Hello FinOak fam! Happy April fool’s day to all of you, but don’t worry this newsletter has only legit information and not jokes 😉. Scroll down to know more about government’s move to remove tax benefits on debt mutual fund and Hindenburg’s latest report highlights on Jack Dorsey’s (ex-CEO, Twitter) company Block. Learn about the tradeoff of whether paying off education loan is beneficial or investing the extra cash can yield better results. Lastly, read on the story of Shrusti Singh, final year student of Hansraj College, where she shares her experiences full of learnings.

Column 1

Weekly Wrap Up

 Knock Kock- It’s Raining Taxes!

Welcome to the world of high taxes!

Taxes are about as exciting as watching paint dry

The world is sitting on its highest ever levels of debt.

And, the government needs money.

The recent withdrawal of indexation benefits on Debt Mutual Fund was one such move. The Lok Sabha has really shaken things up in the corporate bond market by removing tax benefits for debt mutual fund investors.

Simply put, The Finance Bill 2023 has been amended to remove the long-term capital gain tax benefits for investors in debt mutual funds. This puts the tax on mutual fund units on par with that on bank fixed deposits, making it less attractive to investors. For example, previously, if debt mutual fund units were sold after three years, the long-term capital gains tax was 20%. But now, the tax could be as high as 30% based on the investor's tax bracket.

Earlier, if you held a debt MF for over three years, it was taxed at 20% with indexation benefits. This came out to be somewhere around 12-15%.

Indexation means if you earned a 9% return and inflation was 7% in the three years, you would only have to pay tax on 2% (9%-7%).

Cherry on the cake?

Any income from mutual funds in which less than 35% of holding is in Indian equities (Broadly Debt Mutual funds), if investment is done after 1 April 2023, will be classified as Short term capital asset irrespective of Period of Holding.

The Impact ?

• Demand for Debt funds will fall for retail investors

• Bank Deposits are going to become an attractive option. Meaning that banks could potentially get away with paying out lesser interests on deposits too!

• Since the gains would be added to your salary, you could end up moving up a tax bracket and suddenly see an outflow from your income, towards taxes.

What about my existing investments?

The new rules apply only to fresh investments made on or after April 1, 2023 which means prior taxation rules stay on existing investments

Alternatives you may consider?

1. Listed bonds: Taxed at 10% (without benefit of indexation) after 1 year holding period.

2. Unlisted bonds and debentures: For holding period above 36 months, taxed at 20% (without benefit of indexation).

3.  Equity Savings Schemes: Tax treatment is favourable (15% before 1 year and 10% after 1 year of holding).

4. Commercial real estate using fractional investments: Although there is no direct taxation benefit for high tax bracket individuals, but the rental yield is usually higher in the range of 7 to 10%. Over and above this, capital appreciation may be in the range of 1% to 5% per annum.

Debt is one good asset class especially for long term investments. If you remove 'long term' factor from debt funds, you are essentially making us eat a laddoo without sugar!

So there you have it, our exciting discussion on taxes and their impact on the corporate bond market.

The return of the short seller : The Hindenburg-Block-CashApp saga explained

Hey Fam! Is it just us or are you also excited for the Prateek Kuhad Concert today too!

If you haven’t heard any of their songs before or if you simply want to vibe with us while we read the Newsletter today; tap here!

While we jam to this masterpiece, we’ll help you make this a more productive day for you by discussing the Hindenburg and Block CashApp saga.

And yes, we timed the article to fit the song!

Background of both the firms

Hindenburg is an activist short-selling firm founded by Nathan Anderson in 2017. Takes short positions in companies and then releases reports with evidence of corporate misgovernance and financial malfeasance in them. Recently targeted Adani Group, allegations led to $100 billion drop in market values.

On the other hand, Block, (Earlier named Square inc.; Square was just an online payments app) a firm Founded by Twitter co-founder Jack Dorsey and Jim McKelvey in 2009. Block is a conglomerate that now includes -

1. Payments firm CashApp (which was the main target of report)

2. Buy-now-pay-later platform Afterpay,

3. Web hosting service Weebly and

4. Subscription based music streaming platform Tidal

What is CashApp

Launched as 'Square Cash' in 2013 as a direct competitor to PayPal's Venmo. Used for both personal and individual transactions and also for Bitcoin and stock trading. Mired in controversy, with customers alleging negligible buyer protection and customer support impersonification.

