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The Dangers of Emotional Investing and How to Avoid Them

The biggest obstacle between you and your financial goals is- You! Your emotional investing is causing more harm to your portfolio than you realize.

In an ever-changing financial landscape, it’s easy to let emotions influence your decision. You’re a human after all. 

But… Your fear, greed, and overconfidence, are clouding your judgment, pushing you towards making an irrational decision. 

Strong portfolios and successful investments require discipline and emotional stability. And if a small part of you feels you’ve allowed your emotions to overpower your decisions, then this blog is for you.

Keep reading as we’ll explore how emotions can impact investment and simple strategies to keep them in check. 

We let our emotions control the situation in almost everything in our lives. Instead of relying on logic or data, we let our feelings make the decision for us. We do the same with investments. 

Does any of the following sound familiar?

Fear: In fear of losses, you end up selling your investments during a market dip. 

Greed: Taking unnecessary risk by chasing the returns during a market rally. 

Overconfidence: Trying to time the market, leads to impulse decisions. 

FOMO: Fear of missing out on the market trends. 

Regret: Irrational decisions in the hope of covering the previous losses.

Here are some of the examples that may also sound familiar:

When the market crashed during COVID-19, a lot of investors cashed out their portfolios in fear of losses. However, the market rallied up soon after. The Nifty 50 went up by 124% between April 2020 to Oct 2021. 

Similarly, in 2008, Sensex experienced its biggest crash in January and continued to decline for the rest of the year. Investors sold significant portions of their investments to avoid further loss. Sensex recovery took more than a year. During this crisis, patient investors survived but emotional investors caused a huge dent in their portfolio. 

Market crashes are temporary and markets always eventually recover. During these tough times, your actions can make or break your portfolio.  

People often let several psychological biases alter their investments. These biases arise from the need to stay in control of your money. We’ve noticed one or the other of the following psychological traps clouding the decisions of the investors we meet.

The most common trap that people fall into is following the crowd. From buying a car to careers and investments, people tend to follow others. 

For example, during the dot-com bubble, everybody invested in tech stocks and lost significant wealth when the bubble burst in 2000. 

The backbone of this herd mentality is fear of missing out. People want to jump on the bandwagon with others, follow the same path. However, what works for others may or may not work for them.

Everyone’s financial situation and investment goals are different. Therefore, as comforting as it appears, following others while investing does more harm than good.

Studies show that investors tend to feel the pain of losses more deeply compared to the joy of gains. The fear of losses prompts premature selling during the market dips. 

We’ve met plenty of investors who, despite a defined time horizon for their investments, get restless with temporary loss.

What these investors fail to understand is, that market corrections aren’t going to last forever. As the economy grows, the markets eventually follow. Therefore, market volatility can be mitigated by time.

As you can see in the graph above, every market crash was eventually recovered. You need to be patient. Your investments deserve time to recover from the losses. Don’t let the temporary loss get in the way of your long-term growth plan. 

People always try to make sense of their decisions by selective information. They want to believe in what they want. 

For example, someone who is convinced that real estate is the best investment option will only focus on success stories. They’ll only pay attention to rising real estate prices in certain areas. Or positive experiences of their friends. Their upbringing and their family’s beliefs also play a role. These people only see what they want to see and completely overlook risks like market downturns, maintenance costs, or long periods with no rental income.

They try to seek information that aligns with their beliefs. This bias leads to misinformed decisions. 

You’re trying to build wealth to make your financial future secure. You should trust relevant data to make an informed decision. 

Disciplined investment is the key. Having clear financial goals will help you stay focused, even during market uncertainties. 

Here’s what you need to do:

Step 1: Define your goals. For example, buying a car next year. Moving into a new house in two years. Or retiring early. Assign a tentative amount to each goal that you’ll need to generate.

Step 2: Evaluate your financial situation. Get all your statements and note down your monthly expenses, EMIs, funds you’re keeping for emergencies, salary increments, etc. This will help you set aside an amount you can invest every month.

Step 3: Take a risk profiling quiz to understand your investment personality on the spectrum of aggressive to conservative. Many investors like to believe (or pretend) they’re aggressive investors. However, the kind of risk you’re willing to take and the risk you can actually take is different. So answer honestly and the quiz will give you the suitable allocation of equity, debt, and other instruments. For example👇

Risk profiling quiz

Step 4: Evaluate your investment portfolio. Review your current holdings and realign them as per your risk profile. 

Asset allocation is crucial to maintaining a diverse portfolio and balancing risk. Equity, debt, and gold each experience a different cycle every year. However, they complement each other. 

Take a look at the table below. The performance of each asset class varied every year. 

Asset allocation

So if you are worried about your portfolio crashing, don’t invest heavily in one asset class. That’ll lead to high-concentration risk. Instead, distribute your money across different instruments to balance the risk. That way, you won’t be tempted to make any impulse decisions.

Let’s take a simple example. Baking a cake requires a specific amount of time to cook completely. If you take it out of the oven before the timer finishes, you’ll be greeted by an undercooked cake.

Similarly, when you invest money in an instrument, it needs a specific time to deliver returns. Premature withdrawal will cause a loss. 

So, when you define goals, you must assign a timeline for each. For example, buying a house in two years.

Since your time horizon is only two years, investing in small-cap or mid-cap funds would be silly. These funds need 5+ years to deliver optimal returns. Instead, you can invest in debt funds with a suitable horizon. On the other hand, your time horizon would be longer to achieve your retirement goals. In that case, you should definitely invest in high-risk funds.

Because…risk is not defined by a fund category but by a time horizon. Each mutual fund category has a pre-defined time to mitigate short-term volatility. 

GoalTimelineMutual Fund Category
Buying a car Within 3 to 6 monthsLow-Duration Debt Funds such as:
Kotak Low Duration Fund
Axis Treasury Advantage Fund
SBI Magnum Low Duration Fund
Moving into a new houseIn 3 yearsDynamic Bond Funds / Banking and PSU Funds / Hybrid Funds like Balanced Advantage Funds, Multi-Asset Funds:
ICICI Prudential Balanced Advantage Fund
Kotak Balanced Advantage Fund
Quant Multi Asset Fund
WeddingIn 3 to 5 yearsLarge Cap Funds such as:
Nippon India Large Cap Fund
ICICI Prudential Bluechip Fund
SBI Bluechip Fund
Children’s EducationWithin 5 to 7 yearsMid Cap Funds such as:
Quant Midcap Fund
Motilal Oswal Midcap Fund
HDFC Midcap Opportunities Fund
Retirement Planning7 Years and AboveSmall Cap Funds such as:
Nippon India Small Cap Fund
Quant Small Cap Fund
TATA small cap Fund

Important: The above table only illustrates time-based investments. However, you also need to consider other parameters such as your risk appetite, the fund’s rolling returns (consistency), and your overall investment portfolio. Choose funds that align with your objectives and contribute to the growth of your overall portfolio. 

Automation removes the temptation of timing the market. It helps you consistently invest toward your goals. You can set up an SIP (Systematic Investment Plan) for mutual funds of your choice. 

Here’s how disciplined consistent investment can compound over a period of time. Let’s say you aim to accumulate 1 crore for your child’s college education over the next 15 years. By consistently investing INR 20,000 per month in mutual funds, with an expected average annual return of 12%, you can reach this financial goal within 15 years.

SIP Calculator

You can play around with numbers using our SIP calculator to set a specific timeline for your financial goals. Automate your SIP installments and let the money compound on its own. 

A professional financial expert will objectively evaluate your investments. They will provide data-driven insights to strengthen your portfolio irrespective of the market conditions. 

A professional financial expert can:

Analyze your risk appetite and review your portfolio.

Assist you in choosing the right mutual funds. 

Ensure your portfolio’s risk aligns with your risk profile.

Help you identify redundant investments and ensure true diversification. 

Guide you through the market volatility.

So, even if you’re a savvy investor with market knowledge, an expert can shed light on the situation from a different angle. 

If you want to review your portfolio and discuss your investment strategy, book an appointment with us. We will assist you throughout. 

Emotional Investor Rahul often gets anxious about market uncertainties. He constantly monitors his portfolio and complains about poor returns. He ended up investing in multiple stocks due to a trend his friend was following and sold it at a loss when the stock price began declining. His patience runs out after every minor change in the market and he starts panic selling or impulse purchasing. He claims to be an aggressive investor but never bothers evaluating his actual risk appetite. 

In contrast, Pratiksha, a Rational Investor always focuses on a long-term picture. She invested in various asset classes for diversification and follows a strategy based on her risk appetite. While her portfolio also goes through ups and downs, she is not concerned. She keeps investing via SIP for a defined horizon and lets the money compound. She quarterly monitors her investments only to see where it is going and talks to an expert if she has any questions. 

Outcome? Pratiksha’s consistency and data-driven approach will outperform Rahul’s emotional investing. While Rahul might make quick gains sometimes, these wins are unpredictable. 

Therefore, always stick to an investment strategy catering to both short-term and long-term goals. 

