Category: Personal Finance

The Indian Initial Public Offering (IPO) market has witnessed a surge in participation from various investor segments, and High Net Worth Individuals (HNIs) are playing an increasingly significant role. With their substantial investment capacity, HNIs can significantly influence IPO subscription levels and may potentially earn some returns. If you are an HNI looking to tap into the IPO market, understanding the application process is crucial. This comprehensive guide will walk you through the steps and key considerations for applying for an IPO under the HNI category.

In the context of Indian IPOs, the term HNI, or High Net Worth Individual, refers to investors who apply for shares exceeding ₹2 Lakhs in value. This category is also known as the Non-Institutional Investor (NII) category. It’s important to note that this classification is based solely on the application amount, not necessarily the individual’s total net worth, although a broader definition of HNI based on net worth (minimum of Rs. 5 crores) exists. 

Accredited Investors are defined as those with a net worth of Rs 7.5 crores or annual income of Rs 2 crores. The classification is done at PAN level. Accordingly, different members of the same family can apply under different investor categories for an IPO.  

Why is there a Separate HNI Category?

The segregation of investors into categories like Retail Individual Investors (RIIs), HNIs (or NIIs), and Qualified Institutional Buyers (QIBs) is designed to facilitate a more structured allocation process. HNIs, with their larger application sizes, have a dedicated portion of the IPO shares reserved for them, allowing for potentially higher allotment compared to the retail category in certain scenarios.  

Step-by-Step Guide: How to Apply for an IPO as an HNI

The primary method for HNIs to apply for an IPO is through the Application Supported by Blocked Amount (ASBA) facility offered by most brokers via their trading accounts. Here’s a general step-by-step guide:

1. Ensure you have a Demat Account: 

You will need an active Demat account with a depository participant to hold the shares if allotted.  

2. Log in to your Trading Account:

Access your broker’s website or mobile application.

3. Navigate to the IPO Section:

Look for an “IPO,” “Investments,” or similar section within your broking account.

4. Select the IPO:

Choose the IPO you wish to apply for from the list of open IPOs.

5. Select the HNI/NII Category:

While some platforms might not have a specific “HNI” option, any application exceeding ₹2 Lakh will automatically be considered under the NII category.  

6. Enter Your Details:

Provide your Demat account number, PAN number, and other required personal information.

7. Enter the Bid Details:

Quantity: Specify the number of shares you wish to apply for. Ensure that the total value exceeds ₹2 Lakh.

Bid Price: Unlike retail investors who can bid at the cut-off price, HNIs usually need to enter a specific bid price within the IPO’s price band. The ‘cut-off price’ option is generally unavailable for bids above ₹2 lakh.  

8. Authorize the Blocking of funds in your bank account linked to your demat account:

Once you submit your application, your bank will block the application amount in your bank account. The applicable application amount will only be debited if you receive an allotment of shares.  

9. Confirmation:

You will receive a confirmation message or email from your bank regarding the successful submission of your IPO application.

Important Considerations for HNI Applications

• UPI Limitations:

While Unified Payments Interface (UPI) is a common method for retail IPO applications, it is generally not used for HNI IPO applications, especially for amounts exceeding ₹5 lakh. HNI applications primarily rely on the ASBA process. Some brokers using UPI-based applications might not facilitate HNI IPO applications directly.  

• No Cut-off Price Option:

HNIs typically cannot apply at the ‘cut-off price’. They must specify the exact price at which they are willing to purchase the shares within the price band. If the final issue price is higher than your bid price, you will not receive any allotment.  

• Irreversible Bids:

Once an HNI IPO application is submitted, it cannot be cancelled or modified to reduce the bid size. You can only revise the bid to increase the quantity or price.  

• Application Deadline:

Be aware that the IPO window for HNI clients might close earlier on the last day of bidding on some platforms (e.g., 4 PM for a few brokers).

Benefits of Applying Under the HNI Category

Applying under the HNI category offers certain advantages for high net worth investors:

• Potentially Higher Allotment Chances:

While retail investors enjoy a larger overall share of IPO allocations (35% or more), they often face intense competition and are typically allotted only the minimum lot size, especially in oversubscribed IPOs. In heavily oversubscribed IPOs where there is huge demand, even the minimum lot size may not be allotted to each applicant and the allotment of the lot size will happen on the basis of a lottery. In contrast, High Net Worth Individuals (HNIs), with their reserved 15% share, may have a better chance of securing an allotment, particularly in high-demand IPOs. To maximize their allotment, HNIs should consider bidding higher amounts, as this increases their chances of receiving a greater number of shares in case of oversubscription. Additionally, it’s crucial to review the allocation percentages for Institutional Investors and Non-Institutional Investors (NIIs). A larger NII allocation generally translates to improved allotment prospects for HNIs.

• Opportunity for Higher Returns:

With the ability to invest larger amounts, HNIs can potentially generate returns if the IPO performs well post-listing.

• Investment Diversification:

IPOs can provide an avenue for HNIs to diversify their investment portfolios if a company from a new sector or with a different business strategy taps the IPO market. For example; Quick service delivery companies or electric vehicle manufacturers.

Risks and Challenges of HNI IPO Applications

While the HNI category offers potential benefits, it’s crucial to be aware of the associated risks:

• Risk of Investing Borrowed Funds:

Many HNIs utilize IPO funding (loans) to apply for larger quantities. This can lead to significant losses if the IPO price falls below the issue price on listing, as you would still be liable for the loan and interest.  

• Market Volatility:

The period between the IPO closing date and the listing date (typically 4-15 days) can be volatile. Unfavorable market conditions can lead to a decline in the IPO’s grey market premium and potentially a lower listing price than anticipated. 

• Inability to Revise Bids Downwards:

The restriction on modifying bids to reduce the application size can be a disadvantage if your investment strategy changes after submitting the application.  

• Fixed Price Bidding Risk:

Since HNIs cannot apply at the cut-off price, there’s a risk of not receiving any allotment if the final issue price is higher than your bid price.

