The importance of genuine financial news to invest right

The importance of genuine financial news to invest right

You may be a seasoned investor or you may be a newbie. No matter what your status is, you need to depend a lot upon the highest quality of financial news to invest right.

This is precisely why you should learn how to filter out redundant and sensationalised news and focus on the best daily financial news. Read on to know more.

 

Importance of financial news

Financial news is important because it tells you about the market trends and the performances of the various financial instruments. It guides you in the correct direction and helps you to invest in a correct and effective manner. There are various sources of financial news. Some of them are:

 

  • Television –

    Television is a very popular and wide-ranging source of information. You get all types of news and information on television. There are many dedicated news channels too that only focus on bringing you the latest news.

    Further, there are dedicated financial news channels on TV as well. These channels are a good source of information for anyone looking to get financial data and news.

     

 

  • Newspapers –

    All the leading newspapers in India carry a finance section on a daily basis. You can read the reports and news on a daily basis and get a fair idea of the way in which the financial world works.

    There are also financial newspapers that only carry financial articles and reports.

    These newspapers are also a good source of financial news for investors looking to make the right investments.

     

  • News apps –

    There are many financial news apps in India that are good sources of financial news. You can download these apps on your mobile phone or your PC and check the latest financial news as and when you need to do so.

    To be updated about the latest financial news, download Koppr.

     

  • Journals –

    Financial news is widely available in financial journals. These journals are usually compiled by industry experts so they are reliable and trustworthy.

    However, like every other source of financial news, a journal needs to be scanned and you need to filter out what is of less use to you.

     

  • Research material –

    If you are registered with a brokerage firm, they will send you some research material to study from.

    This is usually a good source of the latest financial news and you can trust it.

 

Choose a medium of financial news at your convenience.

But ensure the news you read or depend on is genuine. There are many dangers of referring to incorrect financial news.

Let us discuss it in greater detail in the next section.

 

Dangers of incorrect financial news

Many investors depend highly upon the daily financial news to get the right insight for their investments. The importance of financial news is further highlighted here.

Sadly though, when the news turns out to be redundant or ineffectual, the investor suffers heavily.

 

  • Influences the audience –

    Fake or ineffective news can influence the investors’ financial decisions. They may believe what is said on the news and invest their money accordingly. This can lead to massive losses and put a harsh brake on the earnings of the investor.

    Tip:

    If you too are an investor who relies heavily on financial news sources to make your financial decisions, read or listen to the news very carefully.

    If you feel there is any ambiguity in it, go over the material once again. If needed, speak to a financial expert and get the information cross-checked.

    This will prevent you from getting influenced by a redundant piece of financial news.

     

 

  • Difficult to identify fake news –

    It is very common these days for people to place paid promotions on financial news platforms. These promotions are often disguised as news items.

    As a result, the audience gets confused and is not able to spot the fake news between the real news.

    Financial firms, for their own benefits, place these fake news items in between the real news pieces.


    Tip:

    Do not fall for such misleading promotions. Look for genuine news from the most genuine of sources and keep yourself protected from making financial blunders.

     

 

  • Opinion, not fact –

    Many a time, the news presented on a financial news channel or newspaper is someone’s opinion, not a real piece of news.

    Tip:

    You need to be able to understand this and demarcate opinions from the news. This will stop you from making mistakes and investing in an incorrect manner. 

 

These are some of the ways in which incorrect news reaches the investors and in the process, harm their prospects at the financial markets.

 

Processing and filtering financial news

While as an investor you cannot really control what is being said on TV or written in a financial news India newspaper, you can identify the loopholes and filter out the irrelevant material.

Doing this will help you to focus on what is actually correct news and what is just an opinion, or straightforward deception.

Some of the red flags to look out for include:

 

Question #1: Who is the speaker?

Oftentimes, self-proclaimed experts are invited on TV shows to discuss matters related to finance and investments.

These people generally gain their popularity by simply creating controversies on social media or by making themselves extremely visible on TV or in newspapers.

This is done by bribing and it is also done by careful, manipulative PR activities. These people are usually very confident and prolific speakers, but what they say has very little substance or value.

They can also pass on incorrect views and opinions which can be harmful to naive investors.

This is a major reason why you should be extra careful and be very judicious about what to believe and what not to believe.

If you feel the speaker is reputed and you can trust his or her judgement, go ahead with the suggestions and tips and you will definitely make some very good investments thereafter.

 

Question #2: Is the news recent?

The next, and perhaps one of the most important points to consider, is whether or not the news is recent. It is not uncommon to have news presenters just read out a column from the previous days’ newspaper.

The financial world is ever-changing and even the slightest shifts in trends can change the investment patterns in a major way. This is why you should always be up-to-date with the financial news as well.


If any news seems stale or is not relevant to the current times, you need to look beyond it.

Good and trustworthy financial newspapers and TV channels usually update you about the latest happening in the financial world, so make sure you only rely on those sources.

 

Question #3: Is there a bias?

At times, certain news broadcasters talk about positive reports on firms and services that they have partnered with and vice-versa. For example, if they have a good relationship with a particular FMCG company, they may publish or broadcast fabricated reports about the growth of the company and how they plan to expand.

This can lead to a sudden interest in the company and the share prices will shoot up.

Many investors will then buy or sell the shares and end up making huge losses in the long run. You may also be one of the investors making such a mistake.

This is why you need to understand whether or not the news is associated with any kind of bias or not. If you get a whiff of any bias, do not rely on the news.

Rather, scan the performance of the stock in question and then make an informed and unbiased choice. This will surely help you to make the proper investment and gain higher profits in the near future.

 

Question #4: Is there a political motivation?

This is a serious and tricky angle, but it requires a lot of careful assessment. You may want to steer clear of politics and political biases when investing your money, but the hard fact is that politics does play an integral role in the functioning of the financial markets.

Politics determines the mood of the country. It also forms stability in society and rides majorly on human trust. All these factors in turn impact the money markets. This is why politics cannot be ignored when it comes to financial news as well.

The news you subscribe to must be politically linked, but it should not be politically motivated.

While it should uphold a clear picture of how politics is affecting the markets, it should not be partisan and highlight the political benefits you get from investing in certain places.

In other words, the news you read or listen to should be completely unbiased, while being loaded in factual detail.

 

Question #5: Is it just sensationalization?

Fear sells, and so a lot many times, news channels and newspapers unnecessarily hype up certain events and create a lot of noise around them.

This makes people panic and everyone watches the news channel. This is unfair and unethical journalism, but sadly, a very prevalent practise in financial journalism.

Fear and panic also lead to huge surges in demand for certain shares and a sharp fall in demand for others. This sways the market and makes it unstable.

