33 mutual funds myths uncovered for first time investors

Are you one of those investors who are still away from mutual funds investments because you do not have enough understanding about it or have a lot so myths about them?

Every day we get constant inquiries from several of our readers who want to invest in mutual funds and often they have myths, which make us wonder about those myths.

So in this post, I have listed down 33 various myths related to mutual funds and SIP in general. So if you are totally new to mutual funds, reading this article start to end will make you fully knowledgeable about mutual funds.

So let’s start…

Myth #1 – SIP is the name of an investment product

A lot of people think that “SIP” is the name of some investment products other than mutual funds. So they say – “I want to invest in SIP”. However, SIP means a systematic investment plan, which just means a way to regularly invest only in mutual funds. In this, a pre-fixed amount is automatically deducted from your account and gets invest in mutual funds on a pre-defined date.

For example, if you are doing an SIP of Rs 5,000 in ICICI Pru Discovery mutual fund on the 10th of every month, then on the 10th of each month, Rs 5,000 will get deducted from your bank account and will get invested automatically.

Myth #2 – I can’t stop SIP in between once I start it

Another myth that stops investors from entering mutual funds is that they think starting SIP for X yrs, is a commitment they can’t break in between and they will face some penalty if they stop their investments.

A lot of people do not want to give any PROMISE of regular payment. However, the truth is that once you start the SIP, you can anytime stop the SIP in between. So don’t worry while starting the SIP for the next 5, 10 or 30 yrs. The day you want to stop it, it can be stopped with just one notification!

Myth #3 – All the money from ELSS can be withdrawn after 3 yrs if one is doing SIP

One of the biggest myths of investors is that if they are doing SIP in ELSS (tax saving mutual funds), then after 3 yrs, they can withdraw all their money. However, that is not true. Each investment in ELSS is locked for 36 months from the date of investments. This means that the first SIP which goes in March 2017, will be free of lock-in only in April 2020.

SIP in ELSS mutual funds are locked in for 3 yrs

The same is the case with the installment which goes in Apr 2017 (will be free in May 2020)

Myth #4 – Lower NAV is cheaper than higher NAV

Most of the mutual fund’s investors think that a smaller NAV mutual fund is a better deal compared to a higher NAV mutual fund. While this may be sometimes true in case of stocks because a Rs 10 stock has the potential to grow faster than a stock with Rs 10000 stock value.

But in case of mutual funds, NAV has no significance. It’s ZERO!

Because your mutual fund’s appreciation has everything to do with the appreciation in NAV value in percentage terms and not an absolute value. I mean if you invest Rs 10 lacs in a fund with NAV of Rs 10, and if the mutual fund performs great and in the next 5 yrs it doubles in value, then the NAV will rise to Rs 20 and your fund value will rise to Rs 20 lacs.

However, if the NAV was Rs 10,000 per unit, still the effect would be the same for you. The NAV would have increased to Rs 20,000 and your value would have increased to Rs 20 lacs. No difference as such.

So stop thinking that a fund is better (especially NFO’s) just because its NAV is lower.

Myth #5 – Dividend in mutual funds is better than Growth option

When you choose a mutual fund to invest, you have to choose between the Dividend and Growth option. Now a lot of investors think that dividend option is better because they are getting “extra dividend” . However, it’s not true.

Dividends are not extra!, The NAV comes down by that margin after the dividend is paid, on top of it, if the fund is not an equity fund, a dividend distribution tax is first paid by AMC, which lowers the return of the investor. However, in the case of growth option, the money remains in the fund itself.

Difference between growth and dividend mutual funds

For example, imagine a fund XYZ with NAV of Rs 100 and a dividend declaration of Rs 10

  • Now in case of dividend option, Rs 10 will be paid to investors and NAV will come down to Rs 90.
  • However in the case of the Growth option, nothing is paid to the investor, but the NAV is Rs 100.

