The new financial year is a good time to plan and manage your finances. It is advisable to review your investment portfolio at least once a year. However, apart from review and rebalancing, investors can take several steps to set their finances right. The following are 8 ways you can start your financial year.
1. Start SIP in ELSS Fund
We Indians have a habit to do investment planning at the last stage. Just check if you have made investment for claiming 80C deduction in March, then you fall in this category. If you start SIPs in ELSS funds from April, you won’t have to worry about tax planning at the end of the financial year. If you do an ELSS SIP of Rs 12500/- per month, by march you will by default invested Rs 1,50,000/- which you will able to claim as 80C deduction. A study says the SIP investor who started investing from April onwards made more money than the taxpayer who invested at one goes in March.
2. Open an NPS account
The NPS has gradually shed many of its shortcomings in recent years. In 2015, the Budget gave an additional deduction of Rs 50,000 under Sec 80CCD (1b). In 2017, 40% of the maturity corpus was made tax free. Now, the entire 60% that can be withdrawn at the time of maturity is tax free. Also, one can opt for a higher 75% allocation to equity funds. If you have still not opened an NPS account, it is time to open one now. “In the long term, the earning potential of NPS is higher compared to other instruments for retirement savings.
Opening an NPS account is easy if you are KYC compliant and have a Net banking account. Just log on to the NPS portal and follow the instructions to open an eNPS account.
3. Family Medi Claim Insurance
If you have family or even in case you are individual and do not have dependants you require mediclaim insurance. Studies reveal that in spite of growing inflation rates clubbed with upsurge in healthcare costs, 70% of Indians are yet to opt for any sort of insurance cover protecting them against hospitalization expenses. It’s shocking to know that in a fast developing country like India, people are still being ignorant about the need to plan for a suitable arrangement to tackle any financial emergencies arising out of an accident or sudden illnesses.
The best and most economical way of being prepared for medical emergencies and protecting your savings is through a mediclaim insurance policy. It takes care of medical expenses following hospitalisation on illness or accident or even for any surgery required. The bills are taken care through either cashless treatment facility or reimbursement mode offered by the insurance company.
4. Don’t Invest too much
April is the right month to start with your financial planning for the year ahead, but entire tax planning for the financial year 2019-20 should not be done at one go. This is because keeping in mind the Interim Budget and then investing might just go wrong if rules are changed in full-year Budget in July. Hence, try to avoid investing the lump sum in any tax saving avenue.
5. Submit Form 15H, 15G
The interim Budget raised the TDS (tax deducted at source) threshold for bank and post office deposits from Rs 10,000 to Rs 40,000. For senior citizens above 60, the TDS threshold is already at Rs 50,000.
At the same time, the tax rebate under Section 87 means that there is no tax if the taxable income is below Rs 5 lakh. If your income from deposits will breach the Rs 40,000 mark but the total income will be below the basic exemption of Rs Rs 2.5 lakh or 3 Lakhs in case of senior citizen, submit the Form 15H or 15G with the bank. This should be done in the first week of April to avoid TDS. Many banks now allow online submission of the Forms 15G and 15H.
6. Invest the Increment
April is the time when most people get their annual increments. When your salary rises, your expenses go up and your lifestyle improves. But in the din of the celebrations, the investment part is easily forgotten. The increase in income should also be reflected in the individual’s investments.
A lot of investors have SIPs in mutual funds but very few actually increase the amount. Over the years, the SIP amount becomes too small to be of any significance. Too many investors are taking SIPs in homoeopathic doses if only 2-3% of your income is going into the SIP, the end result is going to be little more than entertainment. This is the time to enhance the SIPs or start new ones. It may not be possible to invest the entire increment, but at least 20% of the increase in the salary should be invested for financial goals.
7. Create an Emergency Fund
It is essential that you set aside 4-6 months of your family’s living expenses need to meet with any unexpected circumstances, instead of dipping into the corpus you have planned for your other essential financial goals.
An Emergency fund is must have for all of us and if you haven’t created one already, now is a good time to start. For those who already have an emergency fund in place, make sure you review your fund in regular intervals and top it up in case of any shortfall.
8. Analyze your Debt Situation
Keep a check on your financial outflow towards your Home Loan EMIs, car loans, credit card payments, etc. You must know how much debt you can comfortably take, without any stress on your cash flows. Taking on too much debt can have financially damaging effects in the long run.
9. Open a PPF Account and Invest in Equity Mutual Fund
A small investment in both is ideal way, to start with. PPF will give you tax free returns which are fixed and Equity Mutual Fund will provide growth of your investment. You need to take entire family goals while considering investment and saving for retirement and long term. It is recommended you hire a professional to provide you guidance as they have experience and knowledge which will help you to achieve your goal.