Freefincal Q & A: Saving Tax, Early Retirement and Hedge Funds

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Each week, I try to answer generic questions from readers. This is part one of this week’s Q and A. You can use the form below to ask your questions.  I am glad that the Q and A has been received well. I have now added a link to the archives in the top menu.

 Dear sir, Can you please tell me that how to save the tax or give minimum for 10lac income. Thanks

Pattu: Wrong person to ask. I don’t even bother to check if I have finished my 80C quota, because I have other priorities, such as investing or my goals with a set asset allocation.

DK Nayak: What is a hedge fund? What are the instruments they invest in? Is a hedge fund regulated by SEBI. Thank you sir in advance.

Pattu: “What is a hedge fund?” is a bit like asking “what is life?”, because precise definitions are not possible. You can think of it as a mutual fund that can invest anywhere and in any manner under the sun! Hedge funds are regulated by SEBI. They are category III “Alternative Investment Funds” (AIF) and can invest with leverage up to two times the NAV of the fund.  AIF rules are here.

Subbarao: Dear Pattu, In your recent post “A Tool To Compare Mutual Fund Performance The Right Way!”, you mentioned that, the second best way to compare MFs would be to use the exact dates in which you invested and only those dates for the comparison. Could you make an excel tool to do this comparison with other benchmarks(say NV20/ SENSEX TRI etc) and other mutual funds? By the way I purchased your book using Google play bookstore at amazingly low price of Rs ~75/-. Thanks for sharing your time and knowledge.

Pattu: Thanks for buying the book. What would such a comparison accomplish?! The first best way to compare would be not to compare!

Geetha: Dear Sir, I am a housewife, so I don’t have any income. But from the money that my husband gives for household expenses, I invest in an equity mutual fund via SIP. But unfortunately, I had to redeem the money in the fund and some of the SIPs have not completed 1 year. So I need to pay tax on the short term capital gains. Now my question is, should these gains be clubbed with my husband’s income and taxed under his name? Or should I declare it as my income and pay taxes? Thank you Sir.

Pattu: The necessary tax has to paid by your husband. If his income is below 2.5L, for example, 2L, then up to 50,000 of the short term gains can be added to income and no tax need be paid. The rest of the short-term gains will be taxed at 15% with cess.

If his income is above 2.5L, then the entire short-term gains will be taxed at 15% with cess.

Sandip Mundhada: Dear Pattu Sir,

The question is regarding the XIRR and any limitations. I have tried to read through the stuff regarding it in your blog and elsewhere but following scenario is still confusing me.

I am trying to compare the returns of two stock investments.

Scenario :

Assuming that one bought HDFC bank and Vijaya Bank shares on the same date for approximately same amount 24.5K.

I have the following Cash flows. The middle cash flows are dividends received and final value is valuation on 30th march 2017.

I was expecting a vast difference in XIRR rates but the XIRR rate of return is very close 23.22 in the case of Vijaya Bank and 24.34 in case of HDFC bank with looks counter intuitive.

I know XIRR assumes re-investment of the amount etc.

Question :

1. Is XIRR the right tool to use in the following scenario ?
2. Can something else be used along with XIRR to clearly identify the better investment ?


XIRR is based on an approximation. It will not confirm to “expectations” and it may not always be possible to identify better investments.

You can compare the stock price between any dates after accounting for splits and dividends. Then it is a simple CAGR. In your case, since the dividends are reinvested, the cash flow for XIRR should be:

Karthikeyan Krishnamoorthy: Dear Pattu Sir, I have taken LIC e-term policy for the amount of Rs. 50 lakh and I have given my wife as the nominee. My wife is a Govt., Employee. My friends are telling me to change nominee to my son and daughter with equal percentage since they are dependents and not my wife since she is earning money. Is it correct? What should I do?

Pattu: She is your wife! She can be the nominee whether she is dependent or not! Whether your children should be part-nominees or not, is up to you. What is more important is that you write a will and direct how your assets should be managed. You can also indicate how the sum insured can be utilised.

Siddhartha: If the 80C is already exhausted by PPF,LIC & Home loan principal, but I want to start MF investment for first time,should I go for ELSS or normal equity (large/mid/multi) , or I should start ELSS in name of my wife who has full 80C retained. how should I take the call? pls ans.

Pattu: Assuming your question is for the new FY, there is no need to invest in ELSS if you do not need tax savings. You cannot invest your money in the name of your wife.

Shanmugam Dear Pattu Sir, My name is Shanmugam and I live in coimbatore. I am 35. I have 2 sons (9 and 3 years old). I have my own house (fully paid). Also I have 80 lakshs investment from which I am getting 80,000 per month(After tax). My monthly expense is 40,000. I am no longer interested to work. Can I retire from my job? Regards, Shanmugam


  1. There is a fee-only financial planner from Coimbatore in my list. Please consult him.
  2. For withdrawals of 40,000, an inflation of 8% and a portfolio return (after taxes) of 10%, you will need about 125 Lakhs for the money to last the next 35 years. The effect of investing the extra 40,000 you receive should be computed, but I would doubt if it would last you for that long, even if your expenses decrease when you kids become older. Also you need to factor in your children’s needs,


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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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