Planning For It!

The recent policy rate cut by RBI rejuvenated the slowing down of economic activities after series of global financial recession. The policy rate has been slashed by 50 basis points during recently concluded economic policy revision by RBI. Banks and financial institutions have started cutting down the base rates which are linked to the loan and deposit interest rates. After the rate reduction, IDBI bank has already reduced the base rate by 25 basis points. For banks and other financial institutions the rate cut would make less impact on the margins, since an interest rate would be revised for deposit and lending both the products. Most of the Banks have already cut down their interest rates on Deposits but still some other options are there in the market which may provide better returns.

The investors have to make a right balance in his portfolio. The portfolio should be so designed that the effect of interest rate downtrend and economic volatility remains minimum. With fall in bank’s interest rate, other financial products are expected to follow the trend and come up with a rate correction in coming days. In such situation, investors have to look after safe harbor to invest the fund. Let us see some of the attractive investment options available in the current market for retail investors:

Public Provident Fund (PPF)

The Government has elevated the interest rate on PPF to 8.8% recently. The change in an interest rate of PPF is not very common. Government keeps an eye on the rates and makes alterations only on the heavy changes in rates by the RBI. This stable nature of the fund makes it popular among the common investors. So, this is one of the good options to invest in.

National Saving Certificates (NSC)

The recent changes in Post Office Savings Scheme have been very attractive for investors. NSC is a scheme for investors of medium term say 5 to 10 years. The change in interest has also been made in NSC, i.e. 8.6 % for five years and 8.9% for Ten years. This is another good option for investors in current economic scenario.

Investment in Bonds through Mutual Funds

The normal investor, who doesn’t have so much knowledge of the market and its products, wants simplified investment plans. Investment in Bonds is not an easy job to handle as the price of bond is negatively correlated to the interest rate. When an interest rate is hiked, the price of Bond falls and vice versa. So the investor cannot track such a process every time. The best option to invest in bonds is through Mutual fund. Investing through Mutual Fund ensures risk handling and better return. So this is a good option to invest.

Real Estate

It is the hottest investment area these days. When the interest rate falls, the Real Estate Developers and Builders gets relief as they can get the fund at cheaper cost. The construction works gets faster, and the property is sold quickly as the purchaser also gets Bank Loans at lower rates. So, the rate cut generates liquidity in the market which in turn creates an option for the investors to invest their fund and get better return.

Bullion Market and Exchange Traded Fund (ETF)

This has shown tremendous growth continuously from many years. The volume of trade in bullion market has grown by many folds in last few years. If the investment is done with proper care and planning, the returns can be very higher. Though risk associated with it is low but proper care is always required for timing the investment and to earn higher return. Investment in bullions can be made by Demat (e.g. NSEL) also and profit can be booked time to time during volatile movements.

The Government is removing a subsidy from petroleum products which in turn will bring up the inflation rate. In such situation, the best commodity to invest in is Gold. Investment in Gold can be done by physical purchase, ETF, or Commodity market. Whatever may be the mode of purchase, Gold provides proper hedge against growing inflation and becomes good opportunity for investment. With the falling interest rate, the prices of Gold ensure better security to the invested funds.

Investor should select investment plans as per his choice. The return is always associated with risk and the investor himself is the best judge to decide what his preferences are, risk bearing capacity and time period for investment. Taking all this points into consideration, he can opt for the best investment plan.

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent 8 years in Equity research and Stock broking sector. He can be reached at amvifinance@gmail.com

Fixed Income Calculator

As recently as March, LIC launched a new insurance policy- Jeevan Vriddhi. A traditional non participating limited period policy, Jeevan Vriddhi offers guaranteed returns to investors, apart from a basic sum assured. Termed as the “Fixed deposit of life insurance”, Jeevan Vriddhi is a combination of protection and guaranteed returns. So does Jeevan Vriddhi actually give investors the features and returns of a fixed deposit? Here is a quick comparison of LIC Jeevan Vriddhi, and the option of a fixed deposit plus term plan. The combination of a fixed deposit and term plan would together offer protection and guaranteed returns, similar to Jeevan Vriddhi.

Comparative Analysis

· Term of Investment

Jeevan Vriddhi:

Jeevan Vriddhi comes with a fixed term of 10 years. The life cover is applicable only during this policy term. The guaranteed returns plus loyalty additions if any would be payable on maturity of the policy. Thus Jeevan Vriddhi is most suitable for investors with a short term horizon.

FD plus Term Cover:

Though most banks specify a maximum tenure of 10 years on fixed deposits, on maturity such deposits could be renewed for a further period. Term Insurance policies could be opted for a much longer period of say even 20 years. A combination thus works out most appropriate for investors looking long term.

· The Tax Angle

First and foremost what one must remember is that, insurance is not solely for tax saving. The deductions that can be availed are only an added advantage over and above the protection it offers.

Jeevan Vriddhi:

Tax benefits are available under Section 10D and Section 80C, i.e. the premiums as well as the maturity benefits are exempted from tax.

FD plus Term Cover:

Term plans offer a tax deduction under section 80C. Fixed deposits on the other hand, do not offer any tax benefit and the maturity proceeds too, come under the tax purview. And, there are easy ways to avoid the TDS on Fixed Deposits.

· Premature Withdrawal

Jeevan Vridhi:

The policy can be surrendered for cash after the policy has run for at least one year. The minimum Guaranteed Surrender Value allowable is equal to 90% of the single premium paid excluding extra premium, if any.

Fixed deposit:

100% of deposit amount is allowable for premature withdrawal. However for higher amounts, a penalty of up to 1% on the interest rate is chargeable. Term plans do not have a liquidity option.

· Risk cover

Jeevan Vriddhi:

The policy offers a risk cover equal to five times of premium paid. This may not be adequate for investors seeking a higher cover.

FD versus Term Plan:

Though fixed deposits do not come with any option of a risk cover, when an investment is coupled with a term plan, the protection needs could be taken care of. A term plan could offer much more protection when compared to Jeevan Vriddhi.

