Author Archives: PankaajMaalde

SIP Insure – Does it make sense to mix investment and insurance
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Posted on May 14, 2012 by PankaajMaalde

Recently ICICI Prudential Mutual Fund has launched “SIP insure” in its all equity and balanced schemes. SIP insure is nothing but life insurance cover given with the monthly SIP investment. The insurance cover offered is not individual cover but its group insurance cover in which terms and conditions of insurer will apply while settling the claim. Reliance was the first to launch such scheme. We also have ULIP plans which give life insurance cover and also investment options just like mutual fund schemes. These SIP insure will give insurance cover with investment option on the same line as ULIP provides. However in SIP insure you do not have to bear heavy charges like allocation and policy admin charges which are levied in ULIP.

But before going ahead one need to understand the broad features of this product and compare it with what is offered by the Reliance Mutual Fund. The ICICI is better than Reliance as it offers higher life cover, life cover continues after investment of 3years SIP and discontinued thereafter. The highlights of the ICICI Pru’s SIP insure are as under:

 The plan is offered to all major individuals whose age at entry is below 46 years and will continue till age 55 years.

 Insurance cover will be available to first/sole unit holder and not to second and third unit holder.

 The minimum SIP amount is Rs. 1,000 per month.

 The 1st year cover will be 10 times of monthly SIP, 2nd year it will be 50 times of monthly SIP and 3rd year onwards, life cover will increases to 100 times of monthly SIP. 100 times means less than 9 times of yearly SIP. Reliance calculates life cover differently. In case of Reliance the Amount of life cover available at any time is equal to the aggregate balance of unpaid instalments. So practically this wants to ensure that the investor at least get the amount equal to his principle investment planned anytime in case anything happens to the investor.

 Maximum sum assured offered to an individual across all funds is 20 lakhs. Reliance gives maximum cover of Rs. 10 lakhs sum assured across all funds.

 Life cover ceases if SIP for 3 years are not paid. After 3 years of SIP the life cover will continue but sum assured will come down to value of accumulated units subject to 100 times of monthly SIP instalment and also subject to maximum of 20 lakhs.

 The Insurance cover will cease in case of redemption or switch out of units whether partial or full before completion of SIP insure tenure.

 There is exit load of 2% in case of Reliance for premature redemption whereas the same is mentioned at 1% in ICICI Pru SIP insure if redeemed with in 1st year. The exit load of 1% is applicable even to SIPs without insurance. One needs to check how the charges of insurance will be recovered. Will it be charged on the basis of insurance cover provided to each unit holder or will be charged to the scheme.

 In case of death of the first/sole holder, the fund value with the sum assured will be paid to nominee. But in case of Reliance the no money is paid immediately on the death. Instead the sum assured is added to accumulated investments under the scheme and maturity value is paid at the end of tenure opted.

 In case of ICICI pru the death claim will not be paid in case of death due to suicide in the first year of cover. However Reliance has a permanent exclusion in case of death due to suicide.

 The death claim will also be not paid in case of death within 45 days from the commencement of the SIP instalments except for death due to accident. The said period is 90 days in Reliance.

 Death claim has to be submitted to Life Insurance Company directly and AMC will not entertain any request for claims. Therefore it is important for you to know who life insurer is.

 There is a separate form where in investors have to give additional details required for life insurance cover. One has to be very careful and it is always advisable to disclose all the material facts in the form.

As a matter of principle we strongly advise our clients against mixing investment and insurance. The major drawbacks in SIP insure is risk cover stops in case of withdrawal or switch (partial or full). Review of investment performance is always an integral part of financial planning and should be done once in a year. You may have to book partial profit to switch to debt or may have to withdraw your fund for any reason. If risk cover stops in such situations then it has no meaning. That’s why we advise our client to go for online term plan for insurance need and keep investment need separately.