Acknowledge your mistake: Start by accepting your mistake. Identify the situations where you let your emotions run wild. Moving forward, you can stop yourself from making the same mistake again.

Re-evaluate your portfolio: It’s never too late to fix any errors. Re-evaluate your portfolio with an expert- identify gaps, poor-performing assets, redundant investments, etc. Sell the assets that are consistently delivering poor returns. Reallocate your money to asset classes that’ll deliver returns ideal for your financial goals. 

Focus on consistency: Encourage yourself to focus on disciplined investment. Plan Systematic Investments via SIPs or STPs. That way, you will invest a small amount every month and benefit from compounding. 

Keep your emotions in check: If you feel stressed about your investments, try to have a long-term perspective. Some stress management techniques such as meditation, exercise, or hobbies can help you navigate your emotions. It’s easy to worry when the market is fluctuating. But, focus on what you’re trying to achieve with your investment so you won’t get side-tracked. 

Emotional investing can be detrimental to your long-term financial success. Fear, greed, ego, overconfidence- all these emotions push you in the wrong direction. Instead, unlock your emotional intelligence to make logical, goal-oriented investment decisions.

As Daniel Kahneman says in his book Thinking, Fast and Slow- emotional decisions can be impulsive whereas rational decisions require more thought. 

So, this is your sign to rethink your financial decisions. Make the right choice by creating a strategy for better returns. Have a long-term perspective than a short-term panic. Start making small changes today and you’ll notice the results in due time. 

Are you ready to give your investment portfolio another chance? 

1: Take a risk profiling quiz to determine your portfolio’s ideal asset allocation.

2: Review your portfolio and choose the right mutual funds.

3: Sign up or log in to start investing. Effortlessly automate your SIPs and STPs. 

If you’re interested in exploring wider investment instruments such as unlisted shares, AIFs, and PMS, reach out to us. VNN Wealth is a trusted wealth management firm in Pune with exclusive investment opportunities tailored to your financial objectives. 

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Should You Invest in Solar Energy Stocks in India? 

The sun is shining bright on solar energy stocks in India.

The green energy sector is booming as India aims to achieve 500GW capacity of renewable energy by 2030. Investing in this sector is a promising opportunity for both seasoned investors and beginners. There are plenty of solar energy stocks to bring into your portfolio.

On 7th April 2021, The Union Cabinet approved the Production Linked Incentive (PLI) Scheme to boost the manufacturing of solar PV modules. The total of INR. 24,000 cr dedicated towards the sector aims to produce 39,600 MW capacity. India is set to create solar cities across the nation. The 1st solar city, ‘Sachi’, has already been launched in Madhya Pradesh in 2023. As the country marches ahead in this sector, many big solar panel manufacturers are raising INR. 5,800 cr this year. These funds will be used to establish 500 GW capacity by 2030. Along with Solar Panels, the manufacturers will also produce cells, wafers, and ingots under the PLI scheme.

The top three solar module manufacturers are:

1. Waree Energies
2. Vikram Solar
3. Premier Energies

All three of these companies are coming up with their IPO, out of which, Waree Energies and Vikram Solar are available for purchase in the unlisted market for allocation confirmation. To inquire about the Waree Energies share price and Vikram Solar share price, get in touch with VNN Wealth.

waree energies share price

Update: Waree Energies got listed on the stock market on Oct 28, 2024, at Rs. 2550, with a 70% premium over the issue price of 1503/share.

Waree Energies is playing a crucial role in expanding India’s renewable energy sector. The largest manufacturer of solar modules in India, Waree has rapidly boosted its capacity to 12GW in recent years. The company occupies about 50% of the market share in solar PV module export, surpassing Adani and Vikram Solar. In December 2023, Waree Energies filed a draft with SEBI to raise INR. 3,000 crore through an initial public offering. The funds will be used to further expand the capacity from 12 GW to 38 GW over the next five years. Buying unlisted shares of Waree Energies can guarantee allocation and significant growth over the years. (Please note that the unlisted shares are subject to availability.)

Read more about Waree Energies and other unlisted shares here.

vikram solar share price

Update: Vikram Solar has filed draft papers for the IPO with SEBI. The IPO will be a combination of a fresh issue of up to INR. 1,500 crore and an offer-for-sale (OFS) of up to 17.45 million equity shares.

Vikram Solar is another big player in the green energy sector. With 3.5GW capacity, it is among the largest exporters of solar PV modules. Additionally, the company provides engineering, procurement, and construction (EPC) services, as well as operations and maintenance. Vikram Solar’s 70% of the revenue comes from PV modules and about 20% revenue comes from EPC. In the previous year, the company also received approval from the government to set up 2.4GW of additional capacity under the PLI scheme. Currently, Vikram Solar is available to purchase in the unlisted market. The company has filed a draft with SEBI for an initial public offering (IPO). Vikram Solar IPO will offer a fresh issue of up to INR. 1,500 crores and an offer for sale of up to 5,000,000 equity shares.

premier energies share price

Update: Premier Energies got listed on the stock market on Sept 3rd, 2024 with 120% premium over the issue price of 450/share.

Premier Energies is one of the largest integrated solar cells and solar module manufacturers in India. With 29 years spent in the solar sector, the company now has an installed capacity of 2GW for integrated solar cells and 3.36 GW for solar module manufacturing. Premier Energies has filed the draft with SEBI to raise INR. 1,500 crore via initial public offering (IPO). The company will utilize INR. 1,168.74 to establish a 4 GW solar PV TOPCon cell and 4 GW solar PV TOPCon module manufacturing facility in Hyderabad. The remaining funds will go towards general corporate purposes. The company is also aiming to execute EPC projects, independent power production, and O&M services.

India’s solar energy sector is rapidly expanding with the PLI scheme in place. The government is taking the initiative to encourage growth in the capacity of renewable energy production. This is the right time to enter the sector by investing in solar energy stocks. It has the potential to deliver a significant return on your investment. Buying unlisted shares of Waree Energies or Vikram Solar will ensure allocation before the IPO. However, it is subject to availability. Get in touch with experts at VNN Wealth for the unlisted shares you wish to buy. Explore all unlisted shares here.

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How to Ensure You Never Run Out Of Money After Retirement

Retirement is the golden era of your life. You finally relax. Sit back in your rocking chair with a cup of tea. You have time for your family and most importantly, for yourself. 

However, the ride through the retirement years will only be smooth if you plan for it beforehand.

Currently in India-

Only 10% of the 60+ population is earning from the pension or the rent.

About 60% of men and 25% of women above 60 are still working.

And 60% of the people above the age of 70 are dependants.  

Planning for retirement is one of the crucial pillars of your financial journey. You spend years working hard and building wealth. That wealth should keep you afloat for the rest of your life.

So here’s how to ensure you never run out of your retirement corpus. While this blog is designed for someone nearing retirement, young investors can also learn and plan beforehand.

Let’s take an example- When you visit a retail store to buy a TV, you likely have certain specifications in mind. You tell the salesperson those specifications, and they suggest options that meet your needs. But, if you’re unsure about what you’re looking for, the salesperson might try to sell you a TV on which he earns more commission.

Similarly, if you don’t know what you want for your retirement, you won’t be able to create a proper plan. Your bank RM might push a ULIP or some insurance plan that sounds good but may or may not align with your financial needs.

Therefore, it is crucial to know what you want. And how do you do that? Read along to find out everything you need to know about retirement planning.

How do you want to spend your retirement? Maybe in a cozy cottage away from city life. Or annual international trips with your spouse. Everything is possible by aligning your portfolio to fulfill your goals. 

But the primary step is to set a goal for your income expectations. There are multiple ways to draw a consistent income after retirement. 

1. Rental income from your residential/commercial property.

2. Monthly withdrawals via systematic withdrawal plan (SWP) from your mutual funds.

3. Annuities

If you’re salaried, you might also receive a corpus built in your PF after retirement. You can strategically invest it to draw monthly income. Talk about your goals to your financial advisor. Discuss the required corpus to live a life you want to live.

Note: Explore the comparison between rental income and a systematic withdrawal plan to generate monthly income after retirement. 

At what age you’d want to retire? What would be the timeline for your goals set for post-retirement life? Give it all a thought. Talk to your spouse and children to accommodate them into your goals. That way, you can choose the investment instruments catering to specific objectives. 

Here are the mutual fund categories that you can choose based on the horizon:

Time HorizonFund Category
0-3 YearsDebt fund/hybrid fund
3 to 5 YearsLarge Cap Funds
5 to 7 YearsMid Cap Funds
7+ YearsSmall Cap Funds 

Your overall risk profile is an important factor in retirement planning. It involves analyzing your financial situation to decide how much risk you can take. 

Nine out of ten times, people ignore their risk appetite. They just invest, only to find out the returns on their portfolio do not live up to their expectations. Either the portfolio is delivering low returns when a person can take higher risk. Or the portfolio is full of aggressive investments when a person has a low to moderate risk appetite.

Don’t let that happen to you. Take a risk profiling quiz to know where you stand. Answer honestly to receive insights on the asset mix that fits your profile. 

