power of compunding

8/12/2019 Power of Compunding

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Welcometo

Tax & Investment Planning Seminar


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Income Slab Income Tax Rates

Upto Rs 1,50,000

No Surcharge NIL

Rs 1,50,001 - Rs 2,50,000

No Surcharge

10% of the amount

exceeding

Rs 1,00,000

Above Rs 2,50,000

10% Surcharge

Rs 5,000 + 20% of

the amount

exceedingRs 1,50,000


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OptionsMaximum

amountTax Saving Lock-in Period Returns Tax on Returns

Option under section80CCC

LIC Jeevan Suraksha Rs 10,000 10% to 33% Term of the policy 5 to 6% Applicable rate

Options under section 88

Equity Linked Saving

Scheme (ELSS)Rs 10,000

3 Years > 10% 10%

Mutual Fund Pension Plan Rs 70,000 Till the age of 58 yrs > 8% 10%Infrastructure Bonds Rs 1,00,000 3 Years 6.75 % to 7% Applicable rate

Public Provident Fund

(PPF)

Rs 70,000

6 years minimum

8 % compunded

yearly Tax Free

National Saving Certificate

(NSC)Rs 70,000

6 years minimum

8% compounded

half yearly Applicable rateULIP of UTI Rs 70,000 10 or 15 years > 6 % Applicable rate

LIC premiums Rs 70,000 Term of the policy > 6 % Tax Free

Return of Principal of

Housing LoanRs 20,000

N/A N/A N/A

Maximum amount eligible

for tax relief under section88 and 80CCC.

Rs 1,10,000

15% or 20%

COMPARISON BETWEEN VARIOUS TAX SAVING OPTIONS


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Section 88

100,000/=

Rs. 30,000/=Infrastructure bond

LIC, PPF, CPF, and

pension plan..etc-40K

40,000/=

ELSS-10K

Repayment of Housing

loan principal-20K


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Other Deductions

Section 80 CCC: Jeevan Suraksha

upto Rs. 10,000/=

Section 80 D : Upto Rs. 10,000/= towards

mediclaim

Section DD: Handicapped dependant expenses

upto Rs. 40000/=

Section 80 DDB: Medical expenses towards

chronic disease - upto Rs. 40,000/=


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Section 24 (I) Upto Rs 1,50,000/- paid towardsinterest on housing loan is

deductible from taxable income.

Recommendation

Make a house - dont just live in it.


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Myths:Insurance is just another tax saving instrument.I do not need an insurance now. May be later...

Why wait for 30 years? - let me take a policy for 15

years (or may be 10).

Insurance

The Facts:Lower the age, lower the premium, - higher the age

higher the premium.As we get older - Health becomes a major impediment to

getting high insurance cover.

Longer the duration of policy - lesser is the premium.


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A THIEF CALLED INFLATION

2020

104

960

286

290

310

Items 1980 2001

TOOTHPASTE 4.05 19

LPG GAS 26.25 250

MASALA DOSA 1.5 15

PETROL 7.9 32

MOVIE TICKET 5 50


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Inflation .The silent killer!

Present cost of living RS. 20,000 p.m

30 yrs from now Rs.3,83,887 p.m.

Retire today Rs. 20 lacs @ 12%

Retire 30 yrs from now Rs.3.83 cro res


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Value Of Re. 1 Invested In 1980

Apr-80Oct-82Apr-85Oct-87Apr-90Oct-92Apr-95Oct-90

10

20

30

40

(Rs.)

Rs. 33.52

Rs. 4.81

Rs. 11.21

Stocks

Co. Deposits

Bank Deposits

Period - April 1980 to December 1997


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Value Of Re. 1 After Taxes

(Rs.)

Rs. 13.80

Rs. 3.00

Rs. 5.44

Stocks

Co. Deposits

Bank Deposits

Apr-80 Oct-82 Apr-85 Oct-87 Apr-90 Oct-92 Apr-95 Oct-970

5

10

15Period - April 1980 to December 1997


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(Rs.)

Rs. 3.16

Re. 0.68

Rs. 1.24

Stocks

Co. Deposits

Bank Deposits

Apr-80Oct-82Apr-85Oct-87Apr-90Oct-92Apr-95Oct-0

2

4

Period - April 1980 to December 1997

Value Of Re. 1 After Taxes & Inflation


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Value Post-tax Post tax & Inflation

Bank 4.81 3.00 0.68

Co. Deposit 11.21 5.44 1.28

Equity 33.50 13.80 3.18

Post inflation & Taxes

Recap - value of 1 Rupee in 17 years.