Subsequently, we see the markets crashing all of a sudden.

It is very important for you, as well as the other investors, to identify these events of sensationalization. If you are aware of these events, you can stop yourself from getting into the panic buying and selling mode.

This won’t just serve you well, it will help to stabilise the economy as well.

If you can identify these red flags, it will become a lot easier for you to process the correct financial news and filter out the fake or inappropriate content.

Once you have the correct information with you, it will definitely become a lot easier for you to invest right and earn higher yields from your investments.

 

Using financial news to your benefit

After you filter out the less-sensible financial data you hear or see, you will have the best and the most effective material with you.

This will help you to understand the market conditions and make the best investments.

Here are some tips on how you can use the best quality financial news to your benefit:

 

  • Write down what you process

Just staring at the TV screen or reading a newspaper article blindly may not help you to process the information. You need to understand what the experts are suggesting or what the facts point towards.

It is a good idea to re-read something that may not be very clear to you. If you keep going over the points, they will become clearer. It is also a very good idea for you to note down the important points.

If you see a vital statistic or a tip that you feel would be of use to you, write it down. Maintain a diary or journal that you can refer to as and when needed.

This will surely make the process simpler for you and you will be able to get the maximum value out of the financial news that you read or see.

 

  • Look for another viewpoint

At times, you tend to get stagnant with your research. You only read one particular financial newspaper or you just listen to one news channel.

While you may receive a lot of good insights from your preferred news source, you definitely need to branch out a little bit as well.

Different opinions may help you to look at an investment opportunity from multiple angles. This in turn will allow you to get deeper into the concepts of investing and your investment will be right on-point.

Keeping this in mind, you should try to look for multiple viewpoints before you invest.

 

  • Limit news you’re reading/viewing –


While you should definitely look for multiple opinions and viewpoints, do not spend the larger part of the day only browsing through the financial news. Reading or viewing too much can confuse you.

If you constantly look for news and analysis, it will fog your mind. You will get confused and will begin to doubt your own judgement.

You may also find it difficult to make key investment decisions. This is the reason why you should know when to switch off the news.

Gather the relevant information you have, make your notes, weigh them against the investment opportunities and then proceed towards investing your money on the correct platform.

 

  • Pick out the hard facts

As stated above, a lot of the news and data will be redundant, sensationalised, biased and of little use to you. This is why you need to scan through the news and pick out the hard facts.

Look for numerical figures, charts, tables, etc as these supply you with only facts. Rely less on the opinions of the financial experts and trust the facts more ardently.

Doing so will help you to steer clear of the non-factual data and help you in the long run.

 

  • Have an unbiased outlook

There really is no alternative to having an unbiased outlook when investing your money in the financial markets. Try to be as unbiased as possible when you read or process the financial news that is in front of you.

If you identify a tone of bias in the news, look over it and try to pick out the facts, not the biased opinions.

 

  • Identify a good source of financial news

And last but not the least, always try to look for a good source of financial news. As you know, there are many different sources of financial news available in India.

From newspapers to TV channels to financial news apps to research journals, there really is no dearth in the availability of financial news.

However, every source cannot be trusted, so look for the best possible source of financial news. Doing so will help you to invest right and earn the highest possible yields.

Keep these tips in mind when you process the best financial news. Doing so will help you to learn the best investment practices, and consequently, will help you to earn the highest amounts of dividends.

 

In conclusion

As you can clearly see from the points mentioned above, the importance of financial news is very potent and vital for investors of all categories. Whether investments are your main source of income or just a hobby, make the best use of the financial news you have at your disposal.

Just remember to scan the news carefully and filter out what you feel is irrelevant. This will help you to get the best possible guidance and you will be very successful with all of your investments.

Do not get biased when you look for or process financial news. To get unbiased news and the latest updates on the financial space around you, download Koppr.

Always approach it with an open mind. Also, look for multiple viewpoints as that will help you to look at the investment opportunity from various angles.

And finally, learn how to process the news you have at hand, as that will make the process complete and you will actually be able to apply all the learnings and make the best investments.

How to Analyze Stocks to Get Good Returns

How to Analyze Stocks to Get Good Returns

There is an old saying “Look before you leap” and this fits perfectly when you are investing in stocks. However, in-stock investment, mere looking won’t be enough, you need to dig deeper using multiple analytical tools and resources, and techniques for making your investments full-proof. 

The stock analysis involves multiple techniques to find out whether an investment is right for your portfolio or not. If you are a trader, then you can use technical analysis tools to find yourself the best stocks to trade for the day. 

Investing in stocks without thorough research about the company, stock price, and market trend can lead to a huge loss. For a good investment, you need to know about the stock you are putting your money into.

This is quite similar to buying an expensive asset, for instance, a car. Don’t you compare multiple cars within your budget and then choose the one which suits your requirement the best?

Stock investment is nothing different, you need to find the best stocks for your investment goals and profile and you need stock market analysis techniques for the same. 

In this article, you will find different aspects of stock analysis. The article will have different stock market analysis techniques, metrics, and tips for investors, stock analysts, and anyone who wants to learn about stock market analysis.
 

 

Steps by step process on how to analyze a stock

Stock analysis is a process and involves multiple steps. It starts with the collection of data from different company documents and then finding the required information from them. T

hen comparing that information and analyzing multiple metrics and risks involved in the stock investment.

The steps are discussed in detail below – 

 

1) Collection of financial data and company information 

 

The first step in stock analysis involves document research. You need to pull out multiple documents that the company files with SEBI. The documents should include financial reports – quarterly, annual, and other financial data.

The balance sheet, P/L statement, and the cash flow statement of the company are key documents that need to be studied for qualitative research.

This will help you find out the revenue they are generating, their expenses, profit, and how they are handling cash flow. These documents are the basic requirement for beginning your research.

If you are not able to find the documents by yourself, you can ask your broker to find them for you. Often you can find the financial reports on the trading terminal you are using as a brokerage house upload the same on the trading software.

However, you can find them easily on the company’s website anytime. 

 

 

  • Choice of analysis                                                               

The next step is to decide whether you want to do fundamental analysis or technical analysis. This choice depends on whether you are trading stocks or investing in them.

If you are investing for a longer duration, you must go for fundamental research, and if trading, then technical analysis with a bit of knowledge about the company financials can help. 

 

a) Fundamental analysis:

 

Fundamental analysis of stocks is about finding the intrinsic value of the stock and evaluating whether it is overvalued or undervalued. It is assumed that the market value of the share doesn’t always reflect the actual value of the company.

So, fundamental research is performed to find the right value. If the share is undervalued, then there is a scope for investment.

