Wednesday, 18 August 2010

ICICI Pru Life's Online Term Cover - I Protect

Dear friends, Earlier it was Aegon Religare's I- Term, the lone player in online Term cover Market but now it has a companion from the big daddy of private life insurers in India - ICICI PRU Life. The product is named as I-Protect. 

Product at a glance -

Minimum /Maximum Age at entry - 20 / 65 years

Policy Term - 10, 15, 20, 25, 30 years

Maximum age at policy expiry - 75 Years (Age completed Birthday)

Minimum Premium - 2000 Rs. (Excluding Service Tax & Education cess)

Accidental Death Benefit (Available with IProtectOption II only) - Equal to basic sum assured with maximum limit to 50L

Premium Payment term - Regular pay

Mode of Premimum Payment - Yearly only

Tax benefit - Prem. paid is eligible for Tax benefit under Section 80C of Indian Income Tax Act, 1961

Available Options - Option I Basic Life cover, Option II Basic Life Cover With Accident Death Benefit Rider

Death benefit - Option I - Basic Life Cover

Option II - Basic Life Cover + Accident Rider Sum  Assured equal to Basic Sum assured or 50L whichever is lower

Instant Life Cover - Policy 'll be issued immediately after realization of the prem. amount by the Ins. Co. for Non Medical Cases.

Maturity Benefit - Being a pure Vanilla Term Cover, there is no maturity benefit.

Offline Purchase - Yes allowed with a slightly higher prem. (To include the commission of Agent/Broker)

My take - I-Protect is a real competitor for Aegon Religare's I-Term. Actually it's better than I-Term. How here it goes - 

Max. Term - 30Y in I-Protect for 25Y in I- Term

Accident Rider - Yes for I-Protect no for I- Term

Offline Purchase - Yes for I-Protect no for I-Term

Maturity Age - 75Y for I-Protect  where as it's 65Y for I-Term

The major plus point with I-Protect, ICICI Pru Life has offices, agents, brokers, bankassurance channels in every nook & corner of India, Hence purchasing the cover online of offline is very easy as compare to Aegon Religare's limited presence.

In my view, if you are planning to purchase your first Term cover or want to increase one, go for this one.

For More info about the product click here.



Monday, 16 August 2010

How to clear name in CIBIL Report?

My name is Ritesh kumar and I requested for my CIBIL repot which I get and I found a “Written OFF” from Standard Charted Bank Credit Card for the amount of Rs 994/-.
From 2005 to 2006 I was using a SCB Manhattan Credit card then I stop using the Card around 2006 last Q, but I continually receiving statement from the bank and every time there are some charge add and till Feb. 2006 the amount where gone up to 3000/- then I write a mail to SCB customer care and get all the settlement (I have a mail from the bank). But my card was not officially close, but also, I never use that card again.
So can you please advice me what should I do now, I wanted to remove “Written OFF” from the CIBIL for me.
Please help

Ritesh Kumar

Dear Ritesh, You have following options.

1. Based upon your settlement of dues done in 2006, write to your Credit Card provider (SCB) & ask to remove your name for Written off from Cibil Report.

2. Wait for the 1 above to happen for at least 1 month or so. If nothing is happening, contact Banking Ombudsman in your area. Click here for more details on Banking ombudsman. 

3. Based upon your settlement of dues done in 2006, you may apply for loan (CAR, Home or Personal). With your application attach the copy of settlement documents. 



Life Cover may Got cheaper

Dear Friends, Please check the link below.



Monday, 12 July 2010

Income Tax saving - Infrastructure Bonds

CBDT has notified New infrastructure Bonds u/s 80CCF.An Individual or HUF can invest in these new infrastructure Bonds upto Rs 20000/- in a Financial years.Main features of this new section and new notification is given below
  1. New section can be availed by individual or HUF only.
  2. 20000/- rs can be invested in a Financial year to avail deduction under section 80CCF
  3. 20000/- Limit is in addition to 100000/- Limit of setion 80C,80CCC,80CCD
  4. Tenure of the Bonds will be 10 Years.
  5. However Lock in period is 5 years ,after 5 years investor can withdraw money from the bonds
  6. After lock in period ,Investor can take loan against these Bonds  
  7. Issuer of the Bonds is LIC,IFCI,IDFC and other NBFC classified as infrastructure company.
  8. Permanent account Number is must to apply these bonds.
  9. Yield of the bond – The yield of the bond shall not exceed the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond.

Section 80CCF of the Income-tax Act, 1961 – Deduction – In respect of subscription to long-term infrastructure bonds – Notified long-term infrastructure bond

Notification No. 48/2010[F.No.149/84/2010-SO(TPL)], dated 9-7-2010

In exercise of the powers conferred by section 80CCF of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies bonds, subject to the following conditions, as long-term infrastructure bonds for the purposes of the said section namely :-

(a) Name of the bond – The name of the bond shall be “Long-term Infrastructure Bond”.
(b) Issuer of the bond – The bond shall be issued by :-
(i) Industrial Finance Corporation of India;
(ii) Life Insurance Corporation of India;
(iii) Infrastructure Development Finance Company Limited;
(iv) a Non-Banking Finance Company classified as an Infrastructure Finance Company by the Reserve Bank of India;

(c) Limit on issuance – (i) The bond will be issued during financial year 2010-11;

(ii) the volume of issuance during the financial year shall be restricted to twenty-five per cent of the incremental infrastructure investments made by the issuer during the financial year 2009-10;

(iii) ‘Investment’ for the purposes of this limit include loans, bonds, other forms of debt, quasi-equity, preference equity and equity.

