The Up, Howrah-Mumbai Geetanjail Express halts at Raipur. This is a small station in MP where the train stops for 5 minutes during normal circumstances. However, a coach of another passenger train is derailed at a place 20 km from here and Geetanjali has not been given the green signal. Most of the passengers of coach number AS-2 are lazily lying down, except for the members of two families. Sukhbinder is reading ‘The Tribune’. The news of YV Reddy Commission, recommending the withdrawal of tax benefits from all types of investment avenues with tenure of less than 6 years, catches his attention. Nimmo and Vikram (his son and daughter) are playing with his co-passenger’s kids. His wife is sharing a cup of tea with Mrs D’Souza, co-passenger. Martin is tired of searching for a copy of ‘Financial Express’ at the station. He finally gives up and starts sharing the morning news with his co-passenger cum new friend, Sukhbinder. Martin begins by asking Sukhbinder "What do you think will be the implication, if the government decides to withdraw tax benefits for investments of tenure less than 6 years?"

Sukhbinder replies "it will be a bad decision on government’s part, my wife maintains an account in post-office scheme and surely it’s not going to be a good news for her". Martin is worried with this news because he has a significant amount of money invested in tax-savings bonds. Martin agrees "That’s right, all investors like me will be badly affected with this decision, after all you can’t rely on provident fund every time as a tax savings option because the lock-in period is 15 years; too long". This time Sukhbinder finds his co-passenger’s views interesting and argues back "Martin Saab, I do not believe in these tax-savings tools. My point is very simple, you earn money from different sources and pass 30% to government. When, you are looking for tax-free income of 2 lakhs in a year, you better look for earning of 2.9 lakhs in a year and pass 30% to government. I first calculate my target tax-free income and then find out the sources of earning additional money to cover-up the tax outflow. It’s really troublesome to find tax-savings tool because all these kinds of tools require your money to be blocked for a period of 3-5 years. I do not like it, because I prefer to build my investment portfolio for an earning purpose. However, this does not mean that I am careless of my tax burden but I prefer to ignore this kind of news items." Martin likes Sukhbinder’s style of thinking and smiles at him saying "Mr Sukhbinder, I wish, everyone of us could think like you. And then, the future of all these tax-savings bond will go for a toss, but don’t you think, these tax-savings option play a big role in your portfolio generation? Ultimately, you can maximize your earnings if you minimize your tax burden."

Do you know the Rule of 72?
The Rule of 72 helps you estimate about how long it will take for your investments to double given a hypothetical rate of return. Divide 72 by your rate of return (say 10% and you've got your answer-seven years approximately. The Rule of 72 assumes your investments are tax-deferred and earning compound interest.

Martin is curious to hear Sukhbinder’s reply this time. Sukhbinder pauses and ignores Martin’s point "Sir, I prefer to build my investment portfolio for earning purpose that will be very liquid in nature; your argument of tax savings tool does not stand good for me as that is illiquid investment". Martin tries to counter Sukhbinder "But, a good portfolio does not mean only good earnings or good liquidity, you need to also consider safety of your investment and tax implication as a whole. Look at investments in equities, they are good from liquidity angle and can give good returns, but they fail on the safety front and any short term gains you make, you shell out a capital gains tax of 30%". This time Sukhbinder looks quiet cornered but is not yet ready to give up. Sukhbinder says "You are right Mr. Martin but you can make enough money if you know how to manage your equity investment. I invested in growth stocks and debt mutual funds. Growth stocks are risky but my investment in debt funds will balance that risk. I’ve also invested in tax-free bonds to minimize my tax-burden." In the mean time, Vikram, the son of Sukhbinder asks his father "Papa, do you know the answer to this?" Vikram is looking for an answer to a puzzle, which he explains to his father – "There is an old lady with her pet tiger, a goat and a stack of grass, who wants to cross a river. But there is a small problem. The lady can not move alone anywhere. In her presence, the tiger will not attack the goat nor will the goat consume the grass but in her absence, there is a chance that the tiger can eat the goat or the goat can eat the grass. Now she wants to cross the river and there is only one boat, which can take only two of them at a time. How can the lady cross the river in four attempts". Sukhbinder thinks for a while and tries to ignore his son saying "Beta, you ask Nimmo. She will tell you."

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He wanted to convince Martin that his portfolio is good one as it promises to fetch best turnings, liquid in nature

IDEAS: Portfolio Planning