Connection between Accounting and Investments

Consider the following statements.

Would someone with a solid foundation in accounting grasp investments more effectively?

For someone aiming to succeed as an investor, will learning accounting seriously be helpful to them?

Over the past several decades, we have seen that individuals with a solid background in accounting often find it easier to become successful investors. In Indian Context the names of Rakesh Jhunjhunwala, Deepak Parekh, Motilal Oswal, Kumar Mangalam Birla, Mohan Das Pai stand out. 

Why is it so?

In the world of money, combining accounting and investments can really help people understand complex financial stuff. Knowing about accounting gives a strong base, giving you special skills and views that are super useful when dealing with investments. Let us see why having an accounting background is not just helpful but really important for understanding investments.

Financial Literacy: Accountants are good at figuring out financial papers like statements and balance sheets. This skill is super helpful when you're dealing with investments. To make smart choices with your money, you need to understand financial stuff. Knowing accounting helps you analyze a company's financial health and make better choices with your investments.

Risk Assessment: Accountants are careful about risks. They look closely at financial data to find possible problems. This careful attitude is great for investments too. Successful investors know how to manage risks and spread out their investments. Accountants, with their careful eye and risk skills, can judge the risks of different investments and make portfolios that fit their risk level.

Analytical Skills: Accountants learn how to think clearly and carefully. These skills work well in investments where understanding market trends and financial reports is important. Accountants can break down complex info into simple parts, helping them make smart investment choices.

Regulatory Compliance: The money world has lots of rules. Accountants know about financial rules, which is a big advantage for investments. They understand the laws that control investments. This is great for investors who want to follow all the rules and make sure their investments are legal.

 

Financial Planning: Accountants are good at planning and budgeting, which are important for investments. Knowing your money goals, making a budget, and planning for the future are key for both accounting and investing. Accountants can use their skills to help investors make good plans that match their long-term goals.

 

Tax Implications: Accountants know a lot about taxes, something new investors might forget. Taxes can change how much money you make from your investments. Accountants can help make investment plans that consider taxes, making sure you get the most money in the end.

To sum up, knowing accounting really helps with investments. The skills from accounting, like understanding finances, managing risks, and following rules, help build a good understanding of investments. Mixing accounting and investments creates a strong combination, helping people make smart choices with their money. If you want success with your money, it's smart to see and use the benefits of knowing accounting.

The content made available in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and completeness of the content, it should not be considered as a substitute for professional consultation.

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Importance of Tax Collection by Governments

 

As the Financial year 2023-24 was coming to an end, I wanted to check how much collection the Indian Government has made by way of Direct Taxes in the current year so far. A basic Google search gave this result. The provisional figures of Direct Tax collections for the Financial Year 2023-24 (as on 17.03. 2024) show that Net collections are at Rs 18,90,259 crores, compared to Rs. 15,76,776 crores in the corresponding period of the preceding Financial Year (i.e. FY 2022-23), representing an increase of 19.88%. We all are aware that every year the government’s tax collection figure keeps increasing progressively. Naturally one would wonder how the government spends such huge sums.

The collection of taxes is an essential part of any government's responsibility, as it provides the necessary funds for public services and infrastructure that are crucial to the development and well-being of a society. Proper tax collection ensures that governments have sufficient resources to provide public services, invest in infrastructure, and promote economic growth. In this essay, I will discuss the importance of proper tax collection by governments.

Proper tax collection enables governments to provide essential public services, including healthcare, education, and social welfare programs. These services are necessary for ensuring the well-being and quality of life of citizens, and they cannot be provided without sufficient resources. Taxes are the primary source of revenue for governments, and proper tax collection is crucial to ensure that they have enough funds to finance these services.

 

Tax moneys are used to fund critical infrastructure projects such as roads, bridges, and airports, which are necessary for economic growth and development. These projects create jobs and stimulate economic activity, which in turn generates more tax revenue. Proper tax collection, therefore, is critical to ensuring that governments have sufficient resources to invest in infrastructure and promote economic growth.

Proper tax collection promotes fairness and equity in society. Taxes are a way of redistributing wealth from those who have more to those who have less, thereby reducing inequality. A progressive tax system, where those who earn more pay a higher percentage of their income in taxes, is a way of ensuring that those who have more contribute more to society. This system helps to reduce the gap between the rich and the poor, which is critical for social stability and cohesion.

 

Proper tax collection helps to discourage tax evasion and other illegal activities. When taxes are collected properly, there is less incentive for individuals and businesses to engage in illegal activities such as tax evasion, money laundering, and corruption. This is because the risk of getting caught and facing penalties is higher when there is a robust tax collection system in place. By discouraging illegal activities, proper tax collection promotes transparency and accountability in society, which is critical for the rule of law.

 

Regular tax collection can help to promote foreign investment and economic development. Investors are more likely to invest in countries with stable and predictable tax systems, as this reduces the risk of uncertainty and instability. When taxes are collected properly, it creates a favorable business environment that encourages foreign investment and economic growth. This, in turn, creates jobs and increases tax revenue, which can be used to further promote development.

