till the end of the assessment year) or before the completion of the assessment, whichever is earlier. The due date in this case is now proposed to be 31 December 2022.
Extension of tax incentive for affordable housing scheme
Budget 2020 had introduced an additional deduction up to Rs 150,000 for interest on loans taken by first home buyers for purchase of residential property whose stamp duty value did not exceed Rs 45 lakhs (subject to certain conditions). The deduction was eligible only if the loan was sanctioned during the period 1 April 2019 to 31 March 2021. The eligibility period for sanctioning the loan is proposed to be extended to 31 March 2022
Amendments pertaining to assessments / appeals
Budget 2021 has proposed various amendments to reduce the length of the assessment and appeal proceedings to mitigate the genuine hardship faced by the taxpayers:
-Number of prior tax years for a notice for reassessment of income to be issued, has now been proposed to be reduced to three years from the end of assessment year, from the earlier six years, except in few cases where the amount of escaped income is likely to amount to Rs 50 lakhs or more. In such cases, notice can be issued up to ten years from the end of the relevant assessment year (subject to necessary approvals).
-Provision for Faceless Proceedings with the Income-tax Appellate Tribunal
-To further reduce litigation for small taxpayers, a Dispute Resolution Committee is proposed to be set up wherein any taxpayer with a taxable income up to Rs 50 lakh and disputed income up to Rs 10 lakh shall be eligible to approach the Committee.
-In line with the change in the due dates for filing the belated or revised tax returns, a similar reduction of three months is proposed for time limit of completing scrutiny assessment. Accordingly, the due date for completing the assessment for FY 2021-22 would be 31 December 2023 (i.e. nine months from the end of the assessment year in which the income was first assessable).
Money is a major source of stress for many people, and who needs more stress right now? After nearly a year of the pandemic, you may already be wading through desperation, loneliness, grief, exhaustion or, of course, fear.
The stress is compounded by the fact that you might actually die. A ridiculous amount of stressors has fallen on everybody.
Cue good old avoidance. That’s my go-to: just don’t deal with the thing that’s making you pull out your hair. But avoiding money issues makes them worse. And if you’re like the many, many people who’ve taken a financial hit, you can’t afford to let your situation get much worse.
TALK IT OUT
You might feel alone, but you’re not. In fact, chances are your friends are sitting there feeling exactly the same way.
So reach out to a trusted friend or family member about what’s stressing you out. You may not get solutions, but you’ll likely feel better after venting and getting some commiseration. And your friend may be grateful to learn that you’re open to talking about money issues, they may be weighing on them, too.
To keep each other safe, you’ll probably have to jump on the phone or a video call, or bundle up for a February stroll. But try it anyway. In the midst of stress, the worst thing you can possibly do is socially isolate. That is a recipe for depression.
LIST NOW, HANDLE LATER
To start fixing money problems, you first have to face them, but not all at once and right this second. That’s a reminder for those who obsess, rather than avoid. There are two ways people handle their money in extreme situations. It’s either all they think about and look at, or they completely ignore it and hope it works out.
Whatever your tendency is, consider keeping a financial task list. If there’s a place you can park all this stuff and know that you’re going to take care of it later, that will help prevent future burnout.
GO ON A MONEY DATE
Plan a specific date and time when you can focus, and choose a room that you don’t usually work in, if possible. It’s fine to keep the date short. If you can only think about money for 20 minutes before feeling anxious, then stick to 20 minutes.
Go into your date being specific and intentional about what you want to do. If you only have 20 minutes, don’t try to dive into your whole financial history.
Just look at the thing that’s been simmering in the back of your head. Maybe you finally peek at that credit card debt and brainstorm ways to chip away at it. Or perhaps you list all your bills, their due dates and how to pay them or catch up. (You may learn that you should try to lower your bills.)
If no one thing is nagging you, consult your task list. Or review bank and credit card statements to learn how much you’re spending on what, and how those expenses compare to your income. Over time, a few 20-minute reviews of your cash flow may help you feel more comfortable thinking about money and less likely to avoid it.
BE KIND TO YOURSELF
If you don’t like what you find on your money date, please don’t beat yourself up. After all, you faced something you didn’t want to see — and you did it at a time when everything is extra hard.
We all need to give ourselves a little bit of grace. Clinging to pre-pandemic standards can lead to burnout. Just like you should forgive yourself for not being the fittest, happiest, most productive person during a horrifying global crisis, cut yourself some slack for not being totally on top of your money.
Maybe you have to dip into savings or ask your credit card issuer for help because you can’t make payments. You may be living in the worst-case scenario right now, but all of this stuff can be fixed. It’s OK if your credit score drops from a 700 to 600 because of a global
The stress is compounded by the fact that you might actually die. A ridiculous amount of stressors has fallen on everybody.
Cue good old avoidance. That’s my go-to: just don’t deal with the thing that’s making you pull out your hair. But avoiding money issues makes them worse. And if you’re like the many, many people who’ve taken a financial hit, you can’t afford to let your situation get much worse.
TALK IT OUT
You might feel alone, but you’re not. In fact, chances are your friends are sitting there feeling exactly the same way.
So reach out to a trusted friend or family member about what’s stressing you out. You may not get solutions, but you’ll likely feel better after venting and getting some commiseration. And your friend may be grateful to learn that you’re open to talking about money issues, they may be weighing on them, too.
To keep each other safe, you’ll probably have to jump on the phone or a video call, or bundle up for a February stroll. But try it anyway. In the midst of stress, the worst thing you can possibly do is socially isolate. That is a recipe for depression.
