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2017-09-16T04:05:00.002-07:00

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2017-09-08T02:45:00.000-07:00

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2017-06-27T05:01:00.000-07:00

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2016-06-19T22:37:00.002-07:00

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2015-06-25T02:27:00.002-07:00

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Can you bear the cost of cancer treatment? Find out how to buy the best cover

2015-06-25T02:11:00.000-07:00

There are few things more alarming than battling cancer. One is not having the money for its treatment. Given the recent spike in incidence of cancer and its treatment costs, this could soon be a reality than mere speculation. According to the World Health Organisation (WHO), nearly 10 lakh new cases are reported in India every year.

More disturbingly, nearly 5 lakh people die annually of cancer, and WHO expects the number to go up to 7 lakh by the end of 2015. The incidence is projected to rise five-fold by 2025 and the prevalence is likely to increase to 19% in men and 23% in women by 2020.

While the risk of dying from cancer before the age of 75 years is only 7.1%, according to Globocan 2012, an international cancer research project, insurers claim that one in five cancer claims is by those between 36 and 45 years of age. This means that the disease is set to disrupt the family's finances due to the loss of a source of income.

According to a 2004 research on the economic burden of cancer on Indian households—by Anup Karan, Ajay Mahal, Victoria Y. Fan and Michael Engelgau—the spending in a cancer-afflicted home was 36-44% more than in other households with similar demographics.

Their borrowings and debts were also higher. In the past 10 years, these costs have risen significantly (see Rise in treatment cost), which means that cancer care cost is likely to shoot out of reach for millions of Indians. "The costs have gone up due to more expensive infrastructure, new technology-based investigation costs and newer drugs," says Naresh Parmar, CEO, Karnataka region, Apollo Hospitals BSE 1.23 %.

A skewed doctor-to-patient ratio (one for 2,000 patients) worsens the situation. Specialists are not only hard to come by but are expensive as well. The high-risk scenario not only calls for ways to prevent the disease and undertake regular check-ups for early detection, but also adequate financial security to tackle the treatment costs, both in early and late stages. While there are several players in the insurance market offering a variety of products to combat the costs, it is not easy zeroing in on a single product. In the following pages, we shall not only provide the insurance options that can help you cover the disease, but also the ones that will suit your needs the best.

WHY INSURANCE IS ESSENTIAL

Though there has been a rise in demand for health insurance products, India continues to have the highest levels of under-penetration in the world, with only 0.16% of the total population insured for health, as per Irda. Little wonder then that 70% of healthcare expenses are met from one's pocket. Since cancer care is long term in nature, it also translates into a recurring expenditure. This has a huge financial implication for the family, making it imperative to buy insurance. Keeping pace with the surge in incidence of cancer, new products with special features and higher covers are being launched by the insurance industry.

You can pick from the regular health policy that covers hospitalisation expenses, critical illness covers that insure a range of diseases, including cancer, and lastly, specialised cancer care products. However, before we list the advantages and drawbacks of each option, it is important to consider the benefits of screening or preventive check-ups for cancer.

IMPORTANCE OF SCREENING

If detected early, cancer treatment is not only effective, but the costs are lower too. You can also avail of the tax deduction of up to Rs 5,000 annually under Section 80D for such screenings (see Early screening, low cost).

"Prevalent cancers, such as cervix, breast, colon, lung, prostate, ovary, etc, can be detected through routine screening. A definite improvement in survival has been established due to screening programmes in case of cancers like breast, cervix and colon," says Parmar.

Typically, however, patients approach a doctor or an oncologist only when the disease has advanced, making treatment more expensive and survival less likely. "In India, 70% of cancers are detected in advanced stages. Voluntary screening is abysmally low even among the educated," says Parmar. Genetic screening, the result of technological advancement, has made it possible to avail of targeted therapies that are much more effective.

However, these are also more expensive. For instance, the average cost of treatment forbreast cancer through a private practitioner would be Rs 5-6 lakh, including investigations, surgery and radiotherapy. However, with targeted therapy, six cycles of chemotherapy can cost up to Rs 20 lakh. More the reason that you consider the various insurance options available to you.

TYPES OF INSURANCE PRODUCTS

Health insurance policy

A regular health plan, be it individual or family floater, is an indemnity policy that covers the medical expenses incurred during hospitalisation. So it pays for the costs as long as it is within the sum insured limit. It covers all major critical illnesses, including cancer, but the waiting period is usually 3-4 years of continuous policy renewal.

However, there are two big drawbacks of such a plan. One, it comes at a high price. So, a Rs 10 lakh indemnity policy for a 30-year-old costs around Rs 10,000 a year, compared with a dedicated critical illness cover, which costs only about Rs 3,000. Even if you try to make it economical by buying a floater cover for two adults, it will cost you Rs 15,000 annually, but a critical illness plan for two would cost around Rs 6,000 per year. This is because the health plan takes bigger risks and covers a wider range of ailments.