Your financial goals and risk appetite constantly keep evolving. Your initial investment strategy will not work for your retirement plan. Now you need a completely different strategy, which can be built against your existing portfolio.

Review your existing investment with a financial advisor. They’ll identify the gaps in your portfolio and realign it with suitable asset allocation. 

This step is not mandatory, but it’s always good to be aware. 

The market moves in a similar direction as the economy in the long run, with occasional fluctuations. So if you’re paying attention to the news about the global economy and its impact on Indian markets, you can easily form an opinion. The market awareness, at least to some extent, will help you choose the right instruments. It’ll also help you better understand your financial advisor’s suggestions to make an informed decision.

Here’s an example of how having a market opinion can help you choose the right funds:

When the markets are uncertain, your focus should be on asset allocation. You can invest in hybrid funds such as Balanced Advantage Funds, Flexi Cap Funds, or Multi Asset Funds for diversification.

Each fund has a different asset allocation and a cash component to rebalance the allocation based on market scenarios. Fund houses use an inbuilt model based on various parameters for rebalancing. 

1. If you think the markets are expensive at the moment and may decline: Choose balanced advantage funds with more cash holdings as these funds can buy more equity when the market declines. 

2. If you think the markets will rally further, choose balanced advantage funds with more equity holding to capitalize on growth.

3. If you don’t have any opinion, choose multi-asset funds to get instant diversification across equity, debt, and gold.

Similarly, a market outlook across small-cap, mid-cap, and large-cap will help you decide which flexi-cap fund to invest in. Flexi cap funds offer allocation across market cap based on the market conditions. 

Emergencies never announce themselves. A sudden expense may dent your financial plan. It’s always better to be prepared for such scenarios. Build a highly liquid emergency fund that you can withdraw whenever needed.

Make sure you have enough saved up to cover 6-12 months of your expenses. Instead of keeping these funds in your savings account, park them in liquid funds. Liquid funds offer a 1-2% extra interest rate compared to the savings account. 

Buy a health insurance plan for yourself and your family. It’ll take care of your medical emergencies without draining your savings. 

Inflation is inevitable. Today’s INR 50,000 monthly expense would be INR 1,60,000 after 20 years with a 6% inflation rate. You will need more money to continue or upgrade your lifestyle after retirement. You can’t avoid inflation but you can certainly surpass it by optimizing your portfolio. 

While planning retirement, keep your short, medium, and long-term goals in mind. Goals are essentially your expenses. Let’s say your monthly expenses after retirement are INR 2,00,000. To plan expenses for the next 3 years, you’ll need INR 7,200,000 kept in liquid assets for easy withdrawals. The rest of your retirement corpus can be invested as per your expenses in the next 5 to 6 years or even longer as per your financial plan. 

Transferring legacy to successors is still quite common in India. If you are planning to hand over your assets to your children, you may want to plan your finances accordingly. Consider your monthly expenses and the cash flow to have a comfortable life for yourself. What’s left after that can be invested in various assets for your children to inherit later.  

In order to seamlessly transfer your legacy, you must create an estate plan. Drafting a will or creating a trust avoids family disputes. It ensures the transfer of your assets as per your wishes, thereby financially securing your loved ones.

Last but not least, the taxes. You have to pay tax on gains and income generated through your investments. Similar to inflation, taxes are unavoidable. However, you can dodge some taxes by optimizing a tax-efficient exit strategy. Your financial advisor will assist you with an exit strategy that ensures better post-tax returns on your portfolio. 

If you don’t have a financial advisor, get in touch with VNN Wealth. Our experts will help you plan for your retirement. 

Now that we’ve covered all the basics, let’s discuss the most commonly followed retirement planning strategy.

This is the most commonly followed strategy to manage your retirement corpus. The 3 buckets represent your financial needs for a particular period. Together, these buckets keep your funds moving, thereby offering you financial freedom.

retirement planning strategy vnn wealth

The 1st bucket, AKA Safety Bucket, contains highly liquid assets to cover living expenses for up to 3 years. 

Let’s assume for the sake of example that your monthly expense after retirement would be INR 2,00,000. In that case, you can fill bucket 1 with INR 7,200,000 to comfortably cover 3 years of expenses.

Those INR 7,200,000 can be invested in high-liquidity instruments. 

1. The most common liquid and safe instruments are Fixed Deposits, Certificates of Deposits, or Liquid Funds. 

2. Money Market mutual funds can also be included in this bucket. These funds invest in highly liquid assets.

3. While many prefer keeping funds in savings accounts for emergencies, you can also consider short-term debt funds.

Debt funds offer liquidity, better yield than savings accounts, and are available in variable time horizons. 

debt funds yield
As of May 2024

This bucket offers financial safety even during market downturns and avoids the need to sell long-term investments.

Bucket 2 is a Stability Bucket for medium-term goals. The assets in this bucket cater to 3 to 5 years of financial needs. 

While you are emptying the 1st bucket, investments in bucket 2 can generate interest to refill the 1st bucket. 

1. Fill the second bucket with Corporate Fixed Deposits, Hybrid Mutual Funds, and Senior Citizen Saving Funds.

2. Corporate FDs are slightly riskier than bank FDs but offer superior interest rates. That extra 1 to 2% can make a huge difference.

3. Hybrid Mutual Funds invest in equity, debt, and gold. For example- Balanced Advantage Funds, Multi Asset Funds. These funds are less riskier than pure equity funds and are suitable for intermediate financial goals. 

4. Senior Citizen Savings Scheme can also be a part of a medium-term financial plan. Retirees can invest INR 1,50,000 in a financial year to get an exemption on tax under section 80C of the IT Act. 

The second bucket aims towards income production and stability with less volatile investments. 

Bucket 3 is the growth bucket for wealth creation. While the first two buckets are taking care of your expenses, the 3rd bucket can keep generating more wealth. You can keep it untouched, or use the gains/capital to refill the previous two buckets. 

1. The best instruments to fill this bucket with are equity mutual funds, direct equity, and alternative investment funds (AIF). These instruments are capable of delivering superior returns in a longer horizon. 

2. You can opt for a professional Portfolio Management Service (PMS) for a custom long-term financial plan.

Diving your retirement corpus into 3 buckets depends on your overall portfolio, expenses, goals, preferred investment horizon, and the income you want to generate post-retirement.

There’s no one-formula-fits-all. It’ll change as per your financial requirements and goals. The idea is to keep the cash flowing through the buckets. 

If you want to manage your retirement corpus, experts at VNN Wealth will help you create a personalized 3-bucket strategy. Get your portfolio reviewed by our experts and optimize your portfolio to plan for a stress-free retirement.

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Real Estate Vs Mutual Funds: What is Better for Monthly Income?

Picture this: You’re sipping a warm cup of coffee with your loved ones, knowing that a steady stream of income is flowing into your bank account. Even better if you don’t have to work for it.

This vision of financial independence is achievable through smart investments. You can generate a steady stream of income for your retirement or simply have passive income for your family.

Two of the popular options investors explore to generate regular income are:

1. Real estate investments for rental income
2. Income from mutual funds via systematic withdrawal plan (SWP)

In this blog, we will discuss both these options in more detail, exploring how they work, how much initial investment is required, and what their advantages and drawbacks are.

Real estate investment involves purchasing a residential or commercial property. As it’s a tangible asset, you own it in a physical form.

In order to generate consistent income from it, you ideally have to rent out your property with a long-term lease agreement.

The rental income depends upon many factors such as rental yield in the area, property’s condition, and market demand.

Mutual funds are a collection of stocks, bonds, gold, and international equity. You can invest in mutual funds that align with your risk appetite and financial goals.

The ideal way to generate income from mutual funds is to invest for a long horizon, let the money compound, and then start a systematic withdrawal plan. A Systematic Withdrawal Plan (SWP) allows you to set an amount and frequency at which you’d like to receive income. The fund units worth the amount you’ve chosen will be sold and the amount will be transferred to your savings account.

Now, we will compare real estate vs mutual funds for monthly income against various parameters.

Let’s take an example: Vikas wants to generate INR. 50,000 monthly income. He’s exploring both the options- rental income and SWP. Let’s help him figure out what makes more sense…

Real Estate

Your initial investment will vary based on the location, type of real estate property, size, amenities, etc. The rental income depends upon the rental yield in the area. In India, the residential rental yield ranges from 2 to 4%. Here’s a snapshot of the rental yield in different cities in India.

CityRental Yield
Delhi NCR2.79%
Bangalore3.45%
Mumbai2.44%
Ahmedabad3.22%
Chennai3.10%
Hyderabad3.16%
Pune3.09%
Kolkata3.96%

Let’s take 3% for the sake of understanding.

For Vikas to generate an income of INR 50,000 from residential real estate, he’ll have to purchase a house worth 2 crores.

Property value = Annual rental income (50000 x 12) / rental yield (0.03- converted into decimal) = 600000/0.03= 2 crores

Now let’s say Vikas pays a 20% downpayment, which is 40 lakhs, he’ll have to take a home loan for the remaining amount i.e. 1.6 crores.