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Volatility to stay here for some more time
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Posted on May 7, 2012 by PankaajMaalde

Budget has neither given direction to economic growth of the country nor has also attempted to restore the confidence of the investors in stock market. Even though there is announcement of reduction of 20% in STT for delivery of shares, we have witnessed selling pressure in the market and this is likely to continue for some time looking at present economic conditions. Hike of 2% in service tax and excise duty will also add to the negativity in the market. BSE sensex has again broken the important level of 17,000 marks and this volatility is likely to disturb and confuse the investors. Investors have either stopped investing in equity or have made withdrawals from equity investment. Mutual Fund schemes are also facing redemption pressure. Some people have discontinued their SIPs in equity schemes. This volatility in the market will once again force people to play safe and park their hard earned money in Insurance, F.D.’s and small saving schemes, which are unlikely to beat inflation.

The RBIs recent announcement of repo rate cut of 50 bps has also failed to boost the sentiment of the market. Looking at present economic and political conditions in India, it is for sure that this volatility is likely to remain for some more time into the future. There are both internal and external factors confirming the same trend.
1) Crude oil price is still hovering above $ 100 per barrel which will not ease the inflation pressure.
2) Rupee has again crossed high of 53 against dollar and experts predict that it may touch 55 in coming months.
3) The GDP growth forecast for year 2012-13 is 7.6% but experts feel that it may go below 7%.
4) The situations in USA and European markets may lead to more selling pressures from FIIs.
5) Budgetary deficit is also an area of concern and we have to see how the disinvestment targets are met
6) We have not seen major economic reforms in the UPA II regime. The Government has missed this opportunity while presenting the 2012 budget.
7) The next budget is likely to be populist budget looking at the fact that the general elections are to be held either at the end of 2013 or early 2014.
8 ) Loss of congress in UP and other major states will force them to compromise on economic issues.
9) There is lack of political will and unless we see major reforms volatility is likely to continue.

Than what should average investors do in the current market situation? Before coming to solution one must try to understand equity as an asset class before investing. You cannot expect overnight profit from equity. You must invest as per your asset allocation. Your time horizon for investing in equity should be more than 5 years. You must also review your investment portfolio periodically and rebalance the portfolio. Never try to time the market and “always stay invested is the success mantra” for investing in stock market. If you understand the basics than this volatility in stock market will never affect you. Equity has always out performed against all other asset class in the longer run. One can expect 15% plus return from equity, which the equity has already delivered over long period.

SIP in mutual fund is the best solution for investing in equity for the long term in a volatile market scenario. By investing through SIP you reap the advantage which is known as rupee cost averaging. , This lowers the average cost of your holding. Secondly if you invest through SIP, you do not have to worry about daily volatility of the market and thus do not have to time the market. Since SIP can be done with as small an amount as five hundred rupees you can start with a small saving also and get the advantage of power of compounding.
It is also advisable to get a financial plan made from professionals who is not bundling the same with execution. The financial plan will tell you which of your investment is long term and which is short term. Once you are confident that your investment is for longer period of time, this volatility will not affect your decision to continue your investment and SIPs in equity.

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FMP is better than bank fixed deposit.
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Posted on April 17, 2012 by PankaajMaalde

Traditionally almost around 85% of the people in India invest their surplus funds in Bank Fixed Deposits, Postal Schemes etc. This clearly indicates that safety and security of the principal amount is the first priority when it comes to investment. Nobody cares whether the accretion on such investment is taxable or not. Also people do not evaluate whether the post tax returns will be able to beat inflation or not. Nobody can certainly deny the importance of safety but one has to always search for and evaluate the options which are equally safe but can give help you generate better returns or can give tax advantage over other equally safe investment avenues. It is important to have debt in your investment portfolio but it should be limited to certain percentage of total assets depending on time horizon and your risk profile.


Thumb rule says debt must constitute minimum equal to one’s age in percentage terms but it is advisable to allocate funds in debt depending on time horizon of your particular financial goal. If time horizon for a particular goal is just 1 year to 1.5 years than 100% of such corpus in debt makes sense. Most of the investors invest their funds in bank fixed deposit for time horizon of 1 to 1.5 years. But there are other alternatives available in the market which can give you better post tax returns compared to bank FDs and are equally safe. Mutual Funds FMP (Fixed Maturity Plans) are the better alternative for time horizon of around one year investments compared to bank fixed deposits which not only gives higher return but are also tax efficient. FMPs are closed ended schemes with the maturity period ranging from 370 days to 390 days which are commonly known as 1 year FMP. The maturity period of FMPs may vary from 90 days to three years but most prevalent and tax FMPs are one year FMPs.


