Penny wise, Budget foolish

Every year, after the finance minister is done with chopping and changing the tax rules in the Budget, some investors get into hyperactive mode. This year too, after the Budget changes, queries have been pouring in. 'Now that ELSS funds have been made taxable at redemption (exempt-exempt-taxed), should I switch to ULIPs or PPF instead?' 'Given that interest from bank FDs is exempt up to Rs 50,000 a year, should I redeem my debt funds?' 'Given that the grandfathering clause needs me to maintain records of my January 31 NAVs, why shouldn't I sell all my equity funds and buy them back before April 1?' Not just taxation Well, all of the above are bad ideas because they miss the wood for the trees. When you decide to bet your money on any new investment option, you must be considering a whole bunch of factors to make the choice. 'What's my goal and when do I need the money?' 'How much returns will I get?' 'What's the risk I can take?' 'What's the exit option available to me if this investment doesn't deliver?' And then, of course, 'how tax efficient is this investment?' In short, any good investment choice is made after considering five key parameters - safety, returns, liquidity, costs and taxation. Th

This article was originally published on May 03, 2018.