How Does Indexation Impact Tax Charged on Gains from Debt Mutual Funds?

When you invest, you aim to maximize your returns. However, inflation eats into your actual returns. Additionally, when you exit your investments, you need to pay capital gains tax. Fortunately, the government offers a solution for this, which is known as the indexation benefit.

The basic reasoning for indexation benefit is to ensure you pay tax only on your returns after being adjusted for inflation. This allows you to pay 20% capital gains tax after taking advantage of indexation benefit.

Indexation plays a pivotal role in taxation when it comes to debt mutual fund investments. You may wonder what indexation is. In simple terms, it considers the rate of inflation when you calculate your returns on investments. Indexation results in a significant impact on your actual returns earned when you exit your investments in debt funds. Through indexation, your investment price is adjusted for inflation for the purpose of determining your tax liability when you exit. Indexation offers you several benefits because of the inflation adjustment.

Benefit of indexation

The indexed cost of your investment in debt mutual funds is based on the ratio of the inflation index at the time when you exit your investment. Therefore, a higher value means a reduction in your tax liability. During the long-term, the rising inflation adds up to the purchase cost of your debt funds. On a cumulative basis, it may result in the reduction of your taxable returns when you redeem your investment.

In case of smaller returns over a longer period, your entire returns on investments may be eaten up due to rising inflation. It is likely that in such a situation, you may not have to pay any taxes. It is beneficial because if most of your returns are erased due to inflation, paying taxes is not logical. Furthermore, the returns are only notional and not real due to the rising inflation.

Working of indexation

Indexation takes into account the date on which you invested your funds and the rate of inflation since then. When you apply the indexation benefit, your purchase cost increases. As a result, your profits at the time of exit reduce thereby reducing your tax liability.

Indexation and debt funds

Mutual fund investments are liable either to short-term or long-term capital gains tax. When you opt for tax-saving investments, long-term is defined as at least three years. Therefore, when you stay invested for at least three years, you will be liable to pay long-term capital gains tax. The current applicable rate is 20% post-indexation benefit.

For applicability of indexation, the formula is:

Original investment cost X Cost of Inflation Index (CII) at the time of exit/CII at the time of purchase

Let us understand this further with an example.

Assume that you invested INR 20,000 in tax-saving investments in May 2010. Further, assume that you redeemed your investment in June 2013 to earn INR 40,000. Therefore, your long-term capital gains before indexation are INR 20,000. However, your entire returns are not liable to tax because you remained invested for a period exceeding three years. You are allowed to avail of the indexation benefit, which reduces your long-term capital gains tax.

The indexed returns will be (20000*220)/167, which is equal to INR 26347 (CII was 167 in 2010-11and 220 in 2013-14).

Therefore, your taxable profits = 40000 – 26347 = INR 13653, which is a reduction of INR 6347 (20000 – 13653).

Until recently, the indexation base year was 1981, which is now modified to 2001. Therefore, if you invested before April 1, 1981, your profits may be calculated based on 1981 fair value. However, all investments after April 1 2017 will use 2001 as the base year to calculate the fair value.

In addition to earning profits, investments aim to determine how to save tax. One way is to use the indexation benefits on your long-term investments. You may also choose to pay taxes without taking the indexation benefit at a pre-specified tax rate.

You may choose from several mutual fund schemes. However, you may not have the experience or expertise to compare different schemes. In such a situation, you may consider using the ARQ investment engine, the core feature of Angel Wealth’s mobile application.

One major differentiation of ARQ from other available options is that all the recommendations originate through machines without any human bias or intervention. Based on your personal requirements and risk appetite, ARQ offers investment options that only deliver better returns but also help you know how to save tax.

Download the Angel Wealth app today and enjoy smart and quick investment tips.

"You Don't Need An Emergency Fund" - And Other Myths Young Adults Fall For

When you are growing up, you may have it drummed into you by your parents to save as much money as you can so that you have a cushion to land on should things go wrong in life. You need to be able to continue to pay your rent, groceries and utilities and you need to be able to live while you save up. Being smart financially is not always easy, especially when there are so many tempting ways to spend your cash. However, one piece of advice that parents give that is good to stick to, is to have an emergency fund.

