INVESTMENT PORTFOLIOS

Investment meter gauge & Cases :

Analysis :

“ Investment Portfolios aresimple contradiction but not an easy forfeature” as auctioned by Warren Buffet, one of the richest proximities of the world , has made, without doubt, the world’s most richest investor having fortunes laid in billions optimized exclusively through investing.  The quote connotes to the concept of investing , much dumstruck and tuning of putting cash in place with worthy reelplay .  It is often tedious to look upon investing into realms and challenges of consumer’s behavior and skeptive market changes to demand and supply . We need to be patient and disciplined for long stretches of time. It is difficult to force the senior citizens as captive of their schemes to make themselves prioritize for the pooling of resources.

Inferences:

To add to the superior challenge, there is a flood of information about investments and investing all around us in the form of articles , blogs, advertisements, marketing calls , presentations etc. Relying upon the investure which is unsuitable is an attire of the portfolio matching and  cash speculations. Which one taps the ideal needs, which one is going to be money down the drain? While there may be no splashed intention to be mislead by the majority or the institutions  involved , decision- quorums have to be atritioned by the demographics. Financial security and case-simulations are based upon inflows.  With the growth in the number of nuclear structures , the passive role of women dominance has declined. Most working women have investments in equity, tax-saving opportunities to partake upon.

Conclusion:

There is no such clause to be a working status quo or have a big lump- sum amount to start. Opening a savings account and putting  in minimal amounts to start a recurring deposit with sculpture deposits. Even the local post office schemes are daring if an investment of as low as Rs. 10 per month are driven. Ensuring  that schemes that are prolucent into the local channels being tuned are not been misinterpreted upon. Allocate wary upon the rich-quick schemes that offer fabulous returns. There is a case example depicted below to illustrate the same …

Example: If you are a steady local enterprise with no income from employment or waivers, there must be proportionate surplus kept  from the monthly expenditure, no matter, how pervolous the amount invested is forged.  A PPF account which draws a minimum of Rs. 500 per year , allocates investments in online gold (GETF) or even a long-term Recurring deposit in a bank or post office-(stipulated amount of Rs. 500) can accumulate into a sizeable amount over the period of time.

  •  Various Life Insurance schemes that cater specifically to a premium waiver upon the institutionalized  decline, diagnosis of leveraged amounts, can be opted instead of an organic life insurance scheme , Ensure you study the policy terms well before opting for one..

        

Concept of bulls and bears :

  Bulls and bears are the terminologies behind the stock variants and the key decision makers of the equity market. Bull market conceptualizes a linear curve for installation of confidence among the mutual investors to create portfolios for Index Funds. The trading proportion is averted in this phase. In a bear market, prices keep on falling and the investor is illuced towards the stake. Trading amount is also limited.  Technically, a risk-driven avenue is in the lodger of a bull or bear if there is a change of atleast 20% census in the market. For example, if  SENSEX was at 14,000 points and steeps to 9,000 , the bear market is drafting  .          

CycleStartEnd% change# Days
Bear5/29/465/19/47-29%345
Bull5/19/476/15/4823.6%376
Bear6/15/486/13/49-22.9%310
Bull6/13/498/2/56266.3%2608
Investment Meter Gauge -I

                       FIG-I (Analysis of S&P 500 Market cycles)

CycleStart End% change# Days
Bear1/11/7310/3/74-48.2%620
Bear11/28/808/12/82-27.1%600
Bear3/24/009/21/01-37.5%540
Bear8/2/5610/22/57-21.65%422
Investment Meter Gauge Index-II

                        FIG-II  (S&P 500 19% Bear Markets by length)

CycleStartEnd% change# Days
Bull6/13/498/2/56268%2,654
Bull12/4/877/16/9064.67%945
Bull7/23/028/22/0220.98%36
Bull11/20/081/6/0927.43%45
Investment Meter Gauge -III

                     FIG-III (S&P 500 19% Bull Markets)

                                  Average bull- 98.6%

                                INDEXATION

Indexation:

Indexation is a method to adjust the purchase price of an item to the existing inflation rate. It is used to scrutinize effects of inflation while deducing long-term capital gains. The indexation process thus intervenes the difference between the cost price and the marked value during the intervening  fiscal year. Indexation is calculated by  using the Cost-Inflation –Index announced by Income Tax department every year. Let’s understand this with the connotation of an example ..