Tips for HNIs Investing in IPOs

To make informed investment decisions when applying for IPOs under the HNI category, consider the following tips :  

• Thoroughly Review the Red Herring Prospectus (RHP):

Understand the company’s financials, business model, growth prospects, valuation and potential risks before investing. Invest with a long term perspective. Evaluate whether the company is pricing its shares fairly aggressively or conservatively. Be patient, prices may go below IPO levels increasing the probability of higher returns in case of no change in business fundamentals.  Invest in IPOs for the long term.  Some companies have given substantial returns since their IPOs.  Investors who had invested in the IPOs of Reliance Industries Ltd, Hdfc Bank Ltd, etc have made double digit returns and reaped the benefits of power of compounding over a long period of time.  

• Stay Updated on Market Trends and IPO Rules:

Keep abreast of the latest developments in the IPO market and any changes in regulations. Generally, listing gains are widespread during boom times. It’s best to do your own research rather than follow the herd. Keep a price target to book some profits and track prices and market movements of the broader market regularly.  

• Seek Professional Financial Advice:

Consult with a financial advisor to assess your risk appetite and make investment decisions aligned with your overall financial goals.  

• Monitor Investments Post-Listing:

Track the performance of the allotted shares after listing and make informed decisions about when to hold or sell.

Conclusion

Applying for an IPO under the HNI category can be a good way for high net worth individuals to get a higher allocation of shared compared to the retail category. By understanding the specific procedures, benefits, and risks involved, HNIs can navigate the IPO market more effectively. Remember to conduct thorough research, consider your risk tolerance, and make informed decisions to potentially enhance your investment portfolio.

Frequently Asked Questions (FAQs)

Can NRIs apply under the HNI category? Yes, any resident individual or non-resident individual (NRI) can apply in the HNI category.  

What is the minimum investment amount for the HNI category? The minimum application amount to be considered under the HNI category is ₹2 Lakh.  

Can I use UPI to apply for an HNI IPO? Generally, UPI is not the primary method for HNI IPO applications, especially for amounts above ₹5 lakh. The ASBA process through net banking is the more common route.  

What happens if the IPO is oversubscribed in the HNI category? In case of oversubscription in the NII (HNI) category, the allotment process typically involves using the proportionate system for allotment.  

Can I sell my HNI IPO shares on the listing day? Yes, you can sell the shares allotted to you in the HNI category on the day of listing.

Is there a maximum investment limit for the HNI category? There is no upper limit for the investment amount in the HNI category.

In the intricate world of wealth management, maximizing returns while minimizing tax liabilities is a constant pursuit. Among the array of tax-saving strategies, tax loss harvesting stands out as a powerful tool for investors. Whether you’re navigating the complexities of tax harvesting in mutual funds or seeking to optimize your tax harvesting in stocks, understanding this strategy can significantly impact your financial health. This blog will delve into the intricacies of tax loss harvesting, exploring its benefits, implementation, and key considerations to help you make informed investment decisions. 

Tax loss harvesting is a strategy that involves selling investments that have decreased in value to realize a capital loss. This loss can then be used to offset capital gains, thereby reducing your overall tax liability. Essentially, it’s about turning your investment losses into tax-saving opportunities. Imagine you have a stock that’s down, and another stock that’s up. By selling the losing stock, you can use that loss to cancel out some or all of the gain from the winning stock, reducing the amount you owe in taxes. 

How Does Tax Harvesting Work?

Tax loss harvesting works by strategically selling investments that have declined in value, thereby realizing a capital loss. This loss can then be used to offset any capital gains you’ve incurred during the tax year, effectively reducing your overall tax liability. 

Example: Suppose you have a stock that lost ₹10,000 and another stock that gained ₹15,000. By selling the losing stock, you can offset ₹10,000 of the ₹15,000 gain, reducing your taxable gain to ₹5,000.

Benefits of Tax Loss Harvesting 

Reduction in Tax Liability:

The primary benefit is the immediate reduction in your tax bill.

Portfolio Rebalancing Opportunities: 

Tax harvesting allows you to rebalance your portfolio by replacing underperforming assets with potentially better-performing ones. 

Improved Long-Term Financial Planning: 

By minimizing tax burdens, you can reinvest more of your capital, accelerating your wealth accumulation. 

Ability to Reinvest Tax Savings for Better Returns: 

The money saved on taxes can be reinvested, leading to compounding growth.

Step-by-Step Guide to Implementing Tax Harvesting 

Review your portfolio: 

To effectively implement tax loss harvesting, begin by thoroughly reviewing your investment portfolio, specifically focusing on taxable accounts, to identify underperforming assets. Analyze the reasons for these losses and consider their impact on your overall asset allocation. 

Calculate potential tax savings: 

Next, calculate the potential tax savings by determining your capital losses, estimating capital gains, and calculating the net capital gains or losses. Factor in any transaction costs to ensure the savings are worthwhile. 

Execute the sale and reinvestment strategy: 

Keep in mind the wash sale rule, and reinvest the proceeds into similar, but not identical, securities, or use this as an opportunity to adjust your asset allocation. 

Monitor and adjust your portfolio: 

continuously monitor and adjust your portfolio, staying informed about market conditions and tax law changes, while ensuring your strategy aligns with your long-term financial goals. Consulting with a financial advisor can provide valuable guidance throughout this process. 

Tax Loss Harvesting in Mutual Funds  

Mutual fund investors in India can effectively use tax loss harvesting by identifying funds that have declined in value. Selling underperforming funds and reinvesting the proceeds into a similar fund with a slightly different investment strategy can help maintain your portfolio’s balance while optimizing tax benefits. 

Example: If you sell a mutual fund at a loss, you can reinvest in a different fund with a similar objective but a distinct portfolio composition. This approach allows you to realize the loss for tax purposes while staying invested in the market. However, it’s always advisable to consult a

financial advisor or Chartered Accountant (CA) to ensure compliance with Indian tax regulations and avoid any potential scrutiny from tax authorities. 

Tax Loss Harvesting in Stocks 

For stock investors, tax loss harvesting involves selling individual stocks that have decreased in value. Understanding the difference between short-term and long-term capital gains is essential. Short-term gains (from assets held for less than a year) are taxed at your ordinary income tax rate, while long-term gains are taxed at a lower rate. 

Long term capital losses can be set off against Long term capital gains only. However, short term capital losses can be set off against long term capital losses too. Further, both these losses can be carried forward to set off against future capital gains for a period of eight years. Again long term capital losses can be set off against long term capital gains only whereas short term capital losses can be carried forward and set off against long and short term capital gains. 