(d) Tenure of the bond. – (i) A minimum period of ten years:

(ii) the minimum lock-in period for an investor shall be five years:

(iii) after the lock in, the investor may exit either through the secondary market or through a buyback facility, specified by the issuer in the issue document at the time of issue;

(iv) the bond shall also be allowed as pledge or lien or hypothecation for obtaining loans from Scheduled Commercial Banks, after the said lock-in period;

(e) Permanent Account Number (PAN) to be furnished – It shall be mandatory for the subscribers to furnish there PAN to the issuer;

(f) Yield of the bond – The yield of the bond shall not exceed the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond;

(g) End-use of proceeds and reporting or monitoring mechanism – (i) The proceeds shall be utilizes towards ‘ infrastructure lending’ as defined by the Reserve Bank of India in the Guidelines : issued by it ;

(ii) the end-use shall be duly reported in the Annual Reports and other reports submitted by the issuer to the Regulatory Authority concerned, and specifically certified by the Statutory Auditor of the issuer;

(iii) the issuer shall also file these along with term sheets to the Infrastructure Division, Department of Economic Affairs, Ministry of Finance within three months from the end of financial year.

Wednesday, 7 July 2010

Annuity Payment options against Pension Policy

Please guide me as to how to decide about selection of proper option from the following options offered by Pension Plan :

1. annuity as long as one annuitant lives

2. annuity guaranteed for 5, 10, 15 or 20 years and life thereafter

3. annuity with return of purchase price to nominee

4. annuity payable for life increasing at a simple rate of x%

 - Vinayak Bapat

Dear Vinayak, each of the option listed by you has it's own pros & cons.

1. Annuity for life - In this case the annuity amount is highest but the annuity stops the moment, annuitant dies. In this option, If there is a surviving spouse, S/he 'll not get any more annuity from the annuity provider. This Option is beneficial to the persons, where no spouse is there to survive or extra provisions are already there for spouse.

2. Annuity Gtd. for a certain period - In this option, the Annuity is provided for a certain period no matter, annuitant is alive or not during the full period. In case of premature death of annuitant, this option 'll provide annuity till the gtd. period is over. If the annuitant survives the gtd. period, the annuity 'll continue till the death of annuitant & 'll stop after her/his demise. This option is beneficial again for persons, where there is a surviving spouse & there is a history of early death in the family.

3. Annuity increasing with a simple rate of 3% - This type of annuity 'll provide a small cushion towards inflation in the later part of life. The amount of annuity is lower here than the prev. 2 discussed. Here again the annuity stops after the death of primary annuitant.

4. Annuity with return of purchase price - Under this type, annuity is paid first to annuitant till life than to spouse till life & after that the purchase price is returned to the nominees of the annuitant. The payment in this type of annuity is lowest. This is suitable to the persons who wants to leave a fortune for their heirs after their demise.



Saturday, 3 July 2010

Set off of LTCL from Shares against LTCG of Debt Funds

Six Tata Steel preference shares (FV Rs 100 each x 6 = Rs 600) were converted into one equity shares on 01 Sep 2009 by Tata Steel @ Rs. 417.10 (Equity Share closing price on 01 Sep 2009). Earlier the preference shares were alloted on 22 Jan 2008. Thus there is long term capital loss of Rs. Rs 600 - 417.10 = 182.90. Since this was done off market, no STT was paid.

Is it right to consider this loss for offsetting against LT gain from Debt Mutual Funds ( where no STT was paid)?

- Vinayak Bapat

Dear Vinayak, As per the given info, you can set off your LTCL from conversion of Pref. shares against LTCG from Debt fund.



Sunday, 20 June 2010

To 'Default' or 'Not To Default'

Dear friends, here is an interesting article on the subject of  Govt. debt. Although it's not directly related to us, as the subject matter is the US Govt. but in a sense it's applicable to any govt. in the world.

So read & enjoy.



Should I redeem my MFs before DTC

In DTC,LTCG is likely to be taxable,may be @5% or 10%.I have investments in funds like R.Growth,H Top200,D Top100etc for last, say about five years.Should I redeem & then reinvest to avoid tax.Should I switch from R.Growth to RSF Equity?Kindly reply in detail.Thanks,urs sincerely


Dear Dr. Lal, First of all. Plz. note these are mere proposals not the act as of now for DTC. The final picture may be different from what we are seeing today.

Regarding your query for redemption - Sample this -

Say you have total basic investment of 5L Rs. as on date where the with profit value is say 8L Rs. It means 3L Rs. is your profit. Now if you redeem these 8L Rs. in full & reinvest the same in same funds. your holding period 'll be counted from the reinvestment date. So in case in future, just after implementation of DTC, you require money due to any reason, the gains if any 'll be STCG & these STCG 'll be taxable at your marginal slab rate. Now If we consider that you are going to hold these units for a long term & 'll redeem after 4-5 more years in DTC, the LTCG 'll be discounted based upon your holding period. In the example given in the new proposals, it seems, higher the holding period, higher 'll be the discount for calculation of LTCG. 