Myth #6 – Mutual funds means Stock Market

One of the most common myths is that mutual funds are highly risky because they invest in stocks. However, this is half true. Only equity mutual funds invest in stocks and are risky (in fact volatile is the right word, not risky)

Various types of mutual funds

There are other categories of mutual funds called debt mutual funds, which do not invest in equities. They invest in bonds, govt securities, and other secured investments. While debt funds have their own risks and even their returns are not 100% stable, still, debt funds are highly stable when it comes to returns and often provide better tax-adjusted returns then most of the bank fixed deposits.

Myth #7 – You have to invest big amounts in mutual funds

Many small investors stay away from mutual funds and stick to recurring deposits and other products because they think that mutual funds are for big investors and one has to invest big money in it. However, you can start a monthly investment of even Rs 1,000 per month in most of the funds. If you want to invest on the onetime basis, the limit is Rs 5,000.

So someone who is just earning Rs 10,000 per month and wanted to invest 10% of his income, can also start mutual funds SIP.

Myth #8 – Mutual funds are always for long term

Mutual funds are marketing as long term investments most of the time. However, it’s not always the case. There are mutual funds called liquid mutual funds and even short term debt funds which can be used for short term investment horizon like 6 months or 2 yrs.

This article from Economic times talks about some of these funds

short term mutual funds

(Image Source)

Only in case of equity mutual funds, it’s suggested that one should invest from a long term perspective to reap the maximum benefits.

Myth #9 – Mutual funds offer guaranteed returns

No, Not always.

Actually never!

Mutual funds never offer a guaranteed return like a fixed deposit. This is one reason why many investors who are totally in love with “assurity” shy away from investing in mutual funds.

Various categories of mutual funds offer various return range. An equity mutual funds can offer return anywhere from -50% to 100% return in a year (just a high level estimate). Whereas a debt fund can also deliver a return ranging from 5% to 15%. And a liquid fund will mostly give a return in range of 6-8%

So the returns are not guaranteed, but highly probably within a range depending on its category.

Also note that as the investment horizon shifts from 1 yr to 10-20 yrs, the probability of getting a stable return within a range increases.

Myth #10 – I will lose my money if the mutual fund’s company goes bankrupt

This is common thinking, but not true

Mutual funds are highly secured in terms of structure. The way it’s designed and regulated by SEBI, it’s almost impossible for investors to lose money due to a scam or AMC going bankrupt. Your mutual fund’s units does not lie with AMC (it just takes the decision of buying and selling). Units and all the money lies with the custodian and highly secure.

Structure of mutual funds in India

For more on this, you should read this article

Myth #11 – Past returns in mutual funds indicate future returns

Not correct.

While past returns can surely tell you that the fund did very well in the past and there is some probability due to legacy that it will perform well. But it’s not written on stone.

How the fund will perform in future is totally a function of what decisions fund manager takes in future. HDFC Top 200 is a classic example, where the fund who ruled the mutual fund world is now not one of the top 10 funds.

Another example is the SBI Maxgain tax saver which was one of the best ELSS funds some years back but is now replaced by many others.

Here is a study by Yahoo Finance on this topic with respect to funds in the US, which tells that around 92% of top performers do not remain top performers after two years.

Myth #12 – More mutual funds means Diversification

Diversification is an abused word, at least in mutual funds.

Just because you invest in more mutual funds does not always mean that you have achieved diversification. The reason is simple. A mutual fund invests in close to 50-100 stocks. So when you invest in an equity mutual fund, your money is already well diversified across sectors, types of companies, etc.

When you add another mutual fund, most of the stocks might be the same and also in the same proportion, giving you very little extra diversification. When you add 3rd fund and 4th fund, almost no diversification happens. Below is the portfolio of one mutual fund and you can see how much they have diversified already.

This is one reason why it’s of no use to invest in 10-20 mutual funds of the same category. 2-4 funds of a similar category are the maximum one should invest into. You should add more SIP amount or lump sum in the same fund once you have chosen 2-4 funds.

Myth #13 – I need Demat account to invest in mutual funds

No, it was never the case.