Most young adults around you will tell you that you don’t need an emergency fund. It’s one of those financial myths that people get told and the reason it’s a myth, is because EVERYONE needs an emergency fund. If you were to find yourself off work because of an injury that changes your life, you would need to find and fund the best injury lawyer to ensure that you get the right compensation. You’d need an emergency fund to keep the bills paid while you recover, and you need that time to recover. The thing is, there are a lot of financial myths that young adults fall for every day, and bad financial advice is harmful – not helpful. It can really put you on the wrong foot if you are given advice that is simply incorrect, and you could be unwittingly led into financial disaster. So, what are the most common myths young adults are told about finances?

Always Leave A Balance On Your Credit Card

Nope, nope, nope. Most people believe that having a balance that is unused on your credit card can help your credit, but in reality, you should never carry a balance of any amount on your credit card. If you do, you pay interest, which means that the credit card companies are making a wedge off cash off of you. Clear the balance entirely every month and you avoid paying more than you have to.

Applying For A Loan Won’t Hurt Your Credit

In most cases, companies are now offering a soft search for credit applications. This means that when you apply for a loan or credit card, you can get an idea of whether you will be accepted without the footprint left on your credit file. The problem here is that any hard search could decrease your score, so this myth is definitely one that is only half true!

Stock Markets Are No Place For Your Cash

Mostly this myth comes from a lack of understanding of how the stock market works. Most people hear ‘stock market’ and also hear the word ‘crash’. Your cash isn’t safe in a lockbox in your house, but it wouldn’t stop you stashing it there for safekeeping before you go on holiday, would it? In the stock market, your money at least has some hope of keeping up with inflation, which isn’t something that will happen in that lockbox in the bedroom!

Credit Cards Are Evil

Usually this I something said by those who have mismanaged their cards and therefore been burnt by debt collectors and late fees. For people with a massive lack of impulse control, a credit card is likely going to be a very bad idea. But that’s not everyone, and you can’t buy into the myth that credit cards are bad just because your sister’s friend’s mother had a bad experience. As long as you are responsible with it, you can benefit from a credit card.

Stuff = Wealth

You could have purchased many things with loans or credit cards, but rather than looking wealthy, all you’re going to do is show the world how much debt you are in. Don’t forget that the more you purchase on your cards or with borrowed funds, the more you have to pay back. Your material possessions don’t equate to wealth, so don’t be fooled!

Money = Happy

Well, you never see an unhappy person speeding past on a jet ski, but that’s neither here nor there. Money, when managed well, can of course make you happy. But it can also be the cause of stress, depression and upset. The relationship between money and happiness is relative depending on the level of debt you have.

Being smart and not listening to myths is going to help you get by, so take everything you hear with a pinch of salt and make up your own mind.

How To Teach Your Kids About Investments

We all want our kids to understand the value of money and to know how to invest it wisely. This may be too much to ask. Children and teens like to live for the moment and act impulsively with little thought for what will happen tomorrow let alone next month or next year.

The seeds of financial knowledge that you sow now will benefit your child in years to come. They will grow in financial confidence and be comfortable with investments. It is never too early to start their education.

Pre-school kids and investments

The financial intricacies of investments will be beyond the grasp of most toddlers but they are not too young to understand what investment means. They can learn to appreciate that an investment is something that pays out in the future. There are many different types of investment.

Show them that if they invest in learning a new skill such as hopping on one leg or skipping, the payout is being able to do it well and show off to their friends. If they invest some time in planting a seed, the payout will be a pretty flower or some tasty vegetable. This teaches them that not everything gives immediate satisfaction. Sometimes, you have to wait for the good stuff to arrive!

Elementary school kids and investments

At this age, kids can start to learn about companies. They are naturally curious and ask a lot of questions at this stage of their cognitive development. Sometimes they ask the same question over and over again just to check that they understand, or that you have not changed your mind! Try to relate companies to their everyday life. Talk about the company that made the car that you drive them around in, the soda that they like to drink or the toy that they like to play with. 