Allegations made

Hindenburg’s Report was released on 23rd March. It was based off of a 2-year long investigation which stated, that 'dozens of interviews with former employees, partners, and industry experts', including the reviews by regulatory and litigation records has accused Block of :-

1. Greatly inflating CashApp’s genuine user counts and underplaying its customer acquisition costs (CAC) in a bid to fool its investors. Former employees alleged that as much as 75% of accounts were fake, involved in fraud or were duplicate accounts of a single individual

2. CashApp did not ban users that were caught engaging in financial frauds and other prohibited activities. In fact, the use of CashApp was so common in illegal transactions that several rapper-gangsters actually released songs titled ‘CashApp’ describing how CashApp helped them facilitate illegal activities ranging from drug trafficking to prostitution.

3. Permitted making of fake accounts for high-profile individuals like Elon Musk and Donald Trump that could be used by scammers for nefarious purposes.

4. Accused Jack Dorsey and other top-level Block executives of dumping their shares during the company's bull run in the pandemic so as to make bumper profits.

5. Revealed that CashApp did not pay nearly $892 million in ‘intercharge fees’ to the SEC (this amount is nearly 35% of CashApp’s revenue).

Effects of the report

The release of this report led to falling of Block market shares by 22% the next day, which eventually led to it being closed out at 15% lower. There was an observable $526 million decline in the personal fortune of co-founder Jack Dorsey (fall of 11% in his net worth), who has most of his personal fortune tied up in Block.

Block’s response

In response to such extreme effects, Block had to publicly refute the report by claiming that they were working with the SEC to explore possible legal action against Hindenburg for publishing a 'factually inaccurate and misleading report'.

Lastly, to reassure investors, it stressed on the fact that Block was a public company with regular disclosures, and said that it had satisfactory compliance programs and controls.

Column 2

Personal Finance

Should You Pay Off Your Education Loan or Invest Extra Cash?

Hey Folks, Happy April Fools day to you!

No, we at FinOak won’t be playing an April Fool’s Day prank on you, virtually. Instead we’ll put our resources into understanding most of the student’s dilemma of “whether one should pay off their education loan or invest the extra cash”.

As young adults, we are often faced with the dilemma of whether to pay off our loans or invest our extra cash. This is especially true for those who have taken out an education loan to finance their higher studies. While paying off the loan seems like the responsible thing to do, investing the extra cash could also lead to potential financial gains in the future.

Here are some key points to consider when deciding whether to pay off your education loan or invest your extra cash:

• Interest rates: Compare the interest rate on your education loan with the potential returns on your investments. If the interest rate on your loan is lower than the potential returns, it might be better to invest the extra cash.

• Financial goals: Consider your short-term and long-term financial goals. If you have long-term financial goals, such as saving for retirement, investing the extra cash might be more beneficial. If you have short-term financial goals, such as saving for a down payment on a house, paying off the loan first might be better.

• Financial situation: Take into account your financial situation, such as your job stability and income. If you have a stable job and a steady income, investing the extra cash might be easier. If you have an unstable job or an irregular income, paying off the loan first could provide you with financial security.

• Debt burden: Having a lower debt burden could improve your credit score and increase your chances of getting approved for a home loan. If you have short-term financial goals like this, it might be better to pay off the loan first.

Ultimately, the decision to pay off your education loan or invest your extra cash depends on a variety of factors and should be made based on your specific financial goals and situation. Weighing the pros and cons of both options and seeking professional advice can help you make an informed decision that aligns with your financial goals.

Column 3

Featuring Future Leaders: Shrusti Singh

Hi everyone, I am Shrusti Singh, a third-year student pursuing BA Economics at Hansraj College. I am the Chairperson of the IFSA Network India. I love to participate in case competitions, read, and bake.

Internships-

The key factor you should take into consideration while looking for an internship, given that you are all first year students, is to be open to all kinds of roles in the very first year. I tried my hand at different things during my college years through societies. I figured out what things are meant for me and what kinds of tools are not suited well for me. So, through college societies, I discovered my passion. And that's when I figured out that I might want to pursue an internship in this specific sector. Just try to do the things that you want to do and do not definitely chase brand names. Just try to find quality. That's what I also did. I spend a lot of time researching about companies that offer great quality work. I reached out to a lot of people on LinkedIn, who had worked there before even applying to the company, just to gauge the kind of work that they allowed their interns because if you start off with a company that adds no value to you even if it's a great name somewhere or the other. At the end of the day, you've learned nothing from that company. Even though it's a brand name. Do a lot of background research. Make the best decision because at the end of the day, it's you who has to work and has to take everything up.

LinkedIn is a great platform for that. You can reach out to people who have worked there in the past. Don't just do an internship for the sake of doing it; choose them otherwise. People say that you're supposed to do at least three internships, but I'm sure I'll do however many internships I want to do, as long as I'm happy with them and as long as they add value to me.