Key Considerations and Rules for Tax Harvesting 

Tax loss harvesting, while a powerful strategy, requires careful attention to specific rules and considerations to avoid unintended consequences. Here’s a deeper dive into the essential aspects: 

If you want to maintain exposure to a particular sector or asset class, consider buying a fund or stock with a slightly different investment strategy or holdings. For example, if you sell a large-cap growth fund, consider buying a large-cap value fund. 

While India doesn’t have a direct equivalent to the U.S. “wash sale” rule, which disallows tax loss deductions if the same stock is repurchased within 30 days, investors should still exercise caution. Even without explicit regulations against tax loss harvesting, Indian income tax authorities might scrutinize transactions where stocks are repeatedly sold and bought back solely for tax reduction purposes. 

Therefore, it’s highly recommended that Indian traders and investors consult with a Chartered Accountant (CA) when filing their income tax returns. This proactive approach can help mitigate potential issues during tax scrutiny and ensure compliance with Indian tax laws. 

Short-Term vs. Long-Term Capital Gains: 

Short-term gains (from equity related investments held less than a year) are taxed at higher rates than long-term gains. You can use losses to offset gains.

Brokerage Fees: 

When planning your tax loss harvesting, don’t forget about fees. Brokerage costs and other regulatory expenses such as STT, stamp duty, etc can eat into your savings, so choose a

low-cost broker and trade wisely. Many people do this at the end of the year, but you can do it anytime the market offers opportunities. Always keep your long-term investment goals in mind, and don’t let tax savings alone drive your decisions. 

Exit loads:

Most equity mutual funds will have an exit load for a year. Typically, most equity mutual funds will not apply exit loads for the first ten percent of the investment value. On the balance value, a one percent exit load might be levied. Some funds may have an exit load in the second or third year too. Most debt mutual funds may not have an exit load. Smart beta funds and Index funds may also not have an exit load after a couple of months. 

Finally, keep good records of your trades and consider talking to a financial advisor to make sure you’re doing it right. 

Who Should Use Tax Harvesting? 

High-Net-Worth Individuals:  

High-net-worth individuals, with their substantial investment portfolios and frequent capital gains, stand to gain significantly from tax loss harvesting. The ability to reduce tax liability, even by a small percentage, translates to substantial savings. Complex financial situations, often involving diverse investment strategies and multiple taxable accounts, provide ample opportunities for optimizing overall tax efficiency. 

Investors with Significant Capital Gains: 

Investors who consistently realize significant capital gains, whether through active trading or long-term growth, can leverage tax loss harvesting to offset those gains and minimize their tax burden. This is particularly relevant for those who engage in frequent trading or have experienced substantial portfolio growth, as well as those who sell real estate or other capital assets that have greatly increased in value. 

Those Looking to Optimize Their Tax Efficiency:

Individuals who prioritize tax efficiency and proactively seek to minimize their tax liabilities can also benefit greatly. Tax loss harvesting aligns perfectly with their goal of maximizing after-tax returns. 

Individuals with Volatile Portfolios: 

Those with volatile portfolios, containing assets that experience significant value fluctuations, will find more frequent opportunities to harvest losses. This is especially true for investors holding individual stocks or investments in emerging markets. 

Planning for Expenses: 

Finally, those planning for large upcoming expenses can use tax loss harvesting to reduce their tax bill, freeing up more capital for those needs.

Equizen can help you determine if tax harvesting aligns with your financial goals.

How Equizen Can Help You with Tax Harvesting 

Equizen, led by Sanjay Parikh, a veteran with over 3 decades of experience in the financial securities space, offers expert financial planning and tax optimization services. We can help you navigate the complexities of tax loss harvesting and tailor a strategy that aligns with your financial objectives. 

Schedule a consultation with Equizen today to optimize your investment portfolio.

Concluding Thoughts 

Tax loss harvesting is a valuable strategy for minimizing tax liabilities and optimizing your investment portfolio. By understanding the rules and implementing a well-thought-out plan, you can enhance your long-term financial success. 

Ready to optimize your mutual fund investments? Contact Equizen today for personalized financial advice! 

Frequently Asked Questions on Tax Loss Harvesting 

What is the difference between tax-loss and tax-gain harvesting?  

Tax-loss harvesting involves selling losing investments, while tax-gain harvesting involves selling winning investments to realize gains in a lower tax bracket. 

Can tax harvesting be used for other investments besides mutual funds? 

Yes, it can be used for stocks, ETFs, and other taxable investments. 

How often should I practice tax harvesting?  

It’s typically done annually, especially towards the end of the tax year. 

What are the risks of tax harvesting? 

The primary risk is violating the wash sale rule.

How does Equizen help clients implement tax harvesting strategies?

We provide personalized guidance, portfolio analysis, and strategic implementation to optimize tax efficiency.

As we speak to more and more people, a common refrain emerges: “I have no savings and  cannot invest.” We hear this from not only people who have just entered the workforce bu  seven from those who are in their mid-40s. Whether you’ve just started earning after  completing your education or have been working for years with little to show for it, the lack of  an emergency fund or investments can lead to a cascade of financial challenges. This problem  is not confined to one region or income group—people from both rich and emerging  economies struggle to save, let alone invest. 

Even in the United States, which boasts a per capita GDP of over $80,000, many citizens  remain unsatisfied with their incomes. While some Americans earn well above $150,000 a  year, the average worker—such as those in manufacturing or port operations—earns closer to  $60,000. By comparison, in India, where the per capita GDP hovers around $3,000, even top  graduates like MBAs or chartered accountants might start with salaries around $12,000, and  the brightest from premier institutes may earn about $25,000. The key issue is not income  alone—it’s the ability to manage expenses and build a financial cushion. 

The Underlying Problem: A Behavioural Issue 

The root cause of inadequate savings isn’t solely a financial one; it’s psychological. Many  people struggle to control their expenses, driven by impulses and societal pressures. In the  United States, the phrase “keeping up with the Joneses” captures the challenge of matching  peers’ lifestyles. In India, the pressure might be to emulate the spending patterns of high 

profile families such as your friends and relatives. Our desires and expectations often outstrip  our income, and without control over our impulses, the gap between our expenses and our  earnings continues to widen. 

Recent events—such as the COVID-19 pandemic—have underscored the risks of assuming  that our income and health are guaranteed. Without adequate savings, investments, and  insurance, any sudden downturn can trigger a spiral into debt and financial distress. 