LIST NOW, HANDLE LATER
To start fixing money problems, you first have to face them, but not all at once and right this second. That’s a reminder for those who obsess, rather than avoid. There are two ways people handle their money in extreme situations. It’s either all they think about and look at, or they completely ignore it and hope it works out.
Whatever your tendency is, consider keeping a financial task list. If there’s a place you can park all this stuff and know that you’re going to take care of it later, that will help prevent future burnout.
GO ON A MONEY DATE
Plan a specific date and time when you can focus, and choose a room that you don’t usually work in, if possible. It’s fine to keep the date short. If you can only think about money for 20 minutes before feeling anxious, then stick to 20 minutes.
Go into your date being specific and intentional about what you want to do. If you only have 20 minutes, don’t try to dive into your whole financial history.
Just look at the thing that’s been simmering in the back of your head. Maybe you finally peek at that credit card debt and brainstorm ways to chip away at it. Or perhaps you list all your bills, their due dates and how to pay them or catch up. (You may learn that you should try to lower your bills.)
If no one thing is nagging you, consult your task list. Or review bank and credit card statements to learn how much you’re spending on what, and how those expenses compare to your income. Over time, a few 20-minute reviews of your cash flow may help you feel more comfortable thinking about money and less likely to avoid it.
BE KIND TO YOURSELF
If you don’t like what you find on your money date, please don’t beat yourself up. After all, you faced something you didn’t want to see — and you did it at a time when everything is extra hard.
We all need to give ourselves a little bit of grace. Clinging to pre-pandemic standards can lead to burnout. Just like you should forgive yourself for not being the fittest, happiest, most productive person during a horrifying global crisis, cut yourself some slack for not being totally on top of your money.
Maybe you have to dip into savings or ask your credit card issuer for help because you can’t make payments. You may be living in the worst-case scenario right now, but all of this stuff can be fixed. It’s OK if your credit score drops from a 700 to 600 because of a global
The past year has been challenging for many but it has also helped people realize the importance of having the right investment in place. Industry experts say, once a year investors should take time to look at their finances.
Investors need to revisit their financial goals and asset allocation to assess whether they are in line with what they had set out to achieve. It’s pertinent to check your return assumptions and reflect if they are realistic.
For instance, industry experts say in the current low-interest-rate environment, instead of assuming 8 per cent returns, it would more realistic to bring that band to 5 per cent to 6 per cent.
Asset allocation is the key to financial planning. One should review that the current asset allocation is in line with one’s risk profile and life-stage. Review your investment portfolio as there could be a need to churn some non-performing investments, add some new themes of investments and to align the overall portfolio with your asset allocation.
Asset allocation should be done not just factoring in current valuations and not just historical expected returns. If your long-term goals are likely to be met with 60 per cent equity allocation assuming 12 per cent expected to return in equity, it does not mean you simply allocate 60 per cent to equity. You need to factor in the current expected returns, possible downside and your ability to withstand volatility. Additionally, experts suggest that if one wishes to avoid getting exposed to deep downsides and volatility then active asset allocation may be more appropriate than passive allocation strategies, which may turn out to be more volatile.
One should ensure that he/she is invested at all times and that the investments continue regularly as per their financial plan. This will ensure good financial discipline and also help generate wealth over the long-term through the power of compounding.
Experts suggest, whenever one purchases an asset which depreciates over time, such as a car, one should target to invest a similar amount in an appreciating wealth-creating asset such as equity, fixed income, gold, among others in one’s portfolio. This will help in replenishing one’s overall portfolio.
Lastly, experts say one should also evaluate their risk coverage not just from an insurance point of view but also factor in a reasonable sustenance kitty and ensure adequate cash flows to mitigate any financial stress.
Also, while investing is important, it is also necessary to keep an eye on protection through insurance. One should review if they are sufficiently covered, as overtime, individuals do rise up the career ladder and also add more members to the family.
Investors need to revisit their financial goals and asset allocation to assess whether they are in line with what they had set out to achieve. It’s pertinent to check your return assumptions and reflect if they are realistic.
For instance, industry experts say in the current low-interest-rate environment, instead of assuming 8 per cent returns, it would more realistic to bring that band to 5 per cent to 6 per cent.
Asset allocation is the key to financial planning. One should review that the current asset allocation is in line with one’s risk profile and life-stage. Review your investment portfolio as there could be a need to churn some non-performing investments, add some new themes of investments and to align the overall portfolio with your asset allocation.
Asset allocation should be done not just factoring in current valuations and not just historical expected returns. If your long-term goals are likely to be met with 60 per cent equity allocation assuming 12 per cent expected to return in equity, it does not mean you simply allocate 60 per cent to equity. You need to factor in the current expected returns, possible downside and your ability to withstand volatility. Additionally, experts suggest that if one wishes to avoid getting exposed to deep downsides and volatility then active asset allocation may be more appropriate than passive allocation strategies, which may turn out to be more volatile.
One should ensure that he/she is invested at all times and that the investments continue regularly as per their financial plan. This will ensure good financial discipline and also help generate wealth over the long-term through the power of compounding.
Experts suggest, whenever one purchases an asset which depreciates over time, such as a car, one should target to invest a similar amount in an appreciating wealth-creating asset such as equity, fixed income, gold, among others in one’s portfolio. This will help in replenishing one’s overall portfolio.
Lastly, experts say one should also evaluate their risk coverage not just from an insurance point of view but also factor in a reasonable sustenance kitty and ensure adequate cash flows to mitigate any financial stress.
Also, while investing is important, it is also necessary to keep an eye on protection through insurance. One should review if they are sufficiently covered, as overtime, individuals do rise up the career ladder and also add more members to the family.