8 smart money moves to make in the new fiscal

The start of the new financial year is a good time to take stock of your finances. Financial planners say that one should review the investment portfolio at least once a year, and April seems just the right time to do so.However, apart from rebalancing the portfolio, there are several steps that investors should take now. ET Wealth reached out to financial planners to know the steps to be taken right away.Start SIP in ELSS fundStart your tax planning from the first day of the new financial year. “If you start SIPs in ELSS funds from April, you won’t have to worry about tax planning at the end of the financial year,” says Delhi-based financial adviser Tamanna Varma. ELSS funds carry the same risks as any equity fund. A staggered approach not only helps tide over volatility but also yields higher returns. ET Wealth compared the returns of SIPs started three years ago and lump sum investments made in March for the past three years. In all cases, the SIP investor made more money than the taxpayer who invested at one go in March.Also Read: Best ELSS funds to invest in FY 2019-20Experts also say that investors should not be overly worried about short-term performance of ELSS funds. “Once you invest in ELSS you get locked in for three years. But it usually turns out to be fairly rewarding,” says Dhirendra Kumar, CEO of Value Research. Value Research has identified four ELSS funds that have delivered good risk-adjusted returns in the past three years (see box). Choose any of these funds to start an SIP this month.Go for Voluntary PFIf you are covered by the Employees’ Provident Fund, this is the time to ask your company to deduct a higher amount under the Voluntary Provident Fund (VPF). The VPF earns the same interest as the PF and is eligible for the same tax benefits. Though banks (especially the new small finance banks) are offering very attractive rates on fixed deposits, the interest from bank deposits is taxable. In the highest tax bracket, the post-tax returns of an FD offering 9% interest get reduced to a little over 6%.The interest is tax free in case of PPF, but is still lower than what the VPF offers. “The VPF is probably the best way to invest in debt. It offers the maximum post-tax returns at minimum risk,” says Deepti Goel, Associate Partner, Alpha Capital.The best thing about the VPF is that it goes out of your salary before you get your pay cheque, so you don’t even feel it. It is especially recommended for those in their late forties and early fifties who have a high surplus but don’t want to take too much risk with their money.Invest the incrementApril is the time when most people get their annual increments. When your salary rises, your expenses go up and your lifestyle improves. But in the din of the celebrations, the investment part is easily forgotten. “The increase in income should also be reflected in the individual’s investments,” says Rohit Shah, Founder and CEO of Getting you Rich.A lot of investors have SIPs in mutual funds but very few actually increase the amount. Over the years, the SIP amount becomes too small to be of any significance. “Too many investors are taking SIPs in homoeopathic doses,” says Dhirendra Kumar, adding that “if only 2-3% of your income is going into the SIP, the end result is going to be little more than entertainment”. This is the time to enhance the SIPs or start new ones. It may not be possible to invest the entire increment, but at least 20% of the increase in the salary should be invested for financial goals.Open an NPS accountThe NPS has gradually shed many of its shortcomings in recent years. In 2015, the Budget gave an additional deduction of Rs 50,000 under Sec 80CCD(1b). In 2017, 40% of the maturity corpus was made tax free. Now, the entire 60% that can be withdrawn at the time of maturity is tax free. Also, one can opt for a higher 75% allocation to equity funds. If you have still not opened an NPS account, it is time to open one now. “In the long term, the earning potential of NPS is higher compared to other instruments for retirement savings,” says Goel.Opening an NPS account is easy if you are KYC compliant and have a Netbanking account. Just log on to the NPS portal and follow the instructions to open an eNPS account.Don’t invest too much nowWe said earlier that this is the right time to start your tax planning for the year. But this does not mean that the entire tax planning for the financial year 2019-20 should be done at one go. Normally, tax measures announced in the Budget in February are effective 1 April, facilitating the smooth commencement of the tax planning process. But this year, taxpayers may get caught on the wrong foot if the rules are changed in the full-year Budget in July.For instance, if the Budget goes ahead with the proposed tax rebate on taxable income up to Rs 5 lakh, individuals in the lower income bracket may not have to do any further investments at all. On the other hand, if the Section 80C limit of Rs 1.5 lakh is raised without a rejig in the tax slabs, taxpayers will need additional funds to avail of the deduction.Given this situation, you should look at building flexibilities into your plan to take advantage of any tax measures that may be announced in July, say financial planners. Avoid lump sum investments in any tax-saver avenue. For example, if you have received an annual bonus or leave travel allowance payout in March, set aside a portion of this amount in a liquid fund or fixed deposit instead of investing it at one go in the PPF, the Sukanya Samriddhi Account or equity-linked saving schemes (ELSS).Wait and watch“Staggering your investments through the year will provide flexibility to account for any likely changes,” says Priya Sunder, Director and Co-founder, PeakAlpha Investment Services. Such flexibility will allow you to invest in a new tax-saving instrument that is more remunerative or utilise a separate tax break bucket.“Taxpayers whose taxable income is marginally higher than Rs 5 lakh will be most affected by any new tax proposals. In April, they should estimate their annual taxable income from all sources. This will put them in a position where they can maximise current tax breaks as well as new ones, if any, announced in July,” says Archit Gupta, Founder and CEO, Cleartax.in.Submit Form 15H, 15GThe interim Budget raised the TDS (tax deducted at source) threshold for bank and post office deposits from Rs 10,000 to Rs 40,000. For senior citizens above 60, the TDS threshold is already at Rs 50,000. At the same time, the tax rebate under Section 87 means that there is no tax if the taxable income is below Rs 5 lakh. If your income from deposits will breach the Rs 40,000 mark but the total income will be below the basic exemption of Rs 2.5 lakh, submit the Form 15H or 15G with the bank. This should be done in the first week of April to avoid TDS. Many banks now allow online submission of the Forms 15G and 15H.Set up an emergency fundEverybody needs an emergency fund that can be accessed at short notice without disturbing long-term investments. Financial planners say that this contingency fund should be equal to 4-6 months’ household expenses. “It’s a good idea to deploy your annual bonus in a contingency fund,” says Shah of Getting You Rich. Start investing in a liquid fund or an ultra short-term debt fund. These funds will yield a nominal return of 6-7% but will ensure that the money reaches your bank account within a day of redemption.

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