Keeping tax implications in mind while selling investments

Keeping tax implications in mind while selling investments

If ‘location, location, location’ is the mantra for success in real estate, then ‘timing, timing, timing’ is the mantra for success in investments. It is very important to get your timing right when you want to sell your investments. The other factor you need to keep in mind is the tax implications of selling your investments.

Why this matters?

Like it or not, all investments come with a certain tax liability. However, they are not all taxed equally. The taxation differs based on various factors such as the type of investment, the holding period and the investor’s tax bracket. By being aware of these aspects, it is possible to reduce your tax liability. In other words, you can keep a greater share of your earnings for yourself.

Here are a few steps you can take to reduce your tax liability:

1) Why are you selling?

There always comes a time when you may want to sell your investments. At that point in time, ask yourself the reason why you are selling. Are you selling to fund an expense in your life (buying a house or paying college fees for your children) or do you want to book profits and exit from the investment? If the answer is the latter, it is best to book your profits when the market is at a high.

For example, if you have invested in an equity fund, it can be quite beneficial to sell the fund and book profits when the market is on a bull run. This way, you can maximize your returns on the investment.

2) What investment to sell?
As an investor, it is possible that you have invested in many different assets. You would have invested in equity funds, debt funds, balanced funds and so on. When you plan to liquidate investments to fund a financial goal, it is important to choose wisely which investment to sell. As mentioned earlier, different investments attract different tax rates.

Here is how the time limit is classified for different mutual funds.

Identify which rates are applicable for the different investments. For example, the short-term capital gains (STCG) tax on debt funds depends on the income tax slab you come under. However, equity funds are charged a flat STCG of 15%. So, compare the different tax rates and identify the net tax liability. This way, you can make the most tax efficient decision when you decide to sell.

3) Can you delay selling?
Imagine your son’s wedding is in a month’s time and you need Rs 25 lakh to finance the wedding. That’s a time bound financial expense. Similarly, you may have other expenses that have strict timelines. As a result, the only solution may be to sell your investments immediately to raise the money.

But what if the decision to sell is not time bound? Is it possible to delay the sale? Ask yourself this question because it can help you save tax. For example, by deciding to delay selling of a fund, you would attract LTCG instead of STCG. In most cases, LTCG tax rates are lower than STCG.

However, it's always best to look at the actual tax liability. For example, if you are selling a debt fund, the gains are taxable as per your income tax slab rate. The LTCG is taxable at either 10% flat or 20% with indexation. If you fall in the 5% tax bracket, then STCG would be preferable. But if you fall in the 20-30% tax brackets, then LTCG would be more tax-efficient.

4) Can you spread out your sale?
Another good option is to spread out the liquidation through options such as Systematic Withdrawal Plans (SWPs). An SWP allows investors to withdraw a specific amount of money at regular intervals. SWPs allow investors to access money when they need it so that they can meet their financial needs.

Now, it is possible to spread an SWP over financial years. For example, let's say you started a six-month SWP in January. Then, half the profits would be taxed in the financial year ending in March. The remaining would be taxed in the next financial year. While this may or may not help lower your final tax outgo, the tax payments can be spread out, thus earning you a temporary relief.

The above points help you identify the tax implications you need to consider when you make a sale. However, remember that these shouldn’t be the sole factors for you to consider when you sell an investment. For tips on when to sell, read here.

What next?
It can always be useful to have professional advice regarding your personal financial affairs. In the next article, let’s see how you can use wealth managers and financial advisors to your benefit.

Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.