A lot of people think that unless they have a Demat Account, they can’t invest in mutual funds. You can invest in mutual funds from your Demat provider also, but it’s not mandatory.

So when you invest from ICICIDirect or HDFC Securities, you are actually investing via a Demat account and the units you get sit in your Demat account.

So if you want to invest in mutual funds, you can invest directly from the fund house or through an advisor.

Myth #14 – I can start SIP and forget it for long term

A lot of investors think that once they have started a SIP investment or even lump sum investment they can just sit back and relax for next 10-20 yrs. This is not suggested.

Mutual funds need constant review every year. So you should at least keep an eye on your fund performance. Do not overdo it and start looking at weekly and monthly returns, but do that in 1-2 yrs.


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Myth #15 – You can’t save tax under 80C in mutual funds

Many people who regularly save income tax through PPF or life insurance policies, do not know that even mutual funds have 80C benefits. ELSS or Equity linked saving scheme is the category of mutual funds which gives you 80C benefits up to Rs 1.5 lacs.

Myth #16 – SIP can be done only on a monthly basis

No, An SIP can be done even on a weekly or quarterly basis. While monthly SIP is the most suitable for all (we all get monthly income), but at times if you want to invest on a quarterly basis or weekly basis, even that can be done.

However, note that it depends on a mutual fund if it gives you the facility of weekly/quarterly SIP or not. Most of them do, but at times, some mutual funds might choose to not have that option.

Myth #17 – Mutual funds investments are complicated

While investing in mutual funds is definitely as simple as creating a fixed deposit. But it’s not too complicated. You need to do one-time documentation to start with and once it’s done, After that you can buy/redeem mutual funds online.

One place where you might feel complication is while choosing the funds out of the big pool, but with your own research or with guidance from someone else (like Jagoinvestor), you can get a set of mutual funds to invest in.

Here is a good mutual funds tutorial for beginners by Deepak Shenoy

Myth #18 – I can’t add more lump sum amount in my fund where I do SIP

A lot of investors feel that if they have started a SIP in a fund XYZ, then they can’t add additional money in the same fund under the same folio. It is not true.

When you invest in a fund (either SIP or one time), you get a folio number. This is like an account number. You can anytime add any amount of fund to the same folio. So if you are doing a SIP of Rs 10,000 in Birla Balanced Advantage fund, and now if you want to add another Rs 1,00,000 suddenly, you can do that.

Myth #19 – You need documentation every time you want to invest in mutual funds

Again a big myth.

Once you are done with the first time documentation, after that every time you want to invest and redeem or switch, you can do it online. The documentation comes into picture only when you want to do changes like your email id, phone or address etc.

Myth #20 – Mutual Funds are not for retired investors

This is entirely false.

There are various kind of mutual funds which are suitable for retirement needs. You can invest your hard-earned money in debt funds and keep them secure while it’s growing at a decent return. One can choose an option for a monthly dividend and get an income.

One can also SWP from a fund, and withdraw a fixed amount each month. One can invest in debt-oriented mutual funds, which can have some equity component for some return kick!.

We have helped many clients to plan for their parent’s retirement money deployment.

Myth #21 – I can’t invest in mutual funds because I need high liquidity

Again a myth.

Mutual funds are highly liquid and you can get your money ranging from instant redemption to 3-4 days depending on the fund type. If you want very high liquidity, then you can invest money in liquid funds, from where you can redeem in 24 hours.

Myth #22 – Mutual funds are not that famous among investors

This may be news to many, but the Mutual Fund’s industry will overtake Deposits in Banks very soon (maybe a decade). Right now at the time of writing this article, the money in India mutual funds was around 18 lacs crore, It has doubled in the last 4 yrs, and set to grow very fast in the next decade.

In the US, mutual funds are already several times bigger than Fixed deposits and it’s going to happen in India too over the long term. So if you still think that mutual funds are some alien concept, then you are wrong. It’s very popular now in India and one of the standard investments products.