It will pay for your hospitalisation bill along with the cost of treating a major ailment, whereas the critical illness plan will pay only in case you are diagnosed with one of the acute illnesses.

Two, since such a cover has sub-limits and caps for various heads like room rent, doctor's fees, medicines, intensive care and ambulance charges, it usually doesn't cover the entire expense of hospitalisation and the patient ends up paying from his own pocket.

It also fails to cover the full cost due to the recurring nature of medical care and expenses. Also, if you want to consult a facility or specialist outside India, it will not be covered by most health plans. "The average size of a health cover is around Rs 5 lakh, which might be able to take care of the initial cost of treatment or provide for generic treatment of breast and cervix cancer.

However, where the cost is higher, you would need a special critical illness plan that can foot bigger bills," says Sanjay Dutta, Chief Underwriting Officer, ICICI Lombard General Insurance. Critical illness covers A dedicated critical illnesses (CI) plan provides a wider cover against a range of diseases at a competitive price.

Since an acute illness can also mean loss of income, prolonged domiciliary care and change in lifestyle, the financial burden could include more than hospital bills, which is beyond the scope of an indemnity plan. The CI policy pays a lump sum on the diagnosis of 20-30 critical ailments listed in the policy document. The lump sum can be used as per one's requirement, be it to pay for the expensive treatment or recuperation aids.

You won't require a hospital bill to make a claim as in the case of a regular health plan. This plan comes with a waiting period of 90 days and a critical illness discovered during this period is not covered. This also does not offer lifelong renewability, implying limited coverage in terms of tenure.

It can be bought as a standalone policy or rider. "The rider is cheaper since it is pushed as an add-on with a base product and there is no additional operational cost," says Dutta. The only disadvantage is that it is attached to another plan and if you want to discontinue the base plan you'll have to give up the CI cover as well.

Also, riders do not offer a high sum insured, usually up to Rs 5 lakh, while a standalone CI plan generally offers the options that range from Rs 15-50 lakh. The biggest drawback is that such plans cover cancer only at an advanced stage. "While the plan may cover your first heart attack and entry stage kidney disorders, even pay for dialysis, it will pay for cancer only if the malignant tumour shows uncontrolled growth, with invasion and destruction of normal tissues—an advanced stage," says Sudhir Sarnobat, CEO,Medimanage, a health insurance consultancy firm.

Cancer care products Recently, HDFC Life introduced a dedicated cancer care plan that covers early stages of cancer. The insurer pays 25% of the sum insured at initial stages and 75% or 100% at an advanced stage, depending on whether a claim was made at the early stage. The plan can be renewed up to 85 years and is reasonably priced. A Rs 20 lakh cover for a 35-yearold would cost only Rs 1,800 per year and the maximum cover size available is Rs 40 lakh.

"A regular critical ailment plan provides only a lump-sum benefit, whereas the cancer care product provides this benefit along with a waiver of future premiums. The plan also provides an indexation benefit which takes care of medical inflation," says Sanjay Tripathy, Senior EVP, Marketing, Product, Digital & E-Commerce, HDFC Life.

The premium variant of the plan also pays an additional 1% of the sum insured for five years on diagnosis of cancer at an advanced stage. The ICICI Pru Life had come out with a similar cover, but this has been withdrawn. Though a fantastic proposition at an inexpensive price point, the downside of such plans is its USP as pitched by insurers: it is a targeted, cancer-only product.

WHAT SHOULD YOU BUY?

How should you secure yourself against cancer treatment costs? While a health insurance plan will not be sufficient, one needs to buy it to cover hospitalisation risks for other ailments.

So, you can depend on it for paying the initial surgical and generic treatment costs. The best part is that it comes with lifelong renewability. However, you'll need a bigger cover if there is a need for specialised treatment.

Buy a critical illness plan instead of a dedicated cancer care product to take care of the costlier treatment. Cancer is not the only ailment that threatens us. Lifestyle-related risks include heart ailments, diabetes, kidney and liver-related illnesses. Hence, a wider coverage would be a wiser pick.

You could buy a dedicated plan only if you fall in the high-risk category of people suffering from cancer, say, those with family history of the disease or those who are heavy smokers or tobacco users. About 35-40% of cancers are related to the use of tobacco. In such a case, paying an additional Rs 2,000 or so a year as premium may be worth it. Currently, the only gap in the product range is a policy that covers one after the detection of the ailment.

