Resource id #11Resource id #11 Advisor Interview
25 March, 2017 07:28 IST
Advisor

Investors can earn better tax adjusted returns from debt funds: Melvin Joseph

Source: IRIS (20 May 2013)

Investors can earn better tax adjusted returns from debt funds: Melvin Joseph
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In an interview with Shweta Dhoka of Myiris.com, Melvin Joseph, CFP, Finvin Financial Planners, says, ''Allot a higher percentage to equity at young ages and start SIPs in good equity funds. Also start a PPF and start investing small amounts. You can increase the allocation to PPF at a later stage to rebalance the portfolio.''

How did you start as a Financial Planner? What services do you offer?

I left LIC as a Branch Manager in the year 2000 after working there for 11 years. Then I worked for different private companies till 2010. My last assignment was with SBI Life, as the country head- Institutional Alliances. I was managing my own savings and that of some of my friends from 2001 and developed a taste for investments. Equity market was giving good returns during this period.

But I have seen lot of investors losing their hard earned money due to wrong advice. Frequent churning mutual fund folios and misselling of ULIPs were common. Agents and banks were doing this and investors were taken for a ride. Even regulators were going slow in controlling such activities. I was upset with such activities.

In 2010, I resigned my job and completed my CFP certification. I have done a PG Diploma in Financial advising also before starting Finvin Financial Planners, a fee based financial planning firm in Mumbai.

We offer comprehensive financial planning to retail investors. We have taken a conscious decision of not involving in any distribution activities to ensure 100% unbiased advice. So, our clients have to do the execution of the plan by themselves. But we help them in doing it online and thereby getting better terms in Term Insurance & Direct Plan of mutual funds.

Could you list out any new areas of investment?

It is not new, but not very popular among retail investors. I am talking about the debt mutual funds. For investors in the higher tax slabs, it is better than deposits from the taxation angle. This is because of the indexation benefits in debt funds.

I invested Rs 0.1 million in a debt fund in Jan.’08 and sold it in Jan.'12 for Rs 1, 38,865. I got a CAGR of 8.55% .The indexed cost of investment is 1, 42,468 and so, there is a long term capital loss of 3,603 in this. As per the tax rules, no tax is to be paid on this gain of 38,865. But, had I received similar returns from a bank deposit, I have to pay tax at my marginal rate of 30% on the interest income, that too in the year of accrual. Investors can earn better tax adjusted returns from debt funds than bank deposits.

What should the retail investors do in the prevailing market conditions?

In India, retail investor participation is bad in equities. This is a matter of concern. Our markets are now controlled by FIIs and the like. Pension funds from many countries are making huge investments in our equities, because they are confident of the future growth of Indian equity market. But our PF money is invested in Debt only!

Investors should invest in equities for long term goals. Long term for this is atleast 7 years. It is better to plan these investments through SIPs in good mutual funds. You need not worry about market volatility in such cases. Short term goals can be planned through debt instruments. Gold should not be more than 10% of the total portfolio. Real estate is an investment, only if it you have invested in a second house. Annual review and rebalancing is a must.

What wealth management and its significance are in today’s world?

In India, wealth management is nothing but selling complicated financial instruments to HNIs. They are busy and will not allot time for personal financial matters. But they expect better returns from products like PMS and Derivatives. This is exploited by the wealth managers who are working for their salary.

Could you jot down some of the investments schemes for fresher's mainly young group?

They should first go for an online term plan. The amount of insurance can be calculated by income replacement method or expense replacement method. Then they should plan for a health insurance plan, which offers life time renewal. They should select policies with no claim based loading and no sublimit.

After this, they should start investing for other goals. First step is to identify the major goals and quantify the amount required for each goals keeping inflation in mind. Next step is to identify the investment products for these goals. Allot a higher percentage to equity at young ages and start SIPs in good equity funds. Also start a PPF and start investing small amounts. You can increase the allocation to PPF at a later stage to rebalance the portfolio.

What could be the ideal retirement plan for a person who is 35 now, and has lump sum amount of savings summing upto Rs 3, 00,000 p.a. Where should he invest?

Assuming his retirement at age 60, he is having 25 years for retirement. He can start investing around 20,000 per month in equity mutual funds and 60,000 per year in PPF. After age 45, he can reduce the equity to Rs 0.2 million per year and increase PPF to Rs 0.1 million per year.

Assuming a CAGR of 12% from equity and 8% from PPF, he will have around Rs 32 million from SIPs and Rs 5.4 million from PPF at age 60. 

Is there anything that you would like to share with our readers?

Generally, we start managing our pocket money from age 10 or so. We manage our own money when we are into the first job, say from age 23. Even after retirement, we manage our savings till our health permit. Assuming an active life span of 75 years, we manage money for almost 65 years in our life.

Are we getting any training on efficient money management? Even MBA (Finance) in our country is not covering this topic!

In our country, financial literacy is very low. Our government is not keen on this. We should dedicate time to understand the personal financial issues and took active interest in managing our own money for our own better future. If you allow somebody to manage your money and if you are not keeping active interest, he will do his retirement planning out of the commission from your investments!

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