Myth #23 – Mutual fund redemption needs the permission of a broker or advisor

Your broker or advisor has no control over your mutual funds. You can do redemption on your own by either installing the app of the fund house or through the portal where you have access to.

In the worst case, you can anytime go to the fund house office or CAMS/KARVY office and apply for redemption. This does not need any approval from anyone.

Myth #24 – I can’t skip an SIP payment once started

A lot of people are worried about what will happen if they skip the SIP in a particular month when they are low on funds?

If your bank account does not have sufficient money for a month, then on the SIP date the SIP will not get processed, but from next month it will go fine again. Mutual funds company does not charge any fine or penalty for this, but your bank can levy a small charge for this like Rs 200/300.

I think it’s good, because that way you will be disciplined enough to make sure that your SIP’s go on time, but also does not hurt you too badly in case of emergency

Myth #25 – I should stop my SIP when markets are down

Unless you are an expert in understanding markets and how they will behave (which I think no one knows), it does not make a lot of sense to time your SIP’s. Just let them run in all kinds of markets and focus on your long term goals.

Most of the investors make this mistake that they stop their SIP’s when markets tank. In fact, this is the best time when you should accumulate more Mutual funds units in your portfolio so that when markets are up, you will reap the benefits.

Myth #26 – TDS is applicable when mutual funds are sold and redeemed

Mutual funds are not like Fixed Deposits or Recurring Deposits.

When you sell your mutual funds, there is no TDS which is deducted. You get the full amount in your bank account and then you need to figure out the tax amount and pay it later.

However there is no exception to this. In the case of NRIs, if they redeem their debt funds, then TDS is applicable.

Myth #27 – My money will be locked in mutual funds like other products

Many investors think that in mutual funds their money is locked for a specific period. in case of mutual funds, most of the funds are open-ended funds, which means that you can invest any time and redeem anytime.

There is no lock-in except in ELSS funds (which comes under 80C) and close-ended funds (which specifically tell you the duration for lock-in)

Myth #28 – SIP should not be started when stock markets are very high

Yes, this is actually not a myth, but truth.

But only if you know that stock markets are high. If you are very sure you can figure that out then Yes, it’s better to wait for markets to tank down, and then start SIP. But 95% of the people don’t have time and energy and even expertise to read these signals.

So that’s the reason, why you should not think much when you are starting the SIP. Start your SIP’s irrespective of market conditions. And when markets do down, it’s time to increase your SIP amount

Myth #29 – SIP is always better than Lump sum investments

None of them are better than the other.

SIP’s will outperform the onetime investments in certain conditions and vice versa. SIP’s, however, are more suitable for a common man as it’s a monthly commitment and averages the risk of market volatility.

Here is a good discussion on SIP vs Lumpsum Investments by Monika Halan and Vivek Law in a show called Smart Money

Myth #30 – I can’t switch from one mutual fund to another fund

Many people do not know that it’s possible to move from one fund to another fund across the same fund house. You don’t need to sell the fund, get the money in your account and then again invest in another fund of the same fund house.

So if you have a mutual fund from Birla AMC, you can switch it to another Birla fund without redemption.

Myth #31 – Mutual funds of bigger and trusted brands are always better

Do you know that LIC also has mutual funds business?

However, LIC mutual funds are one of the worst-performing funds across the whole MF industry. LIC mutual funds is not same as LIC insurance.

In the same way, SBI mutual funds should not be confused with SBI bank. A lot of first-time investors in mutual funds investors want to go with trusted brands like LIC, SBI, or HDFC.

Not that mutual funds is a different business, and you need asset management expertise. A small fund house like Motilal Oswal or even Quantum or PPFAS has high-quality funds and should be explored.

Myth #32 – I can’t partially withdraw from mutual funds

Yes, you can. Mutual funds can be redeemed in parts. You just have to choose the number of units you want to redeem or the amount you want to redeem (it will calculate the units required). So that way, it’s a great product. Because in case of deposits it’s either the full amount or none (which is one positive thing also)

Myth #33 – Only humans can invest in mutual funds

Even companies and partnerships can invest in mutual funds. It’s not limited to just humans. So if you are a business owner, you can also go for your business KYC, and then start invest in mutual funds. If you have money lying in current accounts, you can park your excess money in liquid or debt funds and redeem them anytime you want with a single click.