"We already have plans that insure heart and diabetic patients. There is no reason why insurers will not introduce a similar product for cancer as well," says Dutta optimistically.

ET Bureau | 22 Jun, 2015, 08.45AM IST

10 Tips For The Successful Long-Term Investor

2015-05-06T08:47:00.003-07:00

While it may be true that in the stock market there is no rule without an exception, there are some principles that are tough to dispute. Let's review 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know.

1. Sell the losers and let the winners ride!
Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:

Riding a Winner - Peter Lynch was famous for talking about "tenbaggers", or investments that increased tenfold in value. The theory is that much of his overall success was due to a small number of stocks in his portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. (For more insight, see Pick Stocks Like Peter Lynch.)
Selling a Loser - There is no guarantee that a stock will bounce back after a protracted decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.

In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses. (For related reading, check out To Sell Or Not To Sell.)

2. Don't chase a "hot tip".
Whether the tip comes from your brother, your cousin, your neighbor or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so; do your own research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run. (Find what you should pay attention to - and what you should ignore in Listen To The Markets, Not Its Pundits.)

3. Don't sweat the small stuff.
As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few cents difference you might save from using a limit versus market order.

Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself. (Learn the difference between passive investing and apathy in Ostrich Approach To Investing A Bird-Brained Idea.)

4. Don't overemphasize the P/E ratio.
Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued. (For further reading, see our tutorial Understanding the P/E Ratio.)

5. Resist the lure of penny stocks.
A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you've lost 100% of your initial investment. A lousy $5 company has just as much downside risk as a lousy $75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it. (For further reading, see The Lowdown on Penny Stocks.)

6. Pick a strategy and stick with it.
Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-orientedstrategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed. (Want to adopt the Oracle of Omaha's investing style? See Think Like Warren Buffett.)

7. Focus on the future.
The tough part about investing is that we are trying to make informed decisions based on things that have yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.

A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with Subaru demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought Subaru after it already went up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that." The point is to base a decision on future potential rather than on what has already happened in the past. (For more insight, see The Value Investor's Handbook.)

8. Adopt a long-term perspective.
Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.

Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire. (For further reading, see Defining Active Trading.)

9. Be open-minded.
Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps; over the decades from 1926-2001, small-cap stocks in the U.S. returned an average of 12.27% while the Standard & Poor's 500 Index (S&P 500) returned 10.53%.

This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Dow Jones Industrial Average (DJIA), and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains. (For more on investing in small caps, see Small Caps Boast Big Advantages.)

10. Be concerned about taxes, but don't worry.
Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision (see Basic Investment Objectives).

Conclusion
There are exceptions to every rule, but we hope that these solid tips for long-term investors and the common-sense principles we've discussed benefit you overall and provide some insight into how you should think about investing.

10 Tips For The Successful Long-Term Investor

2015-05-06T08:47:00.001-07:00

Riding a Winner - Peter Lynch was famous for talking about "tenbaggers", or investments that increased tenfold in value. The theory is that much of his overall success was due to a small number of stocks in his portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. (For more insight, see Pick Stocks Like Peter Lynch.)
Selling a Loser - There is no guarantee that a stock will bounce back after a protracted decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.

TESTIMONIAL FROM MY CORPORATE CLIENT

2015-04-16T02:33:00.001-07:00

HEALTH INSURANCE FOR SENIOR CITIZEN & PRIORITY OF MEDICLAIM & VIP PLAN WITH DENTAL & MATERNITY EXP

2015-04-15T04:59:00.000-07:00

START YOUR SIP IN ADVANCE TO AVOID LUMPSUM INVESTMENT IN MARCH .

2015-04-15T04:53:00.000-07:00

5 best ways to save tax at the last minute

2015-03-29T03:34:00.000-07:00

Invest in ELSS

Equity-linked savings scheme ( ELSS) funds do not require recurring payments. You do not have to pay in subsequent years if you realise that the fund does not suit your needs. Moreover, you can easily invest online if you are KYC-compliant.

All you need to do is visit websites that track mutual funds. Identify the fund with the help of ratings given and log on to the selected fund house's portal to invest.

You will have to register on the site by providing the information asked for and click on the 'invest online' link. Next, select the scheme identified, choose its direct plan version and pay. The acknowledgement will serve as proof of investment.

Tax benefit: Exemptions up to Rs 1.5 lakh under Section 80C

Taxability on maturity: Exempt

Buy online term policies

Term insurance offers a large cover at a minuscule cost. Online term plans are also cheaper than physical term products. The buying process is simple and requires an hour. As the online process does away with the need for an agent, no part of your premium is directed towards commissions.

Check the insurer's claim settlement record. To buy, visit the selected life insurer's portal and furnish personal information, nominee details, income level and so on. The process is completed with payment of premium, unless you have to undergo medical tests. The premium receipt will suffice to claim tax deductions.