Point out brand names and logos on labels. Discuss who owns the company and explain that a lot of people all own a tiny bit. Point out that they could own a bit if they wanted to. They are old enough to grasp that a ‘bit’ of a company is called ‘stock’ and that when people buy stock in a company, they own a little piece of it.

They will also love to hear about the dangers of investing everything you have in one place. Use a hypothetical example that they will understand. Perhaps you could describe a toy company that only sold one type of toy. What if kids got fed up of that toy and started playing with other things? The company would be in trouble because it does not sell anything else. This simple tale teaches the principle of diversification in investments.

Teach them the difference between gambling and investment. Show them that slot machines are gambling but buying stock is investing. Talk to them about probability and chance and give them a practical example using dice. Let them roll it!

Older kids and investments

Older kids can fully understand what investment is all about. They will be learning about compound interest in school and will be able to relate this to compound investment. The money you make on your initial investment is called the principal but it doesn’t end there. If you reinvest it, you can make even more money and repeat this over time for maximum returns.

Investments are a great way to teach your kid math. Take the investment "rule of 72," which you can use to calculate how many years it will take to double your money if it's earning interest or is invested in the stock market. If they are really smart they can look up how the formula is derived. Math lessons have never been so much fun!

It is important to talk to kids of both genders. There is a common misconception that boys understand complicated mathematical concepts quicker than girls but this is simply not the case.

Teen kids and investments

This is the age where kids can stop talking about investments and can actually get involved themselves. Introduce them to Fortunate Investor and let them do their own research into how to invest their own money. Then support them in making their own decisions.

Of course, they need a pot of money to start off with. Help them to find a part-time job that they can fit in around their school work. Once they get used to investing they may be able to give it up!

The knowledge and skills that they acquire will be so useful for securing their financial future.

Legal Funding

If you have had any experience trying to obtain legal funding, you know how painful this road can be to go down. It can be downright impossible to get lawsuit funding, much less fast. The upfront fee itself is enough to deter someone who is in need of funding for a lawsuit.

The benefits of direct lenders

A direct lender can process your case more quickly. Sometimes your lawsuit loan can take as little as one day to approve. There are no employment checks, credit checks or income verification. Depending on the lender, you might not have to pay your lawsuit loan back if you don’t win the case.

A lawsuit loan is not the same as a normal one. One reason is that the benefits are often much more than the disadvantages. You can use case advances to cover living or medical costs. A lawsuit loan can save your life if you have suffered an injury and are unemployed. You can also use it to pay your rent or mortgage.

By getting a lawsuit loan, you don’t have to succumb to the pressure put on you by your insurance company after sustaining an injury. One never plans an injury, and it can change your life – not only financially, but also emotionally. Insurance providers know this and take advantage, pushing you to settle early for a smaller sum. A lawsuit loan can help you obtain a better settlement because it will help you cover your medical costs and costs of living. You would otherwise not have been able to do this and may have been forced to settle early as a result. A case advance can give you negotiating power against the company because your lawyer will have more time to look at the full value of your case.

If you lose the case, you might not have to repay the loan. If you win, your lawyer will pay the direct lender from your settlement proceeds.

No credit checks

Why are there no credit checks on lawsuit loans? This is because case advances are not considered loans. There is no personal liability for the loan, and the only important thing to the lender is the actual value and quality of your case.

You should be able to get quick approval if your lawyer can provide the information requested by the funder quickly. If he / she has done so and the company is taking too long to respond, you are better off looking elsewhere.

What types of cases are funded?

Cases that are funded include, but are not limited to car accidents, motorbike accidents, bicycle accidents, pedestrian accidents, sports injuries, premises liability, lawsuit loans involving defective medical devices, cases involving pharmaceutical and / or prescription drugs and more.

Qualifying for a lawsuit cash advance

How do you qualify for a lawsuit cash advance? This depends on the stage and quality of your case and the extent, to which your lawyer cooperates with information collection. As a rule, case managers evaluate each funding application individually, on a case by case basis.

Surprising Facts about Personal Loan

Personal loans have become the go to choice for short-term liquidity and you can get these short-term unsecured loans sanctioned in less than a week to meet any ‘personal’ expenses like travelling abroad for a vacation, enrolling your child for coaching classes, renovating your home or even paying your credit card bill!

