Seven money moves to make as a new financial year begins
Seven Money Moves As you draw up a plan for your money in the new financial year.
Here are some steps to ensure that your finances are on an even keel.
For many people, the financial year 2020-21 was the arguably the toughest 12 months they ever face.
Businesses collapse, healthcare expenses shot up, jobs were loss.
Pays were cut, interest rates drop and stock markets gyrate wildly.
The start of the new year brings hope that things are slowly returning to normal.
As you draw up a plan for your money in the new financial year.
Here are seven moves that can ensure your finances are on an even keel.
Stock up on small savings
The government has reversed the small savings rate cut, possibly due to the backlash from the small investors.
However, this seems a temporary respite.
The government bond yields to which these rates are link have consistently come down in the past two years.
It is only a matter of time before rates are reduce.
So stock up on small savings instruments such as Kisan Vikas Patra (6.9%), NSCs (6.8%).
Senior Citizens’ Saving Scheme (7.4%) if you want to lock in at the current rates.
Once you invest, the interest rates of these instruments do not change for the rest of the term.
However, the rates for PPF and Sukanya Samariddhi Yojana are subject to changes.
Make most of your VPF limit
Though small savings rates have been consistently falling.
The interest offered on the Provident Fund remains relatively high at 8.5%, making it the most lucrative instrument in the fixed income space.
This year’s budget has put restrictions on this tax free haven.
Only up to Rs 2.5 lakh contribute by the employee to the Provident Fund will earn tax-free interest.
Interest earn by any amount exceeding this threshold will be taxed at the normal rate.
If you are cover by the Provident Fund.
Make most of the tax free limit of Rs 2.5 lakh by increasing your VPF contribution.
If you already contribute to the VPF, it’s time to reconsider your options.
Your total contribution to the Provident Fund should not exceed Rs 20,833 per month.
In the 30% bracket, the returns on the excess amount will now be as little 5.85%.
Weed out underperformers
The going was very good in the past one year as a rising tide lift all boats.
As we all know, the market can be unforgiving when it comes to missing revenue targets.
Mismanaging finances and slipping on corporate governance.
The start of the new year is a good time to review your portfolio.
Throw out low quality stocks and underperforming mutual funds before they crack.
Besides reviewing the holdings, it is also time to rebalance the portfolio.
The Sensex rose almost 70% in the previous financial year.
Investors who did not lose hope or their nerves made good money.
This also means their asset allocation changed, an indicator that it’s time to take some profits off the table.
Reducing the equity exposure will rebalance the portfolio.
Restore the original asset allocation, thereby controlling the risk in the portfolio.
A rebalance portfolio is cushioned against shocks.
Will not suffer too much if the equity markets decline.
Get tax paperwork in order
The tax filing deadline is four months away so tax is obviously not a priority for you right now.
It won’t hurt to start collecting all documents required to file a comprehensive & accurate tax return.
This is especially true if you have foreign assets.
Also, access your Form 26AS online to check if all the tax deduct on your behalf duly credited to your PAN.
Get the capital gains statements from your mutual funds.
Account statements from your banks to know how much interest you earned during the year.
Keep in mind that dividends are now fully taxable as income so scan your bank statement for all dividends received during 2020-21.
As your get your tax paperwork in order, don’t forget to link your Aadhaar to your PAN.
If the PAN is not link with Aadhaar number, the PAN will become inoperative.
You will not be able to conduct financial transactions that require PAN.
The deadline has been extended to 30 June so do it right away.
Get on with tax savings investments
If you are among those who struggle with their tax saving investments at the end of the financial year, turn over a new leaf in 2021-22.
Start your tax saving investments in April so that you don’t have to run around the helter skelter in March.
Moreover, delaying the process to the end of the year narrows down your options.
ELSS funds, for instance, are perhaps the most lucrative way to save tax under Sec 80C.
You can’t do SIPs in February-March if the deadline is only a month away.
Starting one in April is a better idea and helps space out the investment over 12 SIPs.
Even if you don’t want to take risks and want to go with a low-risk insurance policy.
It’s better to buy now when you can understand the features in detail than purchase in a hurry later.
It’s also recommended to open an NPS account to take benefit of the additional Rs 50,000 deduction under Sec 80CCD(1b).
Buy term plan before prices go up
Talking of life insurance, term plan premiums have gone up in the past few months and could rise even further this year.
An insurance portal has launched an index that tracks the premium rates of term insurance plans.
Premiums surge 4.4% during the March quarter.
There are indications that premiums will rise further this year because reinsurers plan to raise.
The premiums due to the adverse claims experience of 2020-21 following Covid19.
Although term plans are very cheap and premium rates are hardly the reason for the purchase decision.
It still makes sense to buy as early as possible.