Each week I answer generic questions on personal finance. Here is this weeks edition. You can use the form below to ask your question.
Naimesh: Hi, There is a confusion about maximum limit of 6 L in this post: How much can we invest in multiple PPF accounts I have exactly a similar situation. As per your example, husband can invest 1.5L in his wife's account and 1.5L in his son's account and same for wife. How is it possible? Will they accept money without asking questions? Whose PAN used if i deposit my money into my wife's PPF account?
Pattu: The 6L is for two kids! The husband can invest 1.5L in his wife's account. The wife can do the same in the husband's account. So 3L so far. In case of a single child, either the husband or wife will be the guardian and the guardian can invest 1.5L in the child's account. So 4.5L. At any time, in any account, only 1.5L per financial year can be invested.
In case of an offline transaction, the Pan no of the depositor should be mentioned. In case of online transactions, it can be tracked anyway.
Sunil Kumar Tiwari: I want to know more investment in equity and mutual fund.
Pattu: I am afraid I cannot answer questions like this. If you are reasonably you, you can consult this free Ebook: Starting Early, Starting Right
Ramesh: In response to Can I Retire With Rs. One Crore Today?
How is this strategy... I divide the corpus into 4 buckets and invest into fd, debt mutual fund, balanced equity mf, equity mf. (Assumption is that these 4 buckets were built as part of retirement strategy over a period of time). Now after retirement, every month on 1st and 15th, I will monitor the delta change in the nav of diff mf category from previous month and withdraw from the one which has the highest positive delta. In worst case may have to break fd. Every year once I will do the portfolio rebalancing. Please let me know your thoughts on this strategy and if any calculator on this:-)
Pattu: Sound okay except for ", I will monitor the delta change in the nav of diff mf category from previous month and withdraw from the one which has the highest positive delta. " This does not sound practical or feasible.
You can play around with this game: The Retirement "Bucket Strategy" Simulator and see how long your corpus lasts.
Mani: In response to Can I Retire With Rs. One Crore Today?
Can't we work on basis of real returns on corpus (say 3 percent)? Assume IT slab of 3 lakhs for senior citizens would be roughly inflation protected? Assume all income generated can be added to taxable income which at 3 percent would be 3 lakhs, hence fully exempted, providing 25K per month for expenses. That leaves annual expenses for which add another 10-20 lakhs, income from which would be eligible for deduction under various sections of. 80.
Pattu: I could only understand: "Can't we work on basis of real returns on corpus (say 3 percent)?" and the answer is that once you take a return and inflation, you are automatically working with real returns. And the maximum real return I will use for retirement is 0% (inflation = post-tax net portfolio return)
Biswa: Now i am 35 yrs old,my monthly expenses is Rs 20,000 ,excluding med. & kids exp.how much should be the lumsum amount for me at the time of retirement at the age of 60 yrs.i hv not a so hifi life style,pls.suggest.
Pattu: I do not suggest. I make calculators for you to check on your own. Try this: Low-stress retirement calculator with flexible asset allocation
Dilip: In response to Can I Retire With Rs. One Crore Today?
I think this is really a very good move in Robo advisory. I think if you can add further - Included Algorithm basis, assumptions, limitation etc. would be great in it. - Can consider the tool for not only retirement expenses but whole life cycle (marriage, child education, child marriage etc.) case like various permutation combination as consider in above example like age and expenses. Because higher age responsibilities and liabilities are lesser compare to youngers one like marriage, children marriage, children education etc. and other objectives. Thanks and looking forward for the Template soon.
Pattu: Thank you. The template will include "other goals", but as a robo portal users will not be allowed to change the assumptions and settings. If users or advisors wish, they can purchase the passwords for full access. The free version will be fully functional and open-source (formulae visible, but not changeable)
Rajesh Babu: Sir, Could you please throw some light on passively managed index funds and their relevance. I read an article in an American journal recently. It says that a passive fund has only market risk but no 'fund manager's risk'. Where as an actively managed fund has market risk as well as fund manager's risk. I loved the above observation.
Pattu: This sounds great to read and is true. However, what index fund lovers (not saying you are one) fail to understand is that active funds do a pretty good job of managing risk in real time while returns are in hindsight (a post with title, coming soon). So I would choose an active fund over an index fund if such a fund has a good record of managing risk. So I can be a less stressed individual.
GK Swamy: Dear pattu, i have a doubt regarding re balancing either based on specific date or based on % growth of one asset.My doubt is when you transfer assets from equity fund to debt fund for re balancing, aren't we transferring our tax free capital gains to taxable debt. Is there a better way to actually utilize tax-free capital gain?
Pattu: What is more important? Paying less tax or reducing risk from your equity holdings? Sure, you can use an arbitrage fund instead of a debt fud for this, but it would be a good idea to diversify across asset classes to lower portfolio volatility.
Hemantkumar rathod: After getting CAN & KYCN from MFU india pvt limited. How to start online direct purchase of different mutual funds
Pattu: Please consult this MF Utility Portal User Guide: Updated Second Edition by Anish Mohan.
Vandhi: Suppose there is market crash like 2008 in couple of years, How much capital will be in loss(Notional ) for Equity and debt portfolio. Consider the asset allocation has 75:25 (EQ:DE). My intention is to know, how to play with Variable asset allocation for long term goals, when there is a huge crash. Currently i am keeping asset allocation (EQ:DE) 75:25 ( with +/- 5).
Pattu: If you hold 75% equity, and at any point there is a "2008", expect to lose anywhere between 60-70% of your equity holdings. Often, fixed income will be affected at such times.
DILIP: I have invested 5 lac Rs. on franklin Asian Equity Fund- Growth in its NAV is now appx. 20. during different period of time in 2014-2015 and 2016. I would like to exit from this scheme. My question is what will be STT/STCG/ TDS or any other charges levied on it while transaction is been made? Do the International equity is been treated as Domestic equity from Income tax perspective? Thanks for your usual response.
Pattu: This will be treated as a debt fund. No STT will be levied. You will have to pay tax as per slab on the gains from units less than or equal to 1095 days (365 x3) and pay 2-% tax with indexation on gains from older units.
Ramesh: Dear Sir, i) Will you please explain how often Balanced Mutual Fund get rebalanced so that the Equity:Debt ratio is maintained? ii) It is advisable to invest in Mutual Fund that has international exposure. What is the Tax implication on them?
Pattu: (i) Typically once a month or once in two months or even once a quarter. Depending on the fund strategy. You need to check the scheme document.
(ii) I would suggest you invest in funds that invest at least 65% Indian stocks and have some international stock exposure. This will have the same treatment as normal equity funds. I think that much exposure is enough.
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