Post the chaos faced by the virtue of Demonetisation, the Aam Aadmi of India was hopeful of a liberal budget. And the budget did stand up to the expectations of the Common Man to some extent. The Budget 2017 has brought some good news for the common man. Following are some key highlights of the budget which a Common Man should know:

Tax: Individual Taxation has witnessed a number of welcome changes in this budget,

The biggest announcement made for the Common Man is the slashing of tax rate by 5% for individuals falling in the Rs 2.5 Lakh – Rs 5 Lakh Slab. This is a big relief for the taxpayers. There is a tax rebate of Rs 2,500 for individuals having an income of less than Rs 3.5 Lacs. This means if the income is Rs 3 Lacs, there will be zero tax liability, if the income is Rs 3.5 Lacs, then the tax payable will be Rs 2,500 only and if the limit of Rs 1.5 lakh under Section 80C is fully used, then the tax liability would again be zero for people with an income of Rs 4.5 lakh. For individuals falling in the subsequent slabs, there is a benefit of Rs 12,500 in total for them too.

The tax filing process has also been simplified by introducing a one pager return for individuals having a taxable income of upto Rs 5 Lakh.

However, the rich taxpayers falling in the slab of Rs 50 lakh to Rs 1 cr will have to pay an additional surcharge of 10%, while those whose income exceeds Rs 1 cr will have to pay a surcharge of 15%.

The budget has also put to an end to the RGESS scheme, under which the first time equity investors could claim for a deduction of upto Rs 25,000 for three years under section 80CCG.

Real Estate The budget has brought reasons to cheer for home buyers.

The unit size calculation under the scheme for profit-linked income tax deduction for promotion of affordable housing has been changed from "built up" to "carpet area", thereby increasing the size of the unit by around 30%.

For calculation of Long Term Capital Gains for immovable property, the holding period has been reduced to 2 years from 3 years.

Further, for those whose land is being pooled in for the creation of Andhra Pradesh's state capital, they will be exempt from Capital Gains for holding such land as on 2 June 2014.

For those living on rent and not claiming a deduction in respect of rent paid under any other Section of the Income Tax Act, you can now claim a deduction of up to Rs 60,000, up from the previous Rs 24,000 under Section 80GG.

The base year for indexation has been shifted from 1981 to 2001 now. So, for those holding property since ages, it is a good news. Since the cost of acquisition will be inflated while calculating Long Term Capital Gains.

Traveling: The budget was travel friendly.

There wasn't any announcement on increase in the railway fares. And the icing on the cake is you do not have to pay any service tax for railway tickets booked through the irctc website.

You will get clean coaches as an sms based 'Clean My Coach' service has also been started.

A new facility 'Coach Mitra' has also been announced which will provide a single window interface to register all coach related complaints and requirements.

Students

An e-learning platform called SWAYAM to be launched with 350 online courses, to enable students acquire knowledge virtually taught by the best faculty. And the best part is it comes for free. It is an effort towards providing the best education to all, including the most vulnerable.

Two new AIIMS for medical Students to be set up, one in Gujarat and another in Jharkhand.

Others: In addition to the above,

The banks have targeted additional 10 lakh new POS terminals by March 2017 and encouraged to introduce 20 lakh Aadhar based POS by Sep 2017. So, if you do not have a debit card or credit card or other modes of cashless banking, Aadhar based Sale Terminals will come to your rescue.

For senior citizens, Aadhar based smart cards, containing their health details will be introduced. This is a vital step taken to provide affordable healthcare and a good quality life to senior citizens.

{s}
[[script type="text/javascript"]]
$(document).ready(function(){
new DiscussionBoard("divDiscussionBoard", "578", "http://www.njwebnest.in/esaathi/index.php/discussion").load();
});
[[/script]]
{/s}

There are two ways to look at investor behavior in the context of markets. Although, there can be many more perspectives for investor behavior if we can include various markets and different types of investors, but broadly these two perspectives stand out in the open:

1. From the perspective of an Individual Investor

2. From the overall Market perspective

From the point of view of an individual investor, many try to exceed the market return by trying to time the market runs or taking additional risk. In fact, even the fund manager performance is assessed according to Alpha (Additional return over the expected market return) generated by the portfolio manager. While, professional portfolio managers managing large investment portfolios and backed by an infrastructure to analyze market movements, far more efficiently than any individual investor, may beat the opportunities and benefit from anomalies, for small individual investors it is equally difficult.