Here we will discuss the pros and cons of only 1 year FMPs. These schemes invest 100% of their corpus in debt portfolio which consists of corporate and government bonds or Certificate of deposits issued by banks which are safe and rated. The funds thus invested are relatively safe compared to income funds as the volatility in the interest rates will not affect returns of the fund as the entire corpus collected in the scheme is invested for the fixed term which is almost equal to the tenure of the fund. These funds are closed ended in which investment can be made only during the NFO period. The schemes get listed at recognised stock exchanges but effectively these are not traded and volumes are negligible so one has to hold this till maturity for all practical purposes. Thus they are almost at par with bank FDs as far as tenure of investment and risk is concerned. The only difference is that in case of bank fixed deposit you know what return you will get at the time of making the deposit itself. Whereas in case of FMP the returns are not guaranteed it is market linked and returns will depend on the return of the portfolio. However one can find out as to what will be the indicative investment return from a particular FMP. The returns on this are higher than bank fixed deposit because they are floated for identified borrowers and as the volume size is big, they can easily negotiate for better deal. Moreover income arising out from this will be taxable under the head long term capital gain as the same is held for more than one year and investors get benefit of indexation. Please note that the benefit of indexation and concessional tax is not available in case of bank FD.


Since the FMP looks better than bank FD and if one wants to invest in FMP what one should look for while investing in FMP?


The one most important thing an investor needs to check before investing is the ratings of the portfolio in which the fund is likely to be invested. The investors should invest only in the schemes which will invest their funds in AA+ and above rated papers or bonds. The funds which invest in AA- papers or bonds or lower rated are more risky and one should be aware of risk involved in such schemes. For past one year of 1 year FMP is around 10% and above as compared to bank fixed deposit rate of 8.50%. Needless to say an FMP not gives higher return compared to fixed deposits but also has added tax advantage.

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Posted in Fixed Deposit, Investment, Mutual Funds, Taxation | Leave a comment

Calculate life insurance need yourself
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Posted on April 10, 2012 by PankaajMaalde

Experts always recommend that one should be adequately covered for life insurance so that family is protected in case of death of the bread winner. But, most of the people find it difficult and are in confused state as to how to calculate the exact life insurance one needs to be covered with. Life Insurance agents give different reasons and sometime not so convincing for buying insurance plans. They normally always advise you to buy insurance products with investment component. In this article we will learn how to calculate life insurance need correctly.

Let us now understand how life insurance need is calculated. There are two most commonly used methods to calculate life insurance need. First one is which is advocated by insurance agents, human life value method and the other, one and which is correct method is my opinion, is need based method. Human life value is calculated on the basis of income of the person to be insured till his/her retirement age. As against the human value method the need based insurance value is calculated on the basis of day to day family expenses till the life expectancy of the youngest of the couple. One should apply need-based theory instead of going for human life value while calculating the exact need of life cover. It is also important that one should buy life insurance only if one has dependent/s who are financially dependent on his/her income . If you are single/unmarried than you does not need to buy any life insurance cover. Many unsuspecting persons are made to buy life insurance policy for their wife even when she is a pure home maker. Likewise people are induced to buy child plans with the trick of emotional blackmailing for their children’s future without understanding the cost involved in such insurance plans. So neither buying of insurance for pure home maker nor accumulating corpus for child is advisable. Your life insurance need comes down if your spouse is also working or to the extent of assets already owned by you. Any existing or future financial liability needs to be taken into account while arriving at the amount of life insurance you need. The liability would include present loan or any value of expenses which one will have to incur in future like education and marriage of children.