Let us know if you have any more myths or queries related to mutual funds or SIP.

Are you ready to invest in mutual funds?

Are you still waiting to start your mutual fund’s journey? If Yes, then our team at Jagoinvestor can help you start your mutual fund’s journey.


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From successful CA to Entrepreneur – Real life Journey of Umesh

Here is the real-life story of Umesh, who is one of our long time readers. He agreed to share his life story on how he turned from a successful CA to an Entrepreneur. I am sure it will be an inspiring read for other readers and we all can take some learning’s from his story.

How a CA turned into an entrepreneur - A story

Over to Umesh …

I have been a follower of Jagoinvestor.com for the last few weeks. One post from Manish regarding how he quit his job with Yahoo was catchy and I responded back to him stating that I was happy for him as his story pushed me down the not so distant memory lane of my pursuit to being self-employed.

He has been kind enough to let me share the same with you readers and I hope I can add some value to the time that you will spend in reading the same.

And here it goes

I am a CA with over 25 years of experience. As a child, I had been brought up in the company of CA’s and when I had ceased to be an infant, my father – who is also a CA – joined Air India.

And thanks to his position in the national carrier, from my childhood days, I enjoyed traveling by air, in style and comfort of Maharaja Class… The jumbos of Air India really fascinated me as a child and with each passing year, my interest in them kept on growing. So much so that I decided mentally to become a pilot of one of those 747s.

This guy wanted to become a pilot

But I did not become a Pilot

Man’s wish can only progress towards reality when God concurs. In my case, God gifted me with powerful eyes and a nice pair specs and so my dream of becoming an airline pilot is still a dream.

I scored a distinction in SSC and had an alternate desire to become an Aeronautical Engineer – but the burdensome presence of Maths prevented me from opting for that even though I was getting admission. And then, like thousands of others, I joined Commerce and in due course of time the CA blood prevailed over everything else.

I ended up becoming a CA but airplanes and airlines were still part of my hobbies. Even during CA preparations, I used to read airline magazines!

I sent my resume to Singapore Airlines!

So much was the craving that the first CV that I sent was to Singapore Airlines! Knowing very well that it is unlikely that I will get a call. I was not interested in going in for CA practice as I found Taxation and Statutory Audit really taxing. I wanted to do something different – so in that pursuit, I started looking out for a good job or an assignment that I can manage on my own.

I struggled for several months and then my corporate life made a good and healthy beginning. And within a year and a half, I was able to finally enter the airline world on merit and Jet Airways became my third employer and the first in the airline industry. It was a dream come true for me and I simply liked the job.

I never felt that I was working, as airlines and airplanes were my passion and my work was though related to accounting was off-beat when compared to the typical book-keeping type.

I learned a lot in that company and ended up heading its Revenue Accounting unit as a GM at a very young age in comparison to those who were holding that position at the time with decades of experience. I progressed from there and moved on to head the function for 2 other airlines – one in India and one overseas.

I enjoyed the work even with Work Pressure!

Throughout my tenure in the airlines, I was positive and enjoyed the work though the work pressure was enormous, timelines extremely stringent as airlines being in the service industry have to work 24 X 7.

My wife and son and parents have seen me sometimes on the following calendar day but thanks to my passion, I always felt at home.

The best phase of my life was when I was overseas and working for an airline – the work environment was considered to be the toughest within the industry. However, my base was solid and passion too played its role very well and I felt that it was a lot easier than what was perceived.

It was a good exposure in dealing with people from different cultures, countries, and backgrounds. The flow was smooth – but my son was disappointed with the quality of education there and after due pondering, I chose to give his education priority over my professional satisfaction and we returned to India for good.

