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GST Triggered Sales - It's Time To Protect Your Financial Well-being - Outside View by PersonalFN

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GST Triggered Sales - It's Time To Protect Your Financial Well-being
Jul 3, 2017

Stock Clearance Sale!

Pre-GST Sale!

The Great Indian Sale!

The Big Billion Day Sale!

Different tag lines, all of them for one purpose --- stock clearance before the July 01, 2017.

If you visit a shopping mall or a well-known online store, there are sales running showering discounts and offers. Along with usual monsoon season sales, shops are gushing with customers frantically trying to get the best discounts.

Wondering why there are so many sales these days?

The urgency of this phenomenon is because of the Goods & Service Tax that will roll out over this weekend. With the implementation of this transformational tax structure, there is an unvoiced concern that the prices of most commodities are set to increase.

Let us dig in deeper and understand how GST is going to affect the profits of the producers/companies of any good or a service provider.

Maximum Retail Price (MRP) is the price you pay for the product inclusive of all the taxes. The MRP needs to be justified factoring in the total production cost and profit margins. And this needs to be approved by the regulatory body formed under Legal Metrology Act, 2009.

Once the product has been dispatched from the manufacturing unit/warehouse, the MRP cannot be changed as per the company's convenience. There is a set procedure and number of approvals required.

In current scenario, with GST coming into play, companies are left with two options:

  1. To tweak their MRP; or
  2. Sell the products at same price (inclusive of new tax rates)

Option one is lengthy and time consuming where the producers can't rationalize their hike in MRP.

And in the case of option 2, companies will have to sell their products at the same MRP, but will be charged a flat GST rate and this might affect their profits.

Hence, there is hullaballoo and frantic stock clearance everywhere.

In this article, we have highlighted the frequently purchased goods and products such as electronics and apparels and some points to keep in mind before you hop to a shopping mall.

Electronics

Wants are unlimited and nothing can quench this thirst. Electronics retail stores have declared heavy discounts on their range of products and this has shown an uptick in their sales number.

But do not get carried away with the air conditioners and refrigerators that are being sold at a discount rate of 40% - 50%. Buy these only if you need it! Remember though the purchase price is low, the additional costs like its maintenance, power consumption, etc. might burn a hole in your pocket in the near future.

But, if there are certain things which you wish to purchase and they are presently on heavy discounts, then you must not let this opportunity slip off. For instance, if you were planning to buy a TV set, refrigerator, washing machine, or air-conditioner during Diwali sale you should probably make the best of the ongoing sale.

Please note that indulging in a shopping spree just for the sake of it can harm your long term financial health.

Apparels

Most of the apparel stores have adopted several strategies to entice customers. There are large hoardings outside the store stating 50% discount offers. However, if you look closely at the fine print, they prefix "upto" to the alluring discount. Naturally, this means not all stocks inside the store carry a 50% discount; the slash in prices are limited only to certain items.

Remember that, while shopping during a sale is not a bad thing, it must be undertaken only if you genuinely need to purchase things and not merely because they are available at a discount. For instance, shops might have offers such as "buy 3, get 1 free". You could buy 3 things, just to get that 1 thing free, irrespective of whether you even need those 3 things in the first place. If you buy something just for the sake of it, without assessing your needs, there are chances that you won't actually use it later, resulting in parking your money into unnecessary goods.

Points to remember:

With the GST rates being implemented does not mean that the world of fair prices is ending here. Consider this:

  • Rationally assess what things you really need vs. things you want
  • Have a budget in place for each item, say apparels, home appliances & decor, gadgets, gifts, etc. and follow it religiously when you venture out shopping
  • You could buy things you've vied for during sales/ offers, but ensure that you get the best bargain and read the fine print.
  • Avoid buying things you do not need in the near future
  • Avoid converting large purchases on your credit card to EMIs
  • Redeem reward points accumulated on credit cards to buy things that can effectively help you preclude a cash outflow
  • Pay your credit card dues in full and on time

PersonalFN is of the view that, as much as earning good returns on your investments is important to you, curtailing avoidable expenses too is important. End of the season and stock clearance sales will continue year after year, but spending more means you will probably save less and invest lesser. Such frivolous choices can damage your financial health in the long run. It is imperative that you first save to achieve financial security and then spend on lifestyle and leisure. This does not mean sacrificing all your wants and desires, but it does mean that you must plan for them in a prudent manner. We believe that if you chart an appropriate financial plan and be determined to follow it, you will not only be able to achieve your financial goals but also enjoy a comfortable quality of life.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

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.

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