Importance of Financial Planning

Why financial planning is importantIs earning money enough? No, it is not. Though the money you earn is important, if you don’t channel it into savings and use it to fulfil your financial goals, it doesn’t fulfil its purpose. Having sufficient corpus to meet your financial liabilities and having financial freedom is what is important. Financial freedom can be achieved if you plan your finances. Here is where financial planning comes into the picture. It is an imperative tool with which you can plan your finances, create the required investments and generate funds for meeting your financial goals. Though experts stress the importance of financial planning, many of you ignore it. Why? Don’t you realize the importance?If you don’t, here are some points which would help you see why financial planning is important - Why financial planning is important?Financial planning is important because of the various benefits it provides. If you have a well chalked-out financial plan you can not only handle your money efficiently, but also save for financial independence. Here are the benefits of financial planning and knowing them you would understand what makes it important – • You will have a contingency planThe first step of a financial plan is to have contingency funds. This fund helps you in meeting the financial strain faced in an unplanned contingency. Thus, when you develop a financial plan, you have provisions for meeting contingencies and your financial stability is not threatened. • It helps in budgetingA problem which many of you face very often is splurging through your monthly income. Either because of overspending or spending on unaffordable items, you blow a hole in your pockets which threatens your financial stability. This overspending and splurging can be avoided with a well-defined financial plan. Financial planning helps you create a planned budget. This budget gives you a guideline of your income and expenses and helps you save your income.• It gives a direction to your financial goalsHaving a financial plan means having a defined picture of your financial goals. Whether you want to save for your children’s future or for buying a house or for your retirement, financial planning gives you a sense of direction. You understand your financial goals and can save towards their fulfilment. • You become financially independentWhen you have planned your finances, you can meet any challenge life throws at you and deal with its financial implications. You wouldn’t have to depend on anyone to help you. Moreover, since all your goals would be planned in advance, you would have the security of knowing that there would be funds to fulfil your goals at the specified time. This brings in financial independence, something coveted by everyone. • You can earn tax benefitsWhen it comes to saving, there are many investment avenues which are tax-saving in nature. However, their tenure and returns vary. When you have a proper financial portfolio you know your goals and their tenure. Based on your financial goals you can pick those investment avenues which help you save tax and maximize your returns. Conclusion All in all, financial planning is important. If you want to live a stress-free life in terms of financial security, a well-defined financial plan is required. If you want to meet all your life’s goals head on, a financial plan is required. Moreover, the above benefits are also promised when you have a proper financial plan in place. So, if you have financial responsibilities and you want to achieve financial freedom, resort to financial planning.DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

read more


Step by Step guide to Financial Planning

Financial planning helps you be prudent with your money and achieve your life targets. Although it is a simple process, it requires proper planning over a period of time. That’s because it comprises several steps. Each step has a particular objective. One misstep and your financial plan could be in tatters. It’s just like a house of cards. You remove one card and the whole house falls apart. Therefore, to create a successful financial plan you should follow each and every step in the correct order. Are you familiar with these steps? Do you know how to prepare a financial plan? Worry not, this piece will give you a step-by-step guide in preparing your first financial plan. Step 1 – Set your goalsIdentifying your goals at the start can give you a sense of direction. Unless you know why you should save, your savings will not hold much importance. So, whether it is buying that trendy car, building your own home or setting aside money for your daughter’s wedding, identify your financial goals.Step 2 – Plan your taxesTax-planning can ensure you have more money in your bank account. So, why do you want to give away your hard-earned money in tax? There are various tax-saving investment instruments available in the market. These instruments can give you tax exemption not only on the amount invested but also on the returns generated. Step 3 – Create an emergency fundAn emergency fund can bail you out in tough times. It gives you a financial cushion in case of an emergency. So, hold at least six months’ worth of your income in an easily liquid investment option. Liquid mutual funds can be ideal. Step 4 – Think insuranceYou should also think of getting a health and a life insurance plan. While a health plan can take care of your medical emergencies, a life insurance plan will give your family financial stability in your absence. Step 5 – InvestThis is when you think of investing your money. Know the risk involved, the returns you are likely to get and its tenure before you zero in on an investment option. Step 6 – Invest for each goal separatelyChoose separate investment options for your short-, medium- and long-term goals. You should not park all your money in one investment option. Different investment vehicles serve different needs. So, do some research, learn what each option’s forte is and then invest. For example, investing in equity or equity fund is not advisable if you want to achieve a short-term goal. Instead, invest in them for the long run. That’s because equity tends to be volatile over the short-term and generally steady in the long run. Therefore, your investments and goals should not obstruct each other. Step 7 – Review your plan from time to timeYour goals are dynamic and so are your financial requirements. Hence, your financial planning should be dynamic as well. So, review your financial plan periodically and make necessary changes to suit your requirement.   So, is it difficult? No. You just need to follow a few steps to reap benefits of financial planning. It is just the lack of knowledge which makes the process seem difficult. Alternatively, you can choose to get professional help from a financial planner. IndiaNivesh’s financial planning team can always help you plan your finances and investments. What next?Financial planning. Tick. Next chapter will explain how budgeting is different from financial planning.DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

read more

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Value Investing - What is Value Investing & its Fundamentals

