September 22, 2021

Is it Better to Take a Home Loan or Pay Cash while Financing Your New House?

Apr 26, 2021

Buying a house is not a child’s play. A huge investment requires a meticulous thought process, financial balance and robust decision-making power. So, when it comes to financing the property, it could be a tricky decision. Should you spend your cash or opt for a home loan?

If you have been thinking about purchasing a house, you might have faced this dilemma. Scroll through for some information below in order to aid you in effective decision-making.

Cash Payment

Pros

  • Sole ownership – When you pay through cash, the sole ownership is with you. No bank or financial institution has any stake in your property.
  • Negotiation – Typically, you are in a better position to negotiate when you have cash. You also save money, as there is no interest cost to be borne.

Cons

  • Your savings can get blocked – If you buy a house through cash payment, a major portion of your liquid funds could be blocked in a single asset. It can reduce the chances of diversification.

It is recommended to buy a home through cash payment only when you have ample amount of funds to meet any emergency or future expenses. Making cash payments should not jeopardize your budget, investments or liquidity.

Home Loan

Pros

  • Tax benefits – Through a home loan, you can enjoy tax benefits and save money. When you avail a home loan, you can claim deduction of up to Rs 1.5 lakh on the principal repayment and up to Rs 2 lakh on the interest payment from your income under the Income Tax Act, 1961. Additionally, you can also claim a deduction of Rs 50,000 on the interest from your taxable income, if you are a first time home borrower.
  • Improves credit score – Through timely repayments of your home loan EMIs, you can improve your credit score. A good credit score can help you avail loans in future at better terms.
  • Liquidity – When you take a home loan, you are not usually bound by the amount of cash in hand. With a home loan, you can purchase a better house in a better locality. Additionally, availing a home loan leaves you with liquid money for other lucrative investments, aiding diversification.

Cons

A home loan can be an added debt and put pressure on your finances. In addition, as the repayment amount includes interest, you could be paying more than the cost of the house. However, with flexible repayment, you can opt for comfortable EMIs and repay the loan.

Conclusion

It is imperative to consider different aspects such as your age, financial condition, existing liabilities, intent, etc. while taking the decision. Experts opine that you should also consider your long-term goals and needs while choosing between the two. Paying through cash could seem like a cheaper option, but it can hamper your liquidity and retirement goals. Therefore, consider the pros and cons of both the options carefully and accordingly make an informed decision.

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Ask the right questions before starting a monthly SIP

Apr 24, 2021

Systematic Investment Plan abbreviated as and commonly referred to as SIP is the easiest way to invest in mutual fund schemes. There isn’t a more organized investment option as for now and SIP ensures that you save and invest a fixed amount at regular intervals (typically every month) till your investment objective is achieved. Not everyone has a hefty corpus to start investing in mutual funds and SIP ensures that even if you have Rs. 500 to Rs. 1000 every month, you can still invest this amount and kickstart your investment journey without worrying too much. Thanks to the introduction of SIP, it has become possible for almost everyone to give themselves a chance of earning long term capital appreciation through systematic investing.

If you too are keen on starting your mutual fund investment journey via SIP, here are some of the questions you must be asking to ensure that you are taking an informed investment decision –

What is SIP?

Systematic Investment Plan is an investment tool where you choose an investment amount that you are comfortable with and invest this amount at regular intervals till your investment objective is achieved. There is no limit on number of SIPs and investors can start SIPs in end number of mutual fund schemes without any restrictions. SIP ensures that you save and invest a fixed amount before you start splurging in that particular month.

Are SIPs safe?

SIPs are not safe, but they ensure that you do not invest all your amount at once, thus saving your entire finances from getting exposed to market volatility. If you are investing in equity funds, these funds are constantly exposed to volatile markets. But when you start a monthly SIP, only the amount that you invest every month is exposed to equity market’s explosive nature. SIPs do not require investors to time the market and you can start investing in mutual funds via SIP right away.

Can I stop my SIP?

The performance of mutual fund schemes fluctuates from time to time. Sometimes if the sector or asset class in which a mutual fund scheme invests crashes, investors might be concerned about the scheme’s performance. In such a scenario, investors can immediately stop their SIP investments in that particular fund. In case you realize that you have invested in the wrong scheme or there is another mutual fund scheme in the same category that has a better track record, you can immediately stop your investments and switch to a better performing scheme. There are no fines applicable for abruptly stopping your monthly SIPs.

Can I modify the SIP sum?

Just like it is possible to stop your ongoing SIPs, investors can even modify the SIP sum depending on their income needs. Ideally year after year, it is recommended to increase your monthly SIP sum by 10 percent. Some individuals find themselves in a situation where their monthly income might fluctuate from time to time. Such individuals can increase or decrease their monthly SIP sum and they can invest this modified amount in the following again. Again, there are no charges for modifying the monthly SIP sum.

Does power of compounding work with SIP?

