Saturday, May 9, 2009

Professionals should plan investment with a vision

During my visit to Assam last month a host of professional friends and readers of this column asked me how to plan their investment without loosing their principal. I was in fact happy to tell them that they should invest with a vision. They should plan their investment meticulously. Since these groups of our readers were around forty-fives and their children have grown up already it would be necessary for them to plan for their children, take care of the security of the family, organize their pension and build up their houses.

I was pleasantly surprised to find that most of the persons of the group have already built their own houses. This is the best thing any professional can do. This group included well-known doctors, a few extremely well-known Advocates, prize winning film makers and most popular writer cum editors of newspapers. Another great thing was that all the spouses were also working persons. But despite being in such a privileged position they have not planned their investment. A few of them have not even taken the benefit of income tax which they are officially entitled to for paying home loan to the bank.

During the course of discussion I did advise them, if all the tax benefit is availed by them, then their finance would further improve .The amount then could be saved for the education of their children. One of the couple, both Doctors, took higher amount of home loan and their EMI was high. As they have to pay a heavy amount it was difficult to save money for the education of their son. Should he get seat in IIM it would have been difficult for them to organize money. (The fee of IIM is very high now a days and it would go further up in days to come).

The couple did take a Housing loan few years back @ 12% in the name of husband only though wife was also earning. Incase the loan was taken in names of both it would have been possible for both of them to claim much bigger tax benefit. So my suggestion to them was to pre close the loan and re apply for the home loan by both of them now as a few nationalized banks have given home loan @ 8% interest.

Needless to mention that if someone takes Rs. Twenty Lakhs as home loan for twenty years @ 12% interest then they would end up paying around Rs 60 lakh in due course. But if they can take home loan @ 9 %( as is available now) they would end up paying only Rs 31 lakh or less. My sincere suggestions to my friends and readers were to take loan in the name of both husband and wife if both are working or if both of them have separate file for earned income.

It was a revelation to me that around 60% of the professionls did not know the benefit of having PPF account. I advised them to open an account and start saving minimum Rest 500/- or maximum Rs 70,000/- per annum.
One of my Doctor readers stated that they do not know how to handle the cash which are received by them from their patient. I told them that those were not ill-gotten money so they need to pay income tax as due to them and save the balance money in arbitrage fund (without any income tax). With last year’s amendment the income tax slab have gone down. After availing all IT benefit if the taxable income stands at Rs 3 lakh then they have to pay only 10% tax , at Rs. 3 lakh only 20% and 30% tax only after crossing Rs. Five lakh. Income.

The most important thing is to plan ahead of time. This is the time to invest in equity under SIP. Considering the 45 years age, Fifty-five percent of their investment should be in equity, rest in fixed income, like Bank FD, Post office FD, PPF and Deferred annuity Scheme etc. Money has no value of its own till someone adds value to it. Rip Van Winkle kept one thousand pound to enjoy his life but failed to support him for a month when he woke up...



Salil Dhawan said...

Very nice article.We are young I.T professionals earn good packages but are generally so poor as regards investment.Earlier you start , better it is.Hope other youngsters take note of this.


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