Tax benefit: Exemptions up to Rs 1.5 lakh under Section 80C

Taxability on maturity: Exempt

Secure your health online

Several companies and aggregators facilitate purchase of health insurance policies online. Cases which do not require pre-policy medical check-up can be bought online in an hour. Typically, insuranceseekers under 45 without any adverse health history do not need to go through medical tests.

However, it's best to buy a health cover now to ensure that the entire process is completed before March 31 as those over 45 will have to wait till the policy is issued post-medical tests.

Tax benefit: Deductions up to Rs 15,000 under Section 80D (Rs 20,000 for senior citizens)

Taxability on maturity: NA

Invest in a tax-saver deposits

A popular instrument, it is simple to invest in one if you are registered for Internet banking. All you have to do is open a five-year tax-saver fixed deposit by transferring funds from your savings account. The FD receipt mailed to your account will serve as proof for claiming tax benefits.

However, not all banks allow customers to open a tax-saver FD online, even though the facility is enabled for regular FDs.

Tax benefit: Exemptions up to Rs 1.5 lakh under Section 80C

Taxability on maturity: Interest earned is taxable

Opt for PPF and NPS

PPF is best-suited for those with a low risk appetite. You can open a PPF account with online facilities through some banks, but you will have to submit your application form and KYC proof in person at a branch. Subsequently, you can transfer funds online through your linked savings bank account.

From the next financial year, NPS will offer an additional tax break of up to Rs 50,000. Opening of the account still entails cumbersome paperwork and visits to points of presence authorised by the Pension Funds Regulatory and Development Authority.

Tax benefit: Exemptions up to Rs 1.5 lakh under Section 80C

Taxability on maturity: PPF Exempt; NPS Taxable

Source - ET Bureau | 23 Mar, 2015, 03.29PM IST

10 things to know about the New Pension System

2015-03-15T05:49:00.001-07:00

Here are a few basic features of the retirement scheme run by the PFRDA...

1. How and where to open an account?

Any resident Indian or NRI aged 18-55 years can open an NPS account at a point of presence (POP). This can be a post office, a bank or a distributor. You will have to get a Permanent Retirement Account Number to open an NPS account.

2. Minimum investment

The minimum investment is Rs 6,000 in a financial year. The minimum contribution is Rs 500 per transaction. There is a transaction charge of 0.25% or Rs 20 (whichever is higher) on every transaction. There is no maximum limit for investments in NPS, though the tax deductions on such contributions are capped.

3. Investment options

There are three types of funds in the NPS. The E class funds are equity funds and invest in Nifty stocks. The C class funds are debt funds that invest in corporate bonds. The G class funds invest in government securities. Investors can choose their asset mix but allocation to equity funds cannot exceed 50%.

4. Tax deductions available on NPS

The NPS offers tax deductions under various sections. These are:

80CCD
Rs 1,50,000

80CCD (1b)
Rs 50,000

80CCD (2)
10% OF BASIC + DA

5. Lifestage fund

For investors who don't actively track their investment or cannot decide the allocation, theLifestage Fund is a useful option. Under this, the allocation to equities is defined by the age of the individual. This is the default option to be followed if the investor does not mention the desired asset allocation.

6. Choose your pension fund

Unlike a pension fund or a Ulip, investors in the NPS can choose from six pension fund managers and even shift from one to another. But you are allowed to switch managers just once in a year. Turn to Page 6 to know the annualized returns offered by different pension funds.

7. What are the charges

The NPS is one of the cheapest financial product with an expense ratio of only 0.01%. There are other charges as well, such as the one-time expenses for obtaining a PRAN and opening the account and the transaction charge of 0.25% or Rs 20 on every contribution.

8. Rules for withdrawal

NPS has very strict rules on withdrawals and the corpus cannot be taken out before the age of 60. There is a proposal to allow 25% of the corpus to be withdrawn for specific purposes (medical emergency, higher education of children, marriage of daughters, house purchase, etc).

9. Tax treatment

Though there is no tax implication when you shift from one fund option to another or change a pension fund manager, the maturity corpus is taxable. Most experts believe this will change and NPS corpus will be tax free by the time the current crop of investors retire.

10. Compulsory annuity

The other problem with the NPS is the compulsory purchase of annuity. At least 40% of the maturity corpus must be put into an annuity to give monthly income. Annuity rates are very low and the income is fully taxable.

Source :- ET Bureau | 9 Mar, 2015, 07.59AM IST

How your children’s education loan can derail your retirement planning

2015-03-06T10:55:00.002-08:00

Your children's education loan can derail your retirement planning. Make sure you are not burdened with EMIs you can't afford.