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EQUITIES ARE THE BEST LONG TERM BET% OF STUDIED PERIOD IN WHI CH

56% 63% 86%

37%14%

44%

1 year 3 year 5 year

Other

investment

outperformed

Stocks

outperformed

Source : RBI Report on Currency and Finance (1997-98)

BSE Sensitive Index of Equity Prices - BSE


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Equities are the best long term bet

Investment avenues

9.19%

7.62%

9.74%

14.47%

20.16%

Inflation Gold Bank FD Co. FD Equities


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Carry out extensive research and identify

the right share/company.

Identify a reliable broker.

Track your investment regularly.

How do we invest in equities or

Company Fixed Deposits?

Time is money


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MUTUAL FUND

AS AN ENTITY - IT IS A TRUST

AS A CONCEPT - IT IS A SERVICE

AS A FUNCTION - IT IS INVESTMENT MANAGEMENT


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What Is A Mutual Fund?

It is an investment company through

which an investor can pool his

money with other investors who have

a similar objective.


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Mutual Funds:

A Packaged Product

Diversification

Liquidity

Professional

Management

Convenience

Tax Benefits


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Mutual Funds & Tax Benefits

INCOME TAX

BENEFITS

CAPITAL GAINSBENEFITS

Section 112

Section 88

Section 88 (2)


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Bank F.D. Vs.Mutual Funds

Section 112

PT R -Rs.7000

Tax @ 30%

Returns - Rs.10000

Ba nk Fixed Deposits

PT R -Rs.9000

Tax @ 10%

PT R -Rs.9400

Rs.3000 @ 20%

Indexation @ 7%

Returns - Rs.10000

M utual Funds

Am ount invested Rs.100000


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RISK Vs RETURNS

RETURN

Time

RISK

BALANCED FUND

DIVERSIFIED

EQUITY

SECTOR

INCOME FUND

BANK FD

EQUITY


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Mutual Fund - The Top Scorer

FDs FI Bonds Open-ended

Mutual Funds

Accessibility Low Low High

Tenor Fixed (Medium) Fixed (Long) No Lock-in

Min. Investment Rs. 1000 Rs. 5000 Rs. 500

Tax Benefits None 80L 80L , 112

Liquidity Low Very Low Very High

Convenience Medium Tedious Very High

Transparency None None Very High


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What Is Wrong With The Way We Save?

Over 50% o f ou r household savings are invested in

assets that are

poor inf lation f ighters

no t tax eff ic ient.

Our saving habi ts are not disc ip l ined and

sys temat ic in app roach

We face the possib i l ity of ou t l iv ing our savings.


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5% 10% 15% 20% 25%

EFFECT OF COMPOUNDING(Re. 1 invested for 30 years)

Rs. 4 Rs. 17

Rs. 67

Rs. 234

Rs. 808

SB

LIC

PPF

NSCBk FD

COM

FD

BUSINESSOR EQUITY


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Invest Early

Anu starts investing at 25 years age

Invests Rs. 5000 monthly for 10 years

Total Investment : Rs. 6 lakhs

Prakash starts investing at 35 years age

Invests Rs. 5000 monthly for 25 years

Total Investment : Rs. 15 lakhs

Who has more money at the age of 60?

BOTH ARE OF

SAME AGE


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Invest Early

It costs Prakash Rs. 3.1 crores to wait 10 years

Anu has Rs. 4.6 crores Prakash has Rs. 1.5 crores

At the age of 60.

Assumed 15% p.a. compounded annually


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START EARLY; SAVE REGULARLYEvery Year Counts

* Return of 15% p.a.

7,643,653

330,000

10,133,456

350,000

Saves from age 25 to 60 Saves from age 27 to 60 Saves from age 30 to 60

Savings Returns *

300,000

4,999,569

Rs. 10000/= p.a. or Rs.833.33 p.m.


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Identify Objectives

Harness the power of compounding

Start early Focus long-term - Stay invested

Be aware of the effects of inflation

& taxes Diversify

Strategy To Smart Investing


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SUMMARY

Banks effectively destroy purchasing power.

Manage salary pro-actively and get that raise in

salary. Insure adequately - 5 times annual gross.

Have liquidity in Income Funds.

Use all products - judiciously and maximize yourwealth.

Be disciplined.


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MUTUAL FUNDS

LIFE INSURANCE

GENERAL INSURANCE

PRIMARY AND SECONDARY MARKET OPERATIONS

RBI BONDS, POST OFFICE DEPOSITS, NSC

54EA INVESTMENTS

HOUSING LOANS (IDBI BANK)REAL ESTATE (BUYING AND SELLING OF PROPERTY)

INVESTMENT OPTIONS

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