Fundamental analysis can be further categorized under two section namely – 

 

i) Quantitative analysis involves the numbers and ratios that can be obtained from the financial statements of the company. For instance, the profit, revenue, sales numbers, or the P/E ratio or debt/equity ratio, and others.

This analysis can be very simple as well as highly complicated given the nature of the data you are analyzing. Quantitative fundamental analysis helps in understanding the entry and exit points in the stock market.

 

 

ii) Qualitative analysis involves the factors that affect share price but cannot be expressed in numerical form. For instance, management decisions, competition in the industry, the performance of the directors in the company, and other similar factors.

Decisions taken by the management can easily swing the price of the share but these factors intangible, unlike quantitative factors. However, qualitative analysis is also crucial for evaluating the value of the share.

 

There are multiple components of fundamental analysis which you need to be aware of before you start analyzing the stocks. They are – 

  • Earnings per share or EPS which measures the profitability of the company
  • Price to Earnings Ratio or P/E ratio which tells about the valuation of the share is correct or not. 
  • Price to Book Ratio or P/B Ratio which is also used for finding the valuation of the company. 
  • Debt to Equity Ratio or D/E ratio that says about the indebtedness of the company.
  • Return on Equity or ROE tells about the profit generated using the equity invested by the shareholders. 

There are other metrics that we will be discussing in detail in the latter part of the article. 

Now let us see how to do fundamental analysis or how you can find the intrinsic value of the share which is the primary goal of fundamental analysis.

So, there are three processes out of which you can choose the one that suits your requirement. 

 

i) Relative Value Models (Multiplier)


If the company is pretty new, or you are not able to fetch all the details about the company then you can opt for relative valuation. In this process, the market price of the share of its peer companies is first taken into consideration.

Then the price is compared to the peer company’s fundamentals like sales number, net income, or book value of equity. The ratio which is obtained is applied to the company you are researching.

These ratios are known as price multiples and can be used for finding out the relative value of the question share.

 

 

ii) Present Value Models

This is a discounted cash flow method where the projected future earnings are discounted by a specific rate to get the present value of the share.

Apart from free cash flow, dividends or residual income can also be discounted for finding the value of the shares.

This is the most popular method of finding the intrinsic value of shares under fundamental analysis.

 

 

iii) Asset-based Valuation:

Finally, we have asset-based valuation which involves the company’s assets and liabilities. The market of total liability of the company (excluding equity) is deducted from the total value of the asset of the company to derive the value of total equity.

However, this is an obsolete and rarely used method. 

 

In fundamental analysis, you need to keep few things in mind apart from finding the intrinsic value. You need to – 

  • Check and analyze the prospects of the company, its business plans, expansion ideas, and others. 
  • Check the debt of the company and also compare the same with the peer companies. 
  • A study of the rival companies is necessary for fundamental analysis.


b) Technical Analysis:

 

This analysis involves market price movement, historical prices of the stock, and other statistics available in the stock market itself. if you are wondering how to do technical analysis of stocks, then here are few insights about the same. 

 

The basic idea behind Technical analysis is to identify the market trend and predict whether the price is going to increase or fall. Here, historical data are used for predicting future prices. 

Some of the most popular technical analysis tools include – 

i) Moving Average:

This is used for understanding the average price movement in the stock. It is tough to keep a track of the original price movement daily, so taking an average helps. You can use the simple moving average or the exponential moving average.

While the former is calculated by taking the closing prices of the stock for a given period and summing them up and then dividing it by the number of days for which the prices are included.

The latter uses the weighted-average method and prioritizes the recent prices a little more by weighing them more.

 

ii) Support and Resistance levels:


These are used to understand the price trend of the share. Whether the stock is bullish or bearish.

If the support level is broken, which is the lower end of the price (the demand is high enough to keep the price above this level) then the stock is being bearish and can fall drastically.

On the other hand, the resistance level is about the maximum price level where the selling pressure is maximum and if that is broken, then the stock becomes bullish and can increase in price exponentially.

 

iii) Charts and trading indicators:


There are multiple charts which include candlestick charts, line charts, bar charts, and others to understand the trend in the market and for the stock in question. The charts along with trading indicators can help you understand the entry and exit points in the market. 

 

There are many other different factors and tools which are put to use by the traders for stock analysis. 

 

  • Metrics for analysis

In the above two-section, you have read a little about the metrics which are used to determine the price of stock while performing stock analysis. Here we will discuss the most important metrics which are used in the analysis process of stocks. 

 

  • P/E ratio:
    Price to earnings ratio is one of the most important metrics that are used by analysts for stock analysis. This is derived by dividing the market price of the share by its earning per share/EPS.This is used for comparing companies within the same industry and having similar prospects in terms of growth and revenue generation. This metric suggests the amount of amount (share price) the investor is willing to pay for earning $1 out of the company’s recent earnings.This metric might be a little flawed as well as analysts often focus on the short-term, so better use other metrics along with the P/E ratio for correct evaluation.

 

  • Revenue:
    It is the value which the company has earned in a specific duration say in a year by selling its products or services.
    Revenue is another top metric that needs to be analyzed when researching the stock/company as it says a lot about the company’s operation. Revenue can be divided into operating and non-operating revenue.Operating revenue is generated from the business the company does and thus it tells about how well the year went in terms of sales and profit generation.
  • EPS:
    Earning Per Share is one of the crucial metrics that are regarded as stock market fundamentals and it is derived by dividing the recent earnings (net income) of the company by its outstanding shares (shares available for trading in the stock market).
    EPS helps in comparing the company’s profitability with other companies as the earning is divided into the number of shares. However, this earning can include the dividend as well which the company may not pay to the shareholders.In such a case, automatically the EPS increases but then it doesn’t show a perfect picture of the profitability of the company as the shareholders are being deprived.
  • Net Income:
    This is the amount that is left after paying all the operating expenses, depreciation, and taxes out of the revenue generated. So, if this number is increasing on a year-on-year basis, then the company is growing and vice versa.
  • ROE:
    Return on Equity helps you understand how much the company can generate with the shareholder’s equity. It is expressed in percentage and derived by dividing Net income by shareholder’s equity.
  • ROA:
    Return on Asset is the profit generated by using the asset of the company. it is also expressed in percentage and derived by dividing the net income by the value of the total asset of the company.
  • P/B Ratio:
    Price to Book Value or ratio helps investors find the high-growth companies which are undervalued.
    This ratio is derived by diving the market price of the share by the book value of the company.Book value means the total amount that can be retrieved if all the assets of the company are sold and the liabilities are paid off.
  • PEG Ratio:
    This ratio is about the price to earnings growth which tells us about the growth in earning of the company and the stock is considered to be valuable if this ratio is less than 1. It is derived by dividing the P/E ratio by the growth rate of twelve months. 