Now interestingly If you don't take any action, the holding period is already eligible for LTCG & as the period is already more than 5Y (by the time, DTC is implemented), the resultant Tax liability 'll be very low. As now after 8-10 years (5Y current holding + 3-5 year more in DTC), your total holding period 'll invite a high %age discount & thus lower tax outgo.

One more Question I want to ask - Due to these DTC proposals, 'll you stop investing from now onwards? In any case, the future is EET. 

Your query is similar to public behavior - Fill the fuel tank of vehicle just b4 the hike in fuel prices. "ll this tank fill last for life long? NO. In any case we 'll continue to use now so called high priced fuel. Same is here in your query.

Plz. don't worry for now & future. Keep Investing. Yes redemption due to under performance should always be done.

Bye Bye & happy investing.



Wednesday, 16 June 2010

Revised ZProposals of Direct Tax code

Dear Friends, here is a quick view of the new proposals of Direct Tax code.

1. PF, PPF, GPF, EPF, NPS & Annuity Plans as well as proceeds from Term plans (Pure Life insurance) 'll be Tax free as per E - E - E. So no Tax at withdraw from these instruments.

2. Home loan Interest benefit on 1.5L Rs. for self occupied property, is retained.

3. The list of permitted savings intermediaries now includes most of the current saving instruments lile - apart from the instruments listed in point 1 above, NSC, ULIPs & Traditional Plans,  ELSS, Bnak Tax saver FDs, Bonds (Possibly Infrastruture bonds)  etc.

4. Long Term capital Gains from shares & Eq. MFs 'll become taxable.

5. No clarity as of now for the earlier proposed Tax slab rates.

This Revised Discussion Paper is available on the following websites: and
Responses to the Revised Discussion Paper should be sent online through the link provided at these websites or at the following e-mail address: Responses are solicited upto 30th June, 2010.



Tuesday, 15 June 2010

Reliance Infrastructure Fund (D)

i have invested in Reliance infra fund (D) now my 1 yr locking going to over... but return is not good....

plz guide me shall i continue to hold or do STP

if i do STP then give me better fund name of Reliance grp for STP...

i have invested 5K in reliace infra fund....



Dear Cshah, In the light of under-performance of Rel. Infra fund, my choice 'll be to switch your money to Rel. RSF Eq. in Growth Option.



Monday, 14 June 2010

Investing for Daughter's marriage

I' m long term invester through mf via sip n top up time to time when market got corrected 5-6 pc from high i have --rel growth rel.regular saving hdfc top 200 Hdfc prudance birla front n mid cap mainly n one sectorial fund rel banking i m 50 years old n have invested in mf since 2004-5 till i have invested 14L n have handsome gain today i need my money after 4 -5 years for my daughter's marriage at present i have very little responsibility n can invest 30k every month more. pl check my portfolio n advise me--when we start withdrawl , can invest more 1-2 years 30-40k every mone in the above mf or any other pl advise my son got job in this years n start to invest in mf for next20-25 years n start with very small amount --rs 3000pm pl dvise mf for him


Ramesh Sahu

Dear Ramesh, To create a corpus specially for your D'ter's marriage, here is my take.

First calculate what 'll be your expenses, if marriage is 2day in 2010? Say the figure comes out around 10L Rs. Now calculate down the line after 5 years, what 'll be the expenses due to impact of inflation say @ 7% rate. For example the figure comes out around 15L Rs. so that's your cut off point for exclusive corpus with a exclusive goal.

The moment, your current fund value reaches that cut off point, redeem at least 50% of your holdings & invest the same in debt funds. I.e. out of your 15L fund value redeem at least 7-8L Rs. & invest the same in debt funds. On the other hand, keep on investing your fresh SIPs in the funds chosen by you.

When the goal is just one year away, redeem sufficient amount from the funds to create the final corpus with out any problem & invest the same in debt fund.

Regarding your choice of funds, I w'd like to replace Birla Midcap with Quantun LTEF.

For your son, you may ask him to invest 1K Rs. each in following funds thru SIPs

HDFC Top 100
Quantum LTEF



Investment by huf in post office schemes like nsc and kisan vikas patra

I understand that Huf can claim deduction U/s 80 C for nsc. But post office accept applications from individual only. More over now copy of Pan card of applicant is required .Now to claim deduction whose Huf`s Pan card or Karta` s pan card is to be submitted.



Dear Friend, Plz. note, now a days only individuals can apply/purchase NSC & KVPs.

HUF under it's own name can't invest.

If a HUF, wants to invest in NSC or KVP, it may do so only under the name of it's members. In this case, the PAN of the member should be produced while applying for NSC or KVP.



How to buy a house

Please suggest me how to buy a house within next 2 years about 35 -40 lakhs cost. How much do I have to invest monthly and which modalities? I am a 35 year old lady and earn about 1 lakh/month, no dependents, have LIC and mediclaim.



Dear maitricee, If you can save 50K Rs. per month from now onwards for next 2 years, the basic principal amount with you 'll be 24m*50k = 12L Rs. With the addition of some return on your investment, you may expect your corpus value around 14L Rs. 

For a house costing 40L Rs. balance 26L Rs. can be availed from a bank home loan.

You should invest in the following fund - Birla MIP II Savings 5 Plan to save for your target amount.



