Tax Planning Archives - Page 6 of 9 - CAGRfunds

August 14, 2019

There’s a new Spice Girl on the block

This one is not to be confused with the famous girl band from the 90s. Singapore-based Namita Moolani Mehra is a mom of two and is the founder of Indian Spicebox. Her brand is about enabling families to eat more wholesome home-cooked meals, including healthier versions of restaurant favourites. Simple recipes are packaged with wonderful organic spices that provide not just amazing flavour, but great health benefits as well. The best part is that for each Spicebox Kit she sells, 10 street children in India are fed a hot meal. Namita states, “We have funded over 60,000 hot meals and our goal is to provide 1 million meals by 2025.”

Namita is also a writer and has published two cookbooks out of which one is a children’s book published by Scholastic. She also writes for several online publications including Sassy Mama. She founded Indian Spicebox a few years ago after spending 15 years in the corporate world, primarily working as a digital strategist at ad agencies in New York after which she spent five years at Facebook in both New York and Singapore. Indian Spicebox was born as an idea in 2004 when she was living in New York and surrounded by friends asking her for recipes and information about spices. It wasn’t till a decade later that she quit the corporate world and founded it as a business.

Namita’s drive to make a difference was her main inspiration to become an entrepreneur. She wanted to give back and do something with meaning and purpose. Therefore, by creating something of her own that would be purpose-driven and make her feel excited about getting out of bed, she wanted to put her strengths in service of something meaningful. After working at one of the world’s best companies (Facebook) with the most incredibly talented people, and supported by tremendous resources, she was afraid of going off on her own. She was worried about not having the teams and resources to keep her motivated and productive.

A year before starting her own business, Namita worked for a VC (Venture Capital) firm which was an eye-opening experience for her to a great experience. It gave her a good understanding of the start-up world and financing better. “Frankly, I had no clue about funding businesses and there are a lot of different routes and options out there for founders and small business owners. It is really important to know your options, network with other business owners and founders, attend start-up conferences/events, read the blogs, soak up as much information as you can and also consult financial planning advisors to get a clear understanding of that part too.” says Namita. She invested her own savings from her previous jobs and advocates engaging financial advisors and companies who can help to manage money and investments for you on the personal front and for the business.

There are several things one should be aware of while starting on their own. Namita shares a few from her experience, right from being prepared to feel alone, to being constantly in battle mode to ensuring that you hire and delegate early-on. Hire interns and invest in a good
website developer and designer. She also emphasizes to take the time to create and build a solid brand right at the onset (as all touchpoints matter) and most importantly, investing in quality.

Amongst other things, Namita also highlights that it’s important to surround yourself with people you trust. She states, “If you find good partners, vendors, interns, freelancers—hold on to them and keep investing in good people. Also, build a solid brand upfront. Invest in good designers, brand building experts and digital experts who know how to present your brand and offering via critical touchpoints. Have several mentors or your own personal board of advisors – the people you can trust and use as soundboards. Work with a professional coach. I’ve been working with a coach for over five years now and she anchors me tremendously behind the scenes. As I’ve mentioned earlier, engaging financial advisors to keep you on track with your money management is also crucial. Remember, you can’t succeed alone. So, the people you surround yourself with, are the ones who will ultimately determine your success.”

November 30, 2018

Cancer Health Plans may be useful to consider!

A slew of niche healthcare plans have been launched recently. These plans cater to specific diseases only. Cancer Plans are one such category.

Key features which are common across various Cancer Plans are as follows:

Objective is to cover the expenses that arise out of diagnosis of any type of Cancer
Benefits are generally payable in parts basis the different stages of Cancer

Why should you buy these plans?

Well, there is no good answer to this. As we know, occurrence of Cancer is random and anyone could be a victim of the same. Some of the facts are worth being aware of:

India is the world’s largest contributor to Cancer deaths
22 lakh Cancer deaths are reported every year
71% of the Cancer deaths occur in the age group of 30 – 69 years
15% of Cancer patients are children and young adults (as compared to the global average of 0.5%)

The geographic spread of Cancer in India is largely driven by the environmental practices prevailing in respective regions:

States	Common types of Cancer	Reasons
UP, Bihar, WB	Gall Bladder, Neck and Head	Polluted water, diet rich in animal protein or fish
MP, Bihar, Gujarat, Rajasthan	Oral	High Tobacco and Pan Masala consumption
Punjab, Haryana, Delhi	All Cancers are higher than average, especially, kidney, lungs, urinary, breast	Pollution, pesticide, toxins in food
Goa	Colon Cancer	Red Meat, Alcohol, Tobacco
WB	Lung, Urinary Bladder	Air and Water Pollution
North East	Highest Cancer Rate, especially of Oesophagus	Tobacco, Household burning of Firewood
South & Coastal India	Stomach	Diet rich in spice, salt

Is Cancer not covered in regular Health Insurance Plans?

Regular health plans do cover hospitalization for Cancer. However, Cancer treatment costs often cost anywhere between 10 – 25 lacs and only go upwards for advanced treatments. Health Plans with such high sum insured can turn out to be very expensive.

Moreover, Cancer treatments tend to continue for years and the costs have only been rising.

What about Critical Illness covers?

Cancer is also covered under Critical Illness Plans, but only at advanced stages where a lump sum is payable. Generally, most Cancer specific plans tend to pay lumpsum at multiple stages of diagnosis, thereby protecting the continuous flow of expenses.

What is the alternative?

A decent size of Base Insured Plan + A large Top Up Plan + Critical Illness may be a good alternative. However, for those who have had a first – hand experience of Cancer treatments among friends and family, might want to insure themselves against the deadly possibility. The decision depends on affordability of every individual.