 

 

c) Market analysis:

Stock analysis is beyond numbers. If you want to thoroughly analyze the stock and the company, you need to focus on the below-mentioned factors as well – 

i) Competitive Advantage:


Long-term investors want assurance of the durable competitive advantage of the company. Whether the company can sustain itself in the long-run or not, whether its parent company can protect it if such a scenario arises, pricing power and many other factors are being considered before investment.

 

ii) Market trends:

Industry or market trend plays a great role in the stock price movement. If the industry has the potential to grow in the future, then the stocks in it would share the same or at least a part of its growth.

For instance, the industries which are expected to outgrow others in the future include Artificial intelligence, fintech, healthcare, cloud computing, and similar industries. So, investing in the stocks of these industries can be profitable in the long-run.

iii) Analysis of the management:

Finally, one of the most important thing that the investor and the analysts need to consider is management’s performance.

A company is run by the management and thus their experience, performance, expertise needs to be carefully analyzed.

 

iv) Risk analysis:

Whether you opt for fundamental analysis or technical, you need to do risk analysis before actually investing in the stock.

You need to analyze the risks of investment such as the emergence of a potential competitor, new technology making the business obsolete, or poor decisions by management and others. All these negatively affect the business and thus you need to have a provision in your investment plan for the same.

v) Putting everything together:


So, once you have done your research, it is time to put everything on the platter and evaluate and take the call. You need to have the context right and put your research together according to the context of your investment.

If you are looking for long-term investment, you need to check the durable competitive advantage, management’s performance, along with quantitative metrics. If you are looking for a short-term investment, then the numerical metrics can be enough along with market trend analysis. 

 

Conclusion

Stock analysis is a non-negotiable factor while investing in stocks. If you are wondering how to analyse stocks by yourself, then you can follow the above-mentioned steps and you can conduct your research.

There are innumerable metrics that you can put to use but you need to relate your research to your investment goal and for that, you need to find the context of investment right.

Both quantitative and qualitative factors hold equal importance while investing and thus you cannot overlook either. 

How Teach your Kids Importance of Money?

How Teach your Kids Importance of Money?

Wisdom often comes through proper coaching and this is precisely why you need to impart financial wisdom to your kids at the earliest. Children who learn about money early on in life are more confident about it later in life.

They handle all the money matters with greater ease and become financially independent and confident adults. Money management is a skill that needs to be learnt through training and observation.

As a result, you need to be the best coaches as well as role models for your kids to look up to.

Take a look at this article to know why financial literacy for kids is important and how to go about it.

 

Teaching kids finance

It is important to have some financial lessons for kids. But simply making the child sit and listen to lectures about money management won’t help your case too much.

Children learn through practical experiments. This is why you must try to include financial literacy in their day-to-day schedules. From making them earn their allowance money to making them responsible for every penny they spend, financial knowledge is imparted through practice.

 

Tips to teach financial responsibility to your kids

 

Take a look at these 10 handy tips on how to teach financial responsibility to your children:

 

1) Introduce the concept of earning money

It is a common practice for kids to receive money from their parents. You give your children allowance money, or you give them money on special occasions.

Try introducing the concept of earning money with your children. I suppose you pay your kids INR 2000 as their monthly allowance, break it up into small sums and ask them to earn the money.

If you have a small child, start with something like putting away the shoes in the shoe cabinet every time he comes back home. For this, he earns INR 500 a month.

For an older child, set up a chore like taking the garbage out each morning. For even older kids, set tasks such as washing the car every Sunday or walking the dog in the evening. Set fixed amounts of money as ‘salary’ for each chore and make your kids earn their allowance.


Reason:

Doing so will make the children more responsible. They will also take daily chores more importantly. Then, the greatest benefit will be that they will start valuing money.

When they have to earn the money, they will understand its importance in a deeper and more detailed manner. They will stop assuming that money is just an object that comes from their parents’ wallets.

 

 

2) Commission, not allowance

One of the best financial literacy activities for kids is to give them a commission. This can be done in a simple manner. If you are sending your kids to buy vegetables, tell them that they will get 10% of the money that comes back.

So if they take INR 200 with them and spend only INR 100, they get to keep INR 10 for themselves. This is an important financial concept and also a wonderful way to make your kids understand the value of money.

When they have this incentive, they will look for better bargains and offers. Else, they’ll be lackadaisical and just buy vegetables from the first shop they see. If they know they can earn some money out of the process, they will try to bargain, look around and also understand deals and discounts in a better way.

 

Reason:

This is an activity that not only teaches your kids about money, it also makes them more responsible in general.

Kids, especially tweens and teenagers, are often laid back and least interested in household matters.

They may even end up thinking that money is free as they see their parents buying and arranging for all their needs, without them having to do anything.

Prevent your child from getting into this mindset by introducing the concept of commission and see a visible difference in them.

 

 

3) Make a jar for savings

 

Rather than just handing over a currency note to your child when he’s going out or at the end of the month, encourage him to have a savings jar.

Each time he completes a task and earns an income or commission, ask him to put the money in the jar. Also, if he has any money left over after using it to buy his toys, etc, he can put the change back in the jar.

 

Reason:
This will broadly introduce him to the banking system. You can then explain to him how money is saved and how it is taken out for expenses. This is a very simple, but highly effective way to teach financial literacy to young kids.

 

 

4) Give them three piggy banks

When teaching kids finance, try giving them three piggy banks instead of just one. A piggy bank is a common household item that almost every kid has.

Kids enjoy putting their money in such piggy banks and taking them out when needed. Put three distinct labels on the three banks – SAVE, SPEND and GIVE.

Whenever your kids get a sum of money, whether it is the money you pay them for completing their designated tasks, as a commission or simply as a gift, they need to segregate the amount and divide them between the three banks. 

The first bank, labeled ‘SAVE’ can be used to keep the money they want to save for large expenses such as buying a video game or going on a trip with their friends.

Each time they receive a sum of money, they need to keep aside a part of it to make the ‘SAVE’ fund grow. The next bank can be labeled as ‘SPEND’. Your child will want to make small expenses such as buying an ice-cream or a storybook.

For that, he can dip into ‘SPEND’ bank and take out the amount of money needed.

And finally, the third bank can be labeled as ‘GIVE’. The money in this bank can be used to buy presents for a friend’s birthday, to buy a Mother’s Day card, etc.


Reason:

The concept of three piggy banks is an excellent way in which you can teach budgeting to your kids.

The kids will learn about dividing the money they have and also being judicious about spending.

They will get to know the value of money too and this will add a lot of value to your overall financial lesson plans.