· Return on investment and maturity benefits

Let us look at both the options with the help of an example.

Jeevan Vriddhi:

Consider an investment amount of Rs.1, 00,000 at an entry age of 35 years. This amount when invested as a single premium in Jeevan Vriddhi would give a sum assure of Rs.5, 00,000 (5 times single premium) in case of any untimely death.

The Guaranteed Maturity Value varies for each entry age and has already been clearly specified by LIC. For a 35 year old policy holder, the Guaranteed Maturity value would be Rs.1,97,100 (at projected rate of interest of 6%) or, Rs. 2,21,651 (at projected rate of interest of 10%), plus Loyalty Addition if any.

Investment Rate of Return that LIC will be able to earn throughout the term of the policy will be 6% p.a. or 10% p.a., as the case may be. This Projected Investment Rate of Return is not guaranteed. If you do not consider tax benefit the effective yield for Jeevan Vriddhi works out to be between 4% - 7%. This return depends on the age at the time of investment as the guaranteed benefits falls down sharply after age of 35 – 36 years.

FD plus Term Plan:

Let us again consider Rs.1, 00,000 to be invested in an FD and a term plan. For a 5 lakh life cover, the annual premium would work out to be Rs.1, 127, in LIC’s Anmol Jeevan Term Plan. Therefore the 10 year premium works out to be Rs.11270. The balance amount (Rs.1, 00,000-12,820) of Rs. 88,730 Is invested in a fixed deposit of interest 9.25% p.a. for 10 years.

The pre-tax returns in this case work out as Rs. 2, 21,421 and post tax is Rs.1, 80,419. The return on investment would be around 7.5%. It is thus seen that the returns offered by Jeevan Vriddhi is only marginally higher.

· Incentives for higher incentives

Jeevan Vriddhi:

An additional 1.25% increase in Guaranteed Returns is available for premiums between Rs 50000.00 to Rs 99000. For premium above Rs 100000.00, there is a 3% increase in Guaranteed Maturity Sum Assured.

FD plus Term Plan:

Most term insurance policies don’t provide incentive for higher premiums. Fixed deposits over and above 5 Lakhs are given a preferential rate of interest.

Fixed Income Calculator

Why to Get Insured?

Everyone plans for his future and wishes to shield it from monetary risks. With the stride of time, monetary pressure may arise in form of children’s higher education, their marriage, business, career, etc.  To cover all this, there are several financial products available in the market but the finest product to secure future against any kind of uncertainties is Insurance. Insurance is a product which grants security against miss happenings like unexpected death, accidental and theft security to vehicles, loss or harm to property and belongings, etc. Choice of right insurance product may secure one from the losses from any possible uncertainties that may take place in the future.

Is all Insurance Necessary?

Today’s world is of cut through competition where every company is coming up with various plans nearly customized to fulfill the needs of particular segment of clients. They are providing insurance plans to cover almost every risk associated from life to belongings. Some of the plans available in the market are related to Critical illness cover, Insurance-related hacking of websites/cyber crime, Kidnapping and ransom Insurance, Travel insurance to cover risks associated with travelling, any particular organ or part of the body, Jewelry and ornaments and costly items and flood and earthquake insurance. After going through such classes of available covers, one has to think what he needs in reality. Are all the products necessary for him? The answer is No; every product is not meant for everyone.

2)    Disease specific Insurance: Almost all the good traditional health plan covers major diseases. They also cover accidental treatment expenses and critical illness. Some of the disease or pre existing disease is not covered by them. Particular Disease Policy covers diseases, which are normally not covered by traditional health plans. However, paying extra to cover that disease for which one can pay from his pockets easily is not worth. One should analyze properly before taking such policies.

3)    Flood & Earthquake Insurance: Flood and Earthquake Insurance are designed to covers the risks associated with natural calamities. In the event of flood or earthquake, there may be a heavy loss to the property and belongings. So, this insurance covers to pay for such losses. However, earthquake and flood don't occur everywhere. There are some particular areas in the country which is affected by flood and Earthquake. So, this insurance policy should not be taken by those who live in areas other than that mentioned above.

4)    Travel Insurance: Travel insurances are meant to cover the losses associated to travel. This covers the losses arising during travelling like accidental treatment expenses, loss of baggage, loss due to delayed timings, loss to any part of the body in accident etc. But all these expenses are covered somewhere in one’s health plan, wealth insurance and life insurance. Further, if the accident happens during travel, the expenses of treatment are paid by Railway/Airlines as the case may be. So, taking travel insurance is not worth and the same should be avoided.

5)    Money Card Insurance: Credit or debit Card Insurance secures the chances of loss that may arise due to loss or theft of such card. In the case of loss, the card may be misused and false purchases may be made. However, all the good Debit/Credit Card issuing Companies and Banks nowadays provides proper security for the same, and they also covers such losses. So, there is no need to take separate insurance for this.

What to do finally?

The business of Insurance is growing by tremendous speed in the world of Globalization. The old time is out when there were only few insurance products available in the market like Life Insurance, Property Insurance and Vehicle Insurance at most. Now there are so many products available, which may fulfill everyone’s requirement. However, one should properly analyze his needs and conditions before he plans to purchase any policy. There are many unnecessary products available in the market, you need to focus on only such products, which suit to your requirement and there’s no need to think anything outside it.

About the author:

Amit sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent 8 years in Equity research and Stock broking sector. He can be reached at amvilube@gmail.com

Insurance Calculator

Fixed deposits (FD) are one of the most-favored investment instruments in India. FD can be defined as a financial investment where money is invested for a fixed tenure at a pre-agreed interest rate.

There are many varieties of FD schemes available in the market, and an investor can opt one depending on its need and suitability.