Why Do People Struggle with Debt and Savings? 

Several factors contribute to financial distress and the inability to save: 

1. Low Income and High Expenses 

 – Incomes often do not keep pace with inflation, making it difficult to cover basic necessities. 

 – Rising costs of housing, healthcare, education, and daily expenses leave little room for  savings. 

– Further, the urge to do or get the best in everything adds to the problems. Sending children  to the most expensive schools, buying SUVs and that too the most expensive model are  examples of expenses that can cause trouble. The big items of expenditure always cause the  biggest issues. An expensive trip to Europe or the USA and that too on EMIs is an invitation  for trouble.  

 – We inherently have this urge to do better than our parents and family. If our parents didn’t  have a car, we will probably have two and change the same every five years. Our parents lived  in one house for thirty years and spent almost nothing on the interiors, we will change our  house every ten years. Our parents went to Lonavala, Mahabaleshwar, Agra, Darjeeling for  holidays, we will go to Paris, Vienna, Athens, etc. Our parents sent their kids to the  neighbourhood English school with monthly fees of less than Rs 100, our kids will go to IB  schools and colleges with fees close to Rs one lakh a month. One can do this after putting  away 25 – 30% of their income as savings.  

2. Living Paycheck to Paycheck 

 – Many individuals struggle to cover their monthly bills, leaving minimal room for savings.  – Unexpected costs—such as medical bills or car repairs—can quickly derail finances.  – The absence of a financial buffer makes long-term planning challenging and adds to stress. 3. Lack of Financial Literacy 

 – Many people are not taught the fundamentals of personal finance, leading to poor money  management decisions. 

 – Impulsive spending, misuse of credit cards, and reliance on high-interest loans can  accelerate debt accumulation. 

4. Unplanned Emergencies 

 – Job losses, medical emergencies, or other unexpected events can drain any savings and  force reliance on loans or credit cards. 

 – Without an emergency fund, even a short-term setback can have long-term financial  repercussions. 

5. Psychological Stress and Mental Health Issues 

 – Constant financial strain can lead to stress, anxiety, and even suicidal thoughts. 

 – The pressure to match the lifestyles of more affluent peers can deepen feelings of  inadequacy.

6. Cultural and Social Pressures 

 – Societal expectations often push for extravagant spending on weddings, social status, and  luxury items. 

 – The desire to maintain a certain lifestyle can lead individuals to live beyond their means.

Solutions to Overcome Financial Struggles 

While financial difficulties may seem overwhelming, practical steps can help break the cycle  of debt and pave the way to stability: 

1. Financial Education and Budgeting 

 – Gain a solid understanding of personal finance, budgeting, and investment strategies. 

 – Track every expense—write down all expenditures and review them weekly or monthly to  identify areas where you can cut back. Remove all auto renewal subscriptions. You will  quickly determine that you do not need most of the OTT subscriptions that you already have.  Mobile phone, Broadband, OTT, apps, etc are fees that have a habit of creeping up over time.  Review all such subscriptions and delete the ones that you no longer deem necessary.  

 – Download an expense app that will help you record and review all your expenses.  Generally, when things become easy to order, your expenses climb. Easy usage on food  delivery apps, leads you to order more that not only depletes your savings but adds to your  waistline. Neither is good for you.  

 – Aim to spend on your safety and future first rather than on your present. Save at least 25%  of your income and spend the rest. If there is no money left, postpone or do not spend on that  item at all.  

2. Debt Management Strategies 

 – Avoid taking loans other than for education or a house. Both add to your wealth or income.  They are good debt. Pay them off first even before you invest. Dont buy vehicles, vacations  and consumer durables on loans. At the most, go in for zero interest EMIs but hidden charges  and fees are likely to increase the cost. Do what your parents did, save and buy.  

 – Prioritise the repayment of high-interest debt using methods like the snowball or avalanche  approaches. 

 – Consider seeking professional debt counselling to create a structured repayment plan.

3. Building an Emergency Fund 

 – Set aside a portion of your income each month in a separate savings account. Invest the  same in a liquid or short duration debt fund which is easily accessible.  

 – Aim to accumulate an emergency fund that covers at least six months of expenses.  Additionally, consider saving extra for potential medical emergencies if your insurance is  insufficient. 

4. Mental Health and Financial Counseling 

 – Don’t hesitate to seek support from mental health professionals if financial stress becomes  overwhelming. 

 – Financial advisors can help you develop a roadmap for getting out of debt and building  long-term wealth. 

5. Exploring Alternative Income Sources 

 – Consider side hustles, freelancing, or skill-based gigs to supplement your income, provided  your main employer allows you to do so. Do not jeopardise your main source of income for a  few extra rupees.  

 – Investing in further education and upskilling can open doors to better job opportunities and  increased earnings. 

Final Thoughts 

Financial struggles are a harsh reality, but they are not insurmountable. Understanding the  underlying causes—both financial and behavioral—is the first step toward breaking free from  the debt trap, increasing savings and building a decent corpus. By implementing disciplined  budgeting, strategic debt management and proactive planning, you can build a more secure  financial future. Remember, seeking help from experts, support groups, or mental health  professionals is a sign of strength, not weakness.

About EquiZen 

EquiZen is a registered mutual fund and PMS distributor that offers personalised financial  solutions focused on safety and transparency. Our goal is to help you achieve financial freedom —the freedom to do what you want and to realise your dreams. We do not push financial  products; instead, we believe in using them judiciously to meet your specific needs. Learn  more at [www.equizen.in](http://www.equizen.in) or contact us at +91 9820605203 or via  email at sanjay@equizen.in.

The Indian Government presented their budget for FY 25-26. We analyse a few  aspects of the budget and share our views on the same.  

Economic growth 

Economic growth for FY 24-25 is expected to be 6.4% excluding inflation. Retail  inflation for FY 25 is expected to be at 5% which will take nominal GDP growth to  11.4%. What this means is that on an average, everyone’s income has increased by  11%. Since this is an average, you will have some people with higher growth and  some with lower growth. The growth for FY 25-26 is estimated to be between 6-6.8%  which is broadly similar to what it has been this year. The challenge continues as to  how to push the same up to about 8%. The GDP for FY 26 is expected to be  3,56,97,923 crores.  