Therefore, from the point of view of an individual investor, the objective can be to generate returns equal to the market return, portfolio managers may be forced to generate additional returns so as to provide for infrastructure and other expenses. For an individual investor this will be an impossible task to perform as there is only enough time and money to create a small basket of securities.

Because of this limitation individual investor only apply very few strategies to safeguard themselves against market risks. Buy and hold, systematic investments etc. are a few such strategies. These strategies alone are usually not enough to protect the value in the times of crisis. Awareness and financial maturity play major influencing factors in decision making especially in the time of crisis.

Awareness

Awareness is not limited to the market, stock and economic information. It also includes awareness of objectives, goals own behavioral patterns and factors that may influence your financial decisions. As an investor you may ask yourself if the decision you are making is not influenced by any of the following common behavioral patterns:

1. Biases: It’s an influence which causes a tilted or one sided view of the situation or decision.

2. Herd Behaviour: Herd behaviour is better known in Hindi as ‘Bhedchaal’; i.e. one tends to do what everyone in the group is doing.

3. Active/Passive Investment Style: The style of investment of an investor can significantly affect the income generated on the investment, while passive style requires less involvement. It also requires the investor to have a long investment horizon, while active investor must spend lot of time in the market adjusting the trade.

What Went Wrong When Markets Crash?

Each of these crashes was followed by three behavioral phenomenons:

I. Overconfidence

II. Herd Behaviour

III. Panic

Panic
Figure: Stock Market Panic of 1929

Overconfidence
Figure: Dot Com Bubble

Overconfidence
Figure: 2008 Subprime Mortgage Crisis

Lack of awareness leads to herd behaviours, and afterwards overconfidence and when market starts to disappoint the new and the old investors panic to get out of the loop. As discussed earlier awareness encompasses awareness of macro-economic factors as well as factors affecting the own situation of the investor.

Since it’ll be really difficult for an individual investor to spend time and effort on completely understanding the intricacies of the market, best way is to understand their own risk profile and behavioral choices. This awareness will ensure that the investment decisions are not biased, not based on incomplete information or at least not fully exposed to the inherent market risk.

How to become aware of Self Position?

This question has been addressed time and again by financial advisors, planners and senior investors, who suggest that your purpose of investing should be clear. In a way you should know in the beginning (before starting to invest) following facts:

1. The purpose of investing: The asset choice depends on this purpose and important goal must be achieved through safer means, and so if you save your retirement funds in equity market in final few years of your retirement, more likely you are to panic in case of an adverse movement. Thus, as the wealth managers say, ‘define your goals smartly and prioritize before starting to invest.’

One example: Higher education of younger son is five years away, and marriage another three after that. Education requires Rs. 500,000 each year for three years but marriage is a Rs. 10 lakh onetime expense. Considering education loan is also available for education expenses with tax benefit on repayment, saving for marriage is going to be more meaningful and important as there is not cheap alternative to it.

2. How much you know about the asset: Know about the asset behavior and risk profile. For example: If your aim is to achieve results within five years equity may not be a good place to park your money, but if your aim is 10 years it may be. Similarly all other asset classes have their own risk profile and behavior.

3. Know Thyself: This is a very famous teaching of many of the religious texts that one should know himself, and be aware of the decisions he/she makes. Knowing yourself will start from personality definition and go on to include family, dependents, own aspirations etc.

How does this Awareness help?

The clear awareness and knowledge of your objectives, needs and goals allows you to make decisions which will ensure that you remain unaffected from market driven panic situations and are able to meet your obligations timely. Panic and wrong decision making strikes only when there is some lack of clarity over goals and purpose of investment. In summary it can be said that following learning can be made out from past market crashes:

1. Always define your financial goals with amount, time and importance.

2. Know your risk appetite; i.e. comfort level with temporary paper losses.

3. Understand the economic behavior of investment asset; i.e. economic cycle of the market.

With this awareness sometimes even taking a tactical benefit from the market may rewarding and not difficult.