Following are some important FD schemes: 

• Regular FD Schemes: In this FD scheme, the tenure is fixed for a period ranging 1 week to 10 years. The interest rate of each period is pre determined, and an investor can choose FD for a suitable period.
• Tax Saving FD:  This scheme attracts such investors who want to invest for saving income tax. There is a compulsory lock-in of five years under this scheme, and fund cannot be withdrawn before completion of this period.
• Special FD Scheme: Special tenure FD schemes are available in the market where the fund can be invested for a special period like 333,399 or 555 days, and rate of interest is higher for such schemes.
• RD: Recurring deposit (RD) scheme is another popular investment option available to the investors. Under this scheme, investors can regularly deposit a fixed amount every month for a FD of fixed tenure and at a pre decided interest rate. The corpus keeps on growing every month up to the maturity period.
• Floating FD: Under this scheme, an investor can opt for a market-based interest rate. The rate of interest is renewed automatically with the change in the base rate.
  

Other important points before Opting FD

• Interest Calculation: It varies in the market, and monthly, quarterly, half-yearly and yearly interest calculation are available under different conditions.
• Interest Payout: An investor has the option to reinvest interest and increase the FD corpus or to receive the regular payout every month.
• Penalty: Some institutions penalize for breaking the FD before maturity by lowering the interest rates. Investor can search for such banks/institution that has the lowest penalty for pre maturity liquidation of FD.
  

Tax Deduction on FD Interest

The interest earned under the FD is taxable under the head “Income from other Sources." The amount invested under 80C of the income tax act, is exempt but the interest earned under such investment are taxable. If the interest earned under FD exceeds Rs 10000 in a financial year, then it would be eligible for tax deduction at source (TDS) at 10% plus 3% education cess i.e total 10.3% of the interest earned.  For example, if an investor has earned Rs 20000 as an interest in one year, then the bank would deduct Rs 2000 and pay only Rs 18000 as the amount exceeds the limitation of Rs 10000.

The TDS limits for companies deposit schemes are Rs 5000 only. It means if the interest earned from a company deposit exceeds Rs 5000, then the investors are liable for a TDS on interest.

How to Save TDS on FD?

An investor can save TDS by many ways. Following are some vital points to save TDS on FD: 

• By Submitting Form 15G/15H: If the investor submits Form 15G stating that he has no taxable income, then the bank would not deduct any TDS from the interest earned. For senior citizens, the requisite form is 15H to avoid TDS.
• Distributing FD investment: Another way to avoid the TDS is by splitting the FD to separate banks in such a way that interest earned from any of the FD does not exceed the Rs 10000 limits.
• Timing the FD: The TDS can also be saved by timing the FD in such a way that interest for any of the financial years does not exceed Rs 10000. For example, a 12-month FD of Rs 1 Lac @ 10.5% could be started in September as the financial year closes on 31st March so the interest would split in two financial years, and hence TDS could be avoided.
• Splitting FD another way:  A person can start FD under personal bank account and another FD under HUF account, and then both can be treated separate. So an investor with HUF identity can split FD under such two heads.

Fixed deposit is an all-time favorite financial investment instrument. It provides a handsome return as well as liquidity at the time of need to an investor. Looking at the volatility, high associated risk and less assured return by other financial instruments, the attractiveness of FD is set to grow in the future.

About the author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent 8 years in Equity research and Stock broking sector. He can be reached at amvilube@gmail.com

Income Tax Calculator

Credit card provides you with the facility of cash withdrawal but it is quite costly in terms of the interest expense. Let’s say you have an emergency cash requirement and you have only one or two days in your hand. There is no chance that you can get a personal loan sanctioned in such a short span of time. The only option which pops up into your mind is cash withdrawal using your credit card. We all face such emergencies at times. So is there a better and cheaper way of arranging funds in such a short span of time? We will discuss one such option which is Loan against your credit card in this article.

What is Loan against Credit Card ?

If you are holding a credit card from a bank and your credit credibility and history is good bank will provide you a personal loan based on your credit history against your credit card. If you have never defaulted on your credit card debt, the loan is provided instantly and without any documentation. The interest rate of the loan is quite competitive to what is available for normal personal loans in the market.

Important features of Loan against Credit Card

1. No additional documentation is required - Banks uses the documents already available with them.
2. Quick processing time – No documentation involved hence the processing time reduces drastically.
3. High processing fee – As it’s an unsecured loan processing charges are high.
4. Personal loan amount over and above cash withdrawal limit – You can get a loan which is above the cash withdrawal limit of the credit card.
5. Interest rates competitive to personal loan rates – Interest rate which you get on these loans are slightly higher as compared to what you get on personal loans.
6. High pre payment penalty –Bank is taking a lot of risk so they don’t want to lose the interest income.

When you should apply for Credit Card Loan

Early March 2012, LIC launched a new single premium traditional endowment plan. The plan effectively combines a guaranteed maturity amount along with a substantial life cover. Here is a quick look at all that the plan has in store.

Loyalty Additions:

Loyalty additions if any shall be payable along with the guaranteed benefits. Eligibility for loyalty addition would be considered during the last year of the policy. The rate and term are as may be declared by LIC.

Eligibility:

• Age at entry: 8 years to 50 years
• Premium Minimum: Rs.30000/- and in multiples of Rs. 1000 thereafter.
• Sum Assured: Rs.1,50,000/- to No max limit
  

Benefits for higher premiums

The plan offers a higher maturity benefit for higher premium policies. A 2% on a single premium of Rs 5 lakh to Rs 40.90 lakh and 3% for policy premiums of Rs 50 lakh and above are offered.

Returns on the Plan

• Rate of return – The plan is ideal for risk averse investors. In today’s volatile times, the plan offers a fixed return of 5% to 7% return on investment (excluding mortality charges).
• Rebates for higher single premium definitely prove to be attractive for high net worth individuals.
  

Demerits of the Plan

• Riders – There are no additional riders available.
• No fixed policy term. For those looking out for a long term plan, this may not be the ideal option.
• Sum assured of 5 times of single premium may not be adequate.
• Plan includes a service tax @10.3% which reduces the returns substantially.
• The loyalty addition is not guaranteed and will depend on LIC's experience.
• Tax free maturity benefits are as under tax laws. This may encounter changes in the future.
  