Analysis:

Suppose a house us bought for Rs 24 lakh in FY 2018-19 and sold for Rs.50 lakh in FY 2024-25 (after 8 years). Since the house is being sold at a stipulated period of more than 2 years, a long-term capital gain tax is being paid  upon the profit earned. Now, without indexation your profit will connote to Rs. 26 lakh. With long-term capital gains , 20% cash surplus is an indexed amount. The buying price is being tapped along with the shell of curve. The government had announced a CII of 100 for 2000-01 and 272 base index for 2018.

Interpretation:

The formula for adjusting the marked up- price shall be:

        CP * (CII OF year of sale / CII of year of buying).

       Adjusted CP thus becomes 24,00,000 * (345/ 272) = 3,04,417.65.

The long-term capital gain on the house shall be Rs. 46,95,582.35 .

A tax levitation of Rs. 9,39,116.47 as 20% indexation amount shall be carried upon.. Indexation thus considers the effect of inflation over the years on prices and tax-adjustment is a procurement.

YearCIIYearCIIYearCII
2001-021002007-081292013-14220
2002-031052008-091332014-15250
2003-041092009-101492015-16255
2004-051142010-111692016-17264
Investment Meter Gauge- Analysis

                                      FIG-IV (CII TABLE)

Earlier, the base year for CII was 1981. This has now been shifted to 2001 in budget 2017. This implifies that any capital asset bought prior to April 1, 2001 will have acquisition index as 100.

Investment Objectives

                     

  Each investment option is thereby evaluated on the following criterion- liquidity , safety index and inclined returns. A fourth oblion, tax savings, is also a mandate if you fall in the tax bracket. If liquidity and safety are of premature content low return schemes like  Aurobindo Pharmaceuticals is an important fund management portfolio. If an investor is proportionate for higher returns, riskier option assessment an less liquid tapping is mandatory.  For example, if education expenses for the child is being planned, a fair roadmap of the corpus  for the management of the clepency. If you know you’ll need Rs.5 lakh for your child’s education and you have 10 years for the accumulated amount, an investment plan of latent safety and low liquidity is practionised.

                

Income tax and derivatives

 It’s the tax charged by the government on the income you earn in a financial year (April 1 to March 31). If the total income equivalent to all the sources which is more than the minimum exemption limit specified by the government, you must pay statutory income tax on the excess amount. The limit for the financial year 2017-18is Rs. 2,50,000 for individuals below 60 years. The exemption limit for senior citizens is Rs. 300,000 while the limit is Rs. 5 lakh for every senior citizen.

Analysis :

Let’s understand this with a quirky example. If you are a working woman salesforce, you can earn an annual income of Rs. 7,00,000 , you’ll first have to calculate your taxable income by subtracting tax deductions and exemptions from your total income. For example , if you’ve made investments of Rs. 1,50,000 in Section 80C , your taxable income will reduce to Rs. 4,50,000. Of this, Rs. 2,50,000 is exempt from income tax. Your taxable income will thus reduce to Rs. 2,00,000. You’ll thus have to pay a tax of Rs. 10,000 plus the existing education cess of around 3% on the tax payable.  An additional tax of Rs. 300 is pevioted.  All the amount drudgery received during the year is considered as income to calculate income tax.

For example , income received as dividend from equities and mutual funds is exempt from tax. Employee Provident fund connotes amount that is claimed after being active for continuum of five continuous years is also tax-free. Such exemptions can be availed of synchronized .