Fiscal numbers 

Indian macros are supposedly in good shape. The macros refer to fiscal deficit of the  country and other numbers such as foreign exchange reserves, debt to GDP, current  account deficit, external debt, etc. The broad numbers in the budget are as follows:  

The total expenditure for FY 25-26 is expected to be Rs 50.65 lakh crores. Of this, Rs  11.21 lakh crores is capital expenditure. The revenue receipts are expected to be Rs  34.20 lakh crores. The Government actually spends more than it earns. It will cover  this shortfall by borrowing Rs 15.68 lakh crores. The interest outgo on all debt is  expected to be Rs 12.76 lakh crores in FY 26.

Though this amounts are high, compared to other countries these amounts seem  decent. However, would we ever lend monies to a person whose expense is higher  than their income. Would we ever lend monies to a company who has similar financial  numbers like the Government? The only reason why banks, insurance companies  and other investors continue to invest in securities issued by the Government is the  power that they have to levy, raise and collect taxes from individuals and businesses.  

Can we do better?  

All the above financial numbers are expressed as a percentage of GDP. However, if  we look at the numbers as a percentage of revenues, then they can look very  different. The borrowing number is 46% of revenues. There is a lot of discussion on  how these numbers are improving over the years. During covid, the borrowing of the  Government had spiked and is now being gradually brought under control. Still we  remain unsure as to how these numbers will look over the next 7-8 years. We need to  question the efficiency of all expenditure. Is the money being spent wisely? We are spending 2.76 lakh crores on pensions, 4.91 lakh crores on defence, 3.82 lakh crores  on subsidies related to fertilisers, food and petroleum, 2.33 lakh crores on home  affairs, 1.28 lakh crores on education and 0.98 lakh crores on health. There are  almost 150 odd schemes or projects. A review of all of these items needs to be  conducted in detail to determine the need for so many schemes and projects.  

The fiscal deficit and other numbers can be vastly improved by focussing on  efficiency in expenditure. While there may have been steps made towards the same,  there lies considerable scope for improvement. Given the rise in pension costs, it is  surprising that the Government has chosen to revert to the old defined benefit  scheme and move away from the defined contribution scheme. There are hardly any  private sector employees who are eligible for defined benefit schemes and a good  decision taken a few years ago to move away from the same has been reversed  without any decent discussion on the same.  

Can we improve capital efficiency?  

Similarly, we have spend more than Rs 10 lakh crores on capital items last year. Can  there be a review of the efficiency of the projects. Have they been completed? What  is the return being earned on them? How have the assumptions turned out in reality?  Can we use the same to make better investments in the future? If you look around,  there is always a delay in the construction of roads, bridges, metro lines, etc. Futher,  the quality of some of the construction is also not the best. Some numbers related to  number of vehicles using the coastal road or the Atal Setu bridge are published. So  also the number of riders on the metro lines. We need to understand how these  numbers compare to the numbers assumed in the budget stage and what will be the  impact of the same on the future profitability of these projects.  

By focussing on efficient execution of both capes and revenue items, we can certainly  reduce the deficit in a meaningful way.  

Taxation 

The Finance Minister eased tax rates under the new tax regime. This will considerably  reduce the taxes paid by people earning salaries upto Rs 20 lakhs. If you earn an  income upto Rs 12 lakhs, you will not pay any tax. If you earn Rs 20 lakhs, then you  will end up paying Rs 2 lakhs as taxes which is an effective tax rate of 10%. A person  earning an income of Rs 30 lakhs will pay a tax of Rs 4.8 lakhs which is an effective  tax rate of 16%. This is considerable lower than the old tax regime where you end up  paying a tax of 30% on all income above Rs ten lakhs. At Rs 30 lakhs income, the tax  will be 7.125 lakhs and the effective tax rate will be 23.75%. Therefore, the new tax  slabs are considerably lower than the earlier one. A new Tax Act is proposed to introduced shortly and it has been announced that the same will be simpler than the existing one which will make it easier to do business and also reduce litigation. This  of course remains to be seen. We have always found the tax provisions to be  complicated and tend to stay away from interpreting the same. Many people have  made it their profession to help you comply with the same. Hopefully the new tax act  will move to the new regime completely and make life easier for all of us. An attempt  was made to introduce a new tax act in the past. The old Companies Act was also  replaced a few years ago and there were many issues after the same was introduced.  We can hope that the Government will discuss the same thoroughly with everyone  and then introduce the same to ensure a smooth take off and landing.  

About EquiZen 

EquiZen is a registered mutual fund and PMS distributor, committed to offering  transparent and well-researched investment solutions. We ensure that all  recommended investments are credible, well-regulated, and aligned with your  financial goals. Visit www.equizen.in or contact us at +91 9820605203 via call or  WhatsApp. You can also email us at sanjay@equizen.in for expert financial guidance.  Secure your investments with knowledge and diligence.

We reviewed the finances and investments of one of our clients and discussed the following strategies for the year 2025.

1. Consolidation of investments:

Over the years, the client had invested in many funds, shares, bonds, etc. As a result, investments were spread across more than 45 different mutual fund schemes, five odd ETFs, in shares of more than 45 companies, three Sovereign Gold Bonds, five tax free bonds, etc. In addition the client had investments in PPF, NPS and EPF. He had a life insurance cover of Rs 2 crores and a health insurance cover of Rs 10 lakhs. There was a new 50 lakhs investment with a PMS manager as the client had already concluded that the investments were too diversified and needs a focussed approach to earn alpha.

We plan to review all the mutual fund investments. Sell the underperforming schemes and shift the funds to those expected to outperform over a long period of time. We also plan to sell the shares of companies that have underperformed the index over the last five years and move the funds either to the PMS manager or to the active mutual fund schemes. Given the age and financial status of the client, we recommended a strategic asset allocation of 75% equity, 20% in debt (fixed income) and 5% in Gold. Of the equity portion, given the current high valuations, a major portion was recommended to be in large cap funds or flexi cap funds. The investments in mid and small cap schemes were not be reduced but to be re-allocated to better performing schemes. The number of schemes is to be brought down to 7-9 over a 2-3 year period since most of the schemes had significant unrealised gains. Hence withdrawals will be made via Systematic Withdrawal Plans (`SWP’). So that gains are realised over a period of time and taxes are also spread over a few financial years.

