Returns of Rs.50,000/- per month

The other day a friend of mine came to me and said “I want to get a steady income of Rs. 50,000/- per month, what should I do?” The option of job or business was ruled out, since he did not want to work for the money, but wanted his money to work for him. Does this not sound like the book “Rich Dad Poor Dad”? I also thought about this book, when he said I have another option of rental income.

He mentioned that rental income was a good option, since he would get regular income as well as appreciation in the value of the property. But here again you would have to keep following up, running to the registrars, brokers around you and other normal fears of getting a good customer etc.

So let us see what other options we could think of for this gentleman. There is this option of interest and dividends. This is a very good option. We have to look at it very carefully. Interest is assured return, nothing to worry. Low risk, steady and assured returns, but returns are usually low. As it is normal, low risk low returns.

We should also look at dividends. Dividends would be of 2 types, shares and mutual funds. The assumption is we look at only those shares and mutual funds which have been giving regular dividends year after year. Yes, we are looking at dividend yield shares.
A thing to remember is Interest is taxable and definite but dividend is tax free but variable.

Taking the points mentioned above into account, a suggestion is invest around 25% of the corpus into fixed income securities taking current scenario into account the post tax return on fixed income securities is around 8%. Another 25% could be put into Income funds, the returns on this is around 10%.

The balance could be put in dividend yield shares and equity mutual funds, the average returns on this is around 15%. Now these are all average returns per annum, taking the economic scenario at any time the return could go up or down.

So if you have a corpus of Rs. 50 Lakhs, you could easily achieve the target of Rs.50,000/- a month. How?

Type of security	Investment	Income per month	Post tax rate of return
Interest bearing securities	Rs.12.50 Lakhs	Rs. 8,333/-	8%
Income funds	Rs.12.50 Lakhs	Rs. 10,417/-	10%
Shares	Rs.12.50 Lakhs	Rs. 15,625/-	15%
Equity Mutual Funds	Rs.12.50 Lakhs	Rs. 15.625	15%
Total	Rs.50.00 Lakhs	Rs. 50,000/-

Money saved from short term business trips

Many of us go on business trips abroad. During such trips we are paid a fixed amount of allowance per day, to take care of our day to day expenses. Some might go on single trips in a financial year, some on multiple. In both these cases we would need to know what is the total time spent outside India.

Out of the allowance received, some amount is saved. Is this amount taxable?

As per the IT Act any unspent amount shall be taxable.

Since the company has sent the employee on foreign assignment, his/her salary is TAXABLE in India.

However in 2005 the income tax department came with a circular with respect to Fringe Benefit Tax (FBT) and allowance received.

As per the circular the employee is not liable to pay income-tax on any amount saved from the allowance received. If your company deducts the FBT on those sums of money paid to you as allowance, the same is not taxable in your hand under I T Act.

Now that we are clear if it is taxable or not, the question is how we convert the foreign currency into Indian Rupees. Always use the official route, since its legal and not taxable. This way you could also invest the money. You have gone through a lot of sacrifices to save the money, now that you have saved it, would you like to just spend?

The main reason we talk about using the official route is, you do not just spend the money.

Where do you invest? There are many choices; lets have a look as some of our options.

Conventional: Bank Fixed deposits, NSC’s, Company Fixed Deposits, PPF, Insurance
These are safe returns and capital is guaranteed. The downside is the taxable part.

Share / Stock Market / Commodities / Futures and options:
You need to be really careful. Don’t go by hearsay, do your own study before you invest.

Mutual Funds: Equity / Debt / Sector specific / Income.
Though risky, the risk is somewhat less compared to the option above.

Real Estate:
This is quite safe. But the amount required is quite high.

Business: Is this everyone’s cup of tea?