You have big financial goals and dreams for your future and have followed the best principles of long-term investing in India. You have followed the advice of experts and worked hard to save and invest wisely. But what if you encounter some unexpected problems and dangers that can harm your wealth? How can you safeguard your money from lawsuits, tax audits, market crashes, or personal crises? This is where asset preservation comes in.
Asset preservation is not just about saving money but protecting it from various threats and risks. This strategy can help you keep your money safe and growing, no matter what happens. This article will show you how asset preservation works, why it is vital for long-term investing in India, and some of the best ways to implement it. Whether a beginner or a seasoned investor, you will find valuable insights and tips on preserving and enhancing your wealth over time.
What is Asset Preservation?
Asset preservation is a strategy that helps you protect and grow your wealth over time. It is like a suit of armor that shields your money from various dangers and challenges that can take it away. These dangers and challenges can include things like Bankruptcy, Divorce, or any legal claim against you.
Asset preservation involves different methods and solutions to avoid or reduce these losses and liabilities. These methods and solutions include trusts, insurance, annuities, diversification, hedging, and estate planning. Asset preservation is essential for long-term investing in India because it can help them reach their financial targets and aspirations and secure their future and their family’s happiness.
Importance of Asset Preservation in Long-term Investing in India
Are you worried about your wealth being wasted or taken away by your creditors or claimants? Do you dread the possibility of losing the assets you worked hard to create due to any financial or business trouble? If yes, you need to learn about the importance of asset preservation as soon as possible.
Helps you Avoid or Minimize Losses
It can help you preserve and grow your wealth over time by preventing or minimizing the losses or liabilities arising from legal disputes, bankruptcy, or other financial troubles.
Preserves Your Purchasing Power
It can help you maintain your financial stability and security by ensuring that you have enough assets and income to meet your current and future needs and goals and that you are not exposed to undue financial stress or hardship.
Helps to Reduce the Tax Burden
It can help you pass on your wealth to your beneficiaries smoothly, avoiding any interference or claims from creditors or other parties and using flexible and tax-efficient options such as trusts, insurance, and annuities.
How to Shield Your Wealth from Creditors?
Now that you have gained valuable insights into asset preservation and its importance in long-term investing in India. Let us learn how to secure your investments from being seized or disposed of to settle your financial obligations with the creditor.
Five Ways To Make Your Long-Term Investments In India Creditor-Proof
Investments through Irrevocable Trust
If you are worried about protection from taxes, creditors, and lawsuits while long-term investing in India, you can put your hard-earned wealth in an Irrevocable Trust. An Irrevocable Trust is a legal tool that lets you transfer your assets to a trustee who will manage them for the benefit of your chosen beneficiaries.
Once you do this, you lose control over your assets, but you also reduce your taxable estate and shield your assets from anyone who might try to take them away from you or your loved ones. Divorce cases are wildly rising in India, so you can use a trust to protect your child’s benefit. Your child will not own the assets, but they will get some income from them. This will prevent your ex-spouse from claiming a share of your assets or interfering with your children’s inheritance.
Life Insurance Policies
Sec 60 of the civil procedure is a law that stops the Court from taking your future money from your life insurance policy if you are in debt and someone has a decree to get money from you. A decree is a Court order that says you must pay money to someone. The Court can only take your future money from your life insurance policy if it is not in your name or the name of your wife or kids.
This law protects your right to future support from your life insurance policy. Further, Sec 6 of the Married Women’s Property Act 1978 (MWP) takes this to the next level. This law states if a married man buys a life insurance policy for himself and nominates his wife, children, or any of them to receive money after his death. The money will belong to them as a trust, and he can’t change his mind, and neither can his creditors take it away from them.
This law protects the rights of his wife and kids to get the money from his life insurance policy. When building a creditor-proof portfolio, include Life Insurance Policies in your financial roadmap for long-term investing in India.
Employees Provident Fund (EPF)
If you have a loan that you are struggling to repay, you might be worried that your lender will take away your assets to settle your dues. But one asset for long term that your lender cannot touch is your EPF account. Your EPF account is a monthly retirement savings scheme you and your employer contribute to. Your EPF account is a safe asset that your lender can’t seize to repay your loan.
You can use your EPF account as a loan backup, but you must follow some rules. You can withdraw money from your EPF account for specific reasons, such as housing, health, education, or marriage. You also need to have enough balance, service time, and documents. You can’t take out money more than once for each reason and only up to a limit. So, use your EPF account as a creditor-proof tool for long-term investing in India and stay worry-free while enjoying good returns.
Public Provident Fund (PPF)
PPF is an excellent choice for long-term investing in India and creditor protection. PPF is a government-backed scheme that allows you to invest your money for long-term financial goals such as your children’s higher education, retirement planning, child marriage, and many more. You can also get money from your PPF account by taking out loans or withdrawing money for specific reasons.
This scheme allows you to earn guaranteed returns while saving money on taxes. PPF is one of the assets for long term that provides the unique benefit of Exempt-Exempt-Exempt. It means, in addition to the tax benefit of up to Rs. 1.5 lacs under Section 80 C of the IT Act, the maturity amount is completely tax-free in the investor’s hands.
Section 9 of the Public Provident Fund Act does not permit the attachment of credit balances in PPF accounts under any decree, court order, or any order from income tax or estate duty authorities. So, a long-term investment option in India that protects you from loan sharks, PPF is a viable option.
National Pension Scheme (NPS)
NPS is a government scheme that empowers you to save for retirement and get returns that follow the market. NPS also assures your money is protected from creditors, as it is free from any court or authority. You can invest your money in different funds and reap tax benefits on your contributions and withdrawals.
NPS is a good option for long-term investing in India amid the rising uncertainties as it offers a lucrative tax benefit structure. Investing in Tier-I can get a tax rebate of up to Rs. 1.5 lacs under Sec 80 C of the IT Act alongside an additional benefit of up to Rs. 50,000/- under Section 80 CCD.
Under the exists and withdrawals rules of the Pension Fund Regulatory and Development Authority (PFRDA) 2015, your wealth accumulated in Tier-I of the NPS scheme enjoys exemption from seizure, attachment, or confiscation at the instance of any demand from a creditor, or in satisfaction of a decree or order of any court. So, consider NPS to make your investments creditor and inflation-proof when planning your portfolio for long-term investing in India.
Asset preservation is a vital aspect of sustainable financial planning that aims to protect the value of one’s assets from potential risks and liabilities. In this article, we explored some of the best assets to invest in India that can help you preserve your assets and secure your future.
We have examined EPF, PPF, NPS, Insurance Policies, and Irrevocable Trusts as investment tools that offer attractive returns, tax benefits, and creditor protection. We have also explained how these investment tools are immune from attachment or seizure by any court or authority under different sections of Indian law, except for some cases involving income tax or estate duty authorities.
What types of assets for the long term are non-exempt and exempt?
Non-exempt assets can be seized or liquidated to pay off debts and are subject to creditors’ claims. Non-exempt assets include bank accounts, stocks, bonds, real estate, vehicles, jewelry, etc. Exempt assets are immune to creditor claims and cannot be taken away, such as life insurance policies, PPF, and NPS.
If my loan is in a single name, can the Bank attach my joint property with my spouse?
Suppose you want to protect your joint property from creditors. In that case, you may consider some asset preservation strategies, such as transferring the property to a trust, a Limited Liability Company (LLC), or a spouse who is not liable for the debt. However, this may not be effective if you do so after you have incurred the debt or are involved in a legal dispute.