Let us take a live example to understand how to calculate life insurance need with the help of excel application. Mr. Ronak aged 32 years working in a software company draws a yearly salary of Rs. 6 lakhs. He lives in Mumbai with his wife aged 30 years and 2 daughters aged 4 years and 1 year. They live in their own house which they bought last year for total value of Rs. 30 lakhs. They have taken a home loan of Rs. 20 lakhs and are paying home loan EMI of Rs. 25,000 every month. The outstanding loan balance currently is 19 lakhs. He has 3 lakhs in EPF account, 2 lakhs Mutual Fund Investment, 1 lakh FD and Rs. 50,000 in savings bank account. The total investment assets are Rs. 6.50 lakhs. His monthly house hold expenses including conveyance, education, life style is Rs. 18,000. He has two endowment plans of sum assured of Rs. 1lakh each and is paying premium of Rs. 10,200 yearly. He has some future liability in the form of Rs. 5 lakhs each for higher education of both the daughters and Rs. 2 lakhs each for marriage. He is covered under group health insurance provided by his employer for 3 lakhs under family floater. Now Mr. Ronak wants to calculate his life insurance need with the help of excel.

So he opened excel, selected formulas then insert function and clicked at PV i.e. present value. Present value function will give you a present value of the entire future outflow for his house hold expenses if anything happens to him today. Let us calculate and understand the same in detail.

Rate – 0.93% = 0.0093
Nper- 50 = 50
Pmt- -18000*80%*12 = -1,72,800
FV – 0
PV – 68,84,382 (Answer)

Rate – Rate is inflation adjusted return assuming 9% investment return and 8% as inflation.
Nper – Number of years till life expectancy of the spouse i.e. assumed at 80 years.
PMT – Present yearly expenses of the family. Taken 80% of the total expenses assuming expenses will come down to the extent if bread winner is no more.
PV- Rs. 68,84,382 is the family need today. This is not the final result which we are looking. We have to add loan liability and future goals. Also have to deduct present assets already generated and existing life insurance cover. Self occupied home and personal jewellery will not be the part of investment assets. The final calculation will be as under:

PV of House hold expenses today 68,84,382
Add: 1) Home Loan Liability 19,00,000
2) Education Goal 10,00,000
3) Marriage Goal 4,00,000

Total 1,01,84,382
Less: 1) Investment Assets 6,50,000
2) Life Insurance Cover 2,00,000

Less : 8,50,000

Actual Life Insurance required 93,34,382

Ronak requires life insurance cover of Rs. 93 lakhs. These are very easy steps to calculate the life insurance need with the help of excels but before that you have to understand the basic things. Now, you can also calculate your life insurance need easily as shown above.

You should also note that if your spouse is earning then life insurance need will come down to the extent of spouse’s income. The same way you have to find out the present value of future income of your spouse and required to be deducted at the end. Life insurance proposal is subject both financial underwriting and medical underwriting. So it is always advisable to disclose all the material facts correctly asked in the proposal form and also undergo medical tests as required. Once you have done your job rightly no company can reject the claim.

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Health is Wealth: Put First Thing First
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Posted on April 5, 2012 by PankaajMaalde

It is rightly said, “Health is Wealth”. But truly speaking how many of us are really serious about this? Today, when everything is uncertain, nobody can be sure what will happen tomorrow. We all are aware that medical bills are high and getting still higher. Still we do not buy health insurance plans. Health Insurance is way of covering you and your family against any medical emergency arising out of any diseases or illness or accident. In India health insurance premium is considered as expense. This is because we do not give importance to eventualities. It is also true that, as the age of an individual increases, the medical bills are likely to increase and become a burden on the family. Some time entire family collapses because of this financial burden. We need to think seriously and act immediately upon it.

When we meet clients, usually we find one or two life insurance policy in each & every home, but the health cover is mostly missing there, not only because of lack of awareness but also because of unwillingness to pay the premium from customer side. At present less than 10% of total population have their health insurance plan. Data shows that 30% of people with heart problems are less than 40 years old. Diabetes, blood pressure and Cholesterol are also very common in younger age. Stress level at work, habits and increasing life style illness also add to physical & mental pressure. Better we take early step to cover our self and our family before it’s too late.

A mediclaim policy covers hospitalization expenses for the treatment taken for disease or illness or accident. It also covers pre and post hospitalization expenses up to certain days and certain limit of sum assured. This limits differs from Co. to Co. depending upon the policy and sum assured.In today’s scenario mediclaim of 50,000 or 1 lakh sum assured will not suffice. Individually we require minimum 3 to 5 lacs health cover. You can also buy a family floater with an extra top up plans, which will really help you in bad days. Now most of the Co. also offers cash less facility if the patient is hospitalized in network hospital. Thus, we can concentrate only on illness of the patient and save time & energy from raising funds from friends and relatives.

