Budget should you worry or invest wisely – finale

Budget should you worry or invest wisely

With budget around the corner and a sluggish economy, everyone is worried and eagerly waiting for the Finance minister to dish out something exciting or wave a magic wand and make everything oki!! Everyone is hoping for a tax cut or some other similar gifts. But the irony is without tax income how do you expect the government to increase spending for infrastructure and how to do you expect the government to infuse much needed money into the economy.

So how does Tax revenue affect growth?

The last two years, that is 2018-2019 and this current year, the tax revenue has decreased considerably.  In fact this year for the first time in two decades, there has been a fall in the direct tax collection. Direct taxes account for almost 80 percent of the total tax collection.  As per reports as published by the Economic times – The Income tax department has been able to collect Rs 7.3 trillion till January 23rd which is 5.5 percent below the amount collected same time last year. The Government was targeting at collecting Rs 13.5 trillion but with the decrease in the businesses cycle, this target looks unachievable.  The effects of this can be seen on government spending as well.  In the current scenario, without government spending, the revival of economy seems difficult.  Also, indirect taxes are out with coming of GST whose committee meet every month to analyse and bring out reforms as and when they seem necessary which has been far and wide and with time, the GST reforms are settling down and hence less changes happen over time.

What has tax collection should concern you regarding your investment decision?

PROBABLY NOTHING.  Although decrease or increase in income tax affects investments amount but tax rate cuts or increase should not affect your investments decisions.  Why –

  • Achieve goals – why does a person invest? Reasons can be numerous like buying a house, car, retirement, children or in general being rich. SO your investments are decisions which are based on achieving these goals and not on budget.
  • Insurances – an individual will always require medical and life insurances; budget or no budget, slow down or no slow down. You already have a tax benefit for this category and trust me, no finance minister is going to take away tax benefit on insurance premium paid. So an individual planning on renewal of medical insurance or buying new policy, should not be waiting for the budget but should just go ahead.
  • Emergency funds – emergencies come unannounced and one always has to be prepared for it. How – by keeping at least three months worth of cash’, equivalent to your mandatory expenses, aside in liquid assets. In other words, funds that are readily available. Will budget change your decision about keeping aside emergency funds?,    Even for selecting the liquid asset for investing, budget should not be a factor in your decision.
  • Retirement – retirement planning is a long term planning, especially for individuals in their 20s, 30s or 40s. You should be looking for something like a long-term Systematic Investment Plan (SIP) or investment in assets like real estate. This decision should never be based on budget, as you cannot predict every years budget’ and the changes it will have on your asset class, and churn the portfolio accordingly. In fact you will stand to lose out more than gain with such a strategy.
  • Investments – where to invest, what to invest in, how long to invest, these are all variables which are in your control and which has to be aligned with your needs and goals and not with external factors such as Budget.

This years budget is much awaited and hyped due to slowing economy and there is hope that there will be certain announcements that will make business environment more conducive to growth and consequently result in better cash flow in the our hands.

That being said, Budget is not a magic pill that can solve problems overnight.  These are problems that plague the world and are not just ours.  It will take time to get back on its feet.  Till then we have to more concerned about our own financial goals and needs and undertake investments based on these and not what the Budget has to offer.

Terror insurance: Are you covered?

The best insurance against terror is love. True but not very practical, is it?

And the recent Mumbai terror attacks proved it even as they left everyone in the country in a state of extreme shock. What has become very apparent, though, after these attacks was the fact that disasters can strike anybody, anywhere and in any form. And we have to be prepared to face such eventualities mentally, physically and even financially.

While life and death can be best left to the mercies of fate it is nevertheless wise to secure your dependants’ future for such eventualities. And the main purpose of this feature is to focus on the financial aspect of terror-related deaths. How can you secure your family’s financial future in the face of such unforeseen, unnatural calamities? There is only one simple answer: insurance.

I vividly remember those times in the early 1990s when people used to check whether life insurance would cover death by natural causes or illnesses? Today insurance takers are checking frantically whether death resulting out of a terror attack like the one witnessed in Mumbai is covered or not.

For such people there is hope. Death due to terror attacks is covered both under life insurance and general insurance.

Life insurance

This forms the most important part of risk management. It is prudent to make sure that death by terror is covered in the insurance plan you choose. In India most insurance companies cover death by terror barring a few private companies. The standard phrase that has always been emphasised is this: Please read the offer document carefully before selecting any kind of financial product. And it holds true in terror-related insurance cover cases more than ever before.

If you have selected a personal accidental rider (which covers bodily injuries, death and disability) along with your insurance cover then you can claim the insurance amount as assured under this rider as well.

Illustration: Suppose you have a term policy of Rs 25 lakh along with which you have added a personal accident rider of Rs 5 lakh. God forbid if you were to die due to terror acts then your family stands to receive a total of Rs 30 lakh as insurance amount: Rs 25 lakh as life insurance plus Rs 5 lakh of personal accident rider.

However, in case the insured person is just disabled or injured then s/he will get only Rs 5 lakh as part of her/his personal accident rider agreement.

Personal accident insurance

This is completely different from personal accident rider and should not be confused with the personal accident insurance which is a standalone policy.

Personal accident insurance covers any kind of damage inflicted like bodily injuries, death, temporary disability and permanent disability due to accident (which also includes terror acts). All of the above-mentioned damages are covered in this policy offered by general insurance companies.

To be on a safer side it is advisable to have a standalone personal accident cover rather than taking a rider along with your life insurance cover as the premium turns out to be cheaper. Also, the standalone cover does not end with life insurance claim unlike the personal accident rider claim.

Moreover standalone personal accident insurance policies allow coverage for older people which is not the case with personal accident riders.

Property insurance

This is a very important part of risk management. Check whether your property or home insurance covers damage to property caused by terrorism acts. If not, ask for a terror cover. Generally, you can get a cover for damage to property due to terrorist act after paying an extra premium amount.

The sudden importance of insurance for terror has had many investors scrambling to get terror insurance cover. Terror cover is the most unwelcome insurance one can have but in recent times it has become the most unavoidable one. Let’s just pray for the day when there will be no need for a terror cover in our society. Amen!