There is a general perception (or shall we say a common misconception?) that only equity markets and related investments are volatile while fixed income/debt products give stable fixed returns. While it is true that debt funds seek to protect your capital, they are subject to interest rate risk. What it exactly means is that while one is sure that his or her investment is reasonably safe and is unlikely to fall below the principal over the long term, there is no guarantee on how much you would earn on it. It could be as low as 3-4 % pa or a 10 % plus annual return, depending on the prevailing interest rate scenario. Even during a secular downtrend or an uptrend in interest rates, there could be periods of interim volatility which could affect the returns. Let us understand this in detail-
The previous article details how one can apply indexation to eliminate/minimize the effect of inflation on your capital gains income. Apart from this, here are a few other ways of saving on your capital gains tax liability.
The previous post on capital gains mentions two ways of taxation for various asset classes- 10 % without indexation, and 20 % with indexation. What exactly is indexation, why is it required, and how to arrive at the indexed value? Let us find out –
“ The hardest thing to understand in the world is income tax”
These are the words of Albert Einstein, the world famous scientist and nobel prize holder. When one hears the term “tax”, one tends to visualize himself or herself going through pages and pages of complex calculations J. Of all the different type of taxes, today we will understand one of the complex ones-the capital gains tax. This is especially important, as the capital gains incurred on different assets like equity, gold, debt, property- all are taxed differently.
Real estate investments are known for their il liquid nature- one of their biggest drawbacks. So, while owning a house is a basic need, this basic need takes up a huge chunk of one’s lifetime savings. Consider a scenario where during your retirement years, your house is your only big asset- built during your working years by saving regularly, taking a loan, cutting costs and later repaying it in instalments. Now, you do not have a regular income, and the constantly rising cost of living is making it difficult to survive on the meager pension. So, it there a way your biggest asset- your house can be of help?
Yes. There is. Thanks to the concept of reverse mortgage.