1. You Can Apply for Personal Loans from Multiple Lenders

While it is possible to apply for a personal loan from multiple lenders, it is certainly not advisable. All lenders will look into your previous loan history and current applications under approval. If you have already availed a personal loan before that is still outstanding, the lender may reject your personal loan application or take a longer processing time.

2. A Bad Credit Score Means you can’t get a Personal Loan

Your credit rating does affect your eligibility for a personal loan but past history of having paid a loan and other significant sources of income will definitely factor in while determining your loan approval. Some lenders can issue loans up to a certain limit based on their discretion. Once you repay the personal loan within stipulated period you can improve your credit score.

3. It is near impossible to get approvals

This could not be further from the truth. A personal loan is hassle-free to avail, and most applications can get approved within 24 – 48 hours with fairly minimal documentation.

4. Only Big Banks Provide Personal Loans

Again, this is a common misconception and some banks do not even provide personal loans. However, several NBFCs do provide them and have approval criteria that are not as strict as banks. As NBFCs specialize in providing loans, they have speedy application procedures.

5. You can’t pay credit card bills with a personal loan

Credit card bills accumulate fast with compounding interest rates between 36 – 48%. Hence, a personal loan borrowed at a lower interest to pay the outstanding amount on the credit card. You can also avail ‘balance transfer’ of your credit, which is treated as a personal loan against a credit card.

How To Avoid Financial Nightmares

At least once in everybody’s lives, they will find themselves in some sort of financial difficulty. This can be from not having enough money in a store to buy the thing that you’ve been coveting for ages, or becoming bankrupt due to not managing your money well. Regardless of what it is, there has always been a time when we could’ve done stuff differently in order to get the most from our finances.

Get Yourself Covered

When the worst comes to the worst in terms of finance, it’s always good to know that you’ve got a safety net of some sort. Getting the right insurance cover for whatever you’re doing, no matter how small or how insignificant you may think it is, is definitely a step in the right direction. There are places online such as this website which can give you advice on the types of lawyers that you need for different situations should they ever arise. Thankfully, provided you take out the right policy and are paying the right amount of premium, legal cover is usually included in any insurance plan that you go for. Choose wisely and it’ll treat you right should the time ever arise.

Pay On Time

The one way to avoid any financial crisis is by paying what you owe - when you need to pay it. The longer that you leave an outstanding balance, the more likely that fines are going to be added on top or surcharges which make it harder to pay back in the long run. Getting in touch with debt agencies or asking for a payment plan of some sorts is a way to get around it, but prevention of it happening at all is the best way. Just pay up.

Don’t Live A Champagne Lifestyle

Don’t buy what you can’t afford. You can’t live a champagne lifestyle on a beer income, as the saying goes. The problem with items nowadays is that they’re so accessible to get, and so is the credit that we need to help us get them. We are always offered deals with hidden charges, so it’s important to look through the terms and conditions of any contracts that you are going to get yourself so you know exactly what you’ll be paying back and how often. Or more simple still - buy something when you know that you have the money outright to cover it all.

Learn When To Say No … And When To Say Yes

If you know that you can’t afford to go out with friends but do so anyway, putting yourself into further financial difficulty, you need to learn when to say no. People nowadays have a strong sense of FOMO (fear of missing out), but it’s something that needs to be put to one side in these circumstances. However, saying yes to certain opportunities like extra shifts and overtime are things that need to be snapped up, especially if you know that doing so will give you chance in the future to be able to indulge in the things that you have been missing out on.

Funding Yourself Whilst Ill And Out Of Work

Weeks off work due to illness can take its toll on your finances. Statutory sick pay can often be minimal and if you’ve been used to running a household on higher wages, debts can start to build up. Keep yourself and your bank balance healthy by trying out some of the following methods.

Work from home

If your job is largely phone and computer based and you’re not too ill to deal with the associated stresses, your employer may be able to help you arrange a way of working from home. Even on a part-time basis, you may be able to rack up more money than you would have on statutory sick pay.

