Last minute tax planning done is like gulping a hot cup of coffee in one go

Authored by: Ajit Panicker Nowdays, the clients who belong to the salaried class try to complete their tax planning much on time and even file teir taxes on time. Many believe that they are abreast with the required information about tax planning. But i doubt is that much sufficeint. After having serviced so many clients in my professional life till now what i have largely observed is that, 90% of the employees of even large firms do feel that the last minute tax planning which they do so as to furnish the proofs for the tax declaration done in the beginning of the year is what is tax planning, and this tax planning they assume to be their investment planning.

This article is seriously dedicated to all the salaried employees who file taxes and hence purchase the products which come their way at the last moment.

when you declare the investments in the begiining of the year, almost all the employees try to declare the limits under various sections of the income tax, so as to avail the maximum tax advantage. They do so, so that the tax is not deducted monthly, and once they declare the same at the end of the year with proofs the tax deducted would not be a burden,

But what people do not realise is that, at the fag end of january or february when almost all the corporates ask for the investment proofs , many do not have all the proofs. Because the products which give you tax rebate have not been prrchased.

Then comes the herd of the insurance advisors, mutual fund advisors and whover approaches them or they get hold of someone, the product for tax planning is purchased, without realising that it may not fulfill their financial objectives.

The lesson to be taken here: please plan during the complete year, contact a professional financial planner who plans your cash flows, calculates your net worth, plans your protection, evaluates your existing investments , evaluates your exitsing health cover etc and then designs the plan according to the objective decided together by you and the planner

What is an Ideal Pension Scheme?

Ideal Pension Scheme should include the below and hence avoids the defects of the existing systems. The Ideal Pension Scheme has the following features:

1. It would be fully portable and independent of any employers.

2. Mandatory minimum contribution related to the employee’s salary and possibly age are made into the scheme. These contributions which attract tax relief will typically be made by both the employee and employer. The contribution rates would be set to reflect the pension level desired in retirement which may, for instance, be related to a forecast of salary at retirement. In particular, there should be no incentives in the system for churning customers between different

pension providers,

2 Data on investment returns, salary growth rates, mortality and the volatilities of these would be used

to estimate the value of the fund needed at the target retirement date to purchase the target pension

annuity. Then working backwards an estimate is made of the required contributions into the scheme.

Clearly the later the starting age the higher the contribution rate. Confidence intervals could also be

estimated, indicating the probabilities of different contributions rates delivering the target pension.

3. Individuals would also be required to buy some related pension benefits such as disability benefits (up to a minimum threshold) and would have options for other benefits such as death-in-service benefits and a spouse’s pension.

4. Both the employee and employer would be free to contribute additional voluntary contributions. Contributions in excess of specific employee and employer limits would not attract tax relief, however. There would be parity of treatment with the employer’s own scheme.

5. The investment income and realised capital gains in the fund would accrue with income and capital gains tax relief.

6. The pension age would be flexible and not necessarily linked to actual retirement.



In other words, an individual could draw the pension without actually having retired. However, the individual would be warned about the dangers of retiring too early and drawing a pension before the normal retirement age would ordinarily be restricted to those who had built up sufficiently large pension funds to provide an

adequate standard of living in retirement.

7. Individuals would be required to have converted a mandatory component of their pension into an annuity at retirement. Individuals would be permitted to purchase a deferred annuity before retirement. The mandatory component of the pension would be fully linked to retail price inflation. The pension would be taxable.

8. Part of the pension entitlement (up to a specified limit) could be taken as a lump sum. The lump sum would be taxable.

9. Pension schemes would operate according to a standardised set of deeds, similar to company articles of association.

10. The scheme would be administered by an independent pension scheme administrator, independent of any employers and the investment manager of the fund. This would be necessary to ensure safe custody of the scheme assets.

11. Pension schemes would have an auditor and would be required to submit annual audits.

12. The scheme administrator would ordinarily seek advice from professionals (such as economists, actuaries and pension consultants) on the adequacy of contributions. This is necessary to ensure tax neutrality over the life cycle

13. Pension fund management groups would operate on a similar basis to unit trusts as in

the UK (or mutual funds in the USA). They would collect, pool, and invest contributions on behalf of individuals. In return, the individual would be allocated accumulation units whose transfer values (calculated on the basis of single pricing) are published on a daily basis.

14. Charges must be kept low and not be frontloaded.4 There should not be a high initial fixed costs that in effect ties an individual to a particular (and possibly inefficient or uncompetitive) organisation providing particular services such as fund management. To this end, pension fund managers should be encouraged to

invest in passive index funds with a consequent reduction in costs or to accept performance-related fees.

15. Pension-scheme members would be provided with full and regular information about their schemes in precisely the same way that shareholders receive information about their companies. The information would cover:

· the status of employee and employer contributions into the scheme;

· the value and type of assets in the pension fund;

· the rates of return generated on the assets;

· the fees or commissions charged by the scheme administrator and pension

fund manager.

· an estimate of the weekly pension that the current value of the assets can

be expected to buy at normal retirement age.

Summary information on scheme structure and performance would be made

publicly available.

