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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Move in a right direction

Posted by Muthu on March 2, 2016

Vajpayee government and RBI under Dr.Bimal Jalan made structural changes and reforms during their tenure resulting in excellent economic growth from 2003 to 2007. Corporate earnings multiplied and hence stock market also grew immensely. The seeds were sown by NDA and the fruits were reaped by UPA-1.

Modi and RBI under Dr.Rajan are doing a similar or even better job for the economy. We’ve written in the past about many excellent initiatives of this government and RBI.

The budget presented on Monday is another move in the right direction. The government is sticking to fiscal discipline and has given thrust for growth of rural India. As you might have all read the newspapers, I don’t want to repeat the salient features. All I can say is that in next couple of years or even earlier, we would start seeing our economy taking off.

Corporate earnings would also start showing excellent double digit growth. Then stock market growth would happen automatically. Given that government is following fiscal discipline and inflation is also under control, RBI may take initiative to cut rates further. The direction of interest rates is downwards.

I expect our economy to have high growth and low inflation. In large economies, we probably have the best government balance sheet. This balance sheet got strengthened further by recent budget. So at some point, being the only place where growth is, FII money would start flowing again.

You’ll develop the same conviction I’ve once you start seeing the results in next one to 2 years. Till then, accept the short term pain for the long term gain.

Those of you who are worried about EPF taxation, please note that 40% of the corpus is tax free. The remaining 60% also would not be taxable if you choose to invest in annuity. Only if you want to consume the 60%, then you’ve to pay tax. This move is to make EPF on par with products like NPS. This is government way of nudging people to opt for pension instead of consuming the entire retirement corpus.

For now, PPF continues to be tax free. Also for now, long term capital gains from equity continue to be tax free. But I would not be surprised if these also come under taxation within next few years. This government is focused on reducing all kinds of subsidies which include tax subsidy. Subsidies would be restricted and focused on the really needy.

So good days are really ahead and we are moving in the right direction. Hold on and stay the course.

5 Responses to “Move in a right direction”

  1. You are telling that “This is government way of nudging people to opt for pension instead of consuming the entire retirement corpus”. 1. Why central and state employees will take annuity when they are covered in Old pension scheme. 2> Annuity returns are at present low it is quite possible that it will be more low in coming 20 years. 3> Interest earned in next 20 years will be huge when 60% of this taxable then persons tax slab may change and go to higher tax slab due to this adjustment. 4> Since EPF etc. are debt instrument why not indexation is applicable on interest earned like debt mutual funds. it will reduce burden.

  2. maheshs84 said

    “The remaining 60% also would not be taxable if you choose to invest in annuity.” what is that sir, not very clear about that. could you explain ?

  3. Sourav ganguly said

    Additionally if the annuity money can be allowed to be invested 8n mutual funds for generating returns through swp…There is no tax burden at all on EPU withdrawals

  4. prasad said

    rebalance between debt & equity based on market PE, PB, Dividend Yield, etc………….sir , is it possible to switch from equity to debt to get maximum growth. please expline

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