Saturday, 12 June 2010

Tax liability on the sell of a Gifted property

Sir, At what rate will the sale amount of a freely gifted residential land property by one real brother (who owned it for nearly 20 years ) to another brother (Registry also done in his name last year at the time of gift) suffering from malignant grade 4 brain cancer will be taxed if he has to sell it within 3 years of gift being given? Will the holding period of both the brothers will be clubbed in this case and accordingly will the Capital gains be short term or long term and can purchse of new property/investing in tax free NHAI/PFC bonds after selling it help save Capital gains in this case? Sir, an urgent and precise reply will be of immense help in taking decision to sell or not to sell this property.



 Dear Atul, As the property was hold for 20Y by one brother & then gifted to another brother thru registered transferred deed. For your information, the period of holding `ll be considered from the earlier 20Ys & his own holding period for the 2nd brother as the gift is done between two real brothers & it`s acceptable as per income tax rules.

Now thru an example if i assume that the property was purchased in FY 1988-89 by the first brother, & transferred to 2nd brother in 2008-2009 (20Y holding) & now the sell of the land is executed in current FY 2010-2011, the gains `ll be LTCG & `ll be eligible for indexation.

At the same time, the seller of the plot has the option, to either invest the gain amount to purchase a house or to invest in Cap. Gains Tax saving bonds of RES & NHAI.

Plz. feel free to ask if u need more help.



Thanks a tonne for your reply as I had to post this message here as I was not getting answers over google to my query or on the tax pages over there. Actually my CA told me that there are conflicting rulings from IT department over such issues and I did`nt want the issue to be messed up or to pay Short term Capital Gains tax.So in this light do you advise me with going ahead sell of the said property as I would be requiring money ?



Dear Atul, As the gifting was done between 2 real brothers, the gift in question was an immovable property. The property transfer registration was done in the name of recipient of the gift. All the conditions are fulfilled to be eligible for a valid tax free gift.

So the Long Term gains rule `ll apply counting from the original purchase date of the 1st brother (the donor).

As u r in need of money, u may sell ur property. For Cap. Gains part u have the options -

1. Pay LTCG Tax @ 20.6% rate & use remaining amount as per ur requirement
2. Purchase a residential property, priced at least equal to or more than the LTCG amount.
3. Invest the Gain amount in Cap. Gain Saving bonds of NHAI or REC.



Need Insurance Help

Last year i purchased three LIC policies, LIC Endowment policy, Jeewan Surabhi & LIC money back policy. I paid a premium of around 50000 & they gave me a cover of 14 lakh. It was also told to me that these policies will give me a return of 8%, but now a few of the experts suggested that these policies will just give a return of 4 to 5 %. What should i do. Shall i continue with these policies as they diversify my portfolio, or shall i allow these policies & amount ot lapse& i should start investing in ELSS? All the policies that i have took are for 25 & 30 years. I have sufficient term insurance. Kindly guide me in deciding my tax planning for this yearso that i dont repeat the mistake that i have done.


Nagendra Singh Dhani

Dear Nagendra, from your query, it seems you were mis-sold for the policies, you are referring to. In my view, Stop paying more prem. in these policies.

Uou may divert the prem. amount to a better managed pure Debt fund or a low. Eq. exposure MIP fund like Birla MIP II savings 5 fund. The reason lies in your query that you were using these policies for diversification of your portfolio into debt class.

As you already have sufficient term cover, no need to purchase more term cover.



Accumulating gold for Daughter's marriage

I am 32 years old and I have a daughter of 5 years.I plan to accumulate gold for her when she grows to 25.I used to by 10 gram gold and keep it in a locker from last 2 years , but thats of not much use and a bit risky.I have heard there are some MF schemes which has one unit as one gram of gold and the unit value varies as price of gold in market changes.

Please advise me some best fund where I can invest and my money is not in risk.


Dear Sanjay, For your specific need of accumulating Gold for your Daughter's marriage, I 'll like you to invest in Gold ETF. First open a demat acct. & once your demat acct. is open, you may purchase at least 1 UNIT of Benchmark Gold ETF every month. This way you 'll be able to accumulate 12 unit of the fund over a year. 

Plz. understand 1 UNIT of this fund represents 1 gm. physical Gold of 99.995% purity (24 Carat in normal parlance).

From the current age of 5Y of your D'ter, you 'll be able to accumulate a total of around 240-250 gms of gold over next 20Y.



Mutual Fund Portfolio readjustment

I am 45 years old and I have purchased mutual funds as advised by friends without proper guidance of professionals with lack of knowledge. so please do needful assistance for proper portifolio.My risk tolerance is moderate

SIP Investments:

Sundaram Capex oppourtunities fund Rs.500/-
Reliance Growth fund Rs.500/-
Reliance diversified power sector Rs.500/-
HDFC Top 200 Rs.500/- and HDFC equity fund Rs.500/-
IDFC premier equity fund Rs.2,000/-
DSP BR Top 100 equity fund Rs.1,000/-
DSP Equity fund Rs.1,000/-
SBI Contra fund Rs.500/-

Single investments are :

1. TI Growth fund
2. TI equity income fund
3. FI Tax saver (lock on period completed)
4. TI Short term income fund
5. FI Blue chipfund
6. BSL Mid cap fund
7. BSL Dynamic bond fund
8. Tata P/E ratio fund
9. Reliance RSF balanced fund
10.DSP BR Balanced fund
11.IDFC Imperial fund
12.SBI Comma fund
13.BSL Dividend yield
14.HDFC prudence

thanking you sir,


Dear Anant, as ur risk tolerance is moderate, my choice for u 'll be like this -

Sundaram Capex opp. fund Rs.500/- STOP
Reliance Growth fund Rs.500/- OK
Reliance diversified power sector Rs.500/- Stop
HDFC Top 200 Rs.500/- and HDFC equity fund Rs.500/- OK
IDFC premier equity fund Rs.2,000/- OK
DSP BR Top 100 equity fund Rs.1,000/- OK
DSP Equity fund Rs.1,000/- OK
SBI Contra fund Rs.500/- STOP