Other benefits:

• Cumulative bonus of 5% to 10% to your sum assured for every claims free year
• Family discount of 10% is applicable
• Health Check up in designated Centers or Reimbursement up to Rs. 1000/- at the end of continuous four claims free years.
• Income tax benefit on the premium paid up to Rs. 15,000/- as per section 80-D of the IT Act. You can also claim for the premium paid for your Parents separately up to Rs. 15,000/- ( Rs. 20,000 in case of senior citizens).
General exclusions
• All diseases/illness/injuries existing at the time of proposing this insurance
• Any disease contracted during the first 30 days of commencement of the policy
• Certain diseases such as hernia, piles, cataract, removal of gallstones or renal stones and sinusitis shall be covered after a waiting period of 2 years
• Non-Allopathic medicine
• Congenital diseases
• All expenses arising from AIDS and related diseases
• Cosmetic, aesthetic or related treatment
• Use of intoxicating drugs, alcohol
• Joint replacement surgery (other than due to accidents shall have a waiting period of 3 to 4 years)

Things to check before signing proposal form:
1) Life time renewability
2) Co-payments if any
3) Ceiling on room rent or other fees
4) Sub limits on certain operations like cataract, joint replacement etc.
5) Waiting period for pre existing details

A healthy life means many more working years and chance of wealth creation and financial freedom in your life.

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Hike in service tax makes traditional plans unviable.
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Posted on March 26, 2012 by PankaajMaalde

Traditional insurance plans are sold heavily historically since LIC came into existence. Traditional plans are a combination of insurance cover and saving element coupled with tax benefit. Previously only LIC was pushing for these products but now private insurance companies have also aggressively launched many traditional plans due to ULIP products becoming difficult to sell now as the stock prices have corrected. Birla Sun life, which is the pioneer of unit-linked plans in India, also had to come out with traditional plans to survive and sustain in the market. Traditional plans are very easy to sell as they are not complex as compare to ULIPs. Endowment plans, money back plans, whole life plans and children’s are different genre traditional plans available in the market. Traditional insurance plans are mostly sold as tax saving instrument therefore nobody calculates the returns while buying these products.

Traditional plans are neither flexible nor give good return in the longer run. They offer lower insurance cover viz a viz premium paid. Under the traditional plans you have to pay the premiums for longer terms. Under Any default in premium payments will lead to cessation of your risk cover. There is heavy surrender charges associated with traditional plans if policy is terminated during the term. Most of the people are under the impression that there are no charges in traditional plans, but the reality far from this perception. All the charges including insurance cost, office expenses and commission charges are built-in in the premium. The same cannot be identified separately as they are included in premium and are not shown separately like as in case of ULIPs. The traditional insurance plans neither are insurance plans in proper meaning of the term as they offer very limited sum assured nor are they investment products, as they are unlikely to beat even the inflation.

Investment decisions in respect of your money are absolutely vested with the insurance company in all the traditional plans and the policyholder has no say in any investment decision under these plans. The regulator has prescribed limits and composition for investment under these plans. A minimum of 85% is required to be invested in govt. and semi govt. securities, corporate bonds and it is the balance 15% that is allowed to be invested in equity market. The point is whether traditional plans are investor friendly or not or they are agent friendly. We need to agree that insurance distribution is agents driven. In other words insurance in India is sold and not bought. The agents sell only those products where they will earn more commission. Agents are promoting traditional plans heavily because traditional plans pay around 35% commission in the 1st year and 5% renewal commission thereafter till the premiums are paid. Traditional plans are easier to sell as compared to ULIP, as sum assured and bonus declared are guaranteed since there is no market risk under these plans.

