COMMON FINANCIAL MISTAKES BY DOCTORS

Why Doctors Need Financial Doctors Too?

Most of us trust our family physicians to guide us on matters of health. They understand our unique anatomy, medical history, and lifestyle better than anyone. But when it comes to money matters, many doctors often struggle. Ironically, while they save lives every day, they risk their financial well-being by not seeking professional help.

It’s time doctors turned to wealth doctors, modern-day financial planners who understand how to preserve and grow wealth in a structured, tax-efficient manner.

1. Making the Best of Presumptive Taxation (PTS)

In the early years of medical practice, doctors often operate as individuals or sole proprietors. If your annual gross receipts are under Rs. 50 lakhs, the Presumptive Taxation Scheme (PTS) under Section 44ADA can be a game-changer.

• Under PTS, 50% of your gross receipts are treated as profits, and taxed accordingly.
• No need to maintain books of accounts.
• No advance tax liability.
• No need for a tax audit.

But should every doctor opt for PTS? Not always. Let’s examine:

How this affects taxation:

• In Situation A, PTS assumes income of Rs. 22.5 lakhs. Actual net income is Rs. 30 lakhs, meaning PTS saves Rs. 2.25 lakhs in tax.
• In Situation B, actual income after depreciation is just Rs. 10 lakhs. PTS would tax Rs. 22.5 lakhs, so maintaining books and claiming depreciation saves Rs. 3.75 lakhs.

Doctors investing in equipment with high depreciation (like ultrasound machines or laser setups) should seriously consider filing regular returns with audits instead of opting for PTS.

2. The Real IRR on Medical Equipment

A key concept doctors must grasp is Internal Rate of Return (IRR), the effective yield on their investments. Say you buy equipment worth Rs. 10 lakh and recover 40%, 40%, 60%, 60%, and 60% over 5 years. The IRR appears to be 38.7%.

But this is misleading without factoring:

• Maintenance & AMC costs
• Spare/replacement parts
• Operating staff & utilities
• Opportunity cost of capital (interest/leasing)

After adjustments, real IRR could fall to 14–16%, which is still decent but must be weighed against alternative investment options.

3. Covering Your Own Medical Risks

Doctors understand risk better than most, yet many remain underinsured. Here’s a checklist:

• Health Insurance: Opt for family floater policies with at least Rs. 25–30 lakh cover to combat medical inflation.
• Life Cover: If your family needs Rs2 lakh/month, you need Rs. 5 crore in term life insurance to sustain that lifestyle with low-risk returns.
• Professional Indemnity: Vital in today’s litigious environment, ensure your policy covers up to Rs. 1 crore or more depending on your specialization.

4. Start with a Financial Plan

Medical careers have a late income curve, but long, stable earning periods. A solid financial plan aligns your personal and professional milestones with suitable investments. Here's why it works:

• Mutual funds offer flexibility, diversification, and professional management.
• They help you allocate assets across equity, debt, and hybrid options based on your risk appetite.
• You get the benefit of Systematic Investment Planning (SIP) and goal-based investing.

5. Avoid the 'Get-Rich-Quick' Trap

Doctors today are dabbling in cryptos, futures, options, commodities, and even currency derivatives. These aren't wealth-creating assets, they're high-risk contracts. Losses can wipe out capital quickly.

Instead, focus on:

• Equity mutual funds for long-term wealth creation.
• Debt funds for capital protection and income stability.
• Real estate or REITs for diversification, only when feasible.

Remember: 12–13% CAGR from equities over a long term is realistic. Expecting 20%+ is not.

Final Word

Doctors give health to others, it’s time to take care of their financial health too. The best treatment? A disciplined, well-planned approach with the right financial advisor.

Start with a plan. Stick to the basics. Trust the process.