How I became an Entrepreneur?

By then, I had completed 2 decades in the industry and in my core specialization as well and I decided to do something different and become independent from the clutches of the employers. I had many tempting offers from the industry within India and overseas but I preferred to go the independent way.

Job vs business - which is better?

My family was with me and backed me solidly – I was in that age frame where if my entrepreneurial attempts fail, I would still have the opportunity to get back with humility to the corporate world. Initially, the going was tough and at times making me wonder if I had taken the right decision.

However, my wife was with and behind me like a rock and I remained committed to getting the first assignment before the bank account reaches alarmingly low.

I got my first assignment

Patience and eternal trust in god always pays and I got my first independent assignment overseas. And all in the house were happy and I was thankful to God for showering his blessings. It lasted for a few months – it was a unique experience as I was the boss of myself and had only the mirror to report to in relation to my work.

It was a great feeling and I still remember the moment when I sent out the first set of FEMA documentation to my bankers to get the inward remittance. Thereafter I have been able to keep the entrepreneurial spirit going with one assignment at a time – though I can manage more than one, I chose to work on my newer passion towards stock markets.

Since the past year, I have again been an active student of stock market and am learning by the day and have been helping a few make money by putting my knowledge to test.

I had my first stint as a trader for 2 years which was full of ups and downs and I had to take a sabbatical from the markets as I got an overseas assignment with my sleep hours slot was the active market hours slot in India.

Once I was back, I invested a significant amount in getting trained by the best in India and have since been working very hard to make this as my next profession – where I do not have to source business as the opportunities come knocking on the doors as long as I ensure that I have capital to take advantage of the opportunities.

Should I work for myself or someone else?

From Automobiles to Stock Market!

So in my career so far, I moved from automobiles to IT to airlines to BPOs to TMCs to stock markets – I have learned a lot from the markets – about stocks and related matters and about myself as well.

My ride thus far may seem like an uneventful and seamless but I went through quite a few rough patches and I always remembered the saying – If it were not for the rocks, the stream would have no song and also – Ships are safer in the harbor but they are not meant for the purpose.

In comparison to the present times, my salary was not that high especially after the 9/11 attacks in the US which changed the game altogether. Airlines turned out to be a good place for its vendors and not its employees.

16 habits which helped me become successful

However, I am thankful to some of my habits which helped me reach where I am today.

Few of these are

  1. I always ensured that I am able to pay off any dues immediately on my salary getting credited. Even if the amount was not due, I used to clear it to have surplus identified.
  2. I started investing in Mutual Funds – in NFOs with Dividend Payout Options. Such investments were made on a monthly basis and where there was no NFO in a month, I used to add to my holdings.
  3. I started a couple of SIPs and these ran for 3-5 years one of them was with Dividend Payout Option and one was the Growth Option – this ensured that when the market was up, the value of my investments would also be up.
  4. My father cultivated in me the habit of making sure that I keep making investments in the PPF account that he had opened in my name and then I opened for my wife and son as well and kept depositing whatever possible.
  5. Intermittently, I kept creating FDs – in companies – when the rate used to be 12-15% and in banks and worked hard not to prematurely break them.
  6. I invested in some shares [this was an unprofitable investment though] thanks to the friendly relative sub-broker who was so sure about the scrips recommended by him. I am still an “investor” in those carrying on a burdensome 5% of its original value!
  7. In the last 7-8 years of my corporate life, I started contributing VPF – additional sums as Voluntary Contributions to PF
  8. I had a car loan and 2 home loans – with hard bargaining, I could get a car loan at Zero Interest over a one year period and that helped me save close to 20-22% of the on-road price.
  9. With my above habits and 2 home loan EMIs, I was now having the real pressure to ensure that I do not end up breaking any of my FDs.
  10. Any increase in pay due to revision or change of job was used to either create FDs for home loan EMIs or to part pre-pay the loan.
  11. Sometimes, MFs used to pay handsome dividends and after retaining some for consumption, I used whatever little was left to make ad-hoc loan payments.
  12. Whenever I made an out of turn loan payment, I opted to cut the duration of the loan and not the EMI amount
  13. In the last couple of years of my corporate life, thanks to good revisions in pay, I increased EMI amounts as well which further accelerated the cut in loan term – obviously, the lending banks did not like me as their disciplined customer!
  14. Before I went on my overseas job, I chose to withdraw PF balance and much to the surprise of all, I made a significant part payment of the loans. I am sure many would have wondered if I was in my senses as PF is usually seen as the last resort for a person to touch – to be encashed only when one is retired from the services.
  15. Using up PF for a loan made a happy dent in the loan duration but the end was still far away – but I was feeling a bit relieved.
  16. Out of my final settlement from my last job, I cleared all the home loan dues and began my journey as an Independent Consultant with no hanging commitments.