Now there is another bad news in the budget presented last week. It has proposed to increase service tax on traditional plans of life insurance plans from 1.55% to 2.06%. This proposal will very badly hit the traditional plans as the overall returns will come down. Just 3 years back service tax on traditional plans was 1.03%, last year it was increased to 1.55% and is doubled to 2.06% in this budget. Traditional plans are debt oriented plans as substantial investment is done in government and corporate bonds and only 15% is invested in equity. If one has to compare the returns of this combination of heavy debt and defensive equity than mutual fund’s Monthly Income Plans (MIP) score better. One can expect around 10% average return from this product of mutual funds. IRDA has put a cap on maximum expenses in ULIP plans at 3% and as traditional plans have more charges inbuilt and are around 5%. If you earn 10% return on investment corpus under traditional plans and 5% is paid towards commission and other administrative expenses than you will be left with 5% return only. Now suppose you have to pay more premium because of the hike in service tax than your return will come down further by 50 bps. I feel that the average annual returns on the traditional plans will come down to below 5% in coming days. It is much better to take a term plan and invest balance in PPF as PPF also gives tax benefit and maturity is tax free. This combination of term and PPF will give at least 1.5% to 2% more return compare to traditional plans.

LIC presently does not charge service tax to its policy holders but is absorbing it at its own. But one has to see how long LIC can do this. Even If it continues with the same strategy than bonus rate will come down or at the end loyalty bonus will not be paid. All private players are already levying service tax on its policy. IRDA is silent and not taking any steps to reduce charges in traditional plans. One should also note that DTC proposes to reduce the life insurance premium exemption limit from present Rs. 1 lakh to 50,000 and is also clubbed with health insurance and tuition fees paid for two children’s. Investors have to be cautious while buying expensive traditional plans. We strongly advise our clients not to mix insurance requirement with investment and always follow need based theory while calculating life insurance need.

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Financial Planning – turn your dreams into reality
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Posted on March 21, 2012 by PankaajMaalde

Financial Planning plays a very important and crucial role in our life. Financial Planning can be described as “Long Term Process of Wisely Managing Your Finances so that you can achieve your Financial Goals & Dreams”.  We all see many dreams for Our Children’s for their higher education, marriage and their future prospects and also set many goals for us, like buying a Dream home, new car, and vacation abroad. Retirement planning is also important as we are moving from joint family to nuclear family. We surely know our Goals and Dreams but never make serious attempt to fulfill the same. In reality all our Goals and Dreams remain on paper only. Financial Planning can solve many problems if we take it seriously and start working on it. Generally it is seen that when time comes for any function or occasion people redeem their money from investment which was planned for some other purpose. Actually we become helpless when some emergency comes and take some instant decision which can definitely spoil our financial freedom. Today it is the need of the hour that one should make his financial plan as household, education and other personal expenses are going up and we don’t know impact of inflation in the longer run. Secondly loans and credit cards has become the part of life as they are easily available. We never calculate the impact of interest which takes away major part of our income. In other words our resources are limited but our wants are much more.

Financial Planning brings discipline in our saving and expenses. It helps us to set realistic goals and also priorities the goals. We can easily reach to our destination safely and timely if we set some basic rules for investment and act accordingly. Most of us are not aware of priorities in our life. We all Invest but without understanding our financial goals, risk involved and time horizon. The lack of proper Financial Planning will add to the problems rather solving it. Life Insurance, Health Insurance and Disability Insurance are the basic of Financial Planning. In India today also less than 10% are insured and even those who are insured are also underinsured. Living Short is always a major problem for the Family but nowadays living long is also becoming more and more problematic. The average life of an Indian is 67 yrs. at present and is increasing because of the advancement of science and technology. Retirement Planning and Estate Planning will also form part of Financial Planning which is also been not planned. Less than 1% prepares their WILL and this leads to litigations in Court of Law for the years. We have to think very seriously for all this aspects in our life if we want to live happily.

There is also other side of every investment which a common man does not understand like, Economic Growth, Equity as Asset Class, Inflation, Tax implications and Asset Allocation. Today we are surrounded by many Agents/Advisors who come to SELL the particular product such as Life Insurance, Mutual Funds, P.P.F, N.S.C., Postal Schemes, F. D.’s and Direct Trading Account. The most of the sells happens without understanding the needs of the Clients. We all buy one or other product which may or may not fulfill our desired financial goals. No product is good or bad but more important is, it should match with our financial expectations. Financial Planning is the process where product comes after the need analysis. This is the recent trend in India, where in Planner charges fees for making the Financial Plan and does not push the product to earn the higher commission.

