Investment learnings from DHONI “The Great Indian Cricket team Captain”

We all know about Mahendra Singh Dhoni the great India Cricketer with highest winning ratio and his many more achievements in cricket. Let's try to learn some investment basics from this sporting giant so as to become more successful with our money. I tried to outline few things which could be very useful for us while managing our money.

1. EVERTHING STARTS WITH A SMALL BEGINNINGS

M.S. Dhoni was small-town boy from a humble background, however by his game and beliefs he proved that small beginnings were no hindrance in the path of big achievements. Similarly when it comes to our money, systematic investment plans are the small beginnings however they can lead to big earnings over the long-term, thanks to the magic of compounding. The important thing is to start, be regular and believe that even the biggest goals can be met.

2. BE COOL IN TURBULENT TIMES

We all know that Dhoni is also called as Mr Cool, he has taken his team out of crunch situations many times?  Numerous, right? This is just because of his cool mind at difficult times which makes him think clearly to achieve the goals. Similarly if we are cool and calm during the time of financial instability, it can be greatly helpful. Whether it's equity market crash or a medical emergency or a sudden loss of job/income, panicking doesn’t help but makes matters worse. Instead of that if we stay calm and tackle the situation with a clear head in order to make the right decisions we can easily come out of the situation and do better.

3. LEARNING IS A CONTINIUOS EXECISE

Dhoni wanted to be footballer, but actually went into cricket. However he turned out to be a natural sportsman not just a footballer, he learned the game and worked on improving himself in every aspect of it. In case of money, most of us know enough about how to earn and spend it, but not enough to make it grow. By learning some basic knowledge we can make a difference in our finances. Few basic things like the basic economic functions, need of insurance, various options of investments, can get us some clarity on how various things works and its impact on our finance. In finance, learning can translate into earning. Regular learning made Dhoni one of the greatest cricketer of current times. Regular learning can definitely make us more successful in reaching our financial goals even if we are not the greatest investors.

4. HAVE FAITH IN WHAT YOU BELIEVE IN

Sometimes we believe on something which nobody else does however due to fear we don’t take a decision on it. Remember Joginder Sharma? If we are captain had we even thought of taking him in our team, let alone give him the final over of a  2007 World Twenty20 in South Africa World Cup to bowl? But Dhoni had faith in him. And Sharma delivered. We should also stick to our beliefs if have something. Everyone around us might have an opinion contrary to yours, but if we're convinced about an asset, sector or financial product then we should go ahead and put our money where our belief is. As said by someone, “very few people go against the herd but those who do often turn out to be the biggest winners.”

5. BE DOWN TO EARTH

Dhoni was a great captain and had so many achievements still he was always humble. He never allowed his success to go to his head. Similarly as an investor, we should not get carried away by the successes of our earlier investments. Things can easily go wrong if we lose sight of our goals. Any of the investment is dependent on a lot of factors, some of which are beyond our controls. Therefore we should be happy about those investment which did well but not be overconfident of our achievements and ruin the future opportunities/options.

What we should not do in tax planning !!

Last quarter of the financial year is known for tax planning. Salaried employees get the notices from their HR and deadlines to submit the proof of tax saving and we all rush to invest in tax saving instruments. In this urgency, sometime we just focus on tax saving without understanding the long term implications of that particular investments. Tax planning is very important as it helps to pay less income tax. Something everyone wants. But smart tax planning will help you boost your portfolio. The actual tax strategy will have a different meaning and emphasis depending upon an individual's personal circumstances.

1) Have a holistic picture not in isolation

Generally we think tax planning in isolation and not from an investment point of view. Hence the approach is often to grab up investments that will give them the tax break, irrespective of whether or not it will help them reach their financial goals or fit into an overall investment strategy.

Tax planning investments are no different from conventional investments. Hence, it is imperative to obtain an in-depth understanding of all investment avenues available which offer tax benefits and choose suitable ones that will help save tax and achieve goals.

Most investors in a crazy dash to meet their Section 80C requirement will opt for unit linked insurance plans, or ULIPs, and endowment plans and often end up with products that do not suit their need.

Life insurance should never be bought with the intention of saving tax. Tax saving is just one of the benefits that come along with it. The main benefit is the provision of finances in the case of death of the policy holder.

Approach tax saving with a holistic mindset. For instance, if your portfolio is heavily tilted towards debt, it would not be wise to opt for an investment in National Savings Certificate, or NSC. Instead, think of an equity linked savings scheme, or ELSS.

2) Tax saving is not just by fixed-return instruments.

Individuals tend to look at the Senior Citizen Savings Scheme, or SCSS (current interest rate 8.5%), 5-year deposits, National Savings Certificate (NSC) and Public Provident (PPF) (current interest rate 8%) as the tax-saving investment avenues. Looking at the current interest rate scenario where the interest rates are expected to fall further fix interest rates offering options are going to become further unattractive and investor should look at other options which can offer better yields.

Under section 80C we can also invest in an equity linked savings scheme, or ELSS. These are diversified equity mutual funds that offer a tax benefit under Section 80C. They have the lowest lock-in period of just three years. As of January, 2017, the ELSS category average delivered an annualised 3-year return of 18.5%.  Scheme wise the highest return was 27% while the lowest was 12%.

However we should keep in mind that these are equity funds which means, the return is not guaranteed. So select a good fund that has shown consistent performance and stick with it over the long haul. Don’t be in a tearing hurry to sell the investments just because it has completed the mandatory three years. Exit from the fund when the market is rallying or you actually need the money so you walk away with a profit. If this means hanging on for a few more years, do so.

3) Its not just 80 C, Don’t ignore the big picture.

Tax saving is more than just investments and goes beyond Section 80C.

If you have made a donation to a charity that offers a tax deduction under section 80G, avail of it. If you are paying premium on a medical insurance policy for yourself and dependents, be sure to claim the deduction under section 80D.

Also, if you are servicing a home loan or an education loan, you are eligible for income tax deductions. Under Section 80C, you can even show the expenses of your child’s education to avail of a deduction under section 80E and interest on home loans can get exemption under section 24E.

When deciding how much to invest to max your deduction under Section 80C, take into account children’s tuition fees, principal repayment on home loan, contribution to employees provident fund (EPF), and any life insurance premium you are paying and then decide the remaining amount to be invested and plan it accordingly.

Finally

As an investor/tax payer, by smart investment planning we can convert the tax savings compulsions to wealth creation opportunities. For that we have to just go beyond the traditional option and look at all the options with the clear objective in mind.