How lack of formal financial advice can prove costly for many investors
₹8,000-10,000 per year to file returns correctly. I receive many queries from holders of foreign stocks (including in the form of ESOPs, or employee stock options), who, despite being told the complexity of income tax return (ITR) filing and the implications of improper disclosure, look for people who can do this at low cost. This is simply being penny wise and pound foolish! The omission of disclosure of foreign assets invites a ₹10 lakh penalty, and inaccurate filing comes with 30% additional tax and penalties.
The defaulter can also be prosecuted under the Black Money Act. Saving a few thousands on tax filing of such complex transactions means leaving yourself open to larger problems in the future. Choosing poor investments like investment-linked insurance plans or schemes which do not tie in with financial goals can cost much more than the cost of financial advice.
Investment linked insurance schemes return 4-5% p.a. versus 9-10% p.a. that can be generated by equity mutual funds in the long term.
Investing in an equity fund for 2-3 years based on recent performance means being exposed to high volatility and even negative returns. Constantly changing schemes based on past performance is the reason for investor returns that lag fund returns. The difference between the best and worst performing fund is around 6-7% p.a.
and that is much more expensive than adviser fees. Lack of knowledge and the overload of information is getting investors to believe they can manage everything themselves without professional help. The advent of private equity funded digital platforms, whose value proposition is free advice, is not helping matters.
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