Financial planners offer unbiased fee based advice which really can help to achieve financial goals. A CERTIFIED FINANCIAL PLANNERCM is “An individual who is Qualified, Certified and Licensed” to give unbiased Financial Planning advice, free of conflict of interest. They take care of all finance related matters just the way a doctor takes care of all health related matters. They look at all realistic financial goals, reviews current insurance and investments and then give road map to achieve financial goals. They make written financial plan with future recommendations in the best interest of client. They educate their clients and update them with recent changes in the tax and other investment laws. They follow a set ground rules of ethical standards and are governed by a neutral body – Financial Planning Standards Boards India (FPSB India). It is also a mandatory requirement to have ‘Continuous Education’ and to be updated with the changes of the finance industry throughout the lifetime of practice as a Certified Financial Planner. Financial Planning does not only help you in achieving your dreams but it also gives peace of mind.

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BUDGET 2012 – Opportunity Missed
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Posted on March 19, 2012 by PankaajMaalde

The Hon’ble Finance Minister Mr. Pranab Mukhrjee presented union budget in the parliament. The budget is neither reform looking nor favorable to common man. The GDP growth for 2011-12 is estimated at 6.9% as compared to 8.4% in preceding two years. India’s GDP growth in 2012-13 is expected to be 7.6% +/- 0.25%. The disinvestment target is set at Rs. 30,000 crores for the 2012-13.  The budgetary deficit is estimated at 5.1% of the GDP i.e. around Rs. 5 lakhs crores which is a big concern. On one hand he has given some direct tax benefits and on the other hand indirectly increased the burden on common man by increasing and widening the service tax base. He has preferred to play safe looking at present political situation.

The main highlights of the budget relating to personal finance are:

► The Income Tax limit in general category is raised from 1,80,000 to 2,00,000, giving nominal benefit of Rs. 2,000 per annum for individuals having income less than 8 lakhs.

► The tax slab of 20% is revised from 5 lakhs to 8 lakhs, to 5 lakhs to 10 lakhs. Individuals having income more than 8 lakhs will benefit from this proposal. Maximum benefit shall be Rs. 22,660.

► The senior citizens are exempt from paying advance tax if they have their income other than business or profession.

► New benefit up to Rs. 5,000 under section 80-D is provided for preventive health check up within the existing limit of Rs. 15,000.

► Proposal to allow individual/H.U.F.’s, a deduction of up to Rs. 10,000 for interest from savings bank accounts.

► New Rajiv Gandhi Equity Savings Scheme is announced which will allow for income tax deduction of 50% for new retail investors, who invest up to Rs. 50,000 directly in equities. The same however is available only to individuals whose income is below Rs. 10 lakhs. The scheme will have a lock in period of 3 years.

► The deduction of Rs. 20,000 for infra bond u/s 80-CCF is not extended.

► For Insurance Policies purchased after 1st April’2012 benefit u/s 10(10)(D) of Income Tax Act, in respect of maturity proceeds of life insurance policies, will only be available if premium paid during any year does not exceed 10% of the sum assured.

► Service tax on traditional life insurance plans raised from 1.54% to 2.06%.

► TDS of 1% in levied on all transaction of property except agricultural land above 50 lakhs in specified cities and Rs. 20 lakhs in other areas.

► ELSS scheme benefit u/s 80-C will continue next year also. DTC proposes to withdraw this benefit.

► The limit for audit raised from 60 lakhs to 1crore for business man and from 15 lakhs to 25 lakhs for professionals.

► The Service tax rate is hiked from 10.30% to 12.36%. Standard Rates for excise duty also raised from 10 to 12%.

► The STT is reduced from 0.125% to 0.1% for delivery of equity shares.

► Customs duty on standard gold raised from 2% to 4%.

► The GST to be rolled out from August’ 2012. DTC postponed for another one year.