    Value investing is the dark horse of stock markets. And this dark horse has created huge wealth for none other than Warren Buffet. Read on to know what value investing is, and what are the critical factors in this strategy. All that glitters is not gold and all that is gold does not always glitter. This holds true for investment decisions as well and forms the core principle of value investing. What is Value Investing? The value investment strategy was popularised by Benjamin Graham along with David Dodd after successfully surviving the period of the great depression. It involves proactively identifying stocks which are trading at a significantly lower value than their intrinsic value. Intrinsic Value refers to the true value of a stock. The two factors behind value investing are market price and value. Price is the amount you pay, and the value is what you get in return. Value investing believes that the stock market does not always remain in an efficient or balanced state. It sometimes overreacts to events such as political announcements, organisational restructuring, economic conditions and results in stock price fluctuations which do not correspond to the company’s actual worth or long-term fundamentals. Hence, there is a good probability that there are undervalued or overvalued stocks in the market. Value Investing and Behavioral Finance Value Investing and Behavioral Finance are two sides of the same coin. Value investing aims to exploit irrational or impulsive behaviour of investors. Emotions heavily influence investment-related decisions. Greed, fear, peer-pressure lead to poor investment decisions. This creates a huge potential for dispassionate or objective investors. Value investors do not get carried away by market sentiments or herd mentality, instead, they look at the real value of a stock in the long run. They also do not fall into a “growth trap” without actually understanding the history or behaviour of stocks. Fundamentals of Value Investing1. Find the intrinsic value Investors who follow value investing strategy are more interested in a stock’s intrinsic value and not just the current market price. There are multiple ways and valuation methods that are used to identify the intrinsic or true value of a stock. Such as discounted cash flow analysis, dividend discount model, Earning per Share valuation, etc. There is also a formula coined by Benjamin Graham to arrive at the true value of a stock. It is:  Intrinsic Value = Earnings Per Share (EPS) multiplied by (8.5+ Twice the growth rate of the company in the coming 7-10 years).  This formula has been now tweaked to reflect the current market conditions correctly. It is now:  Intrinsic Value = [Earnings Per Share (EPS) multiplied by (8.5+ Twice the growth rate of the company in the coming 7-10 years) multiplied by 4.4] divided by current corporate bond (AAA) yield.  4.4 in the above formula referred to the minimum rate of return in the USA in the year 1962. For the purpose of valuation of Indian stocks, 4.4 should be replaced by the corporate bond yield in the same year in India. When the stock’s market value goes below the calculated intrinsic value, investors purchase those stocks. Then they sit back and relax till the time the market corrects itself and the stock price reaches its actual value.  2. Margin of Safety Margin of Safety enables value investors to manage risks and avoid losses. It is also the key element which distinguishes value investing from mere speculation. It refers to the difference between the stock’s current market price and its intrinsic value. Higher the gap, greater is the safety margin. By investing in a stock with an adequate security margin, investors know that any negative event or volatility will not adversely impact the value of the investment. 3. Don’t follow the crowd Value investing is not for those who like to follow the herd. Value investors focus on stocks which are overlooked or avoided by others because of their low valuations but are inherently solid stocks.   Are there risks in Value Investing? Yes. Just like all the other things in our life, there are risks involved in Value Investing as well. One of the biggest risks is falling into Value Traps. All cheap stocks do not translate into good investment decisions. Value traps are stocks which seem to cheap due to low PE multiple or cash flows, but never go up in value. It is important to do full due- diligence before investing. This includes not just financial metrics, but also qualitative aspects such as quality of management, stability, competition, etc. Final Words Value investing is a proven strategy for wealth appreciation in the long run. But it can be an intimidating way of investing without the right support. A partner like IndiaNivesh can make the process smooth and more fruitful for investors. IndiaNivesh is a reputable financial service provider which offers a wide range of services related to Broking, Institutional equities, strategic investments, wealth management, investment banking and corporate finance. With their in-depth understanding of the Indian markets, the organisational experience of three centuries and cutting-edge technological tools, they help investors make well-informed and profitable decisions.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more
  • Online Trading – 5 Essential Tips for Trading Online in 2020