{s}
[[script type="text/javascript"]]
$(document).ready(function(){
new DiscussionBoard("divDiscussionBoard", "569", "http://www.njwebnest.in/esaathi/index.php/discussion").load();
});
[[/script]]
{/s}

This is the time of the year when you would be gathering your medical bills for supporting medical allowances, petrol bills for transport allowance, boarding passes for claiming LTA, insurance receipts, donation receipts, etc. This is also the time when many of us would be investing in various tax saving products to avail maximum tax exemption.

Equity Linked Saving Schemes have proved their mettle over the years. It is the most preferred option for many investors when in comes to saving taxes because of a number of factors like high returns, highest liquidity among all tax saving instruments under section 80C of the Income Tax Act, easy application and withdrawal, etc. If we look at the performance numbers alone, the average return generated by ELSS schemes over the past three years, five years and fifteen years is 18.34%, 17.36% and 20.27% respectively. (Average of 31 ELSS Mutual Fund Schemes. Data as of 31^st Dec 2016). These numbers are greater than any other tax saving instrument in India.

For many people, investing in saving tax instruments is their only investment in the year. And investors often tend to replay their investments. Replaying investments means redeeming your tax saving investments on maturity and reinvesting the same amount for your current tax saving investment requirement. ELSS schemes as we know are good performers in terms of returns and are the best investment option if we consider liquidity. Investors are often tempted by the small lock in period of three years and they invest with the intention to 'Replay their Investment'.

The idea behind tax saving is investing for your future, investing for fulfilling goals and not just saving immediate taxes. And ELSS schemes are also based on the same notion. The lower lock in of ELSS is intended to give you the flexibility of withdrawal in case of emergencies. Your present survival is more important than your future wealth. So if after five years, you are in dire need of money and your tax savers are of no use, because of long lock ins, the entire purpose of saving gets defeated. But then it doesn't mean that you withdraw your investment after exact 3 years even if it is not an emergency.

Why should you not recycle your ELSS investment?

Consider an example, Karan Kapoor and Arjun Kapoor are brothers and both of them are living and working in Mumbai. The Kapoor brothers invested Rs 1 Lac each in ELSS schemes in the year 2014, Rs 1 lac in 2015 and another lac in 2016. Now they have to invest for 2017. Karan decides to keep his existing investments intact and he makes a fresh investment of Rs 1 lac for this year and for the years to come. While his brother Arjun feels that it is better to redeem his 2014 ELSS, since it will now mature and he can direct the same money into his 2017 tax saving commitment, and the subsequent years will follow.

Who is on the right track?

Let's analyse which brother has the right approach:

1. Karan will be saving and investing fresh 1 Lac or even more each year. Therefore he is accumulating a greater corpus for his future and will be in a much better position than Arjun in meeting his various life goals and emergencies. Arjun on the other hand is eventually not saving anything after three years. His investment is just Rs 3 Lacs, and this a tiny sum for his entire future.

2. ELSS schemes are market linked. They are managed like any other equity scheme and are hence ideal long term investment products. Karan's investment may fall or rise, he has no plans to withdraw. Arjun on the other hand will withdraw every year, the markets may or may not be in his favour. Hence there are greater chances of losing out on returns and even on the principal.

3. Karan will reap the benefits of long term equity growth, while Arjun will end up Replaying his Investment only.

4. Since Karan is committed to investing regularly, he is eventually saving extra, he has a more disciplined approach to investing. Arjun on the other hand is not saving after three years will be spending all his savings and compromising on a safe financial future. This is disrupting his saving discipline and long term financial security and goals.

The above factors clears that Karan Kapoor is following the right approach. It shows us why we should be smart like Karan, and not Recycle our ELSS investment. Rather invest with the objective of holding it for the long term. Do not redeem until you are in an emergency or a financial goal is approaching. You must remember it is not a mere tax saving instrument, but an investment for fulfilling your life goals.

{s}
[[script type="text/javascript"]]
$(document).ready(function(){
new DiscussionBoard("divDiscussionBoard", "560", "http://www.njwebnest.in/esaathi/index.php/discussion").load();
});
[[/script]]
{/s}