Twenty-seven-year-old Kapil Chauthmal took a bank loan of Rs 14 lakh at 11% to fund a one-year computer science course at the University of Portsmouth, UK.

After graduating, Chauthmal did not land the desired job. He stayed back in the UK and worked part-time but could not earn enough to pay the EMIs, forcing his father to step in to share the EMI burden. When he did not get a suitable job in India as well, his father, who was on the brink of retirement, paid the outstanding Rs 7-8 lakh. This lump sum cost Chauthmal's father a substantial chunk of his retirement corpus.

Similarly, 24-year-old Anand Singh's father had to sell a property, which was meant to supplement his retirement income, to repay his son's education loan, as Singh was finding it difficult to service it. As both instances show, parents often react emotionally when it comes to their child's education. However, a rational approach can save them and their children from getting into financial muddles.

Start planning early

It is always good to plan big expenses in advance. This applies to children's education as well. Certified financial planner Kartik Jhaveri advises his young clients to set aside a little extra for their children's education. "If a course from a foreign university costs Rs 25 lakh today, I suggest they set aside at least 30%—sometimes even 100%—of this sum," says Jhaveri. There are several child plans in the market that can help parents accumulate a big enough corpus to meet their children's education expenses.

Be realistic

Often those opting for higher education abroad assume they will get a good return on their investment when they get placed. But this is not always the case. "We tell students and parents that foreign universities don't guarantee placements. So, they should opt for them only if they are willing to take risks," says Ashish Mirajgaonkar, Partner at education consultancy, Vishwashri.

A foreign degree does not guarantee a job in India. And if you get one, do not expect a high pay packet simply because of a foreign degree. "Students with foreign degrees should not expect a very big difference in the salary offered to them compared to those who have studied in India. At best, expect a difference of Rs 15,000 a month," says Mirajgaonkar. Education consultants say parents should encourage their children to consider alternate sources of funding such as scholarships or working part-time while studying.

Request for an extension

"Do not opt to take a personal loan or a loan against property (LAP) to repay the education loan because they come at a high cost," warns Jhaveri. Loan against securities and investments are also quite expensive. It is best to avoid them. If your child is unable to service the loan, negotiating an extension is the best option available to you.

When jobs are difficult to come by, due to macroeconomic conditions, lenders are willing to consider extending the repayment period. This will give your child more time to repay the education loan. Though this will mean a higher cost in the long run, it is likely that your child's salary will also improve with time and he/she will be in a better position to service the loan.

Usually, education loans have repayment tenures of 5-7 years. But, the tenure can be extended up to 10 years for loans of up to Rs 7.5 lakh, and up to 15 years for bigger loans.

Service interest during moratorium

Moratorium is a repayment holiday that banks offer to those who avail of education loan. Typically, it extends for the duration of the course plus one year, or six months after finding a job, whichever is earlier. Paying the interest during this period can help reduce the debt burden. Banks charge simple interest during the moratorium period and give a 1% discount, if interest is serviced during this period. This is what Pritesh Kumar's father did. The 23-year-old took a loan of Rs 27 lakh for a one-year course in management. Kumar's father started servicing the interest portion of the loan as soon as the disbursement happened. The loan moratorium period ends in February and Kumar will start repaying the loan from the next month. "What Kumar's father did is the most workable solution in such situations. Parents can also strike a deal with the child to repay the loan for the first two years. In this period, the child's salary is likely to get better and he can start paying the loan," says certified financial planner Suresh Sadagopan.

ET Bureau | 2 Mar, 2015, 08.00AM IST

8 most common tax-saving instruments to cut your tax outgo

2015-02-14T05:23:00.001-08:00

MUMBAI: The hike in deduction limit under Section 80C means that a taxpayer can reduce his tax outgo by up to Rs 15,000. But the higher limit may not be of much use if you don't know which tax-saving option suits you the best. Here we are grading the eight most common tax-saving instruments on the basis of returns, safety, liquidity, flexibility, taxability of income and cost of investment.

1. ELSS

27.34% Returns (past three years)

There are compelling reasons why ELSS should be part of equity allocation in a taxpayer's investment portfolio in 2015. They may be low on safety but score full points on all other parameters. Here returns are high, income is tax free, investor is free to alter the time and amount of investment, the lock-in period of three years is the shortest among all tax-saving investments and the cost is only 2-2.5% a year. Liquidity is even higher if you opt for the dividend option and the cost gets lower if you go for the direct plans of these funds.

Smart Tip: Invest in the dividend option which acts as a profit-booking mechanism and also gives you liquidity. Dividends are tax-free.

