2021 has been a year of hope and financial revival. After being hit by the second wave of Covid-19 pandemic, people were looking for financial stability and to some extent their wish got fulfilled. Out of many events that took place in 2021, we have listed some crucial ones from the personal finance perspective for you.
Let’s check out some personal finance wrap-ups for the calendar year 2021 that may also impact you in the near future.
No Hike in Repo Rate
The year 2021 started with a serious second wave of Covid-19 pandemic. It was a financially challenging time for one and all. The RBI helped the economy by keeping the REPO rate unchanged during the whole year. Interest rates on loan products remained at historical lows. The banks reduced their spread on loan products to attract new customers. The home loan rate came down to as low as 6.4% pa at the end of 2021.
However, the New Year may see hikes in key policy rates. The loan borrowers may have to pay up higher EMIs if interest rate hikes happen.
Union Budget 2021 Relief
Several measures were announced in the Union Budget 2021 to help the people overcome Covid-19 setbacks. The important ones from the personal finance point of view include announcements of extension in the last date to avail tax benefit u/s 80EEA of the Income Tax Act to 31st March 2022. For senior citizens above 75 years of age, relaxation was allowed from filing income tax, subject to some conditions.
Only a few months are left for prospective home buyers to purchase their home if they want to avail the benefit u/s 80EEA. If you want to buy your first home, an extra tax deduction benefit can be an important factor you may not want to ignore.
Equity Investment Made New Highs
Despite concerns related to new waves of Covid-19, the equity market made a new all-time high during the year 2021. The stock market remained bullish during the year with a few exceptions.
Investors who stayed invested and didn’t panic and stop their SIPs were rewarded with good returns. The record number of people opening demat accounts in the year 2021 indicates people are increasingly participating in direct stock investments.
The New Year may come with several surprises. Investors need to remain cautious, stay diversified, book profit from time to time, and avoid investing more than their financial capacity.
FD Rates Remained Subdued
The interest rate on FDs largely remained at the same level throughout the year. One major concern for most FD investors had been the high inflation rate. The negative real rate of return made several risk-averse investors search for alternatives to FD investments.
If you are a risk-averse investor, you should avoid investing for the long-term in the FDs owing to the current market situation because there is a possibility of interest rate hikes in the near future. You may use the laddering method while investing in the Fds.
Gold Price and Hallmarking Rule
The gold price remained mostly subdued during CY 2021. The price of gold remained in the range of Rs 45000/10 grams to Rs 54000/10 grams during the year, while at the year-end it is quoted at around Rs 49500/10 grams. Gold is one of the best hedges against inflation, yet the gold price remained range-bound. Some experts believe the gold price is currently consolidating at the current level and may make a move either way in the near future. If you have a plan to invest in gold, go for SGB or gold ETFs over physical gold to ensure greater safety and easy handling.
The rule for mandatory gold hallmarking came into force from June 16, 2021. Jewellers with an annual turnover of over Rs 40 lakh are required to sell only hallmarked gold jewellery.
BNPL Became A Hot Favourite Spending Tool
Suddenly Buy Now Pay Later (BNPL) became one of the popular credit instruments in the market. Several companies jumped into the BNPL business during 2021. Consumers finding it difficult to manage their spendings after the Covid-19 setback used BNPLs for financial relief.
It is advisable to carefully use BNPLs. Before using it, check the interest levied by the lender and the maximum interest-free credit period offered. BNPL should be used only for essential purchases. Be careful not to be enticed into avoidable debt. BNPLs will continue to rise in popularity. So, in the New Year, use them judiciously.
Rise of Cryptocurrency in India
The cryptocurrency remained highly volatile during the entire 2021. There was a huge spike reported in the total investment in cryptocurrency in India during 2021. The government of India indicated that it will soon introduce a Cryptocurrency Bill that will bring in much-awaited clarity for the investors in this domain.
Until clarity comes in, you must exercise care while investing in cryptocurrencies. Unless there is a law available on the crypto, any investment in it will be highly speculative and put you at risk of losing your money.
Retail Direct Scheme
This scheme was launched by the Reserve Bank of India (RBI) in November to allow retail investors to buy and sell government bonds. This scheme is a one-stop solution to facilitate investment in Government Securities by individuals. Under this scheme, individual retail investors can open a Gilt Securities Account – “Retail Direct Gilt (RDG)” Account with the RBI.
New RBI Auto Debit Rule
The RBI issued new auto-debit rules in October and mandated that there will no automatic recurring payment for various services such as phone recharge, OTT bill payments etc. The additional factor of authentication (AFA) became mandatory for auto debit of payment above Rs 5,000. Financial institutions were mandated to inform through a message 24 hours before the auto debit and allow the debit once the customer confirms it.
New E-filing System by Income Tax Department
To simplify the tax filing, the Income Tax Department launched its new website http://www.incometax.gov.in for e-filing on June 7, 2021. The initiative was taken to ensure seamless tax services to taxpayers in the country.
Link Your UAN With Aadhaar
The government extended the last date to link your UAN with Aadhaar to December 31, 2021. It was made mandatory for employees to avail various services and benefits of your EPF account.
Tax On PF Contribution
The central government announced in its Budget 2021 that the interest earned by the PF Fund contributions over Rs 2.5 lakh annually will be taxable income. However, this directive will apply to the employee’s contribution and not on the employer’s part.
Video KYC Directive
Due to the Pandemic and making it easier for customers, in May 2021, the RBI relaxed its KYC Norms and announced that Video-KYC to be considered as full KYC for all new accounts. The decision was made to make it easier for banks to complete KYC procedure. This is now being used to open new accounts and to update the KYC of existing customers.
(The author is CEO, Bankbazaar.com)