Power of compounding is an investment technique that seems to come into effect only when you continue investing in mutual funds via SIP for a minimum period of 7 to 10 years. Power of compounding is nothing, but the interest earned on the interest earned from the initial investment amount. To witness your small SIP sums snowball into a large corpus, investors are expected to continue investing in mutual funds via SIP keeping a long term investment horizon in mind.

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Things to bear in mind before investing in hybrid funds

Apr 24, 2021

Individuals who wish to invest a portion of their hard-earned money in investment schemes must first understand financial planning in the best possible way. Financial planning asks investors to determine their appetite for risk as well as prioritise their life’s urgent goals so that they are able to diversify assets accordingly. Every investment scheme has some risk associated with it. Even conservative schemes offering fixed interest rates cannot be deemed entirely risk free. If you are someone who is young with an aggressive investment approach and long-term investment horizon, such individuals can consider investing their hard-earned money in market linked schemes like hybrid funds.

Hybrid funds are gaining traction among retail investors because they have a slight upper hand over other equity schemes. While equity schemes predominantly invest in equity and equity related instruments, hybrid funds follow a unique asset allocations strategy where the fund manager builds portfolio by investing in both equity and debt instruments. Multi asset allocation strategy usually works because equity as an asset class is known to get affected by the fluctuations in the market. When the markets are volatile and this leads to the equity portfolio to underperform, investments in the debt can add the necessary cushion.

Things to consider before investing in hybrid funds

Hybrid schemes invest in different asset classes, thus aiming to provide the right amount of diversification for investors. However, here are some of the factors to bear in mind before investing in hybrid schemes –

Decide which hybrid scheme to invest in – The investment strategy of every hybrid scheme varies depending on its investment objective. If you carry a high risk appetite, then an aggressive hybrid scheme might be more apt as it invests more in equity and the rest in debt. Similarly, a conservative hybrid fund is more debt oriented and invests 15 to 20 percent in equity. Investors should choose a hybrid that suits their investment objective and shows growth potential to target their financial goals.

Capital gains tax – The equity component of hybrid funds is taxed like equity funds. Capital gains from the equity component of hybrid funds is eligible for short term capital gains tax of 15 percent and long term capital gain tax of 10 percent (for gains exceeding Rs. 1 lakh). The debt component of hybrid schemes is applicable for a short term capital gains tax is applicable as per your income slab. A long term capital gain tax of 20 percent is applicable after indexation benefit and 10 percent without indexation.

Risk appetite – Hybrid schemes invest in securities whose performance may fluctuate depending on the fluctuating market trends. Such investments are high risk and over the short term, you may even face losses. This is why investors should ideally determine their appetite for risk and evaluate whether investing in hybrid funds suits their income needs.

Investment horizon – Since these are equity oriented schemes, investors should understand that they need to have a minimum investment horizon of 7 to 10 years. Investing in hybrid schemes for the short run will not only shun their chance of earning capital gains, but they might even lose out of their investment amount. Hence, it is better to keep a long term investment horizon while investing in hybrid funds.

SIP or lump sum? – Investors need to determine whether they want to make a onetime investment or start a monthly SIP in hybrid funds. Systematic investment plan ensures that you save and invest a fixed amount at periodic intervals. Investors can also refer to SIP calculator, a free online tool which lets them determine the overall wealth (approximate) which they will accumulate through SIP investing.   

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How Tax deduction on FD is calculated

Apr 22, 2021

The interest that you earned on a fixed deposit is taxable and dependent on different income tax slabs of individual earning interest; this varies from person to person. The income tax slab rates lie between 0% and 30% and the tax levied on fixed deposits is influenced by the income earned by the taxpayer in that particular year. There are tax saving FD rates that can help minimize the burden on your finances. Here is how tax deduction on fixed deposits works:

Tax Deducted at Source (TDS) on Fixed Deposits:

The TDS associated with the interest on fixed deposits is deducted by banks at the rate of 10% if the amount paid or to be paid is over RS.10,000. The limit is set at that amount per branch of that bank, for each individual. Thus, the TDS is deducted by the branch only if the amount paid from one single branch as interest is over Rs.10,000, even if cumulatively, the individual may receive more overall interest from their various FDs.

When the time to pay the interest comes, the bank will deduct the tax from your interest earnings, prior to depositing the rest in your account.

In case, the TDS deducted is lesser than your tax liability, you must pay the amount that is left.  In the event that the deducted TDS is more than your tax liability then you can claim a refund.

If the interest owed by the bank is over Rs. 10,000 and the individual has not submitted their Permanent Account Number (PAN), TDS will be deducted at a rate of 20% as per section 206AA of the Income Tax Act. This step acts as an incentive for all individuals to submit their PAN details as most do not want to miss out on tax saving FD rates.

No TDS deduction on Fixed deposits:

In a case where an individual’s total tax liability is zero but TDS is still deducted by the bank due to the interest payout exceeding RS.10,000 from one branch, the individual is considered eligible for a refund. Forms 15H and 15G introduced by the Government eases the process of filing for a refund, and the declaration forms are valid for the duration of one year. Every year, a new form must be submitted for zero or low TDS deduction on the interest earned on fixed deposits.