1. TI Growth fund - OK
2. TI equity income fund - Switch to TI Growth
3. FI Tax saver (lock on period completed) - Switch to TI GRowth
4. TI Short term income fund - SWitch to TI Growth
5. FI Blue chipfund - Switch to TI Growth
6. BSL Mid cap fund - Switch to IDFC Prem. Eq.
7. BSL Dynamic bond fund - OK
8. Tata P/E ratio fund - Switch to DSP Eq.
9. Reliance RSF balanced fund - Switch to HDFC prudence
10.DSP BR Balanced fund - OK
11.IDFC Imperial fund - Switch to HDFC Top 200
12.SBI Comma fund - Switch to DSP Eq.
13.BSL Dividend yield - OK
14.HDFC prudence - OK



Saturday, 5 June 2010

Tax implication on SEBI IPO Reallocation Payment

Q. - In April 2010, I received payment through ECS, through TSR Darashaw, as payment for SEBI IPO Reallocation Amount, as SEBI identified me as an unsuccessful applicant in one or more IPOs covered under inquiry.
Pls. advise, what are the tax implications, on this payment?
Is it to be considered along with normal income or LTCG / STCG?
Pls. advise,

Pratik N. shah

Ans. - Dear Pratik, In my view the IPO refund money u r referring to u should be categorize as Income from other sources & should be added to ur income from all sources & should be taxed accordingly.

The reasons -

1. it's not ur salary income]
2. It's not interest income
3. It's not capital Gains, as no shares were alloted to u & no profit booking later on those shares
4. It's not ur income from business

As the money received by u does n't fall in the above categories, the only left option is income from other sources.

I hope this 'll clear ur as well as other's doubt.



Financial calculators available on WWW.JAGOINVESTOR.COM

Dear friends, here is the link for financial calculators, available on the website Plz. check these financial calculators at least once.

Mr. Manish the owner of the site has done really a good job.

I'll urge to all of u to visit at least once to his site & get the benefit of his work.



My recent posts on Outlook Money Facebook boards

Dear Friends, here r some of my recent posts on OLM FB Board.



Friday, 4 June 2010

Want to take home loan

Dear Friends, here is the link for my latest discussion on outlook money financial planning facebook board. It's about home loan.

Tuesday, 11 May 2010

Financial Plan for a real life

Dear Sk, as I promised ur Financial plan is ready & given below.

Mr. X (SK), an Ex Indian Navy man, is currently working as an Electrical Engineer in a pvt. Shipping co. belongs to a small city in South India. Family consists of his wife Mrs. Y, & a Daughter Baby Z. On his request, a detailed analysis of his present financial condition was done. The result of analysis & corrective action recommended are given below.

The Present Condition:-

At present, Kumars are residing in a rented accommodation & they have planned to live there for at least next 7-8 years till their dream of constructing their own home is over. At present their investments in Debt (PF, PPF, FDs etc) & in Investment oriented Life Ins. Policies represents a major chunk of their investments. On assets sides there are two Residential plots out of which one ‘ll be used to construct house. To make future calculations, Income of only Mr. SK has been considered.

The inflation rate has been taken as 7%, Increase in living standard as 2% every year & Income rise is taken as 10% per annum. Life expectancy of both (Mr. & Mrs. SK) has been taken 85 years.

What are they saving for:-

At present Kumars are saving for following goals in chronological order.

  1. A house current construction cost 35L Rs. as early as in 2017.
  2. Financial provisioning for education, career & marriage expenses of Z
  3. New Vehicle in 2018 for current cost 6L Rs.
  4. Retirement after above goals r over & sufficient provisioning is there to live a comfortable retirement life.
  5. Apart from above goals, a one time dream vacation of current cost 2L Rs. possibly in 2011.

The Cash Flow :-

The current monthly income is 113000 Rs. (it includes Salary + Pension + Interest).

Out of which no mandatory deductions are there.

So the Net monthly take home income (NMI) is 113000 Rs.

The living expenses are appx. 21.5% of NMI. A very good sign & indicates that almost 78-80% of ur NMI u r saving.

Currently No Loan is there hence EMI value is zero.

Ins. Prem. (Gen. + Life) is about 30.9% of NMI.

MF SIPs/RDs mly investments are around 22% of NMI

Net Monthly Cash Surplus is appx. 25.6% of NMI, A very healthy sign.

Current Assets & Investments:- Current assets includes gold valued 5.25L Rs. in the form of jewelry of Mrs. SK, Bank/Co. FDs 8.9L Rs., NSC 10K & RD 11K form the Debt part of the portfolio. Direct Eq. (Shares) are around 20K Rs. & Eq. MF 3.5L Rs. which together form the Eq. part of portfolio. Apart from this there is Insurance fund value of appx. 23.5L Rs. out of which 20.5L Rs. in Eq. linked ULIPs & 3L Rs. in debt based traditional plan. So adding the Ins. Fund value in other investments, the changed Assets & Investments situation is like this –

Plz. Note in the above calculation, for real estate, only the investment oriented 1800 Sq. feet plot value has been considered as u r going to use the bigger plot (6400 Sq. Ft.) for self consumption & it 'll remain that way. .