Of course, if this is not an option, there are other methods of earning money from home. Survey sites are an easy and stress-free source of extra money that involve you filling out surveys for money. There are blogs meanwhile that pay you for writing pieces. Have the know-how and you may be able to write a piece for one of these blogs.

Sites such as Fiverr and Craigslist meanwhile are great places for offering any kind of service you can think of for money from restringing someone’s guitar to managing someone’s social media for them. Any skill you have can be advertised online and charged for. Just make sure that you aren’t doing anything to physically and mentally exertive that may affect your recovery or make you more ill.

Consider your legal options

You may legally be entitled to some other form of money, especially if your illness is due to injury or sickness that wasn’t your doing. You can find specific injury law firms such as The Brown Firm that can handle such claims. Examples may include being injured in a car accident, falling on a slippery floor somewhere that wasn’t mark or being made ill through medical negligence.

You may also be able to sue your company if you were injured at work. However, this can be risky if you work for a small business, as it could affect your relationship with your employer. Such legal action is best reserved for large corporations that are protected with insurance against such claims and will be more likely to pay up due to the impact on their public image.

Seek an advocate

Advocacy programmes can help those in need with medical advice, largely existing to help with complex medical decisions that the patient may not be in a position to make. However, advocates can also help you if you are financially in need and cannot afford medical bills. If you believe you have been wrongly billed by a hospital or an insurance company, advocated may be able to better negotiate costings. They can also find the most cost-effective treatment plan within your budget, which may involve calling around various hospitals and social services. This could help make the recovery process overall much less costly.

Build An Emergency Fund In Just A Few Months By Being More Financially Aggressive

There will undoubtedly come a time in your when you’ll need an emergency fund: a stash of cash to fall back on when times get tough. But with income so stagnant and the price of everything going up all the time, emergency funds can be hard to build. What it requires is a little “aggression” on your part to make it work. It’s not something you can just do without any effort. It takes commitment and a willingness to sacrifice, as well as some prudent financial planning.

Around 50 percent of people couldn’t write a $500 check tomorrow, even if they had to. So here are some ideas about how to build up an emergency fund.

Eat The Same Meals Every Day

The best thing to cut from your monthly budget is dining out. It adds nothing to your life except extra pounds around your waist. A much better idea is to start making yourself the same balanced meals every day for breakfast and for work.

Start off the day with something wholesome, like oatmeal or muesli with some chopped fruit. Then for lunch, cook up a big bean and veg stew on Sunday night and take it to work in a lunchbox for the rest of the week.

The average person spends more than $80 on food in the course of a typical week. But if you live simply, you can cut that bill in half, saving yourself over $160 a month.

Take Advantage Of Your Situation

Being in a financial emergency is not a lot of fun. But it is something that happens with surprising regularity. You could be out of action for all sorts of reasons, but the main reasons often aren’t your fault, especially if you’ve been injured. Talk to a personal injury lawyer. If they’re good, they’ll be able to help you claim back the money you’ve lost, boosting your finances in the process. The average settlement for people who have been injured at work is around $25,000.

Take The Exponential Approach

Cristin Jordan is a mom from Jacksonville in Florida. Not having any emergency savings used to keep her up at night. As a result, she began trying out the so-called “exponential savings approach.” The idea behind the approach was simple. In the first week, she saved $1. In the second, she saved $2. In the third, she saved $3 and so on. As she kept adding a dollar to her total savings each week, she found that her money was going up and up. By the end of the year, she had more than $1,100 in the bank, more than enough to pay for an emergency out of pocket.

Drop Your Bad Spending Habits

Sometimes many people spend money out of habit, not because they have to. For instance, some people take regular trips to the grocery store on a Saturday, just because that’s what they’ve always done, even if they don’t actually need any food. Be honest with yourself about whether you need to blow $100 on groceries or whether you can live off the food you’ve already got.

Why Alternative Investing Is So Hot Right Now

2016 was a big year. We saw a polarization in politics like never before in the West with events like Brexit and the US election, and investors all over the planet are wondering whether this is a sign of things to come. Businesses too are reporting that thanks to the changing political climate, they’re altering their behavior and planning how they are going to navigate a challenging political landscape.