With an 8% home loan rate and 20 years of tenure, his EMI becomes 1,33,830. Even if he generates a rental income of INR 50,000, he will still have an expense of INR. 83,830.

On top of that, Vikas will have to pay the cost of home ownership. Brokerage (1-2% of the total value), stamp duty (4-7%), registration fee (1%), parking space (~10k/month), maintenance charges (varies as per location and amenities), etc.

Mutual Funds

On the flip side, Vikas will only have to invest 50 lakhs in mutual funds to generate INR. 50,000 monthly income.

Mutual funds deliver superior returns compared to real estate. For the sake of calculations, it’s better to be conservative. So we’ll take 12% p.a. as the average return on your mutual fund investment over a longer horizon.

Investment amount = Annual income (50,000 x 12= 6 lakhs) / 0.12= 50 lakhs

The same income can be drawn from mutual funds via SWP by investing only 50 lakhs instead of 2 crores. Plus, while you withdraw monthly 50K, your remaining amount keeps compounding, so you can keep withdrawing 50K/month for the next 20 years, at least.

With mutual funds, Vikas has an option to invest a small amount via SIP to gradually build his wealth.

Monthly SIP AmountAverage Return p.a.Investment HorizonWealth Accumulated
20,00012%20 years1,99,82,958
Total Wealth Accumulated in Mutual FundsAverage Return p.a.Monthly Regular Income via SWPYears of Regular Income
1,99,82,95812%1,00,00020

This example is only for the sake of understanding. Parameters like initial investment amount, investment horizon, and average rate of return may change the calculations.

Real Estate

Real estate investment is usually less risky than mutual funds. Market fluctuations have little impact on real estate. However, you may also face a risk of vacancy, tenant default, holdover tenancy, legal disputes, maintenance issues, etc. Additionally, there’s a chance of depreciation in property value during the economic slowdown.

Real estate delivers potential returns from rental income and property value appreciation. You can expect about 8% to 10% p.a. average return on real estate investment in 10 years. It varies depending on the city, property conditions, economic conditions, etc.

Mutual Funds

Mutual funds have a certain risk associated with them based on the category and market movements. You can invest in mutual funds based on your risk appetite and financial objectives. Take our risk profiling quiz to understand the equity and debt exposure suitable for you.


The return on your mutual fund portfolio depends upon the type of scheme, investment horizon, market conditions, etc. Mutual funds deliver superior returns in a longer horizon despite market volatility. You can expect 12% p.a. average returns in 10 years. You can even generate 2% to 5% returns over and above average if you periodically review your portfolio and optimize it to generate benchmark-beating returns.

India Residex House Index - Real Estate Vs Mutual Funds
Real Estate Vs Mutual Funds

Residex has grown by 47.4% between 2014 to 2024, whereas Nifty has grown by 301.2%. Evidently, you’ll make better returns from mutual funds compared to real estate.

Real Estate

Real estate investments are less liquid compared to mutual funds. The property sale takes a lot of time. You’ll have to go through the hassle of property transfer paperwork and the cost associated with it. Plus, you may not get the price that you’re looking for. It’s not as easy as redeeming mutual fund units. You have to go out, sit through the negotiations, and handle the transactions.

Additionally, you have to spend a lot of time finding a good property. It requires evaluating the location in person before making a decision. It’s not easily accessible. So if you ever need funds for an emergency, real estate is not reliable.

Mutual Funds

Mutual funds are highly liquid and accessible online. You can invest and withdraw anytime you want. There’s no lock-in period except for ELSS mutual funds which carry a 3-year lock-in period for the purpose of tax-saving.

Otherwise, you have all the freedom and flexibility to decide the time and amount of investment/withdrawal. When you plan to start an SWP to withdraw income from mutual funds, you can automate the withdrawal amount, frequency, and date. The funds will start flowing into your bank account as per your preferences.

Plus, partial withdrawal is possible in the case of mutual funds which is not an option in real estate. In case of emergencies, you can sell some units of mutual funds, whereas, you cannot sell half your house.

Real Estate

Managing and maintaining real estate property requires a lot of your attention. It’s a never-ending loop of ensuring the property is clean and functional. Following up with tenants and making sure they’re following society’s regulations. In some cases, tenants may not leave the property, causing a dispute. Be it residential or commercial, real estate investments demand your time and attention at all times.

Mutual Funds

Apart from periodic monitoring, you don’t have to look into managing your funds. Mutual fund houses have dedicated fund managers who are experts in handling all the transactions. Fund managers make decisions on the stocks to include in a scheme to leverage market opportunities. All you have to do is invest and let your money compound over the years. Once you achieve your financial goal, you can start/stop SWP anytime as per your income requirements.

The inflation rate in India is around 6 to 7%. The rate of inflation affects your effective return on investment.

Considering the above data:

Avg Return p.a.InflationEffective Return
Real Estate8 to 10%6%2 to 4%
Mutual Funds12 to 15%6%6 to 9%

In the case of rental income, you can increase the rent by 5 to 8% every year. However, your post-tax returns taking inflation into account cannot beat mutual funds. Mutual funds have the potential to deliver benchmark-beating, inflation-beating returns.

Here are some examples of funds from three different categories outperforming the index:

Fund NAVIndex Closing Value
10 Jan 201412.226278.90
12 Jan 2024141.1320906.40
Growth1055.4%232.9%
CAGR28.4%12.8%
Nippon India Small Cap Fund
Fund NAVIndex Closing Value
15 Jan 201420.526171.25
15 Jan 202498.8321508.85
Growth381.7%248.4%
CAGR17.2%13.2%
ICICI Prudential Bluechip Fund

Fund NAVIndex Closing Value
16 Jan 201420.056241.85
15 Jan 2024117.5521441.35
Growth486.4%243.5%
CAGR19.4%13.0%
Quant Multi Asset Fund

As you can see, these funds have beat their respective benchmark. The chances of earning more than the average returns are possible with mutual funds.

Real Estate

1. Rental income is taxed as per the investor’s tax slab.

2. If you sell your property after 24 months, you will have to pay long-term capital gain tax. As per budget 2024, you can either opt for old taxation or new taxation, whichever attracts lower tax for you. As per the old tax rule, the long-term capital gains will attract a 20% tax with an indexation benefit. The new tax rule does not offer an indexation tax rule but the long-term gains will be taxed at 12.5%. You can get an exemption on capital gain tax by investing in 54EC bonds within 6 months of property sale/transfer.

3. You can claim an exemption on interest paid on a home loan up to a maximum of 2 lakhs under section 24. In the case of a let-out property, you can claim an exemption against the entire interest paid.

Mutual Funds

For equity-oriented mutual funds:
Short term capital gain tax of 20% will be applicable on funds withdrawn within 12 months of investment.
Long-term capital gain tax of 12.5% above 1.25 lakhs will be applicable on funds withdrawn after 12 months.

For debt-oriented funds
Both short and long-term capital gains will be taxed as per the investor’s tax slab.
You can claim exemption against ELSS mutual fund investment of up to 1.5 lakhs under section 80C of the IT Act.

Real EstateMutual Funds
Asset typeTangible. Physical property.Intangible. Units of mutual funds that are a combination of stocks and bonds.
Initial Investment AmountHigherLower
Return on InvestmentRental income, price appreciation
Average 8 to 10% p.a.
Capital gains and dividends.
Average 12 to 15% p.a.
LiquidityLowHigh
RiskMarket slowdown, tenant default, legal disputes, maintenance, vacancy issues, etc.Market performance
Management and MaintainanceHigh and costlyProfessional management by fund houses. Low maintenance.

Real estate has always been a popular investment option in India. Even today if you ask your parents or grandparents, they’ll advise you to invest in real estate. Their advice comes from an era when mutual funds weren’t regulated. The UTI mastershare fraud had broken people’s trust in mutual funds. Therefore, they preferred physical assets such as gold, real estate, cash savings, etc. Plus there’s a sentimental value attached to buying a property, mostly because it seems safer. You own a tangible property and control everything around it. And sure, if you’re insistent on buying a home to secure your family’s future, to have a place to call your own, you can definitely consider buying one.

But for the sake of generating income, mutual funds are better suited. Now SEBI regulates mutual funds to ensure investors’ money is safeguarded. You can invest as per your risk appetite, decide the amount and frequency, and let the fund managers handle the fund’s growth while your money compounds.

The clear winner here is the systematic withdrawal plan.

Investors often consider purchasing property to generate passive income without assessing their overall portfolio. However, mutual funds are clearly more feasible to generate regular income. The initial capital required to invest in mutual funds is significantly lower than in real estate. Plus, the cost of home ownership, the time and energy required to maintain the property, the slow growth, and low liquidity make real estate less appealing.

Mutual funds are highly liquid. You can start investing a small amount by SIP and accumulate wealth over the years. When you’re ready to withdraw income, you can easily set up an SWP online. Unlike real estate, mutual funds have the potential to deliver benchmark-beating, inflation-beating returns if you truly diversify your portfolio and periodically optimize it.

Take a risk profiling quiz and review your portfolio today. Learn more about the Systematic withdrawal plan from our experts and revamp your portfolio to generate monthly income.

