“I’ll be paying two EMI’s this month. I’ll be redeeming my F.D’s in the next couple of days and I’ll make the payment”, Rohan was talking to someone over the phone. This was the umpteenth time in the last two days that he was having such a conversation. The stock markets had crashed. Rohan’s savings were now devalued. He had already bitten off more than he could chew by investing loads of money in the stock market directly and through M.F’s. He was now having trouble keeping his EMI’s regular for both his BMW car and his home loan. “Blast! This stock market crash has wiped me clean of my savings”, Rohan remarked as he banged his palm on the table.
“Hmm”, I said and nodded, wondering if this would have been my state had I also invested in the stock markets. “I’ll have to now redeem all my F.D’s prematurely to meet my ongoing liabilities. There also the government will be deducting tax. I had tried to save that money for my daughter’s future education. I’ll now have to start saving all over again”, he continued.
I was safe though, as I had already invested in an endowment plan to provide for my son’s future. My family was also well protected by a term insurance plan so that in case of my untimely demise, they can get financial support. I was also covered with a critical illness insurance plan to help me deal with health-related emergencies. All these premiums were of course also helping me to save tax.
“I wish I could’ve done something, but all my money is already invested in long-term instruments. If you would’ve had at least an endowment plan, you could’ve saved money on the tax part when you would’ve taken the maturity benefit prematurely”, I tried to assuage him. He just nodded.
This, I understood, was the flip side of investing in short-term instruments. There are no tax benefits on deposits as well as withdrawals. Also, since the returns are volatile, it is risky if you don’t have adequate back-up. I had understood my lesson from this incident.