    Technological advancements and digitalisation have changed the online arena for every business, and the online share trading is no exception to the trend. Over the last few years, online trading has become very popular, especially amongst the millennials and generation Y. Prevalence of smartphones, lower costs, opportunity to earn extra income, low entry barriers, ease of access, etc has had a profound impact on online trading. Even though online stock trading today is huge, and many people are motivated to explore online trading for a rewarding career, by no figment of imagination it should be assumed that it is easy, and they can become financially self-sufficient in a short period. Here are 5 essential online trading tips to help improve your chances of success in your endeavours as a trader-1. Do the research and gain relevant information about the markets The economic conditions are constantly changing and it has a significant impact on the stock markets. To be successful in online share trading you have to do your research, collect relevant information and be updated about matters relating to markets. With information being available at the click of a button, it is easy to get access to information from various sources. Keeping your eyes and ears open about the official announcements being made, reading up market-related articles and financial publications can help you ace the game of online stock trading and avoid making whimsical trade calls.  2. Get acquainted with the trading terminologies and tools Getting yourself familiar with various terminologies and trading tools beforehand is extremely important so that you do not falter when you start trading. Clearing your basics about the important workings, different types of trades, important terms are critical. If you are not clear about the basics, then you may end up placing a wrong order. Once you are trading online, you are investing real capital and you cannot undo the trade. So, it is essential that you must be familiar with the features and the functions of the trading platform which you are going to use. Practice trading on dummy versions to get a hang of the trading interface before you can start with online trading. Once you have enough practice you will not be flustered and confused at the time of real trading. 3. Start with small capital and practice risk management There are infinite opportunities in the trading world and you do not want one experience to be the deciding factor for you. As online trading is risky, you should always make a small start in the beginning and invest little capital. Even the most successful traders do not put their entire investible surplus for trading but use only the capital which they have to spare after they have put aside for their long-term goals such as retirement. So, invest only the capital which you can afford to lose and which will not affect your financial planning. Another important thing to keep in mind at the time of executing trades is that the risk associated with trading is high and hence you should take adequate measures to minimise risk. Setting a stop-loss to your order will automatically stop a trade if the losses hit a particular mark and help minimise your losses. 4. Be patient and disciplined Online trading is a great way to make an income and many have successfully made a career out of it. If the success stories of other traders have motivated you to take the plunge, then, let’s be honest, online trading is risky and not for the light-hearted. Moreover, it is not something you can master overnight or become rich overnight on a single trade. To be successful, you need to have the right mindset and should be disciplined in your approach. Make a trade plan and stick to it. Trading out of impulse or greed will not help you become successful but following a plan and trading when you see opportunities can help you achieve the desired results. 5. Select the right broker and trading platform Last but not least, choosing the right broker and opening the best trading account online is important, and hence you should be careful about your selection. Choose a trading platform that best meets your needs and has a user-friendly interface. You should be comfortable using their software. Your success rate would be greatly affected by the timely execution of your orders. Other aspects to consider are a level of customer service and satisfaction, market reputation and competitive fee structure.   Conclusion With the above essential online trading tips, you can give your income a boost. We at IndiaNivesh have one of the best online trading platforms at the most competitive price and also offer expert advisory and research to meet your investment needs.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more
  • Tips on Investing Money in Mutual Funds