2. Ulips

7.8-9.7% Returns (past five years)

For a lot of people, unit-linked insurance plan (Ulip) is still a four-letter word. An ordinary Ulip is still a costly proposition for a buyer. But the online avatar of these market-linked insurance plans is a low-cost option far removed from what was mis-sold to investors a few years ago. The Click2Invest plan from HDFC Life, for instance, charges only 1.35% a year for fund management. Ulips can be used as a rebalancing tool by a savvy investor. He can switch from equity to debt and vice versa, without any tax implication. Buy a Ulip only if you can pay the premium for the full term. Also, take a plan for at least 15 years. A short-term plan may not be able to recover the high charges levied in the initial years.

Smart Tip: Don't invest in the equity fund at one go. Invest in liquid fund and then shift small

3. PPF
8.7% Returns (for 2014-15)
Budget 2014 also hiked the annual investment limit in Public Provident Fund or PPF. Risk-averse investors can now stock away more in the ultra-safe scheme. PPF scores high on safety, taxability and costs but returns are not so attractive and liquidity is not very high. The scheme will give 8.7% this year, but don't count on this in the following years. The interest rate on small savings schemes such as PPF is linked to the government bond yield and is likely to come down in the coming years.

Smart Tip: Open a PPF account in a bank that allows online access. It will reduce the effort.

4. Senior Citizens' Savings Scheme

9.2% Returns

The Senior Citizens' Saving Scheme (SCSS) is an ideal tax-saving option for people above 60. The money is safe and the returns and liquidity are reasonably good. However, the interest income received from the scheme is fully taxable. Interest rate is linked to government bond yield. It is one percentage point higher than the five-year government bond yield. Unlike in the case of PPF, interest rate will remain unchanged till the investment matures.

Smart Tip: Stagger your investments in the SCSS across 2-3 financial years to avail of tax benefits.

5. NPS

8-11% Returns (past five years)

The New Pension Scheme (NPS) is yet to become a popular choice because of the complex procedures involved in opening an account. But investors who managed to cross that chasm have found it rewarding. NPS funds have not done badly in the past five years. The returns from the E class funds are in line with those of the Nifty, while corporate bond funds and gilt funds have given close to double-digit returns. But financial planners believe that the 50% cap on equity investments is too conservative. The other sore points are lack of liquidity and taxability of the income. The annuity income will also be fully taxable.

Smart Tip: Start a Tier II account to benefit from the low-cost structure of the NPS.

6. Bank FDs, NSCs

8.5-9.1% Returns

Bank fixed deposits, or FDs, and National savings Certificates, or NSCs, score high on safety, flexibility and costs but the tax treatment of income drags down the overall score.Interest rates are slightly higher than what the Public Provident Fund, or PPF, offers but the income is fully taxable at the slab rate applicable to the individual. FDs and NSCs suit taxpayers in the 10% bracket (taxable income of less than `5 lakh a year). The big advantage is that these are widely available. Just walk into any bank branch and invest in its tax-saving fixed deposit.

Smart Tip: Build a ladder by investing every year. After the fourth year, just reinvest the maturity amount in fresh deposits

7. Pension Plans

8-18% Returns (past three years)

Pension plans from insurance companies remain costly investments that are best avoided. Instead, it may be a better idea to go for the retirement fund offerings from mutual funds. They give the same tax benefits but don't force the investor to annuitise the corpus on maturity. S/he is also free to remain invested beyond the age of 60. Till now, all the pension plans were debt-oriented balanced schemes. Last week, Reliance Mutual Fund launched its Reliance Retirement Fund, an equity-oriented fund. However, ELSSand Ulips can be used for the same purpose.

Smart tip: Wait for the launch of retirement funds and assess their performance before investing

8.Insurance Plans

5.5-6% Returns

Traditional insurance plans are the worst way to save tax. They require a multi-year commitment and give very poor returns. The insurance regulator has introduced some customer-friendly changes but these plans still don't qualify as good investments. The only good thing is that the income is taxfree. But then, so is the income from the Public Provident Fund, or PPF, and tax-free bonds. Another positive feature is that you can easily get a loan against such policies, which gives some liquidity to the policyholder.

Smart Tip: If you have a high-cost insurance plan, turn it into a paid-up policy to ease the premium burden

Source :-- By ET Bureau | 5 Jan, 2015, 04.00AM IST .

What you actually pay for your dream home!

2015-02-14T05:15:00.003-08:00

Buying a home does not only ensure financial security for you and your family, but also saves plenty of money that you would otherwise pay just for living in a rented house. During the past decade or so, home buying has picked up tremendously also because of the easy availability of home loans. Banks have, in fact, simplified the entire process of home loan financing in a bid to ride this wave, which comes with a huge sentimental aspiration.