Combined current valuation of all assets & investments is appx. 46.5L Rs.

Protection:- Currently Mr. SK is covered for 72L Rs. Out of which 16L cover is from Aviva life long, which is to be dropped finally. So the net cover as on date ‘ll be around 56L Rs. Neither Medical ins. nor accidental insurance for self or family is there.

Liabilities:- No loan is running so loan related liabilities r nil as of now. Future financial liabilities in the form of children’s Edu., Career & marriage Exp. are there. Mr. SK intends to construct a house of valuation 40L, in future from his own money (as per his own estimate in 2017).

Path to be taken:-

Here is the future journey path of their financial nirvana.

First of all please keep amount equal to 3 months’ expenses (Living, Ins. Prem., MF SIPs) appx. 80000*3 = 240000 in your bank account for immediate liquidity in case of emergency. Try to put this amount in ur saving bank account where u have SWEEPING FD facility. Apart from it keep another 3 months’ expenses amount in Liquid plus funds for emergency.

1. Protection:- On detailed checking of lifestyle, future goals & future loan liabilities, the current Lifecover (all thru investment oriented policies) is not a good thing & the same is falling short of actual need. First of all I'm discussing for current policies.

Bajaj Unit Gain – Although policy is in wife's name but u r paying the prem. Action taken by u already as advised in mail.

Aviva Life Long – surrender this policy

HDFC traditional Endowment plan – Surrender this plan as the current surrender value is just around ur break even point

Birla Children plan – Opt for prem. Holiday. After surrendering all these policies. Ur new Sum assured from all these plans 'll be like this 40L from HDFC Y'star Ulip & 6.44L from Birla children Plan. Total around 46L.

Future requirement of Life insurance is as below.

1. In case of Home Loan, take a term Plan equal to loan amount in future as & when u r constructing the house thru home loan. The details on home loan r discussed in the Home topic.

2. Use HDFC Young Star ULIP's Sum assured for expenses of child Education & career. So keep on paying prem. Year after year with out fail.

3. Total 40L Term Plan for marriage expenses of Z. 25L term cover for age 57, to be taken from IPru Pure Protect Elite. 15L term cover from Aviva – Life Shield Plus for age 52.

4. To cover living expenses of ur family adequately in ur absence, Take 50L term cover for age 60 from Aegon Religare's I-Term. & another 50L Term cover from Kotak Preferred Term Plan. Take these plans immediately.

Please note, While selecting Term plans, importance is given to have the cheapest term cover or next to cheapest cover & over all to have a mix of covers from different Ins. Cos. You may discuss (if u feel that the idea is not at all comfortable with u) in detail.

Purchase a Family Floater mediclaim policy for ur family's medical expenses of at least 5L cover. The prem. paid by you for this policy is eligible for Tax benefit under section 80-D for max. limit of 15000 Rs.

As & when u purchase ur house, Insure it with a House Holder (HH) policy from IFFCO Tokio General Insurance Co. with detailed covers of building for earth quake, lightening, floods & terrorists activities for current market valuation of ur property, fixtures & furniture, electrical equipments & appliances for theft & break down, Jewelry for upto 50K in house against theft & loss in traveling. With this HH policy, plz. take accidental insurance of 10L for urself & 5L for ur wife. While Taking this policy, try to take 7-8 sections to get maximum discount on prem. Plz. take this policy for an year only & renew the same for market value of ur property year after year. Plz. keep the purchase documents of ur jewelry, electrical & other equipments safely as these ‘ll be required at the time of claim if it happens. Apart from 50K valuation, keep remaining jewelry in bank lockers.

I’m advising for specific cover of 50K for jewelry as beyond this amount the Ins. Co. ‘ll ask u to provide purchase & valuation details of the jewelry, which ‘ll be quite problematic to u, as I think a major part of this is received as marriage gift by Mrs. Karthika.

2 Home:- As of now u are planning to purchase another plot as an investment, Plz. Don't do that. The reason is ur current financial condition as well as future liabilities r not allowing u to do it. Also ur family is still living in a rented accommodation. So ur first priority should be to construct a house on ur plot. There is more logic in doing so immediately, say after 2-3 years from now onwards, something happens to u, & ur family is still living in rented house, then how ‘ll they live like that continuously in ur absence & how ‘ll ur wife, construct the house?

For construction of house, start the work immediately. Use 5-6L Rs. From ur Fds for ur own contribution & for balance amount go for a home loan of 24-25L Rs. Based on ur income level, any bank 'll finance u easily. My preference 'll be SBI & within SBI the specific product 'll be Max Gain home loan. For details on SBI Max. Gain home loan, u may discuss in detail after going thru the plan. Go for a 20Y loan term as of now. The appx. EMI 'll be around 21K Rs. As of now which is very much within the limit of ur mly cash surplus amount.

Don’t forget to insure ur house property at the time of completion of construction for its fair market value & renew the same every year.

P. S. As u r liquidating a part of ur FDs for construction of ur house, ur Interest income ‘ll come down & so do ur total mly income (Salary + Pension + Interest ). The reduction ‘ll depend upon how much money u r pulling out from ur FDs. & also what Interest rate FDs u r redeeming.