 

Tax collection is critical for fiscal sustainability. When taxes are not collected properly, governments may resort to borrowing to finance their activities, which can lead to unsustainable levels of debt. This can result in high interest rates, inflation, and a reduction in the government's ability to provide essential public services. Proper tax collection, therefore, is essential for ensuring that governments can maintain fiscal sustainability and avoid financial crises.

 

To sum up, proper tax collection is crucial for the development and well-being of a society. It enables governments to provide essential public services, invest in infrastructure, promote fairness and equity, discourage illegal activities, promote foreign investment, and maintain fiscal sustainability. Therefore, governments must prioritize the collection of taxes and ensure that they have robust systems in place to collect taxes efficiently and effectively. This will ensure that societies can thrive and prosper, and that citizens can enjoy a high quality of life.

The content made available in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and completeness of the content, it should not be considered as a substitute for professional consultation.

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Close Ended and Open Ended Mutual Funds

 

The following message is currently circulating in numerous WhatsApp groups, particularly those focused on investments.

“Today is a historic day for the mutual fund industry !!. Exactly 100 years ago, on 21st March 1924, the first open-ended-mutual fund was started by Edward Leffler. He called it Massachusetts Investors Trust (MIT).  From a humble start today the industry manages more than 70 trillion dollars globally and more than 50 lakh crores in India !”

When I came across this message, it brought back memories of my earliest experience with mutual funds. While UTI was the frontrunner in mutual funds in India, I can't recall purchasing any UTI units. With our family's longstanding association with Indian Bank spanning three generations, the mutual fund offers from the bank (conspicuously advertised in all branches) immediately captured our attention. (Those were the days when one had to physically visit the bank branch for almost everything.)  We started to invest in Mutual Funds by applying for units of Ind Sagar, Ind Moti, and Ind Tax Shield.

Morgan Stanley Mutual Fund made its debut in the Indian market with the launch of its first fund, the Morgan Stanley Growth Fund, in 1994. This marked the beginning of foreign funds entering the Indian investment landscape. The Morgan Stanley Growth Fund was launched as a fifteen-year close-ended fund.

As awareness about mutual funds as an investment avenue grew, investing in them became increasingly popular as a means to accumulate wealth over time. Mutual funds offer diversification, professional management, and access to a wide range of investment options, which may be challenging for individual investors to attain independently. Over time, investors became familiar with terms such as open-ended funds, close-ended funds, NAV (Net Asset Value), and others.

In this article, let's take a brief look at close-ended and open-ended mutual fund schemes.

 

Close-Ended Mutual Funds

A closed-ended fund is a type of investment fund where a fixed number of units are issued when it starts. After this, investors can't buy or sell units until the fund matures. These funds are introduced through an NFO (New Fund Offer) and are then traded in the market like stocks, with a set end date. Even though the Net Asset Value (NAV) sets the real price of the fund, its market price can be higher or lower depending on how much demand there is. Simply put, a closed-ended fund 'closes' after the launch until it matures. This gives the fund manager more freedom to reach the fund's goals.

Since investors can't cash out their units early with a closed-ended fund, fund managers have a fixed amount of money to work with. They don't have to worry about keeping enough cash available because there are no early withdrawals. This lets the fund manager create a strategy to reach the fund's goals without being pressured.

One good thing about investing in a closed-ended mutual fund is that they might offer better chances for the value of your investment to increase compared to open-ended funds. This is because closed-ended funds don't have to deal with investors pulling out money like open-ended funds do. In other words, the fund manager doesn't have to sell investments to get cash for withdrawals, which can bring down prices.

 

Open-Ended Mutual Funds

An open-ended mutual fund is a type of mutual fund that can issue an unlimited number of units. Unlike close-ended funds, open-ended funds do not trade on an exchange. Instead, investors can buy or sell units directly from the fund at the current NAV. When an investor wants to buy units in an open-ended fund, the fund issues new units. When an investor wants to sell units, the fund redeems them.

Open-ended funds are the more popular of the two types of mutual funds, and they make up the vast majority of mutual funds available to investors. They offer several advantages over close-ended funds, including greater liquidity, lower costs, and greater flexibility.

One advantage of open-ended funds is that they offer greater liquidity than close-ended funds. Investors can buy or sell units in an open-ended fund at any time, and the price is based on the current NAV, which is determined at the end of each trading day. This makes it easier for investors to enter and exit the fund, and it reduces the risk of paying a premium or discount to the NAV.

Another advantage of open-ended funds is that they often have lower costs than close-ended funds. This is because open-ended funds do not have the same overhead costs as close-ended funds, which must maintain a trading presence on an exchange.

Open-ended funds also offer greater flexibility than close-ended funds. Fund managers can adjust the size of the fund and the composition of the portfolio in response to changes in the market. This allows the fund manager to take advantage of new investment opportunities as they arise, and it can help to reduce risk by spreading investments across a diverse range of securities.

The content made available in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and completeness of the content, it should not be considered as a substitute for professional consultation.

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