Conclusion:

Along with TDS there are other forms of tax deduction on fixed deposits. For example, investors who are senior citizens can claim tax deduction on fixed deposits that have a lock-in period of five years according to section 80C of the Income Tax Act. Essentially, it’s important to assess all the available options with regards to fixed deposits and tax saver FD interest rates, as well as your own IT slabs while planning your finances, and you can do this with the help of FD tax calculator on the bank’s website. This is where Finserv MARKETS can come to your aid; a platform that is designed to attend to all your investment needs. Finserv MARKETS offers you a diverse range of financial solutions from the best providers in India, from which you can choose the fixed deposit that best suits your requirements and preferences.

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Why Choose Tax Accountants Over Accounting Software?

Apr 19, 2021

Tax accounting isn’t a child’s play and despite the existence of different useful and functional accounting software that are designed to assist people in helping them manage their accounts, the demand for Birmingham tax accountants is always on the higher side. The tax accountant business is here to stay, given how the software is made to do only a limited job. As for tax accounting, it is performed by the experts who no business, regardless of the size can defeat.

If you are still confused as to if hiring Birmingham accountants is worthwhile or not, then given below are a few of the most popular benefits that you can reap upon working with them.

Top Best Points That Show Tax Accountants Are Better Than Accounting Software

They Aid in Yearly Tax Planning and Possible Cost Estimates

A tax accountant is trained to assist you with the yearly tax planning followed by logical cost estimates. The only thing that you are required to do is dole out the necessary documents to your hired accountant so that they can take up the job and do it on your behalf. When you are new in the business or even being an experienced entrepreneur, other things require attention and time. Upon outsourcing the accounts-related job to the professionals, you can devote as much time as you want to your business.

They Take Care of Accuracy

The process of tax filing isn’t easy and involves several complexities. Being complex in nature means, it can cause you to commit errors. It doesn’t matter how insignificant the error is, you might end up paying penalties in thousands, might be charged with late fees, etc. The professional Birmingham accountants ensure the tax filing is done accurately and is always on time. Furthermore, the fees that the accountants charge from you are far lesser than the penalties you would be charged with, in case of errors.

They Do Tax Filing on Your Behalf

One of the most troublesome aspects of paying taxes is preparing them, and second, comes the filing of those taxes. While you might view it as something simple, filing tax papers isn’t easy but rather involves a lot of time, effort. From hours of panic to hasty scrambling; a lot goes into the process. However, Birmingham tax accountants would make sure that you do have to get involved in this troublesome process, by helping you to file taxes.

Additionally, the tax accountants help you to have clear access to modern software that isn’t only advanced but is designed to scan data and accurately organize the forms. The advantages of working with tax accountants are many including getting help in quickly achieving financial goals. Count on Birmingham accountants to help your business flourish.

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Factors affecting your home loan eligibility

Apr 4, 2021

Are you planning on getting a home loan? If yes, your first step in the process should involve checking if you qualify. The easiest way to do this is by using the home loan eligibility calculator offered by various lenders. It enables you to ascertain your qualification instantly without any hassle.

It is an essential part of the procedure as banks, and financial institutions have stringent parameters to evaluate your application. Being prepared is the only way to pass their verification and get your loan approved. It is also an excellent means to plan for the biggest financial responsibility. It helps to know the factors affecting your eligibility for guidance.

Here are some of them:

Age: It is an indicator of how many years you have left to repay the loan. As home loan comes with a tenure of up to 30 years, it becomes an essential factor. If you qualify for the loan by a bit of chance, lenders adjust the risks by extending the loan period and instalments. But if your age does not allow for it, it automatically impacts your eligibility.

Credit score: It depicts a clear picture to the lenders of how you handled your past financial obligations. Your timely repayments and debt clearance show your financial credibility, which is used to calculate home loan eligibility. You must have a credit ranking of 750 or above to avail of the loan. Hence, make sure to check this beforehand and fix it before applying for the same.

Income: It is the main component considered for your home loan eligibility as you pay your equated monthly instalments with it. The criteria differ for the salaried and the self-employed. It also varies depending on your location as metro cities have higher income compared to rural areas. Lenders usually assume that 40-50% of your payment will get contributed towards the loan. So, having higher revenue helps you get better deals and determines if you qualify.

Employment status: Your earnings can include fixed sources and variables. For instance, you are allowed to have your investment returns, rental income, dividends, etc., in your income. However, your primary and fixed source is always through your employment. Therefore, lenders check the nature of your work and its stability to understand your financial standing.

Existing financial obligations: Your current EMIs show your income distribution to the lender. If you have too many loans, credit card dues and other commitments, it negatively affects your debt-to-income ratio. Hence, it is essential to clear them before you apply to have a reliable income for repayment. This increases your eligibility for home loan.

Dependants: It refers to your spouse, parents, children, etc. It is also an aspect that most lenders consider while deciding your home loans eligibility. This is because the number of dependents you have affects the disposable income you have.

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