Schedule a callback from our experts.

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How to Achieve Financial Security in a Volatile Market

A volatile market is like a roller coaster. Your portfolio rides through the dynamic financial markets, experiencing thrilling peaks, sudden twists, and unexpected turns. Those rapid highs and nerve-racking lows can be unsettling. The anxiety and uncertainty about the future can lead to portfolio destructive actions.

But…

Market movements are inevitable. Even the most seasoned investors cannot accurately time the market every single time. The only solution to achieve financial security in a volatile market is to have a solid investment strategy. In this blog, we will provide actionable steps to achieve financial security in the ever-changing landscape of financial markets.

Market volatility is the degree to which the prices of financial assets change over a period of time. Numerous factors affect market movements such as:

1. Shift in the supply and demand.
2. Economic conditions, GDP growth rate, inflation rate.
3. Political instabilities, elections.
4. Geopolitical events like wars, and international conflicts.
5. Changes in government policies.
6. Natural disasters and pandemics.

Let’s take an example of COVID-19. Nifty fifty dropped by ~18.65% between Feb 28 to April 9, 2020. However, Nifty 50 experienced a boost of 124% from April 2020 to Oct 2021.

As you can see in the Nifty 50 chart below, the market rallied up soon after every crisis.

Elections are another example of sudden market movements. The stock market goes through a bull run leading up to the market and corrects during/after the elections. The average returns a year before and a month before the elections are 29.1% and 6% respectively. You can observe the impact of elections on the stock market here.

Events like these can trigger panic-selling or impulse-buying, destroying your investment strategy. It is important to stick to your strategy despite the market volatility. That way, you can still achieve your financial goals in time without worrying about short-term pitfalls.

Now let’s dive into a step-by-step guide to maintain a strong investment strategy to achieve financial security.

The first and very crucial step before putting together an investment plan is to evaluate your financial health. Here’s a simple check-list:

Regularly monitor your assets such as savings across all bank accounts, your investments in stocks, mutual funds, FDs, real estate, etc. Keep track of your expenses and liabilities like mortgages and loans.

Derive your annual income based on your salary and income received from your investments in the form of interest, dividends, rental income, capital gains, etc. Keep all your financial statements in handy for accuracy.

You can use simple tools like Excel to analyze your monthly expenses. Nowadays, bank applications also provide a spend analyzer feature. You can download the report to understand your expenses in various categories.

Putting together your finances will help you construct a plan. You can consider hiring a financial advisor to navigate the complexities of finances. Experts at VNN Wealth are always just a call away.

A diverse portfolio is the key to lowering the risk of market volatility. It involves spreading your investments across various asset classes to balance your portfolio. Once you know how much money you want to invest, you can explore instruments that align with your risk profile. Take a risk profiling quiz to know the percentage of equity and debt you must hold in your portfolio.

Asset Class Diversification: Invest across different asset classes such as stocks, bonds, real estate, gold, etc. To begin with, you can invest in multi-asset funds that offer instant diversification. For example, ICICI prudential multi-asset fund.


Geographic Diversification: Introduce geographic diversification by investing in international investments. You can explore mutual funds with exposure to international stocks. For example, Motilal Oswal Nasdaq 100 Fund of Fund, SBI International Access – US Equity Fund of Fund. Or buy direct stocks of international companies such as Amazon, NVIDIA, Facebook, Google, Apple, and Netflix.


Sectoral Diversification: Diversify your investments across various sectors such as the solar energy sector, technology, healthcare, pharma, Auto, Cement, Telecom, Financials, etc. You can consider investing in sector-specific mutual funds such as Nippon India Banking and Financial Services Fund, and Franklin India Technology Fund.

Take a moment to examine the table below.

importance of asset allocation across stocks, bonds, gold, international equity, mutual funds

[Data Source: Bloomberg]

As you can see, every asset class goes through its own ups and downs in changing economic conditions. For example in 2022, gold performed better than equity but the scenario was reversed in 2021. A proper asset allocation is crucial to avoid dependency on a single asset class. That way, the poor performance of one asset class can be overcome by other well-performing asset classes.

While your investments grow over the years, an emergency fund is your safety net. It offers financial security amid volatile market. Instead of panic-selling your investments during market volatility, give them time to grow. You can rely on your emergency fund for the time being.

Aim to save a year’s worth of emergency savings in an easily accessible account. Calculate your monthly expenses and multiply the amount by 12. That amount covers your living expenses for a year. Keep it on standby to utilize for an absolute emergency.

Set a goal

Having a specific goal helps you stay on track. Define a specific amount each month to put aside. Alternatively, you can dedicate a lump sum amount that you won’t be utilizing anytime soon. Ensure you have 6-12 months of expenses sorted at all times.

Create a system

Many investors prefer keeping an emergency fund in a savings account. While there’s nothing wrong with it, it’s not sustainable. You might end up using those funds due to easy access.

Instead, park your money in liquid funds like Aditya BSL Liquid Fund, Bandhan Liquid Fund or short-duration debt funds such as Mirae Asset Ultra Short Duration Fund, and ICICI Prudential Ultra Short Term. Debt funds generally offer better interest rates than savings accounts. Plus, you won’t withdraw these funds as easily as you would from your savings account.

Below is a snapshot of different categories of debt funds with current yield and tenure.

debt funds yield
As of May 2024

Keep track of your emergency fund

Make sure you keep tracking your emergency fund. Whether you choose to automate your contributions or manually transfer funds, periodically monitor your progress.

Economic conditions and financial markets always change. Therefore, you must periodically review your portfolio to align it with the changing market conditions.

Tracking Investment Performance: Regularly track your portfolio’s performance to ensure your investments align with your financial goals. Identify poor-performing investments and replace them with high-yield instruments.
Evaluate Your Risk Profile: Your risk tolerance may change over time. As your expenses and financial situation evolve, you must re-evaluate your risk profile.
Financial Goals and Timeline: Your financial goals such as retirement, children’s education, buying a house, etc. may change with time. Therefore, reviewing your financial goals and adjusting the timeline of your investment is a necessity.

Having a professional financial advisor by your side can significantly fast-track your financial goals. An expert can help you build a benchmark-beating portfolio while navigating through the volatile markets.

Personalized Investment Strategies: You can get your portfolio reviewed by an expert. A financial advisor can outline an investment plan catering to your financial goals and risk tolerance. This includes identifying poor-performing investments, readjusting your current investments, and optimizing your portfolio for better post-tax returns.
Risk Management: Risk on your investments is never zero. However, an expert can help you mitigate that risk through portfolio diversification. Investing across various asset classes is crucial to ensure financial security during volatile market.
Tax Optimization: You cannot avoid taxes but you can certainly reduce your tax liability. A dedicated financial advisor will suggest suitable tax-saving instruments to minimize tax liability and maximize post-tax returns.
Exclusive Investment Opportunities: A financial advisor can bring exclusive investment opportunities to the table. For example, unlisted shares. A lot of investors are unaware of such opportunities. Below are some of the unlisted stock opportunities we opened up for our clients, delivering excellent returns.

invest in unlisted shares with VNN Wealth

Long-Term Financial Planning: A long-term financial plan lowers the short-term risk of a volatile market and amplifies your wealth. A financial advisor can help you plan and achieve long-term financial goals such as retirement planning, estate planning, legacy building, etc.
Tip: Choose a financial advisor with relevant experience, proper licenses, and a good reputation.

Growth demands time. You cannot expect your money to grow overnight. To achieve your financial goals, you have to think long-term. Don’t focus on the short-term loss, focus on the long-term growth. Note that every market crash is followed by a market rally. What you invest today is bound to grow in five years.

Setting clear goals and sticking to them: Setting goals is not enough. You have to stick to them to let the strategy play out in your favor. Prefer goal-based investing so that you don’t have to think about short-term decline in your portfolio.

Keep your emotions in check: Fear and greed can lead to either panic-selling during a market crash or impulse buying during a market rally. Both of which can crumble down your overall portfolio. Don’t check your portfolio movements every day. It’ll only make you anxious. Follow your investment strategy with discipline and you’ll achieve your goals in a defined time.

Don’t try to time the market: It is impossible to time the market as it won’t always work in your favor. You could end up getting it wrong more times than right. Instead, seek guidance from your financial advisor on navigating market volatility.

Achieving financial security in a volatile market is possible with a robust investment strategy and disciplined approach. Assess your financial situation and set achievable goals. Ensure your investment portfolio is truly diverse by investing across various asset classes and sectors. The right mix of assets avoids dependency on a single class.

As you execute your investment strategy, don’t forget to establish a safety net. Set aside a year’s worth of expenses as your emergency funds in an easily accessible account or in liquid funds. The emergency fund will prevent the need for panic-selling during emergencies, allowing your investments to grow.

Prioritize long-term growth rather than short-term volatility. Stick to your strategy and periodically review your portfolio to re-align it with your financial goals. That way, you can surpass short-term volatility and come out on the other side with a solid portfolio.