The plan is suitable for all groups of people, keen to save for child’s higher education or for financing other needs of self.

Author

Ramya Ramachandran

Gold plays a very important role in every Indian’s life. If we look at the Indian system, it is quite evident that even in a very poor family’s marriage, gold shares 25% to 40% of entire marriage expenses. If we assume a standard marriage’s total expense to be Rs 10 Lac, then gold would share 30% of it i.e. Rs 3 Lac. It means 100 grams jewelry (including Tax and Making Charges). Gold is also regarded as the true asset of every woman. The Indians prefer to buy gold in most of the auspicious moments such as festivals, marriages and anniversaries.

The question now arises that what is the reason for Gold being so important to an Indian?

Why Gold Is So Important to An Indian?

It is a general perception in India that gold is the last hope to raise money in the most adverse situations. That’s the reason why an Indian only buys gold and rarely sell it back in the market and considered as a final resort. 

Following are some vital points due to which Gold plays the very important role in among Indian investors:

• Highly, Liquid Asset: Gold being highly liquid in the financial market, so it can be encased anytime at the market rate. In need, it doesn’t loose the shine, and full value can be fetched while sold in the market. Resellers and investors use sites like US Money Reserve Inc to purchase gold bullion.
• Status Symbol: In India, Gold is a symbol of wealth and prosperity. The more gold one holds the greater status he/she is awarded in the society.
• Ease of Holding and durability: It is difficult to keep cash money in the vault for long time, but gold are very durable and easy to hold. It is least affected by weather and climate change.
• Reliable Investment Product: It is one of the most credible investment products. It has been observed that Gold is one of the few financial products that have outperformed inflation in long period of time.
• Religious Importance: Indians believe that its auspicious to buy gold during Akshya  Tritya, Diwali and Dhanteras, as it also symbolizes Goddess Lakshmi.
• Woman’s Best Friend: Indian women’s first choice for ornament’s metal is Gold. They buy gold ornaments throughout the life and if the design is outdated again they exchange it with the latest one.
• Ancestral Value: As Indians rarely sells the gold back in the market, so after death of a person, his gold property is distributed within the family members as an inherited property and this system of gold passing continues from generation to generation.
  

The Government is discouraging gold investment?

The recent steps taken by government has not been supporting for gold investors. The import duty on gold has been doubled to 4% and a TDS on cash purchase of gold over Rs 2 Lac has been imposed in the budget 2012. Though in short, term this step may discourage the gold investors but in long term gold investment would remain undeterred by such steps. With increasing competition from China, the domestic gold market is expected to fight back and grow faster than before.

What’s future expectation for gold?

The Gold is in a historic bull phase. It has increased by an average of just around 20% per annum over the last 11 years, outperforming every other asset class. The main drivers to gold are monetary stress, deficit spending, risky debt, currency debasement, ballooning money supply, Inflation and so on.  The current domestic and global economic condition suggests that all the drivers of gold are still in place, and it is expected to remain intact in near future also. So, the gold story is still alive and expected to make its presence felt in near future again. After touching the level of $1920, it is searching for a base to consolidate. After touching a low of $1620-30 level recently, it is now expected to bounce back to a level of $ 1800 in coming weeks. The Investors can take a buy position for a target of $1780-$1800 keeping the downside risk of $1550; below that, it can slide further downward. For now, the crucial trading level for gold is expected to be $1550 to $1820 in short to medium term.

Gold is an integral part of the Indian’s investment portfolio. The government rules and global scenarios may affect the gold attraction for some period but in long term, gold would always attest itself to be the number-one choice for the Indian investors. The yellow metal is expected to continue its sparkle in the future and outperform the other asset class in terms of average return in long-term investment.

About the author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent 8 years in Equity research and Stock broking sector. He can be reached at amvilube@gmail.com

Personal Finance

1. Maximum Exemption limit raised to Rs 2 lakhs.

New tax slabs are:

Male/Female less than 60 years age -

Senior Citizen (60 years and above) -

Very Senior Citizen (80 years and above) -

1. Up to INR 5,000 tax deduction on account of preventive health check-up.
2. No Advance Tax required for Senior Citizens.
3. 20% less tax on buying & selling shares (STT increased by 20%).
4. New Scheme ‘Rajiv Gandhi Tax Saving Scheme’ to allow tax deduction of up to Rs 50,000 for investment into Equity; deduction to be available for small investors with income up to INR 10 Lakhs per annum (Details to be announced later).
5. DTC (Direct Tax Code) implementation deferred for now.
6. A Centralized KYC (Know Your Customer) Depository to be set up against the current multiple KYC compliance system.
7. Compulsory reporting of Assets sold abroad.
8. Tracking of Tax Evasion through PAN Card to be strengthened.
9. Deduction upto INR 10,000 from interest from bank savings account.
10. Service Tax raised from 10% to 12%; All services to be covered (except 17 of them, including Education and few Infra construction services).

Sector Highlights (Proposed for FY 2012-13):

1. Investment in Agriculture to increase by 18%.
2. 27% increase in funds for drinking water and sanitation.
3. GST (General Sales Tax) to be operational by 2013.
4. Estimated Revenue of INR 30,000 crores from Divestment in Public Sector Undertakings.
5. Foreign loans limit to be increased for Indian Airline Companies.
6. No change in Corporate Income Tax rate.
7. Customs duty on gold and silver products hiked to 4% from 2%.

Overall Government Estimates for FY 2012-13:

• LOSS due to proposed Tax Sops/Concessions – INR 4,500 Crores
• REVENUE due to proposed Tax increases, Divestment etc. – INR 45,000 Crores
• FISCAL DEFICIT: Currently @ 5.9% (Revised Estimates for FY 2011-12); Proposed to reduce to 5.1% of GDP in FY 2012-13.
• GDP: to grow by 7.6 % (+ 0.25%) in FY 2012-13.
• Net Market Borrowing: at INR 4.8 Lakh crores.
• Defense Outlay: INR 1.95 Lakh crores.