My internship experiences-

My first internship was with Nikore Associates. I was truly interested in research and topics around women's empowerment and women's rights. I worked on a research article with Ms. Mitali on gender-responsive budgeting and published it on SheThePeople. My project revolved around women's empowerment, gender mainstreaming, and public policy. So it was a fun experience for the next three months to work on the budget analysis, rural infrastructure etc.

After that, I did an internship in Sattva Consulting, which is one of India's first data-based research journalism initiative. It is a social impact consulting firm, and I liked the working culture of the team. I had to work on women's empowerment and rural areas, mostly land entitlement and ownership, and reducing tragedies like farm drudgery for women, etc. So, that's how I discovered my passion for this specific field. But I knew somewhere in the very beginning that I would do great in research and consulting in the social sphere. They have a great work ethic and offer a great deal of importance to their interns as well.

College Societies-

I believe that college societies are a great platform to identify your interests. Often, students tend to join many societies in their first year, whatever fits your interest well, and choosing societies that offer a relatively steeper learning curve and progression within the society itself. Moreover, the work culture of which societies will improve as they move up the ladder in the upcoming years. Ask your seniors about the kind of work that they're doing. Stay in that society for a year and then gradually progress to a better role, which has a lot of quality work and a lot of responsibilities that actually help you professionally as well. You should make sure at the end of the day that you're learning something by investing your time and hard work in the society. However, different colleges or different universities have different kinds of society and culture. So the culture that you might find at DU might not be the same as Mumbai University. So my experiences might be a little biased towards societies and many people might not be able to relate to it.

My experience: College societies -

I was a part of four or five societies initially, but over the course of the next one month, I left two or three of them, and stayed with two of them.

So one was IFSA and the other one was FERC, which is more of an ECA society. So the full form of FERC is Financial and Economics Research Society. So we used to sit for discussions and read all sorts of academic papers in different academic journals on finance and economics, we used to discuss those and work on our own materials as well. So it was more like a value addition rather than society structure. I started with those two for the next two years. And right now I am only associated with IFSA.

My journey at IFSA -

It has been a thrilling ride for me. When we joined the core team, it had only been a year that the seniors at Hansraj started IFSA during the lockdown, but they were really interesting and intellectual group and I'm very glad that we had them . We try to carry on with what they initiated. We have a lot more to offer to our juniors because of them. So when I started out as a junior analyst, there were a lot of things that we were learning.. These people encouraged us to read more. Keep learning and learning new things and trying to figure it out with other people how this works. We had a lot of discussions on current issues, budget, etc

Reading is a master. One thing that I've realised is that never stop reading.They inculcated this habit in us deeply. It's deeply ingrained even now. After a year, I was the director of economics and statistics, before being the Chair. So I was a part of the core team, in which there were five of us. We took a lot of initiatives to keep up with the environment, encouraging people to read more, to participate in case competitions more. We tried to inculcate the same in our juniors as well, when they came along.

So the second year was filled with interesting responsibilities with juniors coming on board. We had to make them feel welcome. But also, maintaining the status of the society, given that things were now offline was a challenging but a very interesting task, and I think we succeeded at it, given that we have a wonderful batch of junior full of same rigour and enthusiasm. We passed on the baton to our juniors, and post that I got elected as the chairperson of India. Post that I got elected as the chairperson of India. So I currently represent the Indian nation at IFSA. And I'm also part of the five member global board, representing India, Europe, Latin America and the President and Vice President of the whole network. I'm a part of that board as the chairperson of India. And, it has been a great ride. There are a lot of things that you're not aware of when you're a part of individual chapter. Global response, global communication network building is something that focuses on bringing together people from all over the world into a network and making sure that everyone is utilizing that network to its best, because after all, it's a community of students interested in finance and economics. So it has been a thrilling ride and it still is.

Case study competitions -

I learned in my first year the importance of putting learnings to real test, and that's how case competitions work. Even though case competitions might sometimes feel that they're not real, but they do offer you a great deal of things- you learn how to research, how to figure things out, problem solving, presentation, how you put things out, how you explain things to people and so on.

As far as I and our society is concerned, what we recommend is that you start off small, you participate in competitions organised by different colleges, and unstop is a great platform. We started off by participating in case competitions through unstop. So, there are a lot of case competitions that are organised by different institutions.

There are mergers and acquisition case competitions, public policy case competitions. So once you have your team, you can give a shot to all these different kinds of case competitions. And once you have sorted out your interests, just keep participating in those. You can level up and participate in national level case competitions organized by the World Bank and gradually, you can upgrade to international case competitions.