 

5) Consider cash as gifts

These days, a lot of the financial literacy curriculum for elementary schools include lessons that talk about the importance of cash as gifts. Holiday gifting, birthday gifting, etc can be easily replaced by cash.

There are several benefits of doing so. First and foremost, as parents, you are saved from the troubles of thinking about what to get the kids, spending time and effort shopping for the gifts and finally having to deal with the disappointment of your kids not liking the gifts!

Rather than giving gifts, switch to cash of the same value. If you decided to give your 8-year-old daughter a new bicycle worth INR 6000 for her birthday, give her the cash instead.

She can then divide the money among the three piggy banks, and consolidate her concept of budgeting. Next, handling money will definitely sharpen her math and calculation skills and finally, it will make her shrewd and responsible about the cash she has in hand. 


Reason:

As you can see, there are several benefits of giving cash as gifts to your kids. Also, encourage your friends and relatives to give your kids money instead of unnecessary gits during birthdays and other occasions.

 

6) Open a bank account

Once your child has understood the concept of saving and budgeting, proceed to open a bank account for them.

If you are looking for a true answer to how to explain money to a child, your best bet would be to open a bank account for them.

There are many, many benefits you get when opening a bank account for a child. Some of them are:

 

  • Understanding the rules –

    Involve your child in the process of opening the bank account. While doing so, explain the steps such as filling in the application form, reading the clauses, arranging the documents, signing forms, etc.Your child will find it exciting as will learn immensely from it as well.
  • Handling bank documents –

    After the account is opened, your child will receive the banking kit which will include the important banking documents such as the cheque book, ATM card, etc.You will have full authorisation over these documents, but tell your child about the way in which they work. Every time you go to the ATM, encourage your kid to insert the card, enter the PIN and count the money, while you supervise the entire process.This will make the child very organised and also very knowledgeable about the entire banking process. 
  • Being responsible –

    The biggest advantage of doing this perhaps will be that your child will become financially responsible.He or she will also feel important and take pride in the fact that he or she has a bank account.This will build the base for a strong understanding of the banking system in the future.

 

Reason:

These are all important financial lessons that your child can learn after having a bank account of his or her own.

 

 

7) Introduce them to online payments 

Using your phone to scan a QR code to make daily payments has become very commonplace these days.

From the grocery store to the medical store, from restaurants to hospitals, everywhere online payment modes are now preferred over the traditional cash payments.

Your kids always observe what you do and you should grab this opportunity to teach them about electronic transactions.

E-money is a very pertinent topic in today’s day and age and every child should be aware of it. Coach your kids on how to properly use this payment mode. Also, tell about the possible frauds that can take place in the medium.

The same applies to online card payments and net-banking. If you’re sitting at home and paying your utility bills online, make your child sit next to you and teach them how it is done.

While doing so, you can also talk to them about how bills are generated. Explain to them hope savings and proper usage of the various materials can lead to cost-cutting.

 

Reason:

Regular participation in such important financial matters will definitely make your child money-wise from a very young age.

 

8) Discuss family finances in their presence

You need to discuss the family financial matters in front of your kids. Sadly, in many families, money is a taboo topic and hence it is never discussed in the presence of young kids.

This is unfortunate because the children also grow up with the understanding that money is evil and they never discuss it openly with their parents.

Parents are the first teachers of a child and so you should impart proper financial knowledge to your kids. Tell them that money isn’t evil. Inform them about the importance of money and about the need to be responsible for it.

 

Reason:

Make money as a dinner-table conversation topic. Discuss the expenses, bills, etc with your spouse in a very matter-of-fact manner. This will make your kids realise that money is a part of life.

They will also learn that money matters can be discussed openly. By doing so, you pave the way for them to be confident about discussing all the challenges they face while handling finances later on in life.

Many young adults mess up their financial health, but with proper guidance can recover from these mistakes. Ensure your child always has the confidence to come to you when he or she is in a financially sticky situation.

 

 

9) Make them aware of the debt

A very important component of money is debt. Debt is a necessity, but it can turn into a huge liability. Your kids need to be told about this as early on in life as possible. Doing so will prevent them from misusing debt as a medium to escape their financial duties. 

Children will eventually learn about debt, but if you teach them, they will learn it in the way you want them to. If you are happy with the way you are managing your own debt, just tell them about the model you follow.

If you yourself are not happy about the mistakes you made in regards to debt, tell them what to avoid.

A few good guidelines in this respect are:

  • Encourage them to budget. The less they spend, the less they have to pay.
  • Tell them to stay away from things that are not affordable. Encourage them to save enough before they get the item, instead of using credit to buy it.
  • You need to be a role model, so if you have debt, pay it off diligently. Share the EMI details with your kids and show them how you are paying the EMI each month and what you are achieving out of it.
  • If your child is slightly older, explain the concepts of credit and the interest rates associated with it.
  • Make a clear demarcation between the things that are NEEDED and the things that are WANTED. Need and want are two sides of the same coin, but play a huge role in maintaining a person’s debt and credit balance. 

 

Reason:

Make your children understand the concept of debt very clearly at an early age so that they are conscious about it and avoid piling on debt upon themselves as they grow older.

This is one of the most valuable financial lessons for kids.

 

10) Teach them to appreciate the money they have

Many kids indulge in comparison. They will compare their clothes to the clothes their friends wear, or they will complain that their cousins have a better car than they do. You must discourage this habit and tell them to appreciate what they have. 

Children are often used to receiving everything on a platter. Make your kids understand that money isn’t free and it isn’t just an object that is readily available in their mom or dad’s purse. They should learn to value what they have.

To do this, introduce the concept of saving. If they want something, ask them to earn it. Once that is done, they will understand how difficult it is to earn money and buy something. 


Reason:

Kids who value what they have and value money in general, grow up to be financially smart adults who are responsible for their savings and spendings. They are also content and happy in life because they know what they have is what they rightfully earned.

 

To put it in a nutshell

Children are very smart and they learn very well.

They are like sponges who soak up what they see and hear around them. Impart the best financial knowledge to them and make them financially aware and independent adults.

Finance for kids is not a difficult topic to navigate around – just keep all the points mentioned above in mind and you will be able to do it without any hassles whatsoever.

How to buy unlisted shares?

How to buy unlisted shares?

The equity share capital of a company is the way the company raises funds for establishment, growth and development. If the company lists itself on the stock exchange, it becomes a publicly-traded company.

Its equity share capital gets listed on the BSE and/or NSE from where it can be freely traded across retail and institutional investors. If you invest in the shares of a listed company, you would get listed shares. 

There is another category of shares that also constitute the equity share capital of a company. Such shares are called unlisted shares.