It was debated whether the tax cost would be worth the consolidation. We did an analysis of the same. We assumed that the current investment is sold, taxes paid and the net amount is invested in another scheme and if the scheme gives a 1% alpha over the next few years, then the new investment will return more than the original investment after a period of three years. Of course, there is no guarantee that the new scheme will outperform the index or the old scheme. Even if there is no guarantee, it makes sense to stick to a few schemes just so that the process of review and evaluation of the schemes becomes easier. It is better to have a 20 stock and a 6-7 mutual fund schemes portfolio rather than a portfolio that has more than 100 line items. It becomes an unwieldy portfolio, difficult to track and leads to inaction which in the long term may not be good for the overall portfolio return. We have seen clients with more than 100 stocks in their portfolio and our advice always is to have not more than 25-30 stocks and keep re-balancing the same rather than adding to them. Having said that, most actively managed mutual funds have more than 50 stocks in their portfolios. Since fund managers of these schemes start with the benchmark, they tend to follow a benchmark +/- strategy and hence their performance tends to be around the benchmark and mostly lower due to fees of more than a one percent.

2. Risk coverage

In addition to a life cover of Rs two crores, the client had a personal accident cover of Rs 1 crore. Given the financial status of the client and age, we do not recommend any increase in life cover. However, we did recommend the client to increase the health insurance cover to Rs 50 lakhs with a super top up cover of another Rs 50 lakhs. The client’s family had a history of cardiac issues as well as cancer. Though, there were no current health issues, it was suggested to have this cover to meet any contingencies in the future. We determined that the cost of an open heart surgery today is Rs six lakhs. Assuming an 8% inflation every year in this cost, the cost of the surgery may be Rs 13 lakhs, 28 lakhs and 60 lakhs after 10,20 and 30 years. Accordingly, a cover of 50 + 50 lakhs has been recommended.

3. Expenses

The client has plans to go abroad as well as purchase a new vehicle. Given the client has a business, it was suggested to fund the vehicle with a loan to take advantage of tax breaks on the interest portion of the loan as well as on the depreciation of the vehicle. Other normal expenses were under control.

About EquiZen

EquiZen is a registered mutual fund and PMS distributor. We are well qualified in investments and finance and offer investment and risk products in accordance with your needs. We will do a thorough analysis of your current investments, future requirements and then plan your investments. We will not offer any investments that we will not invest in. Do review our website at www.equizen.in and contact us on call or whats app at 9820605203 or write to us as sanjay@equizen.in

Recently, a client filed a claim under a health insurance policy. The claim was filed around six months after the issuance of the policy. Since the policy was not very old, the insurance company scrutinised all the documents, called for additional data and documents and discussed the case with the client. Thereafter, they sent a mail saying that the claim has been rejected due to non- disclosure of facts. They also terminated the policy on the same grounds without refunding the premium.

The client was experiencing a pain in the chest for a few months. All investigations were done and the diagnosis was clear. The pain re-surfaced and the subsequent investigations revealed cancer. Radiation was recommended and completed and thereafter the claim was filed. It was communicated to the Insurer that all the previous investigations before the issuance of the policy had not revealed the cancer or any other issue. Inspite of the same, the insurer chose to reject the claim and terminate the policy. While other legal remedies are being pursued, this article talks about the importance of disclosure in application forms especially for insurance related products.

The principle of Uberrima Fides applies to insurance contracts. It means that both parties (the insurer and the insured) must act with complete honesty and disclose all facts. This principle emphasises transparency and integrity as the insurer relies on the same to assess risk carefully.

Applications (or Proposals) for insurance undergo a process called underwriting. There are two types of underwriting – Financial and medical. Financial Underwriting typically applies to life insurance policies. The insurer will scrutinise the income and net worth of the client to determine whether the applicant’s request for an insurance cover is justified by their financial numbers. Applications can be rejected or approved for a lower sum assured in case the sum assured is very high compared to the financials of the applicant.

Medical underwriting is generally done for life and health insurance policies. The insurers want to ensure that the risk that they are accepting is a standard risk. Accordingly, they ask medical questions in the application form. In case, there is a `yes’ answer to some of the questions, then additional data/ documents/tests may be requested by the Insurer.

Its obvious that insurers will be wary of offering insurance to people who are already unwell or have some issues such as diabetes, blood pressure, etc.

They may choose to insure such applicants at higher premiums or offer a lower sum assured or choose not to cover them at all.

If an applicant files a claim after not disclosing this information, it is likely that the claim may be rejected and the policy is also cancelled due to non- disclosure of information.

It is therefore very important that all disclosures are made correctly and comprehensively in applications for insurance. Insurance is a risk management tool. Life insurance is bought to protect the family in case of death of the main earner in the family and health insurance is purchased to avoid the huge expenditure that generally follows a major illness. Accordingly, being truthful and honest in insurance application forms is of the highest importance. All clients should ensure that they complete the portion of the application forms related to health and lifestyle disclosures themselves. Their agent/advisor may have completed this section and in such a case the same should be reviewed by the client. The Agent may not be aware of the history of the client as well as the medical history of the family and may make some assumptions to complete the form and expedite the process. Non-disclosure related to smoking and drinking habits, medical history, occupation, current medical issues, etc may lead to the claim getting rejected and the premium paid being forfeited.

It is advisable for clients to complete application forms for financial products on their own and if not at least review the same thoroughly before signing the form or pressing `Submit’ on the screen. Please note that the purpose of buying insurance is to get the insurer to `pay’ the `claim’ and not for the insurer to `claim’ the `premium’.

Recently Sebi has proposed to amend the requirements for an individual to become a Registered Investment Advisor (`RIA’). Accordingly, this prompted us to review the qualifications and experience required for becoming eligible to sell different financial products. Currently, there are regulations that require qualifications, certifications and experience for selling the following financial products;

1. Mutual Funds
2. Life and general insurance products
3. Pension funds and products
4. Portfolio Management Schemes
5. All financial products as a Registered Investment Advisor (RIA)

The qualifications, certifications and experience required for each of the above are as under:

Mutual Fund Distributors (MFD) are required to pass an exam conducted by the National Institute of Securities Market (`NISM’). The exam is called the NISM VA – Mutual Fund Distributors Certification Exam. It is a two hour exam with a pass percentage of 50 percent. NISM is a public trust established by Sebi. Its aim is to carry out a wide range of capacity building activities aimed at enhancing the quality standards in securities markets. Mutual Funds are regulated by Sebi and the association of mutual funds in India is called AMFI. There are no minimum educational qualifications required to become an MFD. Further, there are no experience requirements too. Once the person has cleared the exam, she can apply to AMFI for an MFD license. The license is granted for a period of three years. On completion of three years, the license can be renewed for another three year period by either passing the same exam again or attending a one day CPE course wherein the new developments in the Industry are explained to the participants.