Every investor’s risk appetite and financial preferences are different. Therefore a single strategy to achieve financial security in the volatile market cannot fit all. VNN Wealth can provide you with a comprehensive portfolio analysis and a personalized investment strategy catering to your financial goals. Visit our website to explore financial products. You can also browse our blogs for insights into the world of finance.

Book a consultation call today.

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ELSS vs ULIP: Choosing the Right Tax-Saving Investment for You

When it comes to tax-efficient investment instruments, ELSS and ULIP are two of the popular options. Both Equity-Linked Saving Schemes and Unit-Linked Insurance Plans offer dual benefits of investment and tax deductions.

However, both products cater to different financial goals. Let’s break down the key features of ELSS and ULIP to help you choose the right tax-saving instrument.

Equity-Linked Saving Scheme (ELSS) is a type of mutual fund that invests at least 80% of the total assets in equity or equity-related instruments. With 3 years of lock-in period. These funds offer tax deductions of up to INR. 1,50,000 under section 80C of the IT Act.

Unit-Linked Insurance Plan (ULIP) is a combination of investment and insurance. Part of your premium goes towards investment and the other part towards insurance. ULIP investments can be either equity-oriented, debt-oriented, or both (balanced funds). You can choose the ULIP investment type based on your financial preferences and risk appetite. With a 5-year lock-in period, the ULIP premium also offers a tax deduction of up to INR. 1,50,000 under section 80C of the Income Tax Act.

ULIP offers life insurance along with an opportunity to grow your money in the market. ELSS, on the other hand, does not offer insurance benefits. ELSS funds and the investment portion of ULIPs are market-linked. Therefore, you get to invest and grow your money in a fund of your choice for the long term.

ELSS mutual funds only have a 3-year lock-in period. It is the shortest among all the tax-saving instruments eligible under section 80C of the IT Act. Please note that if you’re investing in ELSS via SIP, each installment will carry its own lock-in period. You can withdraw the installments that have completed the lock-in.

ULIP, on the other hand, has a 5-year lock-in period, making it less liquid than ELSS.

ULIP allows you to change your investment strategy by switching between ULIP funds. That way, you can realign your investment strategy with your current financial goals.

Since ELSS is a mutual fund, switching strategy is not an option. However, you can redeem the funds after 3 years and invest in a different ELSS fund as per your preferences.

Being equity-oriented, returns on ELSS funds often outperform returns on other tax-saving instruments. These funds are subject to market fluctuations, however, you can expect decent growth in three years of the lock-in period.

In the case of ULIP, part of your investment goes towards life insurance. Therefore, you only get returns on the remaining amount invested in the market. The associated risk depends upon the scheme strategy that you choose.

The overall returns on ELSS and ULIP depend upon the performance of the underlying assets.

ELSS, like any other fund, has charges such as exit load, and expense ratio. Charges on ELSS funds are lower compared to ULIP.

ULIP schemes involve charges such as premium allocation charges, policy administration charges, mortality charges, fund management charges, and surrender charges.

While ELSS charges are always written in the factsheet, ULIP charges may not be as transparent. It is always advised to review the charges behind any investment instrument to understand the cost of investment and how it’ll affect overall returns.

Both schemes offer tax deductions of up to INR. 1,50,000 under section 80C of the IT Act. ULIP additionally offers tax exemption on the return under section 10(10D) of the IT Act.

Redeeming ELSS mutual funds after 3 years of lock-in period attracts Long-term capital gain tax of 12.5% above INR 1.25 lakhs.

FeaturesELSSULIP
Investment ObjectiveEquity orientedInsurance + Investment (Equity, or debt, or both)
Lock-In Period3 years5 Years
Flexibility to Switch StrategyNot AvailableAvailable
Return on InvestmentDepends on the performance of the underlying assets, usually more than ULIP as the entire money goes towards equity investments. Depends on the performance of the underlying assets, usually less than ELSS as the portion of the investment goes towards life cover.
ChargesExit load and expense ratio are applicable. Transparent Charges. Premium allocation charges, policy administration charges, mortality charges, fund management charges, and surrender charges are applicable. Lack of transparency in charges.
Tax BenefitsTax deduction of INR. 1,50,000 under section 80C of the IT Act. Tax deduction of INR. 1,50,000 under section 80C of the IT Act. Tax-free return upon maturity under section 10(10D) of the IT Act.

ELSS mutual funds are ideal for investors seeking tax deductions and have moderate to high-risk appetite. These funds invest predominantly in equity instruments. Therefore, the risk could be comparatively higher, but the returns would be superior.

ULIP is ideal for investors who, apart from tax deductions and wealth creation, also want life cover. ULIP scheme divides your investment into life insurance and market investments. You need to factor in the various costs associated with the ULIP before investing

Ultimately, the choice is yours based on your financial goals.

You can always reach out to experts at VNN Wealth for more information. Book your appointment today!

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Filing ITR for NRIs: Step-by-Step Guide

Navigating through the ITR process might seem overwhelming, especially for NRIs earning income both in and outside India. As per SBNRI’s survey, 73% of NRIs from the USA, UK, and Canada are trying to file ITR. Filing ITR for NRIs includes managing your tax liabilities in your current country of residence and India. Don’t worry, this step-by-step guide will simplify the process for you. Sit back and go through each point carefully to fulfill your tax obligations.

Let’s get started…

NRIs/PIOs/OCIs must file an ITR in India if their total annual income is more than 2.5 lakhs as per the old tax regime or 3 lakhs as per the new tax regime. Here’s everything you need to know before filing an ITR.

The primary step is to confirm your residential status. As per the Income Tax Act 1961 guidelines, you are an NRI if:

1. You have stayed in India for less than 182 days during the financial year.
2. Or, You have stayed in India for less than 365 days during the preceding four years and less than 60 days in the relevant financial year.
If you visit India during the year, the 60-day rule mentioned in point 2 will be replaced by 182 days. The same is applicable if you leave India as a crew member or for employment.
Finance Act 2020 Updates:
The 60-day rule mentioned in point 2 changes to 120 days for Indian citizens or people of Indian origin with an income of 15 lakh excluding foreign income. It also states that if an Indian citizen earns more than ₹15 lakh (excluding foreign income) and is not taxed in any other country, they will be considered a Resident in India.

Form 26AS is an annual tax credit statement that holds information such as tax deducted at the source, tax collected at the source, etc. You can easily view/download Form 26AS on the income tax portal to analyze your financial activities.

In this step, you have to determine your tax liability on your income earned in India. The income includes salary, interest from FDs and bank accounts, rental income.

NRIs will have to pay tax in India for capital gains earned from stocks, mutual funds, etc. The tax rate depends on the type of instrument and the duration of the investment.

While filing your taxable income, you can also opt for various deductions with your tax-saving instruments. For example, you can claim a deduction of up to 1.5 lakhs under section 80C of the IT act against ELSS mutual funds, Tax Saver FD, Public Provident Fund account, etc. You can invest in various tax-saving instruments to reduce your taxable income in a current financial year.

This is a very crucial step while filing ITR for NRIs. Depending on your residential status, you are obliged to pay tax in India on global income. Fortunately, India has signed a treaty with more than 85 countries to help NRIs avoid paying double taxation.

The Double Taxation Avoidance Agreement (DTAA) offers three methods:

1. Get tax credit against the tax paid in the resident country and claim it in India while filing ITR.
2. Certain types of income are eligible for exemptions. You can obtain a Tax Residence Certificate to qualify for the exemption.
3. You can also opt for the deduction method which allows you to deduct taxes paid in the foreign country.

Individuals with NRI status must fill out either an ITR-2 or ITR-3 form.

ITR-2 is applicable for residents or NRIs not having income under the head Profits and Gains of Business or Profession.

ITR-3 is applicable for residents or NRIs who have income under the headings of profits and gains of business or profession.

Make sure you fill out accurate details of your income and exemptions. Refer to the in-detail manual of filing ITR provided by the income tax portal.

You must provide a bank account to receive a tax refund (if any). You can either provide an Indian bank account or a foreign bank account as per your situation.

You are required to declare all your assets (movable and immovable) and liabilities if your total earnings exceed INR. 50 lakhs. In this step of ITR filing for NRIs, you must report all your assets and liabilities.

After a roller coaster of filing ITR, you can upload your NRI income tax return. Cross-check all the information before submitting the form. Make sure to verify the form within 120 days. Please note that your ITR will be marked as invalid if you fail to verify it within 120 days.

1. Passport to prove the duration of your stay in and outside India.
2. Overseas employment contract (if any).
3. All your financial statements, including your investments.
4. Form 26AS for annual tax statements.
5. TDS certificates.

Filing ITR for NRIs isn’t as confusing as it appears. By following the above-mentioned steps, you can easily fill out the ITR form. Keeping your documents in handy will ease the process. Make sure you fill in accurate details. With the help of the Double Taxation Avoidance Agreement, it has become easier for NRIs to invest in Indian markets.

Explore the top 5 investment avenues in India for NRIs.