Unlisted shares are also called pre IPO shares because they are issued by companies before the company launches its IPO and goes public. Common examples of unlisted shares include shares of Reliance OYO, Jio, One97 Communications, etc.

Unlike listed shares, unlisted shares are not listed on any stock exchange. You would have to invest in these shares through other non-conventional modes.

There are different ways in which you can buy unlisted shares of a company. However, before we delve into the ways of buying unlisted shares, let’s understand the different aspects of investing in them.

 

Why unlisted shares attract investors?

Unlisted shares are, usually, offered by those companies that are in the initial stages of development. Companies that use innovative ideas to generate revenue can grow up to become established players.

For example, Ola is a cab-aggregator platform that has revolutionized the concept of public travel. Within a short span of launching itself, Ola has become a known and preferred mode of public commute. Thus, to invest in companies that are innovatively revolutionizing their market, investors invest in unlisted shares.

Another reason for investing in unlisted shares is when the company offering the shares is a subsidiary of a large and reputed company or group. For example, Reliance Jio is a subsidiary of Reliance which is a reputed Indian conglomerate.

 

So, if investors trust the subsidiaries based on the parent company, and expect the subsidiaries to provide returns on investments, they would invest in unlisted shares.

So, for investing in innovative ideas or in businesses that have a lot of potentials, investors choose to invest in unlisted shares.

 

Things to know before investing in unlisted shares

Unlisted shares in India are greatly different from the listed shares. So, before you invest in them, here are a few things that you should know about –

 

  • The process of investment

While buying listed shares includes a quick purchase through the demat account within trading hours, investing in unlisted shares is a tad bit difficult. It takes some time and you might not be able to buy an unlisted share instantly.

 

  • Who owns the shares?

Unlisted shares are owned by employees, angel investors, venture capitalists or start-ups and intermediaries. Thus, you would have to use unconventional modes to invest in such shares.

 

  • Liquidity

Finding buyers of unlisted shares proves to be difficult since these shares are not publicly traded. Thus, when you invest in unlisted shares, you might find them illiquid when you want to redeem them.

 

  • Underlying risk

Unlisted shares are risky compared to listed shares. This is primarily because the shares belong to companies that are in their growth stages. Such companies might suffer considerable losses in a bad phase making unlisted shares risky.

 

  • Valuation of the shares

Since the shares are not listed on the stock exchange, they do not carry a market value. Unlisted shares are valued using the concept of fair value which is calculated by the investors and promoters of the company. Such a value might not be very reliable and so, it might prove to be risky.

 

  • Transparency

There is limited or no transparency in the company’s financial position that offers unlisted shares.

 

  • Tax treatment

Tax treatment of unlisted shares is also different. If you stay invested in unlisted shares for two years and above, the returns earned would qualify for long term capital gains. You would be taxed @20% with indexation benefit on returns earned if you sell the shares after two years. If you are a Non-Resident Indian (NRI), you would be taxed @10% on long term capital gains without the benefit of indexation. If, however, you sell the shares earlier, i.e. within 24 months, short term capital gains would be applicable. The returns earned would, then, be taxed at your income tax slab rates.

 

  • Setting off of capital losses

If you sell unlisted shares within 24 months and you incur a loss, such a loss would be called a short term capital loss. This loss can be set off against short term capital gains and/or long term capital gains.

You can also carry forward this loss for 8 years to set it off against short term capital gains and/or long term capital gains. 

If you sell unlisted shares after 24 months and incur a loss, the loss would be termed as long term capital loss. This loss can be set off against long term capital gains only. Moreover, you can carry forward this loss for the next 8 years and set it off against long term capital gains in those years.

You should, therefore, know these aspects of investing in unlisted shares before you invest in them.

 

How to buy unlisted shares?

Now let’s delve back into the different ways in which you can buy unlisted shares. These ways are discussed below –

 

  • Through intermediaries and start-ups

Specialized start-ups have been created to offer investments into unlisted shares. You can buy unlisted shares through these start-ups by opening a demat account with them.

Usually, a minimum investment of Rs.50, 000 is needed to invest in the unlisted share of each company. You have to make the investment upfront but the delivery of the shares is done on the basis of T+3, i.e., after three days of buying the shares.

Pro Tip: Since the delivery is done after a few days, there is a counterparty risk involved in buying unlisted shares through this mode.

You have to transfer the amount for buying the shares but the delivery of the same is not guaranteed. Keep this point in mind if you choose to invest in unlisted shares through start-ups or intermediaries.

 

  • From the employees of the company

Start-ups, when hiring employees, usually offer Employee Stock Ownership Plans (ESOPs). This allows employees to have equity ownership in the company that they join. ESOPs allow employees to buy shares of the company at a pre-determined price and after a predefined time. 

So, if the employees want to offer their unlisted shares for sale, you can buy the shares from them. To do so you need to contact your broker. Your broker knows which unlisted shares come up for sale and can help you buy the shares from employees offering their stake for sale.

 

  • From the promoters of the company

Many times the promoters place their stake in the company for sale. This is done through a process called Private Placement and the unlisted shares are placed with banks and wealth managers.

You can, then, invest in unlisted shares through Private Placements done by the company’s promoters.

Pro Tip: To invest through Private Placement you need a good network to find out when such placements are made. Moreover, if you are looking to own a considerable stake in the company, you can do so through this mode since promoters usually own a large stake in the company that they promote.

For doing so, however, you would need a considerable size of the investment.

 

  • By investing in PMS or AIF

If you are a large investor, looking to invest a considerable amount of money in PMS (Portfolio Management Services) or AIF (Alternative Investment Funds), you can get unlisted shares.

Financial institutions that manage a PMS or AIF scheme usually invest in unlisted shares. These institutions bank on the pre IPO share valuation to earn returns when the company lists itself and launches its IPO.

Since the pre IPO valuation is lower, PMS and AIF funds get a large number of shares and generate profits when the valuation rises due to a subsequent IPO.

Pro tip: PMS and AIF are niche investment categories for HNIs, NRIs and foreign investors since they involve a considerable amount of funds. This mode is suitable for you only if you are a large investor and don’t mind taking the risk of investing in unlisted shares.

Furthermore, though fund managers bank upon the increase in the valuation of shares after the IPO is launched, their speculation might not always work. In some cases, the company’s valuation might suffer after it becomes a publicly listed company and the unlisted shares prices might fall causing losses. So, keep the risks in mind when considering PMS and AIF and investing a large chunk of your money in unlisted shares.

 

  • Through equity crowdfunding platforms

There are various crowdfunding platforms that allow you to invest in the equity capital of unlisted companies. You can become an angel investor, invest in angel funds and buy unlisted shares of companies registered on such crowdfunding platforms.