The good news for individuals is that global growth remains strong. According to estimates, global growth will expand this year from 3.1 percent to 3.5 percent, mainly because of the new pro-growth strategies outlined by the incoming US administration.

With things changing so fast, what does should the small investor be doing? Here’s some advice to weather the storm.

Start Peer-to-Peer Lending

Peer-to-peer lending wasn’t even something that was possible until a few years ago, and we go the cloud. But the very fact that it exists is worrying. In a normal economy, it’s the job of banks to take the money of savers and lend it out to borrowers. But the fact that people feel the need to go to peer-to-peer services to get a return on their money shows that the traditional market just isn’t clearing. More people want to borrow than the banks will allow, prompting savers to enter the market and lend directly.

Granted, it’s all very strange, but there are some significant returns to be had. According to Bankrate, annual returns are between 5.3 and 8.6 percent, more than triple what most savings accounts currently offer. Riskier loans based on lower borrower credit scores offer even higher rates of return than that, although the risk is considerably greater.

Art And Rarities

Investors have been piling into art recently in search of better returns. Art and rarities are seen as a sort of safe haven when the stock market is in turmoil because they tend to keep their value over the long term. Recently interest in art has been pushed, however, by increasing sticker prices of top works of art.

Michael Saigh, a managing partner at a rarities investing company, says that for many small investors, opportunities are limited because of high entry prices. Some start at more than $1 million. But with the growth of art shares, it’s becoming easier for individual investors to get a stake in the market.

The growth of cloud platforms, as discussed on the Investor Services about us page, are giving investors the opportunity to make sure that their investments meet IRS requirements. This is important whenever individuals are investing in things like art and rarities using their 401(k) funds.

Impact Investments

Finally, there has also been a surge in the number of investors doing things that they hope will save the world. With people like Mark Zuckerberg and Bill Gates making high-profile announcements about their charitable investments, many others are following suit.

The cool thing about many of these investments is that they still generate positive returns, even though their primary goal is to achieve social good.

No Job, No Money: How To Find Funds When You Can't Work

When you find yourself out of work, you find yourself in a position where funds don’t come all that easily. You’ve lost your primary source of income, and you might struggle to get by for a while. There are lots of different reasons why you might lose your ability to work, and this can affect your ability to make funds. Let’s have a look at a few ways you might struggle.

Fired

Although many people don’t think it, they could easily find themselves in the position of being fired. You don’t necessarily have to do anything horrendously wrong to end up in this scenario. It might be a change of management that don’t think you’re up to scratch, for example. Luckily, if you’re fired, a good way to get funds is to seek unemployment benefits. The government might be able to help you out, depending on the circumstances. This should put at least some money in your pocket for the time being.

Injury

Of course, injuries can derail our work aspirations very quickly. In the case of a work-related incident like a slip or trip case, injury claims can assist. If you can prove that the incident was no fault of your own, you’ll stand to make a nice bit of cash. If it’s an injury that was your fault, you might be in a tougher position. Is it possible to do some work from home for now? It’s worth finding out.

Personal Issues

You might be suffering from any number of personal issues. A death in the family, for example. Maybe you’re having a tough time with mental health conditions? Again, there is help available in certain cases like this if you reach out for support. It won’t last forever, though, and you need to seek medical advice before it gets out of hand. Maybe, you need to reconsider the type of work you carry out in the future?

Lack Of Regular Work

If you’re a freelancer or working for a very small business, you might struggle to get regular work. When it dries up, you need to have some sort of backup solution on the side. There are a lot of ways to use the internet to make additional funds, for example. Have you thought about completing online surveys or getting involved in consultancy? Start setting up a side-business based around your interests, and you’ll be able to keep the funds rolling in no matter what.

Disability

I’m going to assume that if you’ve been disabled all your life, you already know about this. But, a disability can strike at any time, and it can severely alter the way you work. Again, the government is keen to help in a situation like this. And, keep in mind that your company might be required by law to suit your needs. It’s worth checking this out because unfair treatment is something that can be claimed against.

So, that’s just a basic guide to what you can do if you can’t work for a period of time. There is help at hand!