Net Income RangeIncome Tax Rates and CESSNet Taxable IncomePost Budget Tax LiabilityIncrease in Tax due to CESS
Upto Rs. 2,50,000NIL2,50,000
Rs.2.5- 5 lakh5%(total income- 2.5 lakh)+ 4% CESS5,00,00013,000125
Rs 5 lakh -10 lakh           Rs 10 lakh and above12,500+ 20% (total income – 5 lakh) + 4% CESS     1,12,500 + 30%( total  income- 10 lakh) + 4% CESS10,00,000             15,00,0001,17,000             2,73,0001,125             2,625
Tax Exempt- Investment Meter Gauge

                                               FIG-V (TAX SLABS)

Inflation and Lock-in Period

  A substantial pivoty in the prices of goods and index services in a country is termed as inflation. With synchronizing inflation, the purchasing power of money quotient decreases.  A kilo sugar amounting to Rs. 50 today shall coincide to Rs. 60 a fortune later.

CASELET-I

Smarter investment options are prone-based investures. Under normal circumstances, inflation penetrates at the rate of 6-8%. If investments are close to this rate, no fiscal penetration is stratified. For example , if you had invested Rs. 1 lakh and you got a return of 6% in simple interest , at the end of 1 year you would have Rs. 1,06,000.  A lot of items are costlier than the factual 6%=education , health care and real estate.

CASELET-II

Inflation is the reason behind options stagnating higher returns. Otherwise, your wealth will perish shortly , actual value being stagnant. Investments in stocks and mutual funds evaluate risk- driven returns of evaluation. It is controlled by monetary policies measures as guaranteed by RBI (credit beta) , fiscal policy measures connoting expenditure. 

Example: Gold is highly liquid since you sell it for cash at the exact market price, any guaranteed valuation. Real estate is not liquid since cash conversion is not possible on short notice.

Lock-In Period stagnates the time during which an investor cannot sell either part or all of the investment. For example, 5-year tax saving fixed deposit has a lock-in period of five years. FD cannot be redeemed.

                  

SECTION 80C & PROVISIONS

 For the financial provision 2017-18, Section 80C of the Income Tax  permits the reduction of the taxable income by a specified dilution. Along with specified investment options that are eligible for deduction, certain expenses incurred too provide sancity to this section. You can get a deduction from taxable income of up to Rs. 1,50,000 for income earned in financial year 2017-18 by investing or on expenses incurred on any one or a combination of the following:

  • Contributing to the Employee Provident Fund & Public Provident Fund
  • Life Insurance Schemes
  • Investments in pension plans
  • Investments in ELSS
  • Investments in NSCs& SCSS
  • Investments in Sukanya Samriddhi Scheme

For example, if your taxable income after income tax exemptions is Rs. 4,00,000 and you invest Rs. 1.5 lakh in any one of the above schemes, or a mix of the above instruments, your taxable income diminishes by Rs. 1.5 lakh to Rs. 2,50,000. You will end up paying Rs. 2,50,000. Visit https://economictimes.indiatimes.com/wealth/tax/how-to-fill-income-from-other-sources-in-itr-1-for-fy-2018-19/articleshow/69423807.cms?from=mdr and scan the the best slab!

                    

Risk Assessment

Risk management is the process underlined for destined analysis and acceptance or mitigation of lack of concerned decision variable in any investment decision. Risk management occurs when an investor or a factional fund manager quantifies labeled potential for losses in an investment such as any hazard and thus provides inaction in lieu of the fund’s investment objectives and risk tolerance index.  In facure to the current premises, when a fund manager is hedging his currency boundaries with any currency derivative and when a bank performs a credit check on the individual before issuing a personal credit accruation, it is prominent. Stockbroker pre-tallies instruments like options and features and strategic portfolio diversification , asset allocation and position indexing is there to hemelate risk .

For example, the subprime intex meltdown in 2007 helped trigger a great recession that stemmed from caxed risk- management decisions in fix of the lenders who extended mortgages to individuals with poor credit beta , investment  firms buying resold mortgages , risk unlevied funds were termed mortgage backed securities.

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