Posts Tagged ‘PPF’

WILLINGNESS TO TAKE RISK IS NOT YOUR RISK APPETITE

Today we have wide investment options to invest our hard earned money to achieve our goals.Depending on our Greed or Fear, we choose products to invest. Some choose mutual funds; some choose direct investment in shares whereas some opt for PPF, Bank FDs or any other debt products. While before investing in any of the financial product, it’s important for an investor to consider his/her risk appetite. Risk appetite is the amount of risk that an investor can bear on its investments.

.

Importance of the Risk Appetite:

.


Suppose Mr. A and Mr. B invested Rs100 in XYZ Share. After some days the value drop to Rs 90, at this point both were calm, and accepted that this happened because of market volatility. After some more days, again price went down below70. At this point, A starts feeling oohh… and ouch… in his stomach. This is the point where his emotional pain increases to a point where he can no longer stay with this investment. That is the risk appetite for A whereas B is not affected that much, still he can take loss of 20 more, only where prices drop below 50, he may feel jitter.

.

But here the question arises in the mind that how can we judge our risk appetite. Risk Appetite is determined from many factors like our expectations, current situation and past experiences of investing. In developing nations like India, we can find many investors who have high risk appetite and can take high risk to achieve high returns. But there is a high probability that while considering the risk appetite; investor may forget to consider the “Ability to take risk”. It’s not important whether he is willing to take risk or not.

.

Willingness to take risk and the ability to take risk both are most important factors that one should consider before deciding the risk appetite.

.

Willingness to Take Risk:

.


This depends on our inherent nature, our attitude towards life, finance domain, Knowledge of financial products etc. Our whole upbringing will contribute towards this because our willingness to take risk will depend on our inherent self, who we are from inside. So you can either be extra cautious by nature and may not be willing to take risks or you can be a big risk taker and bet money on anything.

.

Ability to Take Risk:

.


This is the next important part in Risk taking. Does your situation allow you to take risk or not? It has nothing to do with your willingness to take risk, you can be a risk taker and dying to bet on the next multibagger or invest in that 100% return a year mutual fund, but you have to consider the worst case at the end. You have to visualize the worst case as if it has happened after you take that risky decision.

.

While concluding, I wish to say that before investing in any financial asset one should judge his risk appetite. We should always take calculated risk (as per the willingness & ability to take risk) and being aware of what will be the outcome. Risk taking should be a rational, not an emotional, decision. We should know what can be the impact of taking decision. Hence, we must take risk which is required for meeting our financial goals. Taking Over-risk is same as taking Low-risk.

.

Filing your income tax return? Remember 10 Steps For Sure !!

10 must-do things while filing your income tax return

With the due date of July 31 fast approaching, it is that time of the year again when the nation’s tax payers scramble to file I-T returns.

After all, filing of tax return is compulsory for everyone whose gross total income exceeds the basic exemption limit.

For financial year 2008-09, for instance, the basic exemption limit is Rs 1.80 lakh for women below 65 years of age, Rs 2.25 for senior citizens and Rs 1.50 lakh for males below 65 years.

Thus, if your income for the year exceeded the exemption limit, you will be required to file the return by the due date. You need to file the tax return even if you are not paying any tax or even if your employer has deducted tax at source.

Following are 10 important things to do before filing your I-T return:

1) Ascertain your Income Sources

Firstly, you need to identify your sources of income under different heads.

Under the I-T Act, all incomes earned by persons are classified into 5 different heads,such as

income from salary,

income from house property,

income from business or profession,

income from capital gains and

income from other sources.

Thus, you should identify all your incomes from different sources, just to ensure that you haven’t missed out something while filing your return.

2) Basic Documents check :

Basic documents/information that should be referred to while filling the return include:

# Form No 16 (issued by the employer): This shows the income from salary and tax deducted by the employer on the same.

# Summary of all bank accounts during the year: This summary gives an idea about the income earned during the year, investments made and other expenses.

# Details of tax paid during the year: This is required in case the individual has paid any advance tax during the year.

# Income of a minor child: This is to be included (except in few cases) even if it is a small amount, e.g. bank interest.

3) Determine Your Tax Liability

Having identified your sources of income and after referring to the basic documents, you need to compute your tax liability for the year.

If you are not familiar with the process, you should take the help of a tax expert or some other qualified professional.

This is important as a wrong computation of your tax liability can land you in trouble later on.

4) Pick the Right Form

Once the details in respect of income and expenses are collated, you should check which tax return form is applicable to you.

Based on the nature of income earned during the year, you should select the right income-tax form.

For example, there are two I-T return forms – ITR-1 and ITR-2 – available.

Use the first form if your income is from salary, pension or interest earned in the financial year, and use the second one in case of any capital gain, income or loss from house property and income from any other source.

5) Provide Exact Personal Details

Ensure that you fill in correct personal details in the form meant for you, especially your name, address, bank account details and PAN number.

Bank account details include the bank account number, type of account and the bank’s MICR code.

6) Deductions Claims

Ensure that you have, under various sections of the I-T Act, claimed all the deductions that you are eligible for. For example,

a. Under Sec 80 C – For investments made like PF, PPF, NSC, school tuition fees of children, insurance premium, investments in specified mutual funds etc.

b. Under Sec 80 G – Donations made to charitable organisations

c. Housing deduction for interest on housing loan etc.

7) Details of Investments done/ Exempt Income

You also have to fill in information in respect of specified investments, as per prescribed limits, such as:

  • Property bought or sold in excess of Rs 30 lakh
  • Mutual funds, in excess of Rs 2 lakh
  • Cash deposits in excess of Rs 10 lakh
  • Credit card payments in excess of Rs 2 lakh
  • Bonds etc in excess of Rs 5 lakh

8) Claim loss before deadline

If you are planning to claim a loss in the income-tax return, which you would like to carry forward, the same can be done, only if the return is filed by the due date.

If this filing deadline is not met, then the loss claimed would not be allowed to be carried forward for future set off against income.

9) File By Due Date & In the Right Tax Jurisdiction

After the tax return is filled in, the next step is to file it appropriately, by the due date. For individuals having salary and interest income only, the due date of filing the tax return for the financial year 2008-09 is July 31, 2009. The return may be filed either electronically or in printed form.

One must also ensure that the return is filed with the right tax officer (tax jurisdiction). This is determined based on the address of the individual.

The proof of filing the return is the acknowledgment, which is stamped and signed by the tax officer and a copy is returned to the individual.

10) Keep Documents For Future References

The documents based on which the return is prepared may be requested at a later stage by the Income Tax Officer to check the correctness of the claims made.

Hence, it is advisable that all the documents required to substantiate the return are maintained by the tax payer for future reference.

These are the few important points which you should bear in mind while filing your return.

The golden rule is to be organised in your paper work and be timely in paying tax and filing the tax return. 🙂