3 Child:- From ur own reply, u r planning to save 5L Rs. in today’s value for career related expenses of Z. So the obvious thing is u r planning to shoulder the responsibility of normal education of Z from ur own pocket. Keeping in view the spiraling cost of education, ur future expenses on this ‘ll increase in a big way. So I’m calculating that a education funding corpus is created which ‘ll cover all these education related expenses.

Back of the envelope calculation shows that a one time investment of around 24L Rs. growing @ 15% growth rate can easily cover education expenses from nursery class to professional education. The calculation also indicates that the current HDFC Y’star ULIP of 2L yly prem. can sufficiently do all this thing. So u need not to worry for education & career related expenses of Z.

For Z's marriage & as a back up for edu. & Career expenses of Z in case there is a short fall from HDFC Y'g Star ULIP. Start investing 10K Rs. monthly in Eq. MFs & balanced funds. Increase this amount by 2000 Rs. Every year. U 'll wonder from where this amount 'll arrive, My dear friend, the prem. Saved from surrendered policies is the answer. The saved prem. Amount is almost 2.5L Rs. Yly. So after investing 1.2L Rs. yly for Z’s marriage & Education back up, u r still left with 1.3L Rs. spare cash yly.

Keeping in view the current gold holding u have, no separate provisioning is advised to accumulate gold for Z’s marriage. I’m open for discussion on this if u want to.

4 Vehicle:- Invest 11K Rs. (from remaining Prem. saved amount) Mly in MFs, primarily in balanced funds to save for ur dream vehicle. @ a conservative growth rate of 12%, within next 4 years i.e. around 2014, u ‘ll have enough cash in ur pocket to purchase ur dream vehicle with ur own money.

5 Retirement:- For post retirement life, life expectancy is assumed up to age 85 both U & Mrs. Y. Inflation rate of 7% is taken as basis for calculating post retirement life expenses. An increase in ur life style @ 2% per annum is also considered from current level for calculation of retirement corpus.

Ur current mly expenses are around 25000 Rs. out of which 4K Rs. is the house rent, which ‘ll not be there as & when ur own house is completed. So the net living expenses r around 21000 Rs. only. After retirement, there ‘ll be reduction of appx. 35% in this figure so ur post retirement life, mly exp. ‘ll be around 13650 Rs. in current value.

The Corpus required for your retirement is appx. 3.9Crore Rs. Out of which your current investments in Fds (less withdraw for House construction), Policy surrender amount & current Shares & Mfs investments (total 12L) as well as the 1800 Sq. Ft. plot (current valuation taken as 5L Rs.) are considered as starting capital. The growth rate for these 17L Rs. from now onwards is taken @ 8.5%.

The monthly amount to be invested for creating retirement funds is 1.55L Rs. Mly if u opt to retire @ age 50 @ 15% growth rate for this new investment from now onwards year after year.

That’s the reason enough to show u that u can’t think of retiring @ age 50.

The monthly investment requirement for retirement funds is 25K Rs. Mly if u opt to retire @ age 60 @ 15% growth rate for this new investment from now onwards year after year. U r already investing almost the same amount in MFs/RDs as of now. So the question remains only to go for the correct choice of MFs.

Till your age 50 the major portion of retirement funds ‘ll be in Pure Eq. MFs. From then onwards divert ur fresh investments in balanced funds & also bring down your pure Eq. holdings to 40% till u reach age 55 in favor of balanced funds. At the time of retirement have a mix of Pure Eq. MFs, Balanced, MIPs, Fixed Income instruments. No morecomment as of now for exact % of individual instrument at the time of retirement.

5 Vacation:- As of now plz. Skip ur vacation plan for at least the construction of ur house is over within next 18-24 months. We ‘ll revisit in between to provide funding within ur overall cash flow to go for a vacation.


List of MFs‘ll be provided after getting your review on above financial plan.

All the above analysis, planning & advises there on, are based on ur current salary structure.

Please feel free to ask whatever doubts, questions you have.

I wish for best of your future life. Happy Investing.

Please take good care of yourself & your family.


Ashal Jauhari.

Friday, 23 April 2010

ULIP v/s Term + PPF combo

Dear Friends, I tried to generate a BI on LIC website for their Money Plus - I plan for the following data but I'm unable to generate the same.

Age 30
Policy term 25Y
Prem. amount 50K yly
Sum assured 15L

For the same person, I generated a quote from LIC Anmol Jeevan Term plan, the prem. in this case comes 5732. Now instead of investing the remaining prem. of 44268 Rs. in a MF, I opted to invest in PPF, one of the most secured investment vehicle. At the end of the term of 25Y, the maturity amount in PPF is 34.95L Rs. i.e. almost 35L Rs. without riding any risk of Eq. market for a common person who don't understand all the financial nitty gritty.

Remember Money Plus -I is a Type 1 Ulip, so the family 'll receive only the higher of Sum assured or the fund value. But in this case for the combo of Term plan +PPF, the family 'll receive Sum assured of full 15L Rs. from the term plan & of course the fund value in PPF.

Now to equalize fully with type - 1 ulip, I opted for a split term cover like this, to save on mortality charges.

5L cover for term 25Y - prem amt. - 1911
5L term 20Y - 1614
5L term 15Y - 1406

In initial years the total prem. outgo is 3525 Rs. per annum, amt invested in PPF is 45069.