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Double Taxation Avoidance Agreement: A Guide for NRIs

Paying tax in one country is daunting in itself, let alone in two. This is one of the primary concerns for NRIs every year while navigating finances in their country of residence and India. Thankfully, India has a Double Taxation Avoidance Agreement with 85+ countries. Non-resident Indians residing in these countries can avoid paying double taxes on their income.

In this article, we will delve into the Double Taxation Avoidance Agreement and how NRIs can benefit from it.

Double taxation occurs when an individual has to pay tax on their income in two countries- the country of residence and the home country. For example, a person working abroad also earns income in India via rent, interest on FDs, etc. In that case, he/she has to pay tax on that income twice, in both countries.

To offer double tax relief for Indians living abroad, India has signed a tax treaty with 85+ countries called the ‘Double Taxation Avoidance Agreement.’ With the help of DTAA NRIs, PIOs, and OCIs can seek exemption for tax they already paid in India while filing an ITR in their resident country.

DTAA helps NRIs lower their tax liability using three methods:

Non-resident Indians are eligible to utilize tax credits in their country of residence if they’ve paid tax on their income in India. Or, they can claim foreign tax credits to lower their tax liability in India. Let’s say you’re living in the US and have earned $100,000 in salary. You’ll have to pay 22% i.e. $22,000 tax in the US. You’ve also earned INR 5,00,000 as rental income in India. As per the tax slabs in India, let’s assume you owe INR. 1,50,000 in tax. Assuming the currency exchange rate of INR. 85 per dollar, your combined global income will be: INR. 85,00,000 (US income) + INR. 5,00,000 (Rental income in India)= INR. 90,00,000. Your tax liability in India will be approximately INR. 27,00,000. However, you’ve already paid a tax worth INR. 18,70,000 in the US. Therefore, while paying tax in India, you can use foreign tax credits worth INR. 18,70,000 to avoid double taxation on foreign income.

In the exemption method, you only have to pay tax in the country where you are working on certain types of income. You can obtain a Tax Residence Certificate which allows you to get tax exemption in India on incomes eligible under this method.

This method allows you to claim taxes paid to the foreign government as a deduction.

1. Tax Residency Certificate (TRC): TRC is a crucial document issued by the tax authorities of your country of residence. This document verifies your residential status in the foreign country while filing ITR as NRI in India.

2. Form 10F: TRC may not offer all the information required to claim DTAA. In that case, you can fill the Form 10F online. It’s a self-declaration form to provide the additional information that the TRC lacks.

3. Form 67: NRIs can claim foreign tax credits by filling out Form 67. While paying the tax in India, NRIs can pay tax on global income using foreign tax credits. For example, you’ve received dividend income in the US and already paid tax on it. You can use those tax credits to pay tax on the same income in India.

4. You may also need additional documents such as a PAN card, Passport copy, and Visa copy to claim DTAA.

Note: The process to get relief on double taxation may vary based on your current country of residence. The tax rates and the exemption methods may also vary accordingly.

As per the double taxation avoidance agreement, NRIs do not have to pay double tax on the following type of income:

1. Services provided in India.
2. Salary received in India.
3. House property located in India.
4. Capital gains on transfer of assets in India.
5. Fixed deposits in India.
6. Savings bank account in India.

India has DTAA with 85+ countries. The TDS rates for the few are mentioned below.

CountryTDS Rate
USA15%
UK15%
Canada15%
Dubai12.5%
Oman10%
Singapore15%
Malaysia10%
Spain10%
Australia15%
Germany10%

The aim behind signing the Double Taxation Avoidance Agreement (DTAA) was to provide double tax relief to NRIs/PIOs/OCIs. India has signed the DTAA with more than 85 countries, allowing NRIs to pay a fair tax on their income in two different countries. Non-resident Indians can claim tax exemptions using the combination of methods mentioned above. That way, they do not have to pay taxes twice on the same income.

DTAA has also made it easy for NRIs to invest in Indian markets without having to worry about taxes. NRIs can invest in mutual funds and various other avenues to build wealth in India.

If you’re an NRI seeking investment opportunities in India, contact VNN Wealth. Our experts will provide detailed insights into your investment portfolio. You may like to read a step-by-step guide to filing an ITR as an NRI.

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Top 5 Investment Options in India for NRIs

India is the world’s 5th largest economy with a GDP of $3.9 trillion and will reach $5.1 trillion in 2027. (Source). By 2030, India is likely to surpass Japan and Germany to become the world’s 3rd largest economy. Evidently, the Indian economy is rapidly growing and so are the investment opportunities. While Indians are benefiting from these opportunities, NRIs (non-resident Indians) are not left behind. There’s a wide spectrum of investment options in India for NRIs. NRIs can comfortably invest in Indian markets and diversify their portfolio. Here’s everything you need to know.

Non-resident Indians (NRIs) can invest in Indian markets by creating a Non-Resident Ordinary (NRO) or Non-Resident External (NRE) bank account. Having either of these accounts is mandatory to be able to transact in Indian currency.

Experts at VNN Wealth will guide you through the entire procedure, including KYC, after which you can start investing in the following options.

top investment options for NRIs in India

Read in detail below👇

Mutual funds offer instant diversification to your investment portfolio. NRIs can invest in mutual funds via SIP or lumpsum, based on their financial goals and risk appetite. You can choose from equity mutual funds, debt funds, or hybrid mutual funds to balance risk-reward.

Equity funds are ideal for long-term investments. Debt funds offer a range of categories from short to long-term investments. Hybrid funds offer the best of both worlds. The rate of return on mutual funds depends upon the fund type and market movement.

Get in touch with experts at VNN Wealth for further guidance.

Note: Some Asset Management Companies (AMCs) may restrict NRIs from USA and Canada.

Alternative Investment Funds offer non-conventional investment options. NRIs can expand their portfolio beyond mutual funds by investing in AIF. AIFs have three categories: CAT I, CAT II, and CAT III. Each category provides diverse investment avenues such as private equity, venture capital, hedge funds, angel funds, etc. AIF CAT III is more popular among investors. You can contact VNN Wealth and our experts will walk you through the procedure.

Read more about AIFs.

Unlisted shares are gaining popularity among investors. NRIs can also buy shares of a company that hasn’t been listed yet. Unlisted stocks are traded off the market (Over-the-counter market). Therefore, it can be tricky to identify promising stocks.

VNN Wealth has handpicked unlisted shares with a good track record. These stocks are less volatile compared to the listed stocks as they’re not frequently traded.

Investing in unlisted shares unlocks the following benefits:
1. Guaranteed allocation if the company goes live on the stock exchange via IPO.
2. Pre-listing gains right before the company goes live.

NRIs can consider parking some of their funds in these shares to further diversify their portfolio.

The good old FD is always worth looking into. While the return may not be as superior as the avenues listed above, it’s safe and can accumulate wealth over a period of time. NRIs prioritizing safer investments along with steady interest income can consider fixed deposits.

Here are three ways NRIs can create an FD:

1. Non-Resident Ordinary (NRO) Fixed Deposit allows you to invest your Indian income such as rental income, dividends, pension, etc.

2. Non-Resident External (NRE) Fixed Deposit converts your foreign currency into Indian currency to invest.

3. Foreign Currency Non-Resident (Banks) Fixed Deposit is a term deposit account. You can maintain and invest funds by transferring from your NRE account.

Portfolio Management Service (PMS) provides tailor-made investments for HNIs. NRIs seeking personalized investments can also opt for PMS. A dedicated portfolio manager makes decisions on your behalf to optimize your investments & maximize returns. The minimum investment requirement for PMS is INR. 50,00,000. You will have to transfer the entire amount to the PMS house. Or, you can transfer your existing portfolio to the PMS house. If your portfolio is worth less than INR. 50 lakhs, you can invest the remaining funds by transferring the amount.

PMS helps you keep track of your stock, ESOP, and other asset holdings. The portfolio manager leverages market opportunities to deliver superior returns on your investments. You can directly communicate with the portfolio manager to gain insights. Read more about when is the right time to opt for PMS.

Taxation is an important factor to consider while investing. Tax rules for NRIs are similar to the Indian residents with slight exceptions.

The tax implications will depend upon the investment avenue and the investment horizon. The most important thing is to avoid double taxation. Make sure your country of residence has a Double Taxation Avoidance Treaty (DTAA) with India. You must also file The Foreign Account Tax Compliance Act (FATCA) self-declaration.

Also read- Mutual fund taxation for NRIs in India.

1. NRIs with funds lying idle in India can invest without moving funds out of India. This will generate steady income for themselves or dependant parents in India.

2. NRIs returning with foreign assets can explore investment opportunities in Indian markets to amplify wealth.

3. NRIs planning to return to India after retirement can build a solid retirement plan by investing funds in various assets

India is likely to overtake Japan and Germany to become the 3rd-largest economy in the world. Sectors like Auto, Cement, Telecom, Financials, etc will significantly contribute to the growth. NRIs can explore plenty of investment options in India across various sectors and expand their portfolio.

