Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Financial planning in light Of the latest budget - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 2, 2011

    Financial planning in light Of the latest budget

    In general usage, a financial plan can be a budget, a plan for spending and saving future income.
    This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings.
    That's how Wikipedia frames it and the definition is accurate.

    In light of the latest Budget 2011 - 12 announced by the Hon'ble Finance Minister, Mr. Pranab Mukherjee, let's assess what has changed for us, if at all, from a Personal Financial Planning point of view.

    The two key points presented in the Budget from a Financial Planning point of view were as follows:

    1. Age to qualify as a senior citizen has been decreased from 65 to 60 years

    2. New tax category of Very Senior Citizens has been introduced, which allows tax free income up to Rs. 5 lakh p.a. for individuals of above 80 years. However, income from Rs. 5 to 8 lakhs is to be taxed at 20% and above Rs. 8 lakhs will be taxed at 30%.
    Both these points are good news for senior citizens, from a tax saving point of view. Senior citizens benefit with a saving of approximately Rs. 26,000 in taxes.

    In additional, the Budget announced an extension in the tax deductible investment in Long Term Infrastructure Bonds, allowing Rs. 20,000 under Section 80CCF for one more year.

    Insurance companies are slightly displeased, considering that the Budget proposes service tax to be charged 'in the portion of the premium', and 'composition rate is also being increased from 1% to 1.5%' on life insurance policies. This implies that the premium on your traditional policy, if you have one, will be a little bit higher, and the returns you earn will be a little bit lower.

    From a Financial Planning point of view, this is just one more reason to opt for a straightforward term plan for life cover, and leave the job of generating returns to your investments.
    Old tax slabs have been tweaked a bit, but the impact is marginal: Exemption limit for the common man has been increased from Rs. 1.60 lakh to Rs. 1.80 lakh, leading to a tax saving of Rs. 2,000. There has been no change in the exemption limit for women.

    This tweak is basically one step towards the Direct Tax Code which is to be implemented next year, where there will be no difference in the exemption across men and women tax payers, and the basic exemption will be Rs. 2 lakhs.

    So, all in all, from a Financial Planning point of view, the changes are minimal.
    You should still follow the process of Financial Planning when building wealth for your family's and your life goals.
    1. If you have a goal that is less than 3 years away, for example buying a house or a car, or sending your child for higher studies, then the corpus should be invested in safe instruments and should not be exposed to market risks i.e. no equity exposure.

    2. For a goal that is 3 to 5 years away (medium term), your exposure to risky assets (equity) should be low, and your primary exposure should be to debt (think more MIPs, fewer balanced funds).

    3. For goals that are 5 to 10 years away, your equity exposure can be higher, with lower exposure to debt, as the time horizon will enable you to weather any market volatility that comes your way.

    4. For goals that are 10 years away or more, you can be primarily invested into equity, with some exposure to debt.
    At all times, remember to have your contingency fund stashed in a safe place (liquid plus funds, a sweep in flexi deposit with your bank) in case of an emergency. Your contingency fund should be 6 to 12 months of your family's and your monthly living expenses.

    This article has been sourced from PersonalFN has been providing independent research since 1999 on mutual funds, insurance, fixed income instruments and gold. It also provides research based advice on investments and financial planning to individual clients. To know about our financial planning services, simply write to info@personalfn.com.


    The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.



    Equitymaster requests your view! Post a comment on "Financial planning in light Of the latest budget". Click here!


    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms