Till now, all debt funds held for more than one year were taxed at a concessional rate of 10%, or 20% post-indexation (where the purchase price is indexed for inflation, before ascertaining the gains subject to tax), whichever is lower. As against this, Bank FD's are taxed at full marginal rate (30% if you are in the highest tax bracket). This obviously is an advantage for debt MF's who have been garnering money from the public and lending onward to Banks/ Corporates.The budget has now changed the rules. From now on, all debt funds held for less than three years will be taxed at the full marginal rate, i.e. be considered short term. This is in line with the definition of short term which is three years for all other capital assets (except equity which is one year). Also, the option of 10% is withdrawn. It will now be 20% post-indexation, like all other capital assets.
Monday, July 14, 2014
Saturday, July 12, 2014
I knew it. I intuitively knew that Malcolm Gladwell's famous ten-thousand hour rule would not hold under real-life conditions. But it sounded romantic and appealing. Practise for 10,000 hours in any field, he claimed, and you become an expert. Not merely any expert, but an acknowledged guru in the field! Of course, the unsaid assumption is that, to spend 10,000 hours on anything – it means three hours a day, every day, for ten years – you need to give up on a lot of other things.
In his book Outliers, Gladwell outlined this theory which caught the imagination of people. It appeals to our sense of fairness and how things should be with the world. If anyone has become successful in any field we like to think that they have paid the price for it. We get a sense of perverse satisfaction thinking about all the parties they missed while they were practising, poor sods; all the vacations they had to forego; and we visualize all the joy being sucked out of their lives like water from a sponge, leaving them dry of everything else but the skill they chose to become expert at. And then we grudgingly acknowledge their expertise at singing / dancing/ boardroom politics or whatever, all the while smug in our belief that we did not commit those mistakes and miss out on life.
Of course these are mere rationalizations. We really do not want to acknowledge that some people are very good at what they do, and at the same time enjoy other things in life as much or more than we do. They seem to have achieved levels of extreme competence, without putting in even a semblance of effort, or at least, by working on it as much as we do, no more. The guy who was CEO in my previous company has a well-rounded life and goes home on time every day, the topper in my college used to be always on the football field, or playing cricket, and was very active in college plays with the stage presence of a Rajnikanth, and Richard Branson seems to make everything seem fun and effortless, including making lots of money. Your neighbor who was a no-good wastrel in school now has the biggest car in the neighborhood, and takes the most expensive vacations, and you don't see him really working even today.
We all like to think that life is a linear equation. You get what you work for; great achievements entail great sacrifices; you put in more effort, you get more reward; if you laze around, you are not going to make it in life – these are all comforting thoughts we encourage in ourselves since we find ourselves working so hard all the time. Unfortunately, life is not so fair. Gladwell is wrong, and someone had to do a lot of research to prove it. Of course, this research talks more about how some people, in spite of putting in lots of effort – significantly more than 10,000 hours – seem to be as clueless as when they started out. It seems depressingly similar to the story of my life L
( article on disproving Gladwell's 10,000-hour theory from the latest issue of Economist below: )