We dream of a secure future for our children. But what happens to this dream, in case something untoward was to happen to the parent? To provide for the child’s financial needs at such times, insurance companies offer various insurance products. The latest offering in this category of children’s plans is LICs Jeevan Ankur Child Plan. Here is a quick snapshot of what the plan has in store.

Brief on the Plan

LICs Jeevan Ankur Child Plan is a conventional endowment plan. Its prime objective is to financially secure the child’s future even in the absence of the parent. It offers a risk cover on the life of the parent, and the child (or the nominee) receives a sum assured in case of the parent’s death.

The Basic Features

Eligibility Criteria:

• Entry age of parent: 18 years to 50 years.
• Maximum maturity age of life assured: 75 years.
• Entry age of child: New born to 17 years of age.
• Policy Term: Maximum of 25 years of age of child. Minimum policy term is higher of either 18 years of child’s age or 8 years of policy.

Premiums Payable:

Premiums could be paid as a single premium or regularly at yearly, half-yearly, quarterly or monthly basis.

Policy Lapse:

The policy would lapse if premiums are not paid within the grace period. Revival is possible from the date of first unpaid premium and before the date of maturity by paying all the arrears of premium together with interest within a period of five years.

Surrender Value:

For single premium, the Guaranteed Surrender value on the plan will be available only after the policy has completed one year. It is equal to 90% of the premium paid excluding what is paid for riders. In the case of regular premium policies, the Guaranteed Surrender value 30% of the premiums paid(excluding the first year premium and the premium for riders), and would be available, after completion of three policy years.

Benefits of the Plan

Death Benefit:

In case of death of parent (i.e. the life insured), an immediate Sum Assured is paid to the child. Apart from this, 10% of the Sum Assured would be paid out on every policy anniversary, till the end of the policy term.

Maturity Benefit:

On maturity of the policy, a benefit is paid out irrespective of whether the life insured is alive or not. This maturity benefit would comprise of the basic sum assured plus any loyalty additions.

Rebate on Sum Assured:

For Sum Assured equal and above Rs 200,000, there will be a rebate on premium available.

Tax Benefits:

As per section 80C, the premiums paid are allowed as a deduction, up to a maximum amount of Rs. 1, 00,000. The benefit received on maturity is exempt from tax as per Section 10(10) D.

Optional Benefits:

The plan offers two additional riders that could be opted for, the Accidental Benefit Rider that is available only for regular premium policies, and the Critical illness rider.

In case of death of child:

In such a case, the life assured has the option to nominate another person or child and the policy will continue under the same terms.

Reviewing Jeevan Ankur

So what makes it attractive?

Jeevan Ankur has its share of pros that make it worth investing in. The income benefit after the parent’s death ensures the child’s recurring financial needs are met. Loyalty additions are an added advantage on maturity. Plus the availability of riders and the large rebate on the sum assured make the plan an attractive option to secure the child’s future.

The Drawbacks

The loyalty addition is not guaranteed and depends on when the insurer makes a profit. Apart from this, the policy does not have the facility of a loan on it. So those seeking a refinance cannot do so. A policy surrendered in the first year will fetch you no surrender value. Even after this stipulated period, the amount received as Guaranteed Surrender Value is lesser than the amount of premium actually paid during the period.

Jeevan Ankur is a traditional endowment plan. Endowment plans offer a combination of both protection as well as savings. Thus the premiums and the mortality charges on such plans are much higher than traditional plans. Even if you hold the policy till the end of policy term, the yield on the plan works out to be pretty low. The plan is thus not for those investors who are looking purely at protection.

You are single, young and earning a handsome salary. All in all your life is worry free and you are enjoying it to the hilt. As there are no responsibilities on your shoulders you do not plan for things. You like spending and maintaining a good lifestyle full of monster bikes and expensive vacations. But this worry free present should not prevent you from doing a long term financial planning as you never know what’s going to happen tomorrow. If you have a prosperous present, it’s wise to take few steps which will keep your future secure too. The planning should be such that even if the time takes opposite turn you are not bereaved of the living standard you are maintaining today. Let’s focus on some dos and don’ts you should focus on as a single individual.

Your current status

Few assumptions which I am making are you are in twenties and your salary growth will be 12% per annum. You will retire at the age of 55 and inflation will be round 7% per annum.

Let’s start with the Dos

Don’t fear spending

Don’t shy away from pursuing an expensive hobby. Unless you spend you will not get motivation to earn more. 20% of your total monthly income should be used to keep you satisfied and happy. Enjoy the bike ride; go for photography or any other activity you are passionate about.

Do not be risk averse

You are young and age is by your side. Debt investment is for old people who don’t have time by their side. Maximum of your saving should go towards equity. Equity investment is risky but in long run it giver the best returns. If you invest in some good stocks they will take care of your entire future capital requirement. Golden rule is, subtract your age from 100 and allocate that percentage of your earning to equities.

Stay in Cash

Say world falls back to recession once again and you lose your job. In this volatile market, no job is for ever. Be in cash so that you can sustain your standard of living up to next six months without earning a penny.

Some common mistakes you should avoid – Don’ts

Don’t Overspend

Spending is good but getting into a debt trap is bad. Spend within your limits. Your limit is the credit card bill which you can pay in full every month while serving all your financial obligations. Mind you - you cross the limit the day there is unpaid balance left on your credit card.

Don’t increase you debt

Don’t invest in long term debt beyond your means. One car and one home is more than enough for debt payment. Owning another house on credit seems to be a bad idea. Just imagine the situation when you have no job, how you are going to pay the installments.

Invest in future

One day you will not be single and responsibility free. It’s better to do some advance planning for that day. You can roughly calculate the time frame in which you plan to marry and have a family. Capital requirement at the time of marriage and later on the child education is huge. If you don’t plan for this investment in advance you might be in trouble at that time. Start allocating funds towards these future requirements. The job is not tough as the power of compounding is on your side.