There are different business case competitions and internationally like the Harvard Global Case Competition, which is, I think is one of the world's biggest business case competitions.

It requires a lot of focus. Time management and good research skills are a must.

Global Case Competition at Harvard - Top 10

We had participated in a lot of case competitions, where we failed eventually, in the very first year. But that's how we learned and we're still learning. The global top 10 is not our last stop. We always aim to win. So that's what we're focusing on right now.

When we participated in GCC last year, we did not think that we would even make it to the top and it was a second trial run first, so that we can perform better in our final year. But anyhow, we put in all that we had, last year, and we somehow made it to the top 10. And like we're hoping to perform better right now. And giving it our best again. So, never say never.

Reading for self development -

Personally, I strongly believe in reading and continuous learning. I can't emphasise the importance of it enough. All in all, it's a constant. There are so many things that I don't know, so I keep reading and keep learning through my experiences. It's important to learn how to present yourself, how to put your feelings into words, and how to do it professionally because you're dealing with a whole network of people coming from all over the world. And these are skills that you learn through responsibilities. There are a lot of things that I'm still learning and trying to figure out. Most of my book recommendations have come from my sister. Try to find good books and good podcasts that keep you updated on important issues.

I read books on public policy, economics, rural economics, development, economics, history, and geography. However, Ruskin Bond's books are among my favorites.

Research and publications-

Avid interest in the personal objective behind the issues I have written about was the reason that propelled me to research on these issues.. I'm really concerned about women empowerment and the status of women in the economy and society. So, most of my articles are around these topics. Research is a very rigorous process in itself. There are a lot of specifications to it .

You should have an objective for what you're trying to achieve. Randomly going on Google without any end goal or aim will just waste your time. So because once you click on any link, you have 10 other hyperlinks, and then it's an endless loop of having 10 tabs open and not reading any of them. So, again, the first thing is to have your end goal written down in big letters in front of you. Put it on your laptop, what you're trying to achieve, and then achieve what you're trying to.

Research and learn how to identify good sources. If you're writing an opinionated piece, your opinion matters. There are different types of articles that are open, and there are publications where there is completely no room for bias. So you have to look at things objectively, present both the positives and negatives of them, and then come to a conclusion.

Not as easy as people think. But you learn over time. And once you've gone through a lot of edits, through helpful constructive criticism, it all ends up well for you, and you end up learning a lot.

Researching is one of my major rules in any case competitions - Researching the background of companies, what potential acquisitions can be made, what potential plans can be, what potential policies might work, given the background, and given the demographics, and how in the past things and policies have not worked out for people, why have they not worked out and bringing all those together into one final outcome.

Once you've figured out your passion, your interest and your topic, go on the internet and try to find past publications on Google Scholar and past research papers that are based on similar topics. Figure out if you are adding any value to the already existing researches or bringing something new. If you're offering something similar to them in a new fancy packaging, then that doesn't make sense because a similar thing exists already out there.

Future plans:

My first priority is getting a master's after college. This should not be the end of it because I want to study more. I think I will master the basics first, and then I will figure out more things as time passes.

Key advices to first years:

• You have a lot of energy right now and are intellectually capable to absorb things at its peak right now. So why not just make the best use out of it? Figure out your life right now. And then once you've done it you can have a lot of fields ahead of you where you're in a good professional capacity to make your own decision.

• Don't take decisions based on what others are doing. People want to do a particular course for the specialization and the unique aspect of it, but then there are 100 people doing it for the same reasons. It's not as unique and specialized anymore.

• Keep an open mind, keep exploring, keep finding new things, because if you're just stuck on one thing then you have restricted your universe to it. Be as creative and as curious as you can try your hand at different things at the very first.

• Don't just chase or let peer pressure burden you into doing things. Your choices matter. Because ultimately, it's you who's making the decisions. At the end of the day, choose your friends carefully in the first year, because they will help you throughout three years. Don't limit your friends to one group.

• Once you figured out your interest, your universe is a bit smaller than what it was.

• Good connections with seniors is a must because they will guide you. I personally have had a lot of super seniors and my sister in a professional capacity guiding me throughout my college years as well. So, make good connections with seniors because they definitely know more than you do at this point of time and can help you navigate easy and may tell you the rights and wrongs of things and what to do and what not to.

if you wish to learn more about my journey, feel free to reach out to me on LinkedIn, happy to help! All the best for your college life and beyond :)

This will be all for this week, see you next week :)

Team FinOak