14 TIMES PERSONAL FINANCE THE TIMES OF INDIA, AHMEDABAD

MONDAY, JULY 17, 2017

Equity: Large Cap 1 Year 3 Year 5 Year Equity: Multi Cap 1 Year 3 Year 5 Year Hybrid: Equity-Oriented 1 Year 3 Year 5 Year

BEST Mirae Asset India Opp Fund 24.76 18.76 22.02 Motilal Oswal MOSt Focused 30.87 27.9 — Tata Retirement Savings Fund 24.16 20.68 20.03

21
The three-year
JM Multi Strategy Fund 32.74 18.49 20.36 Birla Sun Life Advantage Fund 24.15 21.5 23.53 L&T India Prudence Fund 19.62 17.54 19.94
Motilal Oswal MOSt Focused 25.2 17.73 — Kotak Select Focus Fund 24.29 21.13 22.53 HDFC Balanced Fund 21.61 16.93 19.16
return of Tata India
%
FUNDS Equity: Mid Cap Equity: Tax Planning Debt: Income returns in
past three
Tax Savings Fund is
the highest in its

TO BUY
Mirae Asset Emerg Bluechip 36.57 29.98 32.08 Tata India Tax Savings Fund 23.42 21.17 21.63 SBI Regular Savings Fund 12.87 11.4 10.51
years category.
Canara Robeco Emerging Equ. 32.83 26.99 29.6 Birla Sun Life Tax Relief 96 21.67 20.48 22.74 SBI Magnum Income Fund 12.02 10.7 9.27
Kotak Emerging Equity Scheme 25.52 26.89 26.69 Birla Sun Life Tax Plan 21.1 19.67 21.96 ICICI Pru. Banking & PSU Debt 10.66 10.21 9.72

Figures are % returns. 3-year and 5-year returns are annualised. Source: Value Research

Build a well-diversified
Myths about GST busted
Rumour mills have gone on an overdrive since the launch of GST.
portfolio to grow wealth
It pays to take the mutual fund route to invest in equity
Here’s a reality check for both GST supporters and its detractors Uma Shashikant picking the right stocks. If you spend
your time trying to pick stocks, you will
common accusation many have to allow for the many mistakes you