Author

Bimlesh Singh

Every year, 14^th February is special to celebrate love and express the feelings because it’s “Valentine Day.” Couples usually exchange the valuable gift, watch a romantic movie, plan for dinner, go out on a holiday at romantic destination, etc. However, it’s recommended you understand financial facts and behavior of each other before rushing to say “I Love You” and tie a knot. There are instances in which couples part away on account of financial infidelity. There is a prominent quote, “Finances may not be the most romantic thing to discuss, but ignoring them can create huge problems later in the relationship.”

Today, most youngsters are financially independent, have own source of incomes, assets and debts to repay. So, full disclosure of 7 financial facts would help you to understand your valentine in a better way and will keep the bitter surprises away in your relationship.

7 financial facts you need to know about your valentine are as follows:

Risk quotient

Risk quotient measures person’s risk taking capability. Each of us has different traits when it comes to taking decisions related to money while investing, spending and saving. It’s considered that people with high risk quotient tend to gamble in stock markets with the belief, “high risks and high returns.” However, if your risk quotient is low, then you would be investing in bonds, fixed deposits, post office savings, and such. So, ideally it’s necessary to identify risk quotient of each other by consulting financial experts, online services or taking quizzes. Then, plan for something in between considering risk quotient, compromising in monthly budget (if required) and take investment decisions together to stay happy.

Net worth

Net worth for an individual is the value of a person’s assets, including cash, minus all the liabilities (debt). So, the amount by which the individual’s assets exceed their liabilities is considered the net worth of that person. In case your valentine’s net worth is positive then it’s good news for you. But if it’s negative, then you could have a difficult journey together after marriage. In such situation, you both need to get income from other sources by working hard, budget your monthly expenses and improve your net worth by repaying debt on time.

Savings rate

Savings play a vital role to manage the debt and build the corpus for retirement. So, if your valentine’s net worth is negative but has good savings rate then, you need not worry about him to pay off debts in future. Your spouse would be in control of finances to build up long term corpus and simultaneously achieve set goals in future while paying off debts taken for higher education, setting up business, etc.

However, if your spouse is spending much quicker than the savings, then you would invite a big trouble post the marriage. Such persons would hide certain amounts from regular income and unnecessary purchases, so that you won’t get annoyed on them. Also, it would be difficult to manage the debts in future if spouse is not supportive and keeps secret accounts to spend. So, it’s necessary to identify savings rate and behavior of your valentine before you propose for marriage.

Emergency (Contingency) funds

Contingency fund is a fund used in emergencies or unexpected cash outflows in future due to uncertain events such as severe medical expenses on parent illness, unemployment during economic crises, etc. The contingency fund saved would ideally take care of four to six months living expenses and invested in liquid funds to use in uncertainty. If your valentine has maintained such funds for future uncertain events, then it’s an ideal sign that he/she has sound knowledge to look after finance management. Consider this as positive trait and you can manage your savings, expenses and investments in safe way.

Credit score

Your valentine’s credit score plays a critical role in the loan approval process in future i.e. when you apply to buy a house or automobile through bank loan together. The credit score gives loan providers an indication of your capability to pay back a loan, based on your Credit Information Report (CIR). Ideally, high scores mean you’ve good credit history and likely to get best deals while borrowing from bank. You can apply for credit scores to CIBIL, Equifax and Experian credit bureaus. You can also apply for credit scores online at CIBIL. As per CIBIL, 80% of all new loans sanctioned are above 750 score. However, it is important to note that some young people have low scores because they have no credit, rather than bad credit history.

Insurance coverage for uncertainty

Nowadays, the rising inflation impact medical costs. So, it’s a must to have adequate medical insurance coverage and life insurance cover for uncertainty in future. There is easy-to-use insurance calculator on InvestmentYogi website. Here, you can compute the sum assurance required and match the figure with policy taken by your valentine. If there is a short fall in sum assurance, then plan to increase the sum assurance in this policy while renewing to secure family expenses and pay-off of debts in any unfortunate event post marriage.

Sync investments with life goals

Discuss individual goals and prioritize them in your life before marriage. Analyze financial realities and start investing towards it. Each goal would require different planning and sacrifice that both partners need to take mutually. So, learn to complement eachother for commitment and sacrifices while achieving common goals set together for future.

Believe your spouse as, “Friend in need is a Friend indeed” to stay wedded happily forever.

Leaving you with a few romantic lines from a song “Nothing’s Gonna Change My Love For You” by George Benson:

If I had to live my life without you near me

The days would all be empty

The nights would seem so long

With you I see forever oh, so clearly

I might have been in love before

But it never felt this strong

Our dreams are young and we both know

They’ll take us where we want to go

Hold me now, touch me now

I don’t want to live without you.

Nothing's gonna change my love for you

You oughta know by now how much I love you

One thing you can be sure of

I’ll never ask for more than your love.

Author

The author is Certified Financial Planner and can be reached at hiralthanawala@gmail.com

It’s the last quarter of the year and the Tax Man is eagerly waiting for his share. All the earning people are busy with calculations and research to find out which is the best tax saving option. We are witnessing a flood of tax saving bonds in this season and they are selling like glittering gold now a day. Even though there is a tax saving on initial investment of 20000 just because it’s over and above the investment cap of 100000 people are flocking the issues. Is there any instrument which provides an opportunity of capital appreciation together with Tax saving? We will be discussing one such instrument called Equity Linked Saving Scheme (ELSS) in this article.

What is ELSS?

Equity linked savings schemes (ELSS) are equity-oriented mutual fund schemes with an added feature of tax saving under different sections of the Income Tax Act together with the regular features of a mutual fund. Investments up to 1 lakh in ELSS funds are eligible for deduction from taxable income.

What are the Key Features?