Budgetary deficit, Inflation, higher interest rates and political uncertainty still a concern for double digit growth. The coalition dharma politics has taken away the opportunity available to the finance minister. Hike in oil prices in coming days is inevitable.

 

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Birla Sun life AMC launches Gold Fund
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Posted on March 1, 2012 by PankaajMaalde

Birla Sun life mutual fund today launched Birla Sun life Gold Fund. Birla Sun Life Gold Fund (BSL Gold Fund) is an open ended fund of fund (FoF) scheme that provides an opportunity to invest through a simple, secure route. It opens up the opportunity for clients to invest either by way of a single investment or a Systematic Investment Plan (SIP) without the hassle of opening a demat account or a locker for the safekeeping of physical gold. The minimum investment is Rs. 5,000 and after that you can start SIP in this fund with minimum of Rs. 1,000 per month. There is no entry load but there is exit load of 2% if you redeem with in a period of 1 year. The NFO is open from 1st March to 15th March’ 2012 for initial investment. The fund will invest in 95 to 100% in units of Birla Sun Life Gold ETF and 0 to 5% in Debt and money market instruments.

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Single Premium ULIPs – know the tax rules
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Posted on February 29, 2012 by PankaajMaalde

This is last quarter of the financial year and most of the tax payers will rush to buy the product which gives them tax deduction as well as higher returns compared to Bank FDs & other traditional products.  Most of the time tax payers take late decision to finalise tax planning, which results in wrong investment. Single premium ULIPs are aggressively sold as tax cum investment option compared to bank FDs or mutual fund products. Most of the investors buy without knowing tax implication of the products. These products are highly missold in the market as far as tax laws are concern. Generally thinking is that when you invest in insurance policy you get tax dedication u/s 80-C and also maturity proceeds will be tax free u/s 10 (10) (D) of the income tax act. But, this is no true as far as single premium plans are concerned. Let us understand the IRDA guidelines for the single premium plan and also Income tax provisions related to tax deduction and exemption available to insurance products.

IRDA guidelines say that all the ULIP plans other than pension plans shall provide minimum mortality (life) cover. The minimum life cover shall be 125% of the single premium for age at entry below 45 years and 110% of single premium for age at entry of 45 years and above. This is the minimum requirement and no insurance product can be launched without having minimum life cover as stated above. The maximum can be higher than this and every company is free to decide its own set of rules for the same. The fact is even single premium ULIP plans gives the flexibility to choose the life cover between minimum and maximum cover as per plans features. Mostly these plans are sold with minimum life cover to show higher returns in the plan. If you choose higher life cover in the plan than you have to pay higher mortality charges and which will reduce your overall returns. Agents smartly sell these plans on the basis of returns to avoid competition from other traditional products. These plans may give higher returns compared to other traditional investment like bank FDs, Postal Schemes or even PPF. But one also needs to check the tax rules before finalizing the single premium plans.

The income tax rules on the other hand says that to claim tax deduction u/s 80-C,  your insurance premium shall not be more than 20% of the actual sum assured i.e. life cover opted in the plan. This means if you are buying a policy of 1 lakh sum assured than your annual premium should not exceed Rs. 20,000. If your premium is higher than 20% than deduction shall be restricted to Rs. 20,000 only. On the other hand section 10(10)(D) says life insurance maturity value shall be tax free only if the premiums payable does not exceed 20% of the sum assured. It clearly means that if your premium is more than 20% of the sum assured that maturity proceeds shall not be tax free. The maturity amount automatically becomes taxable even it is received from life insurance company. I think income tax authorities must intervene and stop these types of policies wrongly sold in the market with tax benefits. The same also applies to the top up premium paid in the regular ULIP plans.

The premiums in single premium plan sold with minimum sum assured always exceeds 20% of the sum assured and hence are likely to be taxable in the hands of policy holder at the time of maturity. One should be careful before buying the same. It is always advisable to prefer Mutual Fund ELSS Schemes compared to single premium ULIPs as they are eligible for tax deduction and are also tax free in the hands of investor. One should also note that there is a 3 year lock in period in ELSS scheme compared to 5 years in insurance ULIP plans.

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Posted in Life Insurance | 5 Comments