    Mutual Funds are the cynosure of the financial world. And rightly so! These investment havens pool in money from multiple investors and then invest the corpus across asset categories in line with the scheme’s objective. They are a great option for retail investors who would otherwise find it difficult to get exposure to such varied investment opportunities. What makes Mutual Funds a good investment tool? ·         Professional Management The USP of Mutual Funds is that they are managed by a team of experts. They are equipped with the necessary resources and information to continuously monitor the markets, analyze market trends and conduct in-depth research. As a result, the fund managers can devise the best investment strategy for the investors and guide them regarding the best mutual funds to invest in. ·         Financial Discipline One of the common problems faced by investors is that they lack the rigour or discipline to stick to their financial resolutions. Mutual Funds take care of this issue easily. Systematic Investment Plans ensure that investors continue to invest regularly. ·         Flexibility Mutual Funds offer a great deal of flexibility to investors. You can choose the frequency of contribution as well as opt to increase or reduce the investment amount as per cash flows. ·         Affordable Systematic Investment Plan (SIP) facility makes Mutual Funds affordable to everyone. One can start mutual fund investments with just Rs. 500. That is basically the cost of one pizza these days! They are perfect for novice investors who are overwhelmed or scared of equities but still want some exposure. ·         Tax savings ELSS are tax-saving Mutual Funds. Investment in these mutual funds qualifies for tax deductions (till Rs. 1.5 Lakhs) as per Section 80C. Owing to their potential of higher returns and shorter lock-in period, as compared to other tax-saving alternatives, ELSS have become a preferred choice for many investors.   Mutual Fund investment tips Now that you know what makes Mutual Funds a great investment tool, here are some mutual fund investment tips to help you make the most out of your hard-earned money. ·         Set a goal It is rightly said that “Dreams do not come true. Goals do”. The same rationale applies to investments too. Investments bring the best results when they have a purpose. So, the first step in mutual fund investments should be setting an investment goal. You should consider factors like budget, investment horizon, financial ambitions and most importantly your risk appetite.  ·         Select the right fund type When it comes to mutual fund investments, one size does not fit all. Just because your friend is investing in a fund does not mean it will benefit you as well.  Mutual Funds invest across a range of asset classes. Hence deciding which mutual fund to invest in can be slightly tricky. It is important to choose a scheme that is in sync with your needs and risk profile. For instance, if you are an experienced investor and can afford to take risks, you can easily go for equity funds. However, if you are a novice then most mutual fund tips for beginners will suggest going for debt or balanced funds. It is important to understand the risk-return relationship inherent in each asset category before making a decision. Rule of thumb being – higher the risk, higher the return! The asset allocation should be in sync with your risk appetite. Also, ask yourselves why you are investing in mutual funds. Is it to save taxes? Then ELSS Funds are your best bet. If you have a short investment horizon and want a fund type with high liquidity, then you can go with Liquid Funds. ·         AMC Credibility Check The right fund house can not only help you decide which mutual fund to invest in but optimize the potential of your overall portfolio. It is important to look at factors such as the credentials of the fund managers, expense ratio, components of the portfolio and AUM (Assets Under Management) of the Fund House. ·         Diversification is the key You should not put all your eggs in the same basket. Diversification across asset categories and investment styles is important. It helps to lower the risk quotient as it gets spread over different investments. Even if one fund underperforms, the other can compensate for it. The value of the entire portfolio is not at risk. ·         SIPs vs Lump-sum One of the best mutual fund tips for beginners is choose the SIP way. Especially if you are venturing into equity or equity oriented mutual funds. A SIP will allow you to spread out your investments over a longer duration of time. You will invest at different points in the market cycle and hence even out the associated risk. Also, the power of rupee-cost averaging in SIPs helps to generate higher returns in the long-term. ·         KYC KYC has become a necessity these days. Government of India has mandated KYC for most of the financial transactions including mutual fund investments. So, ensure that you have documents such as PAN Card, valid address proof, etc. before you venture into mutual fund investments. ·         Have a long-term view Mutual Funds are like a committed relationship and not a one-night stand. You need to remain invested for a longer duration in order to get the best rewards. Especially in the case of equity funds. This is because markets tend to be volatile in the short run but tend to move up in the long-term. The best combination is to invest in a mix of debt and equity to get best of both the worlds. Debt Funds would help to lower the overall risk of the portfolio and could help meet emergency fund requirements in the short run. While your equity funds work on wealth appreciation in the long run. ·         Ask the Expert Just like KBC, Mutual Funds also come with a helpline – Ask the Expert! There are so many options available in Mutual Funds. It can become rather overwhelming for a new investor to select the right mutual fund to invest in. A professional expert will not only help to select the right funds and schemes but will also constantly monitor the market on your behalf. One such expert is IndiaNivesh. They offer a wide variety of financial solutions related to broking and distribution, strategic investments, institutional equities, corporate advisory, investment banking and private wealth management. The team at IndiaNivesh has a combined experience of more than 300 years. With their cutting-edge technological and research capabilities, competent team and “client-first” approach, you can be rest assured that you are in safe hands.   Final Words Now that the mystery is solved about how you can select the best mutual funds to invest in, what are you waiting for? Especially when you know that you have a guide like IndiaNivesh available at the click of a button.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more