There are approximately 1.47 lakh mutual fund distributors. An individual can become a mutual fund distributor as well as a corporate. A corporate can have many employees who sell mutual funds under their license. All these employees also need to pass the NISM exam and get an EUIN (Employee Unique Identity Number). The purpose of the EUIN is to identify the employee in case of any complaints by the investors. Accordingly, EUIN has to be compulsorily mentioned in the application form else the same can get rejected.

The Industry has around 2.5 lakh personnel selling mutual funds. The largest distributors are the aggregators like NJ India Invest. They do not have employees selling mutual funds. Individual distributors can become sub-brokers of large aggregators like NJ and sell through them. These companies are able to negotiate higher rates with Mutual Funds and they pass on most of their income to the individual distributors. The individuals get access to the platform as well as get training and other marketing collateral which helps them build their business.

The other large distributors are banks who are able to cross-sell third party financial products such as mutual funds and insurance to their customers. Large private banks and foreign banks have substantial assets in Mutual funds which adds a lot to their top and bottom lines.

The Insurance Regulatory and Development Authority of India (IRDAI) is the regulator of the life, general and health insurance companies in India. In order to become a life insurance or a general insurance agent, one has to appear and clear the licensiate exam conducted by the Insurance Institute of India. A minimum qualification of passing the tenth standard exam is also required. Two papers have to be cleared for becoming either a life or a general insurance agent. The pass percentage is 60 and the exam has multiple choice questions. Most insurance companies will arrange training to appear for these exams.

There are twenty six life insurance companies in India. The Industry has collected Rs 37,800 crores for individual regular premium policies in the current FY 25 as compared to Rs 33,000 crs in the same period last year. Individual single premium amounted to Rs 10,550 crores and Group single premium was a huge Rs 70,323 crores. Compare this with the mutual fund inflows which on a monthly basis is more than Rs 50,000 crs. SIP inflows each month now are more than Rs 25,000 crs.
The total number of life insurance agents in India is 30,02,959. Of these LIC of India has almost 14.34 lakh agents whereas amongst the private life insurers, Hdfc Life has 250,000 agents and ICICI has around 216,000 agents

The general insurance industry has collected Rs 1.08 lakh crores of premium in FY 25 till date. Stand alone health insurers have collected Rs 14,829 crores compared to Rs 12,000 crores last year.

There are seven lakh general insurance agents in the country. Most of the life and general insurance agents may not be very active. The number of active life insurance agents is approximate 20-25%. Insurance is a very difficult product to sell since most people do not want to contemplate about their after life. More often than not, it is sold for the purposes of savings and tax planning rather than for pure protection purposes.

The National Pension System (NPS) is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). PFRDA has facilitated the appointment of Retirement Advisers for providing advice on the NPS. A Retirement Adviser (RA) has to be a graduate in any discipline and has to clear the relevant NISM exam for the same. The person will get a license to act as an RA for a period of three years. The license can be extended by appearing for the same exam again or by attending a CPE course that is conducted by accredited service providers. RIAs under Sebi are not required to become RAs and they can advise on the NPS product. However, this exemption is not available to MFDs and life insurance agents. An RA can charge fees to the investors for opening of accounts, on their contributions and on the AUM. However, there are minimum and maximum amounts for each of this category of fees.

In order to distribute PMS products, distributors and advisors have to be registered with the Association of Portfolio Managers in India (APMI). Distributors have to pass the NISM Series XXI-A examination and then apply to APMI for registration. The license is valid for three years. For renewal of license, distributors need to clear the exam again or undergo a CPE session.

Sebi grants licenses to individuals, firms and companies to act as RIAs. RIAs (or the principal officers of a corporate RIA) are required to have a professional qualification, a post graduate degree, a CFA charter holder or pass the post graduation program in securities market offered by NISM. Further, an experience of at least five years in activities related to advice in financial products or securities or fund or asset or portfolio management is required. Also, the RIAs should have the relevant certification from NISM too.

RIAs are required to pass the two exams of NISM viz NISM X-A and X-B. Both exams are of 150 marks with a minimum 60% required to pass the exam with negative marking of 25%. The license is valid for three years. RIAs can advise their clients on most investment products and they can charge a fee from the clients. They can either charge a flat fee or an AUM based fee. Investors who consult RIAs generally invest in the direct plans of mutual funds, PMS and AIF schemes.
Sebi has now proposed to reduce the qualifications and experience requirements for new RIAs. This is expected to allow more people to get licensed as RIAs as currently there are only 1400 odd RIAs operating in India.

As can be seen from the above, there is no minimum educational qualification for distribution of mutual funds and PMS products. Insurance agents do have to pass their tenth standard exam whereas RAs have to be graduates. Only RIAs are required to have a post graduate qualification which is now being diluted and even graduates can become RIAs. All distributors have to mandatorily pass their product specific exam and then continuously update their knowledge either by passing the exam again or by attending a session where they can stay updated on the latest developments in their industry.

Accordingly, investors should ensure that they are dealing with qualified and licensed agents/ distributors/advisors before investing in any financial product. It is a better if the person is qualified to sell multiple products. Accordingly she will have the necessary knowledge and information about different products. One can verify the same by requesting the advisor to produce the license issued by the respective industry association. In addition to the NISM qualification, investors should check the general education qualifications of their advisors as well as their experience in financial markets. One should prefer to deal with advisors who have a post graduate qualification such as MBA (finance), CA, CFA, etc. They should also have been in the market for many years and accordingly have seen the market behaviour over different time periods.