NOW IT’S ONE NATION
ONE TAX
MYTH: Since GST will re-
place all other taxes on all
goods and services, we are
in a single tax regime.
REALITY: Though this was the original
idea, petroleum products—petrol, die-
sel—are still outside GST’s ambit and,
therefore, their tax rates vary signifi-
cantly across states. For example, petrol
is still sold in Mumbai at `74.30 per litre
(as on 5 July) compared to `63.12 in New
Delhi. Similarly, some other items, such
as liquor, have also bee kept out of GST
for now.
SMALL BUSINESSES
WILL SUFFER
MYTH: The life of small
businessmen will become
difficult under GST because of comput-
erised billing, need for Internet connec-
tivity.
REALITY: Shops can do manual billing
under GST and Net connectivity is
needed only at the time of filing month-
ly return and can be managed from a
cyber cafe.
NO TAX OTHER THAN
GST IS NOW A REALITY
MYTH: For every good or
service that has been
brought under GST, there
won’t be any additional tax.
REALITY: GST only subsumes central
and state taxes and the levies charged
by local bodies are still outside its am-
bit. Using this loophole, the Tamil Nadu
government has allowed its local bodies
to charge 30% tax on movie tickets over
and above GST. GST is 18% for movie
tickets up to `100 and 28% for tickets that
cost more than `100. But be-cause of lo-
cal body levies, tax in Tamil Nadu will
be 48% for tickets up to `100 and 58% for
tickets that cost more. Not surprisingly,
the cinema hall owners in the state went
on strike. “Action of the Tamil Nadu
government is against the spirit of the
GST and the GST council should take
action against it,” says Amit Sarkar,
Partner and Head, Indirect Taxes, BDO
India.
PRICES WILL SHOOT
UP
MYTH: Personal expens-
es will go up on account
of GST making it infla-
tionary because tax rates have been
fixed at higher levels—18%, 28%.
REALITY: Though the GST rates seem
high, it is only because the entire tax is
now visible to the consumer. Earlier
most taxes—central and state excise,
additional excise, purchase tax, etc.—
did not reflect on your bill. If one adds
up all the taxes, it would have been more
for most items (ie effective tax rates will
be lower for most products). For exam-
ple, the price of chicken dish in Kerala
should fall because there was a 14.5%
tax on live chicken earlier, which has
come down to zero now under GST.
ECONOMIC GROWTH
WILL RISE
MYTH: GST will push up
the economic growth.
REALITY: Real economic
growth comes from both
organised and unorganised sectors. Tax
evasion becomes diffi-cult in GST, so
cost advantage of unorganised sector
goes and this will result in some busi-
nesses shifting to the or-ganised sector.
So, what happens will not be an in in-
crease in ‘real’ economic growth but an
increase in ‘recorded’ economic growth.
However, there will be a small
uptick in ‘real’ economic growth
due to the improvement in the
ease of doing business.
CORPORATES MAY
TRY TO PROFITEER
BUT GOVT WON’T
MYTH: Business will
try to rob you of the GST benefits, but
the government won’t make money at
your expense.
REALITY: Some state governments are
also acting greedy and not passing on
the GST benefits to consumers. For ex-
ample, the Maharashtra government
has increased the vehicle registration
tax by 2% after auto firms passed on the
GST benefit by cutting prices by 2-3%.
PAY GST TWICE
FOR CARD PAY-
MENTS
MYTH: GST will be
A
readers make about this col-
umn is that while it encour-
ages investing in equity, it
does not carry specific recom-
mendations about where to invest and
how much. That kind of specific invest-
ment advice is quite dangerous, though
it makes life easier for the investor. Un-
less one is a financial adviser, it is simply
unethical to reel off names.
The question is not of expertise, but
of the nature of equity investing itself.
Even the most intensive research can
come up short when unexpected events
impact businesses and markets. It is not
as if I hold back something precious
from the readers of this column; it is just
that I cannot forecast the future.
A very comforting emotion is the
sense of control. Investors want to be-
lieve that the equity investments they
make will behave in a manner that they
can predict, understand, control, and
therefore not worry much about. When
charged twice, if you make pay-
ments via credit card.
REALITY: There is no additional GST
for credit card payments and the
confusion arose only because there
is GST on additional fees—conveni-
ence charges—levied by companies.
For example, you make a `10,000 pay-
ment and a company charges `50 as
convenience fee for helping you
make the payment via the credit
card, you have to pay 18% GST on
that fee too—earlier you paid a 15%
tax on it. So the 3% increase is very
GETTY IMAGES
small—just `1.5 on `50.
they realise that things could go wrong;
that their money could be at risk; or that
will make in the process. The learning
curve is steep and the lessons harsh. If
you are a first-time investor, choosing to
let money idle in the bank rather than
invest in equity, you could make expen-
sive mistakes trying to dabble in stocks.
Equity means the market as a whole or
the asset class that invests in growing
businesses. That is the orientation you
must keep.
Second, a portfolio of stocks is better
than individual bets. Since you cannot
foresee the future, you have to begin
with a bunch of stocks, and weed out
whatever is going bad as you go along.
If you are buying stocks, you should hold
20-25 equity stocks to be able to cushion
yourself from the wrong decisions you
could make. If you cannot construct and
manage such a portfolio, buy an equity
fund or an index fund. Define your
search thus: You are looking for a port-
folio of stocks, that will be actively man-
aged to throw out what is not perform-
ing. You can buy and hold a portfolio
passively, only if someone else is moni-
toring it for quality.
Third, equity investing involves both
strategic and tactical choices. For exam-
ple, if your intention is to be invested in
large companies that are market leaders
in their segment, an investment in a
large-cap equity fund or a narrow index
like the Nifty will serve your purpose.
You will find that large-cap funds tacti-
cally modify their holdings in sectors
and stocks to do better than the index.
The choices in equity funds and indices
expands this choice of tactical holdings
further, to mid-cap stocks, small-cap
stocks, themes and sectors. Take a pyra-
mid approach—more in strategic choic-
es at the bottom and a tapered smaller
holding in tactical portfolios.
Fourth, the process of selecting a
specific fund can be simplified. Each
fund house offers a lengthy list of prod-
ucts, but you are looking specifically for