A wide range of investment instruments, such as mutual funds, AIFs, unlisted shares, and FDs, are easily accessible. Savvy Non-resident Indian investors can also opt for Unlisted Shares/Pre-IPO to help generate that extra alpha on their portfolio. Make sure you evaluate your risk appetite and align your investments with your financial goals.

For more insights and guidance, contact VNN Wealth, and our experts will streamline your investments.

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Our Top 7 picks of Unlisted shares in India

Unlisted shares in India have become popular over the past few years. Investors are buying unlisted shares of emerging companies showing potential growth as the awareness around them has increased. 

By investing in these shares Pre-IPO, you gain returns in two ways. 

1. Prices of these shares may go up in the long run via over-the-counter trading.

2. You may bag pre-listing/ listing gains. 

We’re receiving more inquiries about unlisted shares than ever before, especially after the Tata Tech IPO’s massive success. Tata Technologies was our second success story after Nazara Technologies in terms of entry and exit for our investors. And now, more unlisted companies have entered our top picks. 

Interested to know which unlisted share to buy?

Our team of experts has curated a list of the top 7 unlisted shares in India. 

But before we dive into it, read everything about unlisted shares here

waree energies share price

The leading renewable energy company in India, Waaree Energies Ltd manufactures solar PV modules and offers solar energy solutions. Waaree’s manufacturing facility of 12GW is among the largest in India. It started with 2GW in 2021, upgraded to 9GW in March 2023, and rapidly expanded to 12 GW in June 2023. Waaree’s four manufacturing units are located in Surat, Tumb, Nandigram, and Chikhli- collectively across 136.30 acres. The company manufactures a wide range of products such as solar panels, solar water pumps, solar street lights, and solar inverters, to name a few. The company also offers Solar EPC services along with project development, financing, operations, maintenance, and asset management.

Waaree witnessed an incredible revenue boost from 1997cr in 2021, 2950cr in 2022, to 6840cr in 2023. The operating profit margins have also increased from 4.35 in 2021 to 12.37 in 2023. Waaree is aiming to keep contributing towards a green future with its affordable and easily accessible solar energy.

vikram solar share price

Founded in 2006, Vikram Solar is one of the leading solar PV module manufacturers in India. Currently, with 3.5 GW capacity, the company also provides integrated solar energy solutions, Engineering, Procurement, and Construction (EPC) services, and operations & maintenance. Vikram Solar has 3 manufacturing units in Tamilnadu and West Bengal. The company has 42+ distributors across 600 districts in India. Vikram’s 70% of revenue comes from PV modules and about 20% from EPC services.

It is the first company to contribute to fully solarizing Kochi(Kerala) airport, installing a floating solar plant in Kolkata, and commissioning large-scale rooftop solar plants across India. The company also has sales offices in the USA and has supplied solar PV modules in 32+ countries. The company’s revenue has increased to INR. 2015 crores in fy23, an 18% boost from the fy22 revenue. Vikram Solar has filed a draft with SEBI to raise INR. 1,500 crore via initial public offering (IPO) and an offer for sale of up to 5,000,000 equity shares. 

tata capital share price

A subsidiary of TATA Sons, TATA Capital Limited is registered with RBI as a non-deposit-accepting NBFC. Along with its subsidiaries, TATA Capital offers financial services to corporate, retail, and institutional customers. The company’s product portfolio includes various types of loans, investment advisory, cleantech finance, private equity, wealth products, commercial and SME finance, leasing solutions, and TATA cards, to name a few. 

In the financial year 2022, TATA Capital reported the highest profit. The company’s PAT increased from INR 1,245 crore to INR 1,801 in FY22 crore and to INR 2,975 crore in FY23. Tata Capital’s loan book grew by 28% in FY22-23 and the book value increased to 48.36 from 33.82. The RoE also increased from 15.6% to 17.3%.

sbimutualfund

SBI Funds Management Limited is one of the most popular, largest asset management firms in India. Founded in 1987, it’s a joint venture between the State Bank of India and AMUNDI (A global fund management company.) SBI currently holds a 63% stake and the remaining 37% belongs to AMUNDI. SBI mutual funds offer a wide range of mutual fund schemes such as equity mutual funds, debt funds, hybrid mutual funds, solution-oriented schemes, and Exchange-traded funds, to name a few. The company also launched an Alternative Investment Fund (AIF) in 2015 and may launch more funds in the future. 

With over 53+ mutual funds schemes, SBI mutual funds have INR 1.65 trillion assets under management (AUM) and over 12 million investors. SBI fund management has been offering international investor solutions since 1988. The company guides and manages India’s dedicated offshore funds. The company also offers Portfolio Management services catering to HNIs, large provident funds, institutions, and selective trusts. 

SBIFM’s AAUM is 44% more than the next largest peer (ICICI prudential mutual fund). And has hit a 27% CAGR when the rest of the market delivered 10% over a five-year horizon. As per the recent financial reports (March 2023), SBI fund management has made a net revenue of INR 2297.27 crores.

NSE India limited share price

Founded in 1992, the National Stock Exchange (NSE) is India’s leading stock exchange with ~1968 companies listed on it. In 1994, NSE launched electronic screen-based trading, and internet trading in 2000.  NSE’s flagship index, Nifty 50, serves as a global benchmark for Indian capital markets. NSE is the world’s largest derivative exchange with 21% of the global derivative contract trading. It’s also the second-largest derivatives exchange in the world for currency futures trading. The capital market business model of NSE primarily offers trading services, exchange listing, market data feeds, indices, and technology solutions.

Its cash market offers a platform to trade equity shares, mutual funds, ETFs, REITs, Sovereign Gold bonds, government securities, T-bills, etc. The debt market offers government, corporate bonds, commercial papers, and other debt instruments. NSE also provides index management services for equity indices, hybrid indices, and customized indices for asset management companies, insurance companies, investment banks, PMS, and stock exchanges. The company has performed at a CAGR of 35% over the last three years. NSE’s FY23 revenue has reached INR 12650 Cr. with a 63.27 net profit margin. 

csk share price

The four times IPL winner, CSK is the only sports team in India available for the general public to invest in. CSK is one of the most popular IPL franchises with a strong brand value. The brand was founded in 2008 as an IPL cricket team representing Chennai, Tamil Nadu. It is a wholly-owned subsidiary of India Cements. Being a popular IPL franchise, CSK became the country’s first sports unicorn. The brand’s market cap was raised to 7600 crores (more than 1 billion) with the share prices in the unlisted market trading between Rs. 210-225. 

Chennai Super Kings generates revenues from various sources such as- Gate ticket collection, In-Stadium Advertisements, and Merchandise sales. The team earns 60% of the total revenue from Media Rights, which is the highest revenue stream. The revenue from sponsorship makes up around 15-20% of total revenue followed by 10% from ticket sales. While the Pandemic had an impact on many brands, CSK managed to maintain a balance via indirect revenue streams. One of the most loved IPL teams, CSK, will continue to generate solid revenue via merchandise sales, sponsorships, portions of prize money, and digital viewership. 

studds share price

Being a global leader in two-wheeler helmet manufacturing, Studds accounts for almost one-third share of the organized two-wheeler helmet market. Studds had an opportunity to manufacture face shields and protection wear in high demand during Covid-19. Studds’s sales received another boost when The Ministry of Road Transport and Highways declared that India would only manufacture and sell BIS-certified two-wheeler helmets. Demand for two-wheeler helmets is growing rapidly post-COVID-19 as transportation has resumed. Besides, people often replace their helmets within two to three years, enabling more business for the company. 

Studds is also expanding its accessories manufacturing with riding gear gloves, goggles, jackets, and safety and storage gear. Additionally, Studds also has an opportunity to dominate bicycle helmet sales. The company is operating in more than 40 countries including Europe and US. Recently, the company has doubled its manufacturing capacity in Faridabad, Haryana. 

Nazara Technologies: Was listed on the stock exchange on March 30, 2021, at INR 1,981, an 81% boost from the issue price of INR 1,101.

TATA Technologies: Was listed on the stock exchange on 30th November, 2023 at INR 1,200, a whopping 140% higher than the issue price of INR 500.

Kurl On: In July 2023, Kurl On’s biggest rival Sheela Foam acquired a 95% stake in the company and offered a buyback option to shareholders. 

Unlisted shares are not available to invest via the established stock exchanges as they’re traded over the counter or via private platforms. If you want to buy unlisted shares of the above companies, get in touch with us anytime and our team will take care of the rest.

Invest in unlisted shares.

Buying unlisted shares is a great strategy to diversify your investment portfolio. These shares are fairly safer than listed shares due to less volatility. And the major benefit of investing pre-IPO is the allocation confirmation. With Unlisted shares, investors have the opportunity to gain either pre-listing gains or listing gains.

Share prices of unlisted companies often boost right before the IPO. With a huge demand in the unlisted market, you can sell your shares and earn pre-listing gains. Or, you can wait until the IPO is live and get profit from listing gains. Please note that the pre-listing and listing gains are subject to market risk. To avoid any risks, we have chosen known brands with high brand value and promising futures. Get in touch with us if you are interested in buying the above shares. Experts at VNN Wealth will guide you through the process.

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