One important differentiation is whether the advisor is selling a product to you or is building a financial plan for you and investing according to the plan. Good advisors will construct an asset allocation plan and then determine various investment vehicles which will suit the requirements of the investor. Clients should determine whether they are buying a product or buying a service. If they are buying a product, then they are taking the responsibility for their financial plan as the advisor has no knowledge about the financial objectives or other investments of the client. Clients should ideally look for an educated and experienced advisor who can guide them on investing in different products and will recommend products which will fit the plan of the client. They should also do some background check on the advisor. Determine whether they are doing financial products on a full time or part time basis. Advisors focussing solely on financial markets should have better understanding of the products as well as be able to provide better service. Do they have the necessary software to provide you regular updates on the value of your portfolio as well as the gains/losses compared to the relevant benchmarks. The number of clients and the assets managed by them will also help determine the ability of the advisor.

To conclude, investors should do a thorough check on their advisor before choosing to deal with them. The first thing is to deal with registered/licensed advisors and then check on their qualifications, experience and infrastructure before moving ahead.

Generally, people talk about FIRE – Financial Independence to Retire Early. I just crossed fifty a few years ago and retirement is far from my mind. Even if I had continued in employment and retired at 60 odd, I am sure that I would have kept myself busy by assisting people to achieve financial independence. Since I achieved financial independence early, I am now able to put my dreams into action. I could have done the same with a wealth management firm. But I realised that the shareholders would put pressure to generate revenues and that would make you sell products that are good for the firm and not for the client. But this post is not about the wealth management business but how I got to FIFE. I will share some of the things that I did to ensure that I reached FIFE a little earlier than I had imagined.

The foremost principle to FIFE is a high income whether it is salary or business income. The importance of a good education that will give you a good start cannot be emphasised more. I have been explaining the same to my children. Make sure that you get into a good institution not only for your studies but also for your first employment/assignment. Many factors were at play when I got an offer from Arthur Andersen & Co where I started by CA. I could have taken the easy way out and chosen to work for a smaller firm where life is easy but I deliberately chose the hard route. This meant working in office for ten hours a day under constant pressure to deliver high quality work and the additional stress of studying and clearing the CA exams. So choosing the tougher road works out in the end.

After clearing CA, I chose to join the Aditya Birla Group in the Chairman’s office. Though the group was not a well known employer then, the role appealed to me and I took a leap of faith. I spent the next thirteen years of my career at the Group and did four different roles. It is here that I made an entry into Financial Services where I have worked for twenty four years and which has given me enough to reach FIFE.

Choosing the right industry and the right organisation plays an important role in maximising your income. Of course, you need to work hard, keep acquiring the necessary skills, be flexible, etc. I was fortunate enough to do different roles in different organisations as I realised that I am not the person who can do one role and work in one company for many decades. FIFE now allows me to become an entrepreneur which is something that I wanted to do which led me to take up commerce after my tenth.

Though I had a good income, I was always conservative in my spending habits. I recall that I always purchased cars through my employers. This allowed me to save and invest my funds. Further, I would opt for a version which met my needs rather than splurging a couple of lakhs more on a higher model for features that I did not need. Till date, I have never made a full payment for a car at the time of purchase, as the same has been adjusted in my salary over a 4-5 year period. The added benefit being that insurance and maintenance costs were also borne by the company.

The same is true for mobile phones too. Always took a phone from my employer, used it till it stopped working. Never made it a status symbol.
We would also take many vacations as a family and we would try to be economical in our spends. On a recent vacation, I noticed a number of young couples with kids at an expensive resort and I was wondering whether their income would allow them to reach FIRE or FIFE quickly.
The three most important determinants of FIFE is your income, your savings and where you invest the savings. The higher the income and savings, the higher is the chance of becoming independent soon but the most important decision is where you invest those savings. The one mistake that I have made is not committing to equity whenever I could. I should have started the SIP early on and stuck to it. I was a bit conservative at some times. This is an issue when you work in financial services and you understand concepts such as valuation multiples and other sundry parameters. I have been waiting for a correction since the Sensex was at 52,000. After that covid happened and the Sensex went down to 30,000 odd and I should have had the guts to increase my equity allocation and as always you worry about whether the market will go down even further. As I write this, the Sensex has crossed 80,000, That’s a 60% increase from 52,000 levels and a 160% increase from the 30,000 levels. At many times, my exposure to equity was less than 60%. I should have committed more to equity and not worried about market levels or whether markets would fall further. The indices have shown almost a one way street to reach 80,000 levels. Even at these levels, the markets are over- valued but if you have a five plus years perspective, it still may be the best asset class to be invested. Here is an analysis that may help you understand the relationship between income growth, savings and investment income. I have assumed that a thirty year old is earning twenty five lakhs per annum, is paying tax of 25% and investing 30% of the balance. Investment incomes have been assumed at 10%, 12% and 15%. In order to achieve FIFE, one’s wealth should be at least 10-15 times annual expenses. Look at the below table:

Scenario	Income growth	Savings	Investment income	Wealth multiple at age 60
1	15%	30%	10%	7.37
2	15%	30%	12.5%	9.74
3	15%	30%	15%	13.29

The only variable above is the investment income number and the same will depend on the proportion that you invest in equity and debt. If you invest 100% in equity, your entire savings may earn 15%. If you invest 60:40 in equity and debt and you assume that equity will earn 15% and debt will earn 8%, then the portfolio will earn 12.2%. And a 30:70 portfolio will earn 10.1%. The wealth multiple at 13.29 means that at age 60, the wealth accumulated is 13.29 times the annual expenditure at age 60. Assuming that you change your asset allocation and earn a lower return, it would mean that your annual investment income should be more than your annual expenditure thus giving you the freedom to do what you want. Of course, the whole idea is to get the freedom at the earliest and this is where the income growth multiple as well as the savings rate needs to be increased to reach that number quickly.

The above numbers can change over a period of time. For example, at higher income, the savings rate will also increase and hence the wealth multiple will be much higher than what is stated above. These calculations should be done at individual levels and should be updated every 3-5 years to validate the assumptions.

Clearly, the following adages still hold true:

1. Maximise your income, savings and investments.
2. Invest as early as possible. Start your SIP from your first income and keep topping it up every year by 12-15%;
3. Stay invested for a long time. Resist the temptation to sell your investments and spend the same. Rent instead of buy or take a loan at a lower rate;
4. Maximise your equity allocation. Plan your asset allocation properly but maximise your equity allocation.

Plan your finances. Determine what is most important to you, plan for it and invest accordingly.