These are equity oriented mutual fund schemes where asset allocation towards equities can go in the range of 80 to 100%. As the allocation is tilted toward high return assets like equity, the main objective of such funds is capital appreciation.

What is the Tax Benefit attached to ELSS?

When you invest in ELSS you are eligible for tax benefits under various sections of income tax act. The most important benefit is, investment up to a maximum of 1 lakh is eligible as deduction from taxable income under section 80 C. Capital gains which you get from the investment on redemption are tax-free under section 10(38). While holding the scheme the income you receive in the form of dividend is tax free under section 10(35) of income tax act.

Investment Rationale

Although ELSS has a lock in period of three years, it’s advisable to invest in this scheme as the lock in period is still smaller than other tax saving schemes like PPF and NSC. ELSS also provides an opportunity of capital appreciation if market performs well. There is absolutely no scope of capital appreciation in case of PPF and NSC schemes above the agreed interest rate. Here, the lock in period of 3 years favors you as most of the allocation is towards equities. Equities traditionally are considered as long term investment options and long term investors generally get above normal returns. The lock in period of three years keeps the temptation of selling your holding prematurely at bay. This restricting feature should be seen as blessing in disguise which is ultimately going to reward you in future. Together with this, your return percentage also gets a nice boost in the form of Tax savings. If you are not market risk averse and ready to take a little bit of risk investment, ELSS is recommended. By investing in ELSS, you also save the time and effort of researching the stock market together with enjoying the above average returns.

Author

Bimlesh Singh

I went on a foreign trip recently and enjoyed it a lot. Foreign currency was not a problem as I was having an international credit card. I swiped it every now and then for shopping, dining, buying tickets and number of other things. I had never used my credit card in a better fashion in past and was praising my bank for it in my conversations with my travel mates. They all were in full agreement with me on this topic. It’s not like I am habituated to mindless spending as I was fully aware of my budget. Mental calculations were on with the currency exchange rate in mind and at the end of my trip I almost spent the whole budget. I was patting my back for not overshooting the budget. After returning back, I received my credit card statement and was shocked to know that I almost overspent in the range of 5 to 6 %. I redid my calculations fearing a mistake but reached the same old figure which was 6% lesser. When I called my bank for clarification, I came to know about few interesting but not friendly charges regarding foreign transactions. In this article I will be discussing the same so that you don’t get the same shock which I got once I received the statement.

Reason for 5 to 6% deviation in credit card bill

Your credit card issuing bank and the network service provider (MasterCard or Visa) apply extra charges on foreign transaction done through your credit card. So, calculation done simply using currency conversion rate gives an understated value. Bad news for a consumer like you and me!

What is the type and amount of charges involved?

Following charges are applied by various entities involved in the transaction:

1. Currency Conversion fee – Whenever a foreign transaction takes place through your card network service providers (MasterCard or Visa), apply a conversion fee in the range of 1 to 2%.
2. Overseas Transaction Charge – Whenever a foreign transaction takes place through your card, the issuing bank applies a transaction fee in the range of 2.5 to 3.5% of the transaction amount.
3. Cash Withdrawal Fee- As you are already aware cash withdrawal through a credit card is costly even in India, it needs to be costly overseas too. On cash withdrawal in foreign currency your bank applies some additional charges which vary bank to bank. It will be in addition to local cash withdrawal charges.

What about the currency conversion rate?

Even though there is no additional charge for currency conversion, the currency conversion rate might not be the same as on date you did the transaction. Conversion rate applied will be of date when transaction is posted to Visa/MasterCard by the merchant. There might be a case when merchant sends this data one or two days post actual transaction date.

Can we know about the charges applied beforehand?

You can enquire the customer care of the bank regarding this data and they will tell you the applicable charges beforehand. You can use this data to do the cost benefit analysis of using your credit card for foreign transaction. One of the better uses of this data is to find out the best credit card which you can use overseas with minimum cost. If you are a frequent flier, you should choose only those credit cards for which the charges are minimal. All said and done, getting currency converted manually through some agent or bank will still be cheaper as compared to using credit card.

Author

Bimlesh Singh

Volatility in the market is no new phenomenon for us now. In the recent months we have seen erratic behavior not only in the Indian Markets but also globally, owing to the European debt crisis and fiscal pressures in the US. We are constantly witnessing bouts of upward and downward movements of interest rates, index levels and inflation.

In such challenging market conditions, most of us generally exit investments and wait till the market shows signs of gaining stability. However by doing so very often we end up missing out on opportunities when there is a sharp decline in the market. To beat this volatility, Multi Asset Funds have gained considerable popularity in the last few months. In the light of the recent Multi Asset NFO from a mutual fund major, we do a quick evaluation of this fund option to see if it is actually worth investing in.

Introducing Multi Asset Funds

The core principle in financial planning is efficient asset allocation and diversification, on the basis of one’s financial goals and risk appetite. By diversification of assets across different classes, one could greatly reduce the risk associated with a single asset class, thereby generating superior returns from the portfolio. Multi Asset Funds work using the same principle.

These funds are typically hybrid funds that spread your investment across different asset classes. The portfolio of these funds would comprise of a mix of Equity, Gold, and fixed income securities, thus spreading the risk across different assets. The investments are switched over from one asset class to another on the basis of market situations. So depending on the rally in the market, profits are booked and funds are appropriately allocated to other asset classes, to overall generate superior returns from the portfolio.

What Advantages Does the Fund Offer?

• Reduces risk- The risk associated with a single asset class is greatly reduced owing to the diversification in the portfolio.
• A readymade fund- With exposure to different asset classes, it is a readymade fund for those investors who lack, the time and knowledge to diversify their portfolio on their own.
• Benefits in a single fund- Investors get the benefit of multiple asset classes in a single fund, without having to hold multiple mutual funds or schemes.
• Expertise of Fund managers who churn the portfolio on the basis of market situations.
• Tax Efficiency- Tax applicable only if units are redeemed within 12 months.

