As the Union Budget 2012 did not propose too many tax changes, financial planner Gaurav Mashruwala said he was disappointed as expectations were not met.
Giving an insight on how one should build an investment portfolio, he said, “First, pick up health insurance, and then life insurance. Start investing into a mutual fund either with 80% equity 20% debt or a 100% equity fund and just one or two years prior to your money requirement, transfer that money into a debt fund.”
Below is an edited transcript of his interview. Also watch the accompanying video.
Q: Any key takeaways from the Budget with respect to the personal finance? We heard a lot of words about the Rajiv Gandhi equity, tax free bonds or even the limits on tax exemptions.
A: We had lot of expectations from the Budget. Since they have not been met there is some kind of disappointment. There is a rejig of tax slabs hence at the lower end, probably you save Rs 2,000 per year, which is not too big. At the higher end, say 10 lakh and beyond, you would end up getting Rs 22,000-25,000 extra every year.
They spoke about Rajiv Gandhi Equity Scheme but the details of that scheme have not come out. Various media have been talking about certain kind of information that has been given; we need to wait for that. But according to the scheme, if your income is less than Rs 10 lakh per annum, you will get exemption on 50% of the amount invested in certain equity with three-year lock-in, you get exemption for 50% of that.
My feeling is that DTC is likely to come in. While we have no idea that ELSS tax benefit may just go away, they are trying to kind of bring this in to replace it. Thirdly, people have a misnotion about 80CCA; that Rs 20,000 tax free bond was available.
The finance minister spoke about infrastructure bonds launched by various finance companies whereby the interest is tax exempt. Those are likely to come in; you will probably get tax free interest if you invest into that. These were the three major announcements made in the Union Budget for personal finance.
Q: Would you say the increase in the limit for investment in tax free bonds where the interest is exempt is a big positive for small savers?
A: I will tell you what the differences are. Under 80CCF, when you invest Rs 20,000 into that, we were getting tax reduction. This means we would not pay tax for that but for the interest that comes to us was taxable.
Last year, we also had certain other public issues where when you invest, the interest that comes to you for the next decade or fifteen years, was tax free. For anything to be tax free, the finance ministry has to give a limit upto what amount those bonds can be launched. That limit has been doubled. This means we will have more public issues of tax free bonds coming this year.
Q: If a person can invest Rs 2,000 per month, how should one allocate the money?
A: The first thing that you need to start with is a health insurance for your entire family. Also, all the earning members should have life insurance. Once those two are taken care of, then one can start to invest.
Within investment, one should first decide the goal; the kind of state that I need money after five years, no particular goal that will not be too useful to you. Since you are talking about a five-year horizon, the ideal make should be about 80% into equity and 20% debt. If it is seven years, it should be 100% equity.
Only thing is the amount you are talking about is Rs 2,000 per month. You cannot get into direct equity; what you would want to do is get into an index mutual fund or any largecap equity fund and start a systematic investment plan. You have to ensure that two-three years prior to your goal requirement, transfer that money into a debt instrument. So here are three things. First, pick up health insurance, life insurance second, start investing into a mutual fund either with 80% equity 20% debt or a 100% equity fund and just one or two years prior to your money requirement, transfer that money into a debt fund.
READ MORE ON Union Budget 2012, Gaurav Mashruwala, tax slabs, investment portfolio, health insurance, life insurance, Rajiv Gandhi Equity Scheme
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