Banks make money on the interest they charge on loans. Typically, up to 85% of the property value is provided as loan, while 15% margin has to be borne by the borrower using his/her own savings/resources.

A majority of home buyers take their purchase decision taking into consideration the EMIas their affordability factor. However, one pertinent question that usually haunts a home buyer is: 'How much do I actually pay for my dream home?'

We are trying to answer this question with a real life example and for this we are decoding home loans under two heads -- one is principal and interest, while the second one is tax implications.

Mr. Varma decided to buy a 3 BHK flat in an upcoming neighborhood in Hyderabad. The total cost of the flat, including amenities, was Rs 63, 00,000. As per norms, he paid 15% of the down payment amount using his cash reserves, which came to around Rs 9,45,000. He approached two different banks for availing a loan of Rs 53,55,000. One bank offered him the loan at 10.25% interest rate while the other loan was available at 10.15%. Obviously he decided to borrow from the bank which offered him loan at 10.15%. Duration of the home loan was 20 years, and the EMI came to around Rs 52,210.

Home Loan amount	INR 53,55,000
Interest rate	10.15%
Duration	20 Years
EMI	INR 52,210

At the end of the loan tenure of 20 years - presuming that the interest rate remains the same -- Mr. Varma would pay Rs 53, 55,000 as the principal amount, while a whopping sum of Rs 71,75,453 would be paid as interest. This means he would pay 135% of the total borrowed amount as interest alone!

The below table illustrates this:

Time Frame	Interest Paid	Principal Paid	Outstanding Loan
1 Year	INR 5,39,560	INR 86,961	INR 52,68,039
5 Years	INR 25,94,942	INR 5,37,671	INR 48,17,329
10 Years	INR 48,36,315	INR 14,28,910	INR 39,26,090
15 Years	INR 64,91,618	INR 29,06,221	INR 24,48,779
20 Years	INR 71,75,453	INR 53,55,000	INR 0

"From the table it is clear that the major component of EMIs paid to the bank in the early years of loan repayment is deducted as interest. At the end of the 5th year, Mr. Varma would pay an amount of Rs 25, 94,942 as interest, while the principal component is only Rs 5,37,671. If he continues to repay the loan over a span of 20 years, then the total amount to be paid to the bank comes out at around Rs 1,25,30,453," says Nitin Vyakaranam, Founder and CEO, ArthaYantra, an online financial planning firm.

Now let us consider a situation where Mr. Varma has some surplus amount with him. Then he would have two options:

1. One, he can foreclose the loan by pre-paying it with his surplus amount. By pre-paying the loan amount, he will reduce the number of EMIs and can invest the amount saved from EMIs into diversified portfolios until he repays the loan.

2. The other option is he can continue with the same EMI and invest his total surplus amount into diversified portfolios.

Let us evaluate the consequences in both the scenarios:

Scenario 1:

In this scenario let us consider that he prepays an amount of Rs 5,00,000 at the end of the 5th year. Then his outstanding principal amount (ie, Rs 48,17,329) will get reduced to Rs 43,17,328 and the EMI of Rs 52,210 will get reduced to Rs 46,791 where he can save Rs 5,419 every month, which he invests into diversified portfolios. At the end of the loan tenure, he will save an amount of Rs 22,64,732 (assuming the rate of return at 10%) from the invested amount. Additionally, he will also save Rs 4,75,420 on interest. So, on the whole, he will save Rs 27,40,152 at the end of the loan tenure.

Scenario 2:

In this scenario let us assume that Mr Varma invests his surplus amount of Rs 5,00,000 into diversified portfolios and continues with the same EMI for loan repayment. In this case he will save Rs 20,88,642 (assuming the rate of return at 10%), which is lesser than the amount saved in the first scenario.

"Therefore, out of the two options, it's advisable to choose the first option because that will not only help you save more amount, but also reduce your liability to a great extent," advises Mr Vyakaranam.

What is more, home loan repayments also attract tax benefits. So, under Section 80C of the I-T Act, tax deduction up to Rs 1.5 lakh can be availed for repayment of the principal amount. Under Section 24B, tax deduction of up to Rs 2 lakh can be availed on the interest paid for home loan for a self-occupied home. In case a loan is availed for a second home or property which is not self-occupied, then the actual interest paid for the year is allowed for deduction under Section 24B.

Conclusion

Taking a home loan is a long-term debt commitment. So, it is advisable to go for a home loan which you can manage with your existing finances. Although a lot of efforts are being made by the banks to make borrowing lucrative, but care should be taken to understand that there are a lot of hidden costs involved like pre-payment charges, processing charges, and foreclosure charges, among others. It is, therefore, always wise to choose a home loan which will not disturb your financial health.