This Independence Day, check if you are financially independent

Independence Day and Financial independence

A few months ago, I was out taking an evening walk when I happened to run across my old school friend, Gaurav. We both were elated to see each other after more than a decade and decided to grab some coffee and dinner. We walked into a nearby café and started marvelling over how the past 10 years seem to have flown by.

After graduation, Gaurav got his pilot’s license and started working for a well-reputed airline. He was making a comfortable 30 lacs p.a. with no dependents. I was pretty impressed with how well his career had panned out so far.

We both finished our meal and decided to leave. He offered to pay the bill with his credit card and drop me home in his car. I obliged.

While on our way to my house, I saw him being very callous about his spending. He had unnecessary add-ons in his car, designer seats, expensive smartphones, etc. He was also too generous with his tipping to the Barista and the Petrol Pump Attendant. I asked him how he could afford all of this. He replied with a grin, ‘EMIs’.

I was shocked. On further enquiry, I found out he had EMIs for everything – Cars, Mobile, Laptops, and even his clothes! I asked him if he saved anything at the end of the month and he simply replied with a small ‘No’.

Worried, I asked him if he was investing any money in assets.

He replied, ‘Of course! Look at this expensive phone, my car, my house, these are all my assets!’

I frowned as I went on to explain to him how assets are those that generate income or appreciate in monetary value.

Being a finance graduate myself, I decided to help my friend organize his finances. We met over the weekend and decided to plan his journey towards financial independence.

Step 1. Budget and Analyze

We listed down some of his EMIs:

Expense	Loan Amount	Interest	Tenure	Monthly Cost
Home Loan	INR 10 lacs	9.00%	20 years	INR 90,000
Car Loan	INR 8 lacs	10.00%	10 years	INR 10,572
Laptop	INR 70K	12.00%	3 years	INR 2,325
Phones	INR 65K	12.00%	3 years	INR 2,159
Designer Suits	INR 50K	12.00%	3 years	INR 1,661
Home Renovation	INR 2 lacs	14.00%	5 years	INR 4,654

And his other monthly expenses:

Expense	Monthly Cost
Restaurants	INR 35K
Movies	INR 4.2K
Electricity	INR 2K
Water	INR 600
Fuel	INR 4K
Mobile Bill	INR 1.5K
Maintenance	INR 5K
Misc.	INR 15K

His total monthly expenses came to INR 178,671. His income being around INR 180,000.

We now decided to split his expenses into three categories:

A: Important and Unavoidable expenses. (Example: Rent, EMIs, Insurance, Investments)

B: Expenses that can be postponed. (Example: New clothes, new furniture)

C: Unnecessary expenses. (Example: Luxury Items, High-end dining)

I asked him to only spend money in categories A and B for a month and indulge in minimal wants (category C).

Gaurav managed to save INR 20,000 in just this one month!

Step 2. Emergency Fund

Many of us often end up taking personal loans to cover for unexpected expenses such as medical emergencies, car repair, home repair, etc. These increase our monthly expenses and leave us with lesser money to grow our assets. This problem can be solved by having an emergency fund. This money can be used during times of such unexpected emergencies and will not cost you any additional interest. Therefore, we decided to keep INR 5000 per month, in a Liquid Debt Scheme as an emergency fund.

Step 3. Insurance

With the rising costs of health care and other expenses, buying insurance is unavoidable. Gaurav had no insurance since he stopped being covered under his parents’ insurance. Insurances, although are being unwanted goods, are necessary for everyone to save you on rainy days. I asked him to get health insurance and car insurance that can help him out in times of crisis. It cost him INR 10,000 for both.

Step 4. Investing

The final part of handling personal finances is investing. Money saved will depreciate in value over time. Money invested, will grow and earn for you forever (thanks to the magic of compounding). We decided to start a small SIP of INR 2,000 and build from there. The leftover money was deposited in his Savings Account.

Soon, he started understanding the unnecessary expenses and callous attitude that was costing him all his money. He gradually increased his investments and savings to pay off his massive EMIs.

As of today, his investments have already reached INR 30,000 and continue to grow. Just the past few months, gave him enough incentive to save for his future, thus becoming completely financially independent in the coming 15 years.

August 1, 2018

Is SIP in tax saving funds useful?

At CAGRfunds, January to March quarter is perhaps the busiest for us. No special reason why it should be so, but it is. Why? Because, many of our investors wake up to the need for tax saving investments just then. And then they end up investing a lumpsum amount in tax saving funds (ELSS).

What is wrong with that?

Well, nothing. Except that a lumpsum investment in any equity oriented fund forces us to lock a single price. What most investors miss are the problems they would face when they invest lumpsum instead of SIP.

Let us see an example of a SIP and a Lumpsum investment in an ELSS fund. We have two comparisons:

SIP of 12,500 every month since 15^th Dec 2008 until 15^th July 2018, and
Lumpsum of 1,50,000 every year on 15^th December

Scenario 1: ABSL Tax Relief’96 (since 2008)

Scenario 2: Axis Long Term Equity Fund (since 2010)

Scenario 3: Franklin India Tax Shield (since 2006)

As we can see, an annual lumpsum investment in any of the above ELSS funds would have given significantly lower returns than SIP over the same period. This is because SIP enables the investor to invest every month at different prices. SIP thus averages out the cost of purchase. On the other hand, with a lumpsum investment, money gets locked in at one price and that can give lower returns if the pricing, unfortunately, is at a high level. This happened with a lot of our investors who had to compulsorily invest a lumpsum amount in ELSS in January 2018 since they were restricted by the last date of submitting tax proofs.

So if you have not yet planned your taxes and are still waiting for the last date to knock your doors, you need to think again. Feel free to post a comment if you have any questions!