Why doctors need help with finances

their choices will perform poorly, not
doing anything seems better. The com-
fort of a small fixed interest in the bank
seems like a safer option. But that so
harshly short changes your wealth.
Many investors know about the ben-
Late start to working life and lack of financial awareness put doctors at a disadvantage efits of long-term investments in equity.
What holds them back from acting, then?
Hiral Thanawala should ensure that their debts are not ternity.” Hence, they tend to lack ex- Two primary reasons I would think.
beyond their means. They must have a pertise in financial matters and fall First, the idea of a higher return must
edical practitioners only financial plan with defined goals.” for jargons used by investment advis- be associated with something concrete.
large-cap funds, mid- and small-cap
funds, and themes and sectors if you are
taking tactical calls. Look for a diversi-
fied portfolio and check if the fund has
a 10-year track record. Compare its per-
formance with the benchmark index
year-on-year. If the fund has done better
than the index in 7 out of 10 years, you
should do fine.
I routinely receive queries that ask
SIP or lump sum? How much should the

M start earning when they

are almost 30 because of a
long training period. The
initial earning phase in-
volves paying off educational loans,
starting a family and setting up a prac-
tice. “Starting out late and long erratic
working hours do influence a doctor’s
financial life. They don’t have much time
to plan their finances,” says Hemant
Beniwal, Director, Ark Primary Advi-
sors. Here is what they need to do.
As soon as a doctor embarks on a
practice, an indemnity cover becomes a
must. The risk of a financial liability is
real as the amount they can be sued for
can be exorbitant. “Doctors require spe-
cial insurance to protect themselves if
they are sued for negligence, malpractice
or mistakes,” says Beniwal. This special
cover is a professional indemnity policy
IMAGESBAZAAR
or medical indemnity insurance. Insur-
ers such as New India Assurance and
ICICI Lombard have this on offer. A gen-
eral physician can buy a `10 lakh policy
for as little as `1,140 per annum.
Since the cost of medical education
is high, most doctors start their careers
with a huge education loan. Another loan
can become necessary to set up a prac-
tice. The expenses don’t end there. Equip-
ment needs to be added and upgraded
every 2 to 4 years. Says Beniwal, “Doctors
Banks offer special interest rates (10.3
to 12.3%) to doctors on loans to buy equip-
ment and set up a clinic. One should take
advantage of the lower rates instead of
opting for expensive personal loans.
Other than setting up their own prac-
tices, doctors have multiple professional
goals that need careful investments to
meet. The most important is the need for
continuous education to upgrade skills.
Doctors are easy targets of bank re-
lationship managers and distributors of
investment products. They can also fall
victim to unnecessary churning of their-
fund portfolios to help the managers
meet their targets.
Meena Shriram, Head, Doctor’s Prac-
tice at My Financial Advisor explains,
“Doctors are never taught about finance
and they also avoid discussing money
and investments with people in the fra-
ers and product distributors.
“Doctor’s need to give time to gain
knowledge of assets available by read-
ing blogs or undergo basic training
on financial literacy,” advises Beni-
wal. Instead of relationship manag-
ers, they would do well to consult
Sebi-registered investment advisers.
As doctors tend to keep on work-
ing as long as they are physically able
to, there is no such thing as retire-
ment age. Hence, most doctors don’t
need a huge retirement corpus. What
they need is an investment strategy
to preserve wealth after crossing the
age of 60 instead of taking aggressive
investment decisions. They should
have a contingency fund equivalent
to an year’s household expenses with
adequate health covers for them-
selves and their spouses.
The inability to associate a high return
with a specific product makes them
think such examples are hypothetical.
Second, the lack of conviction in the
process that can enable a higher return.
When I point out that diversification is
the only way to achieve better returns,
I have lost my investor already. They
want me to tell them whether they
should buy stock A or stock B, and if I
say that they should have both, and a
dozen more, to manage risks better, they
fail to grasp the merit of this process.
Let me offer a four-step process,
which I hope will help many such inves-
tors. Needless to add, equity is for the
long run and for growth in the value of
the investment. If you think you will
need to draw the money in a short pe-
riod of time, it is best left in the bank.
First, investing in equity is not about
SIP be? How many SIPs? In the larger
scheme of things this will not matter;
that you invested it in equity will. Once
you begin investing, you will receive a
folio number. You can add to it by buying
at any time you wish, whenever you have
surplus funds. Choose 4-5 funds or indi-
ces at the most, and start investing.
Over time, the benefits of having in-
vested in equity, the merits of having
your money in a portfolio, and the ad-
vantages of having someone to monitor
the stocks in the portfolio, will all come
into play to deliver wealth that you
would be proud of accumulating. The
bridge to cross is the conviction that a
good process will deliver good returns,
even if you cannot completely foresee or
control it. That is the attitude to acquire.
The author is Chairperson, Centre for
Investment Education and Learning