Pro tip: When you invest in the business through crowdfunding, you are helping the business venture startup. It involves a considerable risk if the venture fails or is not able to establish itself. Thus, you should keep this investment risk in mind when investing through crowdfunding platforms.

 

Mistakes to avoid when investing in unlisted shares

If you are not careful, you might end up making mistakes when investing in unlisted shares. Such mistakes would be costly as you might block your capital, incur opportunity costs and even incur a loss if the shares are devalued.

So, here are some pitfalls that you should avoid –

  • Don’t follow the herd mentality. Research the company before you invest in it. If the company is establishing itself in the market, has reputed promoters and strong financial fundamentals, you can invest in the unlisted shares of such companies
  • If you are getting unlisted shares at a discount by existing investors, don’t jump on the chance. There is a reason investors are exiting from their investments. Research the shares and then invest
  • Prices of unlisted shares fluctuate considerably. In case of major fluctuations, assess the fair value of the share based on the company’s prospects
  • Do not invest in unlisted shares with a short-term investment horizon. Remember, unlisted shares prove their mettle with time when the company grows and establishes itself in the market. Have patience and a long term perspective if you want to invest in unlisted shares. If you believe in intra-day trading, steer away from unlisted shares as they are not relevant for your investment needs
  • Do not invest in unlisted shares without a trusted advisor to guide you. If you need advisory services you can get in touch with Koppr’s experts who would help you buy suitable unlisted shares that have the most potential to yield returns.

 

Investing in unlisted shares through Koppr

Koppr also allows you to invest in unlisted shares of various companies. You can buy unlisted shares online in some simple steps through Koppr’s platform. Let’s have a look at the steps in details –

1) Visit https://www.koppr.in/ and click on ‘Sign In’ in the upper right-hand corner of the home page. If you are logging in to Koppr for the first time, you need to sign up with your credentials and create your own login ID and password.

koppr.in

 

 

 

 

 

 

 

2) On the next page, sign in to your Koppr account using your registered email ID and password which you had used to create your login ID.

login to koppr account

 

 

 

 

 

 

 

3) If you are new to Koppr, you can choose ‘Sign Up’ on the home page and create your own account. Provide your first and last name, email ID and set a password to create a new account on Koppr.

koppr signup

 

 

 

 

 

 

 

4) There are 4 sections in your Koppr Account- Learn, Plan, Track, Act. The different sections are for different parts of your financial journey.

Koppr Dashboard

 

 

 

 

 

 

 

 

5) On your account’s dashboard, click on ‘Act’ on the left-hand side of the screen

koppr act

 

 

 

 

 

 

 

 

 

6) You would be able to see a choice of unlisted shares of different companies that are currently active on the platform.

invest in unlisted stocks

 

 

 

 

 

 

 

 

7) Click on ‘I AM Interested’ to check the details of the scheme in which you want to invest.

 

8) Click on ‘I Am Interested’ and someone from the Koppr team would get back to you with the details of how you can invest in the selected scheme. 

You can, then, invest as per your needs and buy unlisted shares online.

Understand the meaning of unlisted shares, how they work, the aspects of investing in them and then choose the preferred avenue to invest in them.

You can also buy unlisted shares from Koppr in a hassle-free manner. However you invest, remember how unlisted shares are different from listed ones and invest in them with full knowledge of their risks and returns. 

How to Define your AIF Investment Strategy?

How to Define your AIF Investment Strategy?

Alternative Investment Funds, or AIFs as they are popularly called, are preferred by HNI investors looking to invest their money in unconventional avenues, suitable to their investment strategies.

The minimum investment required to opt for the AIF scheme is Rs.1 crore which makes the scheme exclusive for sophisticated investors having alternative investment strategies. 

AIFs are considered alternatives to stocks and mutual funds and, given the nature that these investments work, a defined investment strategy is necessary before investing in them.

Given the large ticket size, any ambiguity in your investment strategy means considerably compromised returns. You wouldn’t want that, would you?

So, let’s have a quick look at the concept of AIFs and how you can define your investment strategy when investing in an AIF scheme.

 

What are AIFs?

Regulated under Regulation 2 (1) (b) of the Regulation Act, 2012 of SEBI (Securities Exchange Board of India), AIF is a specialized investment fund.

The fund pools money from different investors and then invests the pool in different investment avenues based on the investment strategy of the AIF. 

Moreover, there are three different categories of AIF funds. Knowledge of these categories is important as you can choose the category that you want to invest in and every category has a different investment strategy. So, let’s have a look at the categories of AIF in details –

 

  • Category I AIF

Category AIF invests primarily in start-ups, businesses that are in their nascent stages, infrastructure, social ventures or SMEs. Category I AIFs are close-ended in nature with specific minimum maturity tenure.

So, if you invest in this category, your investments would be tied-up over the lock-in period.

 

  • Category II AIF

Category II AIF is one that does not belong to Category I or Category II. These funds include debt funds, private equity (PE) funds, funds of funds, funds for distressed assets, real estate funds, etc.

These funds are also close-ended in nature with a specific maturity date thereby tying in your investments for a specific period. 

 

  • Category III AIF

Category III AIFs invest in unlisted or listed derivatives. Common examples of Category III AIFs include PIPE (Private Investment in Public Equity) funds and hedge funds.

These AIFs can be offered either as close-ended schemes or open-ended schemes. So, if you invest in open-ended funds, you can get easy liquidity if you want to redeem your investments at your discretion.

On the other hand, if you choose the close-ended schemes available under this category, your investments would be tied-up for a specific lock-in period.

Furthermore, AIFs have some salient features that help you in defining and customising your investment strategy.

Here are top reasons why investors are opting for alternative investments

 

These features are as follows –

 

  • Customisable in nature

    AIFs are customisable as per the needs of their investors. The structure of an AIF can be designed keeping in mind the investment needs of its investors.

    Since AIFs have a limited number of investors (maximum 1000), the investment strategy of the AIF can either lean towards a specific sector or theme or it can be diversified across different asset classes.

     

 

  • The flexibility of funding

    AIFs is open to investors of all nationalities. Thus, Indians, NRIs and even foreign nationals can invest in an AIF scheme provided they bring in the minimum investment amount to invest in the chosen fund.

    This flexibility in funding attracts HNIs from all walks of life making AIFs a specialized investment tool.

     

  • Large corpus for investment

    As mentioned earlier, AIFs have a minimum ticket size of Rs.1 crore. Thus, investors contribute substantial amounts towards AIF schemes creating a large corpus.

    The returns earned from such large investments are also considerable and the large accumulated corpus becomes more effective in achieving the investment objective of the scheme.

