The big question post Budget 2018 is whether it calls for a major re-haul of your financial plan. There are some concerns over the impact of LTCG on your long-term creation but the overall impact could be just marginal. Let us look at some key triggers from the Union Budget that could impact the way your financial plan needs to be tweaked.
How to modify your financial plan post the Union Budget 2018?
From a financial planner’s perspective, the budget has a lot of nuances to digest. In terms of your projections, your expectations and your outlays, there could be significant shifts post the Union budget. Look at 6 such possibilities…
- If you are worried about the 10% tax on LTCG on equity and equity funds, here is what you need to know. Firstly, there is a window till March 31st by which time you can sell your shares and equity funds without incurring capital gains tax, but that may not really help the long-term investor. Secondly, when your plan matures and your equity funds will generate profits, you straight away pay 10% of the profits to the government as tax above the limit of Rs.1 lakh. Thirdly, unless your critical milestones in the financial plans are coming in the next 2-3 years, you can still bet that this tax may go away in the next few budgets if it does not turn out to be too productive.
- The budget indicates that this may probably be the end of the rate cut cycle. Higher fiscal deficit targets and 100 bps rate hike by the Fed means that yields in India are headed higher. Be prepared for lower returns on long-dated bond funds as they could see capital depreciation. If you are using bond funds as part of your long-term plan, look to reduce the maturity profile of your debt funds.
- From a financial planning perspective, growth plans of equity funds make more sense than dividend plans. Now it is more so since all dividends on equity funds will attract 10% DDT. That will reduce your net outgo and you may be better off shifting to debt funds. Unless you are looking at regular income, dividend plans do not make much sense for your long-term financial plan.
- The budget has sounded a warning for cryptocurrencies by clarifying that the government does not consider them as legal tender. In the last few years, many HNIs and aggressive traders had taken positions in these cryptocurrencies like Bitcoin. With the budget announcement, you may have to be prepared for punitive taxation and the taxman hounding your Bitcoin holdings. Revisit your portfolio accordingly.
- In fact, when you plan your future, the rate of inflation forms the cornerstone of your projections. Financial plans in the last couple of years may have made a very conservative assumption of inflation rate in the coming years. Such plans need caution as the higher fiscal deficit and higher disposable incomes indicate a clear rise in inflation. That means you need to either tone down your long-term goal assumptions or you need to increase your monthly allocations appropriately. The budget has spoken about a return to high GDP growth in the range of 7.5-8% and that means inflation follows as a logical corollary. You need to impute that assumption into your financial plan calculations.
- If you are a senior citizen, then you have two reasons to cheer about. Firstly, the tax limit for interest on deposits has been hiked from Rs.10,000 per annum to Rs.50,000 per annum and rightly so. This comes with a TDS exemption and that means senior citizens have more disposable income. For homes with senior citizens, this will mean more disposable incomes for the family. The additional medical insurance limit for senior citizens is also a positive.
The moral of the story is that there may not be major changes required to your finances. What may be required is an appropriate tweaking of your risk and return profiles. Also, you need to test your assumptions for the future to ensure that they are still grounded in reality. Otherwise, your financial plan is good to go!