The Current Options Available

JP Morgan was recently out with an NFO of its Multi Asset Fund. Apart from this other existing funds in the market are Axis Triple Advantage Fund, Religare MIP Plus, Canara Robeco Indigo Fund and Taurus MIP Advantage Fund. Here is a look at their past performance.

*Source: www.valueresearchonline.com

Multi Asset Funds- Should You Consider Investing?

Looking at the past returns of the fund, the short term returns (6 months to a year) have been hovering between 3 to 5%, owing to the large percentage of debt and gold component in the portfolio. Investors often find fixed deposits a better deal for the short term in comparison to the fund. What one must also remember is that diversification comes at a cost and most Multi Asset Funds come with high recurring expenses of around 2-2.5%. Funds also have an exit load of 1% if exited within 1 year and 2% if exited within 6 months. This charge is much higher when compared to other funds.

Multi Asset Funds are typically suited for low to medium risk appetite investors, and may prove beneficial to those with a long term investment horizon. These funds could generate superior returns in the long run, as they make use of the highs and lows across various economic cycles. Investors should also look at the fund manager’s expertise, track record and the reputation of the fund house before investing.

Author

Ramya Ramachandran

If we look into the future perspective of government securities and corporate bonds, then the latter is expected to provide better return in coming days.

Investors were attracted towards investment in bonds during the year 2011 with an increase in an interest rate. The interest rate is expected to be cut down in coming months; the question is what would be the outlook of a bond market in such scenario?

Interest rate outlook

Recently, RBI had cleared its view to stop the further increase in an interest rate. Investors are expecting it to come down gradually in the coming months, and so they are putting a stake for the bond market in expectation of good return.

The Repo rate is expected to cut down by 50-100 basis points in next 12 months. Though rate would not fall drastically at once, but it will start coming down gradually from somewhere around April 2012. The decision on rate cut would be extremely influenced by Inflation situation in the country. The food inflation has come down slightly in last few weeks, but the manufacturing price is still a matter of concern. The increase in crude oil price and expected electricity rate hike would further push manufacturing prices to higher side. The global commodity price has already started cooling down but the depreciation in value of INR against Dollar has neutralized all the benefits due to increased import bill.

Time not right for gilts

Benchmark 10-year gilt yields had touched the peak of 9 % in November 2011, and then it fell down to 8.26 per cent recently. Still, it does not seem good time to enter the gilt market for two reasons:

• The government has failed in containing the fiscal deficit, as expected in the starting of the financial year. Hence, the gilt price would further come into pressure, and yield will go up. In 2011, government had promised for strong disinvestment measures and cut down in spending. The current pictures show the failure of government's expectation as already it has increased the borrowing by close to Rs 92000 course for this fiscal, which is much beyond the budget expectation.
• Two, banks are expected to cut down investment in government bonds if the credit off-take improve in coming days; Therefore, lower demand would put pressure on government bonds.

The only way through which an investor can invest in the government bonds is through gilt mutual funds. The interest return from the gilt fund has shown extreme volatility; Ten-year gilt’s return had varied from 5 percent to 9 percent in last five years. The gilt fund has given an average return of 6% in last five years. Judgment of correct time is very important while investing in the guilt fund.

The risk avoiding investors can also opt for the quasi-government upcoming tax-free bonds of HUDCO and infra bonds of REC, PFC and IDFC, etc.

Interest rates of around 8 per cent for tax-free bonds are quite impressive for a high net-worth investor.

Corporate debt better

The long term gilt funds are not looking attractive in present situation, on the other hand corporate bonds are looking very attractive for investment. The leading and top-rated corporate bond is expected to do better than the gilts for following two reasons:

• The financial condition of the corporate is looking better than the government. The corporate are cutting down its expenses aggressively, whereas the government is still adding on borrowings; top Indian companies have been cutting back on their investment plans, reducing debt on their balance sheets and hoarding cash. The government lacks the smart financial planning. Any issuances by the corporate is, therefore, likely to be quickly picked up by institutional buyers.
• The corporate is looking for expansion, and therefore, they are coming with bonds for financing whereas the government bond is meant to reduce the deficit burden.

Suitable duration of fund

Now we come to an agreement that corporate bond seems better for investment than gilts in the present scenario. The question now is whether an investor should buy short-term (less than three years), medium-term (three to five years) or long-term corporate bonds (more than five years)?

The investors need to invest through the mutual fund in any case. At present, the short and medium term investment is looking attractive for the investors.

Flat Return from Gilt

The interest rate is expected to come down in coming days. Though the rate may not fall as it had corrected in 2007-08, but fall is there in the card.

Gilt as well as long duration funds, which are based on more than 5 year duration instruments, earns capital gains from falling interest rates. Short duration funds gains from interest income. Hence, it is evident that little fall in an interest rate would have fewer benefit on bond and gilt mutual funds. Investors, therefore, can continue to look at short-term bond funds.

Normally, the yield on short term fund should be lower than the long term fund due to extra risk associated with the longer duration such as interest rate uncertainty.

It means that once the interest rate is reduced then yield from the shorter duration fund would come down.

Looking at the various points discussed above, the Dynamic bond funds are expected to be in demand in the year 2012 due to its flexibility to change the duration based on the existing interest rates.

Look beyond returns

It is always suggested to be cautious while investing in the corporate bonds. AAA bonds should be preferred over –AAA rated bonds. An expectation of a further slowdown in the economy cannot be eliminated as the Euro-zone crisis and global economic disturbance is still inherent in the market; hence, the funds may come under credit downgrade if the situation further degrades.

Therefore while investing, the investor should not only focus on the return but also ascertain the risk associated with it. In normal condition, the high risk portfolio can give higher return by overshadowing the risk. But when the market condition is not up to the mark and corporate are facing deep financing problem then return falls dramatically. It is suggested for all the investors to invest in highly rated bonds for good return and less associated risk.

About the author:

Amit Sethi is an MBA (Fin) graduate. He has spent 8 years in Equity research and Stock broking sector. He can be reached at amvilube@gmail.com