Hi Sir, I had invested 2 Lakhs in Srei infrastructure ltd through NCDs which went into liquidation. Now I have got a holding letter from PNB investment Services saying that my admitted claim is 218255, and i will get around 97 k in staggared manner in next 5 yrs. My query is can I book losses in fy 23 24 eventhough i will receive part payments for next 5 yrs? Secondly the loss would be 2 lakhs less 97 k right? Since the initial amount Invested was 2 lakhs? Kindly help to answer the queries. Many thanks in advance.

Ans: I'm sorry to hear about your investment in Srei Infrastructure Ltd. through NCDs going into liquidation. Dealing with such situations can be challenging and I appreciate your diligence in seeking clarity. Let’s address your queries step-by-step with a comprehensive analysis.

Understanding the Situation
Your investment in Srei Infrastructure Ltd. through Non-Convertible Debentures (NCDs) has been significantly impacted. You've received a holding letter from PNB Investment Services confirming an admitted claim of Rs. 2,18,255. However, you will receive approximately Rs. 97,000 in a staggered manner over the next five years. This means there’s a considerable loss on your principal amount of Rs. 2,00,000.

Tax Implications of Booking Losses
Your first question pertains to the possibility of booking losses in FY 2023-24, despite receiving part payments over the next five years. According to the Income Tax Act in India, capital losses can be claimed only in the year they are incurred. However, there are specific considerations when it comes to receiving staggered payments.

Claiming Capital Losses:

When to Book Losses: You can book the loss in the year the event causing the loss occurs. Given the admitted claim and the liquidation, the significant loss event has already occurred.

Amount to Be Claimed: The loss to be claimed would be the difference between the principal amount invested and the amount recoverable. In your case, this is Rs. 2,00,000 (initial investment) minus Rs. 97,000 (amount to be received), resulting in a loss of Rs. 1,03,000.

Documentation: Ensure you retain all documentation, including the holding letter from PNB Investment Services and any correspondence regarding the liquidation process. These documents will be essential when filing your tax returns and claiming the loss.

Evaluating the Financial Impact
Let’s delve deeper into the financial impact and the recovery process. The recovery of Rs. 97,000 over five years means you will receive a portion of your invested amount periodically. Here’s what you need to consider:

Recovery Process:

Staggered Payments: You will receive Rs. 97,000 in installments over five years. This staggered recovery affects the time value of money, as the amount received in the future is worth less than the same amount received today.

Impact on Portfolio: The delay in recovery and the reduced amount significantly impacts your overall portfolio. It’s crucial to reassess your investment strategy considering this setback.

Reassessing Investment Strategy:

Diversification: This experience underscores the importance of diversification. Ensure your portfolio is diversified across various asset classes to mitigate risk. Consider investing in a mix of equities, debt, and mutual funds.

Active vs. Passive Management: Actively managed funds, guided by professional fund managers, may offer better risk-adjusted returns compared to passive index funds, which simply track market indices. Active management can be particularly beneficial in volatile markets or specific sectors.

Disadvantages of Index Funds
While index funds have gained popularity due to their low cost, they come with several disadvantages, particularly in volatile markets or specific sectors.

Lack of Flexibility:

Market Fluctuations: Index funds are designed to replicate a market index. They do not have the flexibility to maneuver during market downturns, potentially leading to greater losses.

No Active Management: Unlike actively managed funds, index funds do not employ fund managers to make strategic decisions. This lack of active management can be a disadvantage when the market is not performing well.

Performance and Returns:

Tracking Errors: Index funds aim to mimic the performance of a specific index, but they often experience tracking errors, which can lead to performance discrepancies.

Limited Alpha Generation: Since index funds are designed to follow an index, they cannot outperform the market. Actively managed funds, on the other hand, strive to generate alpha, providing opportunities for higher returns.

Importance of Regular Funds and Certified Financial Planners
Investing through regular funds with the guidance of a Certified Financial Planner (CFP) offers several benefits over direct funds.

Benefits of Regular Funds:

Professional Guidance: Regular funds come with the advantage of professional advice. CFPs provide personalized investment strategies based on your financial goals, risk tolerance, and market conditions.

Ongoing Support: Investing through regular funds means you receive continuous support and insights from financial experts, helping you navigate market complexities and make informed decisions.

Future Financial Planning
Given the setback with Srei Infrastructure Ltd., it’s vital to reassess your financial plan and take corrective measures to strengthen your portfolio.

Investment Strategy:

Diversified Portfolio: Ensure your investments are spread across various asset classes to reduce risk. A balanced mix of equities, debt instruments, and mutual funds can provide stability and growth potential.

Active Fund Management: Consider actively managed funds for better risk-adjusted returns. Professional fund managers can leverage market opportunities and mitigate risks effectively.

Emergency Fund:

Building Resilience: Maintain an emergency fund to cover unexpected financial setbacks. An emergency fund with 6-12 months’ worth of expenses can provide a safety net during uncertain times.
Review and Rebalance:

Regular Reviews: Periodically review your portfolio to ensure it aligns with your financial goals. Rebalancing your portfolio helps maintain the desired asset allocation and mitigates risks.

Financial Goals: Align your investments with your short-term and long-term financial goals. This alignment ensures that your portfolio is geared towards achieving your objectives.

Final Insights
Dealing with a financial loss, especially from an investment, can be challenging. It’s crucial to approach this situation with a clear strategy and seek professional guidance to navigate through it. Booking the capital loss in the current financial year can help mitigate the impact on your taxes.

Moreover, this experience highlights the importance of diversification and the benefits of actively managed funds over passive index funds. Actively managed funds, with professional oversight, can provide better risk-adjusted returns and adapt to market changes more effectively.

Reassessing your investment strategy and ensuring a balanced, diversified portfolio is key to long-term financial stability. Consider the advantages of investing through regular funds with the guidance of a Certified Financial Planner to optimize your investment approach and achieve your financial goals.

Remember, financial setbacks are part of the investment journey. With the right strategy and professional guidance, you can overcome these challenges and build a resilient financial future.

If you have further questions or need more personalized advice, feel free to reach out. I’m here to assist you in achieving your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in