16. The pension industry would be supervised by a pensions regulator who would also operate a compensation scheme to compensate scheme members in the event of fraud or malpractice. The compensation scheme would be financed by a levy on all pension schemes. The regulator should also be responsible for implementing a one-stop dispute-resolution system for all privately organised pension schemes (as recently suggested by the (Office of Fair Trading 1997)).

Equity investment - an excellent option to build corpus and achieve the best returns

Authored by: Ajit Panicker

The markets globally have been uncertain from past 4-5 years, coupled with the recession globally. Then countries like US, UK, and many european countries being effected due to sub prime crisis and the recessionary forces. The growth rate was really under the negative quadrant for too long. The political upheavals alongwith economic downturn in middleeast, israel had all contributed to a large extent to make investors largely the retail investors make opinion that in this uncertain market conditions, the equity market should be kept away with. if required one should largely invest in debt market and hence the debt market has been very promising in past 2 years, atleast in india and the subcontinent.

But out of all the investment tools , i feel if one is ready to invest a good amount and want to keep it decently long term for atleast 7 years , EQUITY is the best option. Daily traders would not gain substantially from EQUITY, it is just that they are earning their daily bread and some small gains. But there is an equal chance of all the gains garnered in the past weeks by a washout when the market falls and situation is bearish.



"Siegel is a professor of finance at the Wharton School of the University of Pennsylvania argues that given a sufficiently long period of time, stocks are less risky than bonds, where risk is defined as the standard deviation of annual return. During 1802–2001, the worst 1-year returns for stocks and bonds were -38.6% and -21.9% respectively. However for a holding period of 10-years, the worst performance for stocks and bonds were -4.1% and -5.4%; and for a holding period of 20 years, stocks have always been profitable."



The above situation is obviously being taken in US, but the STOCKS as an option of investment instrument behaves almost alike in all countries across the globe, differing minutely due to political and economic heat or coldness in the country, which is locally dependent.

What i am putting forward as a financial planner is, that there is no time to enter any kind of market, all situations are to be invested or to come out. No one has ever managed to time the market. But yes the decisions to exit or enter has to be judiciously taken alongwith the equity or for that that matter the financial expert.

India's growth in next 20 years lies in investing in equity for long term minimum 7 years and there is no maximum tenure. Equity does not offer you any lock in period, but this lock in period has to be disciplined by your self.

The returns of the equity in indian market



1. Top Diversified equity mutual funds have given compounded annual return of more than 35% per annum for the last 10 years.

2. The annual growth rate of reputed Indian companies is 20-30% p.a.

3. Diversified Equity Mutual funds invest their money in Indian and multinational companies engaged in manufacturing and services industries. The demand for their products will go on increasing every year because of increase in population and increase in purchasing power in India. The value of their shares will go up when companies make more money, In turn the value of investment made by the mutual funds in these companies will also go up. Hence the investor who has invested in these mutual fund would get handsome returns.

4. Your money will be invested by the mutual funds in number of reputed Indian and multinational companies engaged in different industries, hence your risk is reduced as you “do not put all your eggs in one basket”

5. Indian economy is on the growth path according to Indian and international economists

6. Your investment will be handled by highly experienced and qualified mutual fund managers who have excellent track record

Therefore do not turn your back completely from the share market, and invest in equities wisely under the guidance of financial experts and financial planners.

Financial Planners are your Financial doctors, specialists in the Financial Field

Authored By: Ajit Panicker In past decade and strongly in past few years the banking and the financial markets, the regulations and the investors have all become very active and alert. If i talk about insurance, for about 60 years Life insurance co. Ltd(LIC) was synonymous with insurance until early 2000's when private insurers arrived in india. Mutual funds became a popular in past 15-20 years, and people have now realized its importance for which the moderate risk takers and all those who want to diversify their investments look towards mutual funds as a good investment option. Stocks have always been an option in this country, but many have burned their fingers and even their homes due to less information about the option or due to wrong guidance. Real estate as an investment option has become public in past decade very strongly. But since time immemorial people have kept land as a great investment option, because this particular option in long term gives good return, inspite of it having a number of timely advantages and disadvantages attached to it.

Gold has always been an option suggested and practiced by our grannies, irrespective of belonging to any part of the world, and has been always more in india. Bank deposits, corprate deposits, saving accounts , post office deposits, have all been investment options or savings options been used since a very long time now.

BUT, these all investment products as they are called has been bought either by your own understanding about them or suggested by agents, advisors or bankers. All the people involved in selling these products are motivated to bring fee income to self or the organizations they are working for, with very minimal concern about the investor or the client.

Here comes the FINANCIAL PLANNER as a FINANCIAL DOCTOR, a specialist in the field, to the rescue of the client. He meets the client with the sole objective to make him realize the importance of planning. Carving a chart and the course of action of how to achieve all the short term, mid term and long term goals , with proper risk adjusted, inflation adjusted and tax adjusted returns to the investments made by the clients. He helps the clients decide their objectives, analyses their current investments, the inflows and the outflows of the cash component, the assets and the liabilities, calculates the present net worth and help the client achieve the desired networth.

He treats the client(patient) with all the ill-investments, replaces them with best options with full analysis. Creates an emergency fund, plans for his retirement, plans his estate, plans his taxes, plans his consumptions and savings pattern, lead them to a disciplined financial life. With all these he finally achieves the FINANCIAL Freedom.

Consult a Financial planner, the specialist