The above may sound like a well-written script but the journey through these was tough, challenging and at times tense. There are still many who wonder why I am not working with one of the airlines and encashing my experience and knowledge.

I tell them that I am now used to not listening to anyone but my boss in the mirror and he is a tough guy and would not release me.

Should every salaried person become an Entrepreneur?

I have, in the last few years, counseled many regarding several matters, including why one should ultimately work as self-employed – this in no way undermines those who are in service.

Due credit also goes to some of the airlines/entities in India and overseas with whom I was/am associated as they helped me reach the state of Independence. Only those who are born entrepreneurs with no financial burden can start as a self-employed.

People like me and possibly many of you have to toil hard before even thinking of being on our own. Carefully note that since I am on my own, my insurance [car, health, critical illness, travel, term plan, etc.], welfare, administration, travel, infrastructure, capital expenditure, communication and possibly a few more are all on to myself.

Life as self-employed is not rosy!

So, please do not think that life as a self-employed is rosy. I strongly believe in the adage – ”The grass is greener on the other side.”

We have to learn to look at things from a neutral perspective and learn to remain humble, utmost patient and irrevocable trust in God and in our abilities to do the right things.

When we are looking at our future, we need to keep several things in mind – it is not possible to write about all these now, but suffice to say that such decisions have to be thought through and situations 10-15 years from now should also be considered before concluding on a decision.

My story is nicely covered by this picture which reflects the dream, the then reality and the present:

I hope my journey and my way of doing things gives the readers some idea about how easy / difficult it is to be self-employed and also financially disciplined. Whether or not you end up being self-employed, please be financially disciplined as money is required by all and the times are going to be tougher as we move along the path of this beautiful life.

Stay Blessed and financially safe!

Warm regards,


Conclusion from Jagoinvestor

I think it was a fantastic life sharing and there were many lessons which can give you a great insight into decision making. It’s always a great thing to read someone else story, you get lots of inspiration and see how other people handled some situation. You get an idea of how things look like on the other side, you read about their struggles, achievements and eventually add the learning’s in your life.

I thank Mr. Umesh for this contribution and wish him the best of luck!

If you feel that you can also contribute to this blog (it can be an article, life sharing, valuable info), just get in touch with me using this form

I refused to pay service tax at this restaurant – Guess what happened next?

Yesterday I went to watch a movie late night at Amanora town center in Pune. I and my wife had our dinner at a small Italian restaurant and the food there was quite good.

When it was time to pay the bill, I went to the counter and paid the bill. When I got the bill in my hand, I realized that there is a problem. They had charged me a “service tax”. However, the main issue was that there was no service tax number mentioned on the bill.

illegal service tax charged

Charging Service Tax without Service tax number is Illegal

Yes, you heard it right.

The Bill copy did not have any service tax number mentioned on it, but the restaurant had put a service tax charge on the bill. This is Illegal and can’t be done. Hence I told the staff that I can’t pay that service tax unless they give me the service tax number.

The staff, as usual, was ignorant about this and told me that I should talk to “owner” and tried to give me his number. However I told them, it’s not what I will deal with and I will not leave unless they give me service tax number because they are illegally charging service tax.