     

Now that you know what AIFs are, the different types of categories that they fall into and their salient features, defining your AIF strategies would be easier. So, let’s get to the task of how to define your AIF investment strategy effectively so that you can make the most of your investments.

Here’s a step by step process on how to invest in alternative investment in India

How to define AIF strategies?

Tod define your AIF investment strategy, you should keep in mind certain important aspects of the scheme.

These aspects are as follows –

 

  • Alternative Investment Funds (AIF) are definitely exclusive and not for every investor


Exclusivity is the driving factor behind investors picking AIF schemes. With a high ceiling on the minimum investment, AIFs are not accessible by investors with limited capital.

AIFs also allow exposure to investment avenues that common investors cannot avail of. For example, pre-IPO private equity of businesses, hedge funds, venture capital, SME investments, etc. can be sourced only through AIFs.

So, if you are looking to invest in different avenues, separate from the commonly available mutual funds, stocks, gold or real estate, you can opt for AIFs and get exposure to different types of assets that are not commonly available for investment through traditional investment platforms.

 

  • Alternative Investment Funds (AIFs) are high-risk and high-return products

Before you set out to invest in AIFs, remember that AIFs are risky. They invest in different types of assets (as mentioned earlier) that are prone to volatility and other types of risks. Moreover, Category III Funds borrow to invest and are, therefore, highly risky.

If you have a healthy risk appetite and don’t mind exposing your investment to a variety of market risks, you can choose AIFs. The risk that you take would be compensated through the potential of high returns that the scheme has.

But remember, if the underlying assets underperform or hit a rough patch, the losses would be considerable. Patience is the key strategy when investing in AIFs and taking high risks on your investments.

 

  • Assessment of Alternative Investment Funds (AIF) schemes is tricky

You can try and assess the performance of an AIF scheme through its past returns. However, if the investment strategy of the scheme has changed, past performances would not be relevant.

Moreover, being exclusive types of funds, AIFs lack peer-to-peer comparison. One AIF fund might be an exclusive fund in its segment making a comparison of its returns difficult.

Though AIF funds are benchmarked as per SEBI’s mandate, you can only compare the performance of the scheme against the benchmark category average. Comparing across peer funds becomes difficult given the mixed investment objectives of AIFs.

Thus, you need to have a strong and keen investment acumen to understand and judge the performance of the AIF scheme and to choose the most suitable scheme for yourself.

 

  • Alternative Investment Funds (AIFs) incur high costs

When it comes to the cost structure of the AIF scheme, it is on the higher side. This is because there is no regulation on the maximum charge that AIFs can exact. AIF fund managers are therefore free to charge a fee from investors.

Usually, the fee involves two components, a flat management fee and profit-sharing. The management fee is expressed as a percentage of the AIF investment and remains fixed. Profit-sharing, on the other hand, involves splitting returns with the fund manager.

The idea behind this is since the fund managers have identified and managed the investments to generate returns, a part of the returns should belong to them. In fact, under many AIFs, there is no management fee, only profit sharing.

So, if there is a profit-sharing of 15% and you earn a return of Rs.10 lakhs in the first year, you would have to pay Rs.1.5 lakhs to the fund manager while the remaining Rs.8.5 lakhs would be yours.

Even if the fund generates lower than the previous return, profit sharing would be applicable if you have earned any returns.

For example, in the above example, if there is a return of 10% in the next year, though you have lost 5% in returns compared to the first year, 15% of the returns earned would be paid to the fund manager.

 

  • The concept of ‘high water mark’

To avoid double performance fee, there is a concept of ‘high water mark’ under most AIF scheme. Under this concept, profit-sharing would be applicable only if the fund consistently performs well every year.

Let’s understand with an example –

Say, you invest Rs.1 crore and, in the first year, the fund yields a 15% return increasing the corpus to Rs.1.15 crores. In the first year, therefore, you would be sharing the profit with the fund manager.

In the second year, the corpus falls to Rs.1.10 crores. In this case, since the corpus fell, no profit-sharing would be applicable. Now, in the third year, the corpus regains its original growth and grows to Rs.1.15 crores.

Again, there would be no profit-sharing because the profit on the initial growth of 15% was already shared. In future years, if the fund crosses Rs.1.15 crore mark, then profit-sharing would be applicable.

 

  • There are lock-in periods in Alternative Investment Funds

Another factor that you need to check is the lock-in period applicable under the scheme. Category I and II funds are close-ended schemes. Their lock-in periods usually go up to 7 years.

Category III funds, however, have both the open-ended and close-ended options, with close-ended funds having lower lock-in periods of 3 years or 3.5 years and above.

So, when investing in AIFs, remember that if you choose Categories I and II, your funds would be tied. If you are looking for liquid investment opportunities or if you have a short-term investment horizon, opt for Category III funds.

 

  • Taxation of Alternative Investment Funds (AIFs) need to be considered

AIFs are taxed differently compared to other traditional investment avenues. The tax treatment of your investment would depend on which Category AIF you invested in.

In the case of Category I and II AIFs, the AIF fund itself does not pay any tax on the returns generated. The returns are credited to you and you need to pay income tax on such returns as per your tax slab rates.

Moreover, even if the fund retains a part of the return and reinvests it in the portfolio, your tax liability would be calculated on the gross returns generated and not on the returns that you have received.

For example, if the fund earns a return of Rs.10 lakhs and pays you Rs.8 lakhs while retaining Rs.2 lakhs in the fund itself, your tax liability would be calculated on Rs.10 lakhs. Since you fall in the highest tax slab, you lose a major part of the return in taxation.

If the AIF invests in stocks and you earn a return from such investments, taxation would be computed based on your holding period. Long term capital gains tax would be charged on returns exceeding Rs.1 lakh @10% while short term gains would be taxed @15%.

In the case of Category III AIF, the fund itself pays tax on the returns earned. The returns generated by the AIF are considered to be business income and they are taxed at the highest tax slab rate.

Thus, a tax of 42.7% is deducted from the returns earned. The returns are, then, paid out to investors. Even though you have a lower tax bracket of 30%, the returns attract a higher rate of tax.

 

Bottom Line:

You should, therefore, consider these aspects when defining your AIF investment strategies. Only if you understand these aspects of AIF investments, are willing to take risks and share your profits, you should invest in AIF. 

AIF is a specialized and sophisticated investment avenue. Your investments should also be specialized, sophisticated, well-thought-of and fool-proof. If you are confused about choosing the right AIF, don’t worry.

Koppr is here to help. Let Koppr’s fund managers help you choose the right AIF as per your investment preferences.

Koppr’s fund managers would understand your investment needs and devise a tailor-made strategy for you with their expertise and knowledge. Don’t take chances with your investments.

Consult Koppr and choose the right AIF.

 

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