How to manage money after retirement SMART THINGS TO KNOW:

100 MINUS AGE
MONEY Retirement is not an event but a stage of life that could last decades. Most people make serious ALLOCATION RULE
MYSTERIES
mistakes in managing post-retirement finances. Dhirendra Kumar tells you how to avoid them This is a rule of thumb developed over
etirement is not an event but a so fast. Assuming a realistic infla- the value of the money. in deposits. An additional advan- 1 the years in the attempt to provide

R long phase in your life that can tion rate of 5%, if you want to pre- The situation is very different tage in this case is, no matter how guidance for equity and debt allocation
last up to 35 years. During those serve the real value of your princi- in equity-backed mutual funds. Un- high your savings and expenditure, decisions.
decades, inflation will cut down pal, you must leave `1.05 crore in like deposits, they are high-earning it’s all tax free.
the value of your savings ruth- the bank. That leaves `2 lakh that but volatile. In any given year, the A small but growing number of As per this rule, one should take 100
lessly. If your savings do not earn you can withdraw to spend over an returns could be high or low, but people have begun to understand and subtract the current age, the
enough, you are going to run out of them
within your lifetime. How can you pre-
year, which is `16,666 a month. Is
that enough? For a middle class
over five to to seven years or more,
they comfortably exceed inflation
and appreciate this idea and have
started doing it.
2 resulting number is the percentage that
must be allocated to equities and
vent this from happening? The first part person, surely not. by 6-7% or even more. The returns They tend to be those who have remaining to the debt asset class.
is to save enough during your working The interesting thing is that may fluctuate in individual years, used equity funds as their savings
years and invest the savings in equity- this calculation does not change and that’s something that the saver vehicle anyway and are used to the
backed mutual funds. The second part is has to put up with, but the threat idea of ignoring short-term volatil-
GETTY IMAGES

about deriving income from these sav-
ings after you have retired.
The basic requirement is self-evident:
you should spend only that part of your
investment returns that exceed the infla-
tion rate. The single most important
thing to understand is that you must
reserve the real, inflation-adjusted value
of your principal, and not just the nomi-
nal face value. So how do you do this?
Let’s take a simplified example. Sup-
pose you retire today with say `1 crore as
your retirement savings. You place
it in a bank fixed deposit. A year later, it
is worth `1.07 crore. So you have earned
`7 lakh, which you can spend, right? Not
even when interest rates rise be-
cause inflation and interest track
each other quite closely.
Further, there have been peri-
ods of time when the fixed income
interest rate has been below the
inflation rate. Moreover, income
tax has to be paid whether you
realise the returns or not.
There can be a situation when
the interest rate barely exceeds the
inflation rate and the income tax
on the interest effectively reduces
of old age poverty does not exist.
In such funds, one can comfort-
ably withdraw 4% a year and still
have a comfortable safety margin.
On top of that, there is no income
tax. As long as the period of invest-
ment is greater than one year, re-
turns from equity funds are com-
pletely tax free. This means that to
have a given monthly expenditure
through equity funds, you need just
half the investment that you would
As the age increases the allocation to
ity in the interest of long-term
gains. However, the vast majority
of Indian retirees are still wedded
3 equities keeps declining, reducing
volatility and risk of the portfolio.
to the mythical safety that deposits
provide and end up facing tragic
problems as they grow older. This rule might be a good starting point,
There’s no need for you to be one but it is not aligned with the financial
of them.
The author has written about per-
4 goals which are the actual purpose of
creating a financial portfolio and
sonal finance for more than two dec- building a corpus.
ades. He is the Founder and CEO of
Value Research

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