Finally, after 5 minutes, the staff told me that the Owner is not reachable and they will give me a service tax number later. But I refused to budge and demanded them to pay me service tax amount back and not repeat this, as its illegal.

Finally, they had to refund me back and I took the money. Here is what another CA has to say about this on Quora

service tax rules

I realized that not more than 1 out of 1000 people know this rule, and this needs to be spread among people. Many restaurants are misusing the fact that now people know that service tax is an unavoidable tax and has to be paid, however many do not know the rules and conditions under which any business can charge it. Even Service charge is now an optional thing and you decline to pay it.

Note that many restaurants will tell you that they have applied for the service tax number and are awaiting it, but this is mostly a trick to fool you and to save themselves out of the situation and embarrassment. However even in that case, it’s not right, and you should demand to see the proof for that.

The service tax number is mandatory to charge Service Tax

As per service tax rules, service tax can be charged only if you applied and got your service tax number. This service tax number has to be written on the invoice copy. Without that, you cannot charge service tax from your customers.

In the case of restaurants, the service tax has to be charged only on 40% of the FOOD bill and beverages. So if you eat for Rs 1,000 (food + beverages), then only 6% on the total bill is to be charged, which will be Rs 1060.

Here is a sample of a correct bill that mentions the service tax number on the bill itself.

service tax mentioned on bill invoice copy

How to verify whether the service tax number is valid or fake?

Few people ask me, how to verify that the service tax number mentioned on the bill is not fake? Because the hotel guy can just randomly put some number, which looks like the service tax number.

The simple solution is to check the name of the person/company under whose name the service tax number is registered. It just take 1 min to verify that.

  • Step 1: Go to this link
  • Step 2: Enter the 15 digit Service tax code (also called Assessee code)
  • Step 3: Enter the captcha

Once you do this, the page will show you the

How to check if the service tax number of the bill is real or not?

Non Bailable Offence under sec 89 of service tax

If service tax is charged without a service tax number, then how will it be paid to the government? Because you need the service tax number to pay the tax to govt. Sec 89 of finance Act tells that incase an offense is done like this, then the person can be jailed for up to 1 yrs (and up to 2-3 yrs in case the amount involved is above Rs 50 lacs).

Below is a snapshot is taken from Taxguru website which writes about tax-related topics.

illegal service tax rules

Do you need to pay a service tax if you don’t sit in AC?

This is very interesting.

One of the biggest questions people raise is that if a restaurant has AC in one part, but not in other parts and if you are seating in a non-AC section and dined, still do you have to pay the service tax?

Or imagine is AC was not working at that time, even then will you be charged the service tax?

The answer to that is YES.

Sorry, but the service tax rules clearly state that. The service tax rules simply say that if the establishment (the hotel or restaurant) has the facility of air conditioning or central air-heating in any part of the establishment, then they have to charge the service tax in their bill.

It does not matter if you got the benefit of the AC at the time of eating. All that matters is that they have AC anywhere on the premises.

This itself is enough for a restaurant to charge the service tax. However, if an establishment is divided into two parts with the two different names and entities, then the non-ac part can’t charge the service tax (where the service was given), even if the food was prepared in the AC part. Here are the exact wordings from the service tax notification on this issue

Can restaurant charge service tax even if customer does not enjoy the AC

3 things to remember when you visit a restaurant next time

When you visit the restaurant next time, make sure you keep in mind the following 3 points.

  • Check if service tax number is mentioned on the bill or not, if they are charging service tax on the bill
  • Make sure the service tax is charged @6% on the food + non-alcoholic bill and 15% on the alcoholic charges
  • Make sure there is AC in the restaurant if you are charged service tax.

Spread this Information

There are thousands of restaurants that might be charging service tax illegally without having a service tax number and millions of customers on a daily basis are paying that as they are not aware of the exact rule. This is practiced by many restaurants, small hotels, and many other businesses.

So spread and share this article as much as you can so that more and more people can know about this. Also, share your experience with this.