After completion of 9years the PPF corpus is already more than 6L Rs. so from 10th year, I stopped paying prem. for 15Y policy & diverted to PPF itself.

So the changed equation from 10th year is Term plan prem. outgo 3525 & PPF contribution 46475.

Again after 14 year the value of PPF is 11.87L Rs. so I stopped paying prem for 20Y policy & diverted this prem. too to PPF.

So the changed equation from 15th year is Term plan prem. outgo 1911 & PPF contribution 48089.

Finally after 17 years as the PPF value is 16.64L Rs. I stopped paying for 25Y policy & full money is going to PPF.

At the end of 25Y term, the PPF value is 36.55L Rs.

Plz. post ur comments.



Saturday, 13 March 2010

Tax rate on Long Term Capital Gains

Q. If my only income is property (NormalMale)L.T. Gain-3.5 lac for Ast. Y.09-10,what rate be taxed.Whole @20 or for 3.00-lac@10% & for Bal.50000/-@20%? - Mohit gupta

Ans. Dear Mohit, Here I assume the gain amount of 3.5L Rs. is indexed gain amount. If not calculated already plz. calculate the same. Now comes the question of tax rate on ur indexed LTC gains. Plz. note as ur only source of income is this LTCGain amt. U may set off ur basic exemption limit of 1.6L Rs. so u w'd have to pau Tax on remaining Gain amount = 350000-160000 = 190000 Rs.

As the Indexed LTCGs are taxed @ 20.6%, for ur LTCG the Tax = 190000 * 20.6% = 39140.



Thursday, 11 March 2010

Guaranteed income for a lady with zero risk tolerance

Q. - My friend`s sister is getting married at the age 43. After having worked in many companies she was able to save an amount of Rs. 69 lakhs. All this amount is parked in FDs in a few banks. After marriage she does not plan to go to work, but is insistant that financialy she wants to be independent and wants to receive fixed income from the proceeds of the 69 L throughout her life. She says she cant take any risk with her saved funds. Can she approach an insurance company, say LIC or HDFC Standard Life and buy annuity for a term of 30 years ? If yes, what could be the monthly amount ? She is very clear she does not want to invest in shares or life insurance, as the husband will, through his income will cover for insurance etc. Please help. Thanks, Y Pal.

Ans. Dear Y pal, Here is the path.

1. Invest 4.5L Rs. in POMIS to earn 3K Rs. mly.
(a) Invest around 10L Rs. in LIC`s Jeevan Akshay VI plan Option (i). It`s an immediate annuity plan. the mly. earning `ll be around 6800 Rs.
(b) Invest around 10L Rs. in LIC`s Jeevan Akshay VI plan Option (ii). the mly. earning `ll be around 6400 Rs.
(c) Invest around 10L Rs. in LIC`s Jeevan Akshay IV plan Option (iii). the mly. earning `ll be around 6000 Rs.

Till now around 35L Rs. r invested & she is able to earn a gtd. income of appx. 22K Rs.

For remaining 34L Rs. invest 20L Rs. in Bank FDs of various term say 1,2,3Y for her emergency & liquidity needs.

For Last 14L Rs. invest the same in Birla MIP II savings 5 Plan (growth option) to give a kick in return for her future life against impact of inflation.

As u said she is risk averse on her capital, I have not advised any higher Eq.% related instruments. In case of Birla MIP, the max. Eq. component is limited to just 5%.



Q. - Superb ashalanshu ! I will convey your suggestions verbatim to her. Thanks a lot. Regards, Y Pal.

Ans. - Dear Y Pal, thanks for ur regard & joy. Now onwards the most important work starts. Knowing the kind of money the lady in question has, the agents of LIC as well as other Ins. cos. executives of Banks etc. all `ll try their level best to sell some thing which is not meant for her. So she should remain straight in her demands of products.

There is one important thing - from the gtd. mly income of around 22K Rs. her annual gtd. income `ll be around 2.65L Rs. Now add the Bank FD interest to it (from Bank FDs of 20L Rs.) her total income in all probability `ll be around 4L to 4.25L Rs. I assume she may earn around 1.25L to 1.75L Rs. interest on these bank FDs (interest rates r going up). It means she w`d have to pay income tax. But as per the proposed budget for FY 2010-2011, she may invest a max. of 1.2L Rs. in section 80C instruments & another 15K Rs. in mediclaim policies under section 80D. thus total investment in Tax saving instruments `ll be around 1.35L Rs. & her net income (post Tax saving investment) `ll be 2.65L to 3L Rs. As her age is only 43Y, her zero tax limit is 1.9L Rs. Above this she w`d have to pay Income Tax @ 10.3% rate = 8 to 11K Rs. as Tax. appx.

Post Tax her net income for consumption `ll be around 2.55L to 2.9L Rs.

Now comes the last question, where to invest for 1L rs. of 80C Tax saving?

Ask her to open a PPF acct. if not opened already & to deposit the max. possible 70K Rs. from 1st to 5th april @ the start of every FY. For remaining 30K she may invest in ELSS (Tax saver MFs) if she is ready to take this small amount of money on risk otherwise the Tax saver bank FDs r the final way.



Q. - Thanks ashalanshu once again. So kind of you. I dont think she has done so much forward planning which is to invest the returns from investments into tax saving 80C. Even I did not think from the tax saving angle. Thanks for your kind help. Regards....Y Pal