MONEY TALKS – PART 3

Let’s understand the key considerations while investing and we will then take each of them one by one:

  • What amount of risk you can take?
  • What is your investment horizon?
  • What is post tax return?

We will start from the third one. What is the impact of tax on different instruments we can invest money.

  • So say hypothetically one instrument offers return of 10% annually which is taxable and another offers 8% which is tax free.
  • If your effective tax rate is 25%, then the post tax return in first is 7.5% which is lower as compared to 8% in second option. But if your effective tax rate is 15%; then first option offers returns higher.

Below table depicts the four scenarios-

  Instrument 1 Instrument 2
Return 10% p.a. 8% p.a.
Tax Treatment of returns Taxable Tax free
Tax applicable    
Scenario-1- 25% Tax 7.5% p.a. 8% p.a.
Scenario-2-15% Tax 8.5% p.a. 8% p.a.

 

The key point is while looking at the return of any instrument you must look into post tax return of the instrument in terms of instrument and your tax bracket.

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Positive * Positive  = Great Day

Morning started a bit hurried for me. Had forgot to put alarm & had slept late in night . So got up late . Rushed to get ready . Somehow managed to do that in time. Cab also booked . Was showing 10 mins waiting which was fine considering I was getting time to have breakfast . 

There was traffic & vehicle finally arrived after 35 minutes . The moment I opened the door of vehicle the driver greeted me apologised for delay & expressed his concern that I might have got late. This was a welcome surprise . I was little frustrated & worried . But then it just changed . 

The time till I reached my office was a different journey today inspite of traffic on the way . 

He enquired about why a particular building I stay in is named that . Then he shared his experience of taking a customer to a particular bungalow & why it was named so. 

Then he  shared that he started ola/Uber two months back & that his mother also prefers Ola / Uber . The reason why he thinks people / prefer this mode. 

He had views on almost everything you could imagine . Today’s generation, we adopting western culture & western culture adopting our things . The politics & the progress & bottlenecks . 

good day
source : pixabay

I spent 1.5 hours on a trip which normally takes 45 mins. But it was one such day where I was not complaining because of this amazing experience . 

These are some of the rare people who are themselves positive & engaging and spread this to people around them .