Source :--ECONOMICTIMES.COM | 12 Feb, 2015, 03.15PM IST .

Basic exemption limit in taxation may be hiked in Budget 2015

2014-12-28T23:24:00.001-08:00

Finance Minister Arun Jaitley's maiden budget evoked mixed reactions from taxpayers. While small taxpayers and middle income earners were delighted by the hike in basic exemption and other deductions, high-net worth investors were devastated by the change in the tax rules for nonequity mutual funds.

The budget hiked the basic exemption to Rs 2.5 lakh, and increased the annual saving limit under Sec 80C to Rs 1.5 lakh. The basic exemption for senior citizens was hiked to Rs Rs 3 lakh. The budget also increased the home loan interest deduction to Rs 2 lakh a year. To be fair, these changes brought cheer to taxpayers reeling under runaway inflation and high interest rates.

However, the changes in the tax rules for non-equity funds was a damper. The budget increased the minimum holding period for non-equity funds from one year to three years if they were to be treated as long-term assets. The option of paying 10% flat tax on long-term capital gains was also taken away. The tax is now fixed at 20% with indexation.

Capital gains from house property

There were some important clarifications too. The deduction for long-term capital gains from the sale of property can be availed if the gains are invested in capital gains bonds in six months from the date of sale of the house. This investment cannot exceed Rs 50 lakh in one financial year.

However, there was no clarity on the amount of tax deduction on reinvestment in capital gains bonds when a house was sold in the second half of the year. Many taxpayers claimed a deduction of Rs 1 crore by splitting the investment over two financial years. It has now been clarified that the total deduction cannot exceed Rs 50 lakh.

The budget also clarified that the tax benefits on the purchase of a house with the sale proceeds of another property will be available only if the second property is in India. This loophole has been exploited to claim tax benefits even on property purchased abroad.

More goodies in 2015

Even though the effective tax rate in India is quite reasonable, some experts feel the next budget could offer more relief. "There is an expectation that the basic limit might be increased further," says Homi Mistry, tax partner at Deloitte, Haskins & Sells. The basic exemption may be hiked to Rs 3 lakh from the present Rs 2.5 lakh. The tax slabs, which were left untouched in the previous Budget, could also be tweaked. This will bring down the effective tax rate further.

Bigger benefits will, however, accrue from another tax reform. The introduction of the Goods and Services Tax (GST) is seen as the biggest ever tax reform. Though it is an indirect tax and will not impact the average consumer directly, you can expect prices of products and services to come down after GST comes into effect.

Though the government expects to roll out the GST in 2016, there is no word on another watershed tax reform. The Direct Taxes Code (DTC) has been hanging fire for several years. Given that DTC has already gone through several modifications, it is likely that theModi government may come out with a completely new version of the legislation.

Kaushik Mukerjee, executive director and partner at PricewaterhouseCoopers feels the government should look at smaller benefits like deduction for children's tuition fee (Rs 100 per month per child up to two children), conveyance allowance (of Rs 800) and so on.

"These deductions have remained very low even in current times. They should either be hiked or be done away with," he says.

Similarly, the Finance Minister should hike the deduction limit for health insurance premium under Section 80D to more realistic levels.

The present limit of Rs 15,000 annually (for self and family) is too low. Also, the taxfree medical reimbursement limit of Rs 15,000 a year should be reviewed. This limit was last hiked by 50% in 1998. After 17 years, a 33% hike to Rs 20,000 is a reasonable expectation.

Source :- - By ET Bureau | 29 Dec, 2014, 08.00AM IST .

Six ways to help you save tax next time you pay it

2014-12-12T00:37:00.001-08:00

Everybody complains about high taxes, but in the lowerand mid-income groups, the effective tax rate is not very high. A person with a taxable income of Rs 40,000 a month will pay only 3.2% of his income in tax.

Someone earning Rs 80,000 a month will pay 9.5%. This assumes that these taxpayers will invest at least 15% of their income in tax-saving options under Section 80C. Yet, many taxpayers believe they are paying too much tax. They could be right. Faulty investment strategies, poor awareness about tax rules and tardiness could be exacting a high tax from some of the individuals.

One of the most common reasons for paying higher tax is the inability to avail of the full deduction under Section 80C. If you procrastinate tax planning and wake up at the end of February, there's a good chance that you won't be able to utilise the entire Rs 1.5 lakh tax-saving limit. "If you save regularly, you won't face any problem at the end of the financial year," advises Sudhir Kaushik, Cofounder and Chief Financial Officer of tax filing portal Taxspanner.com. Last year, Taxspanner noted that nearly 51% of the salaried taxpayers who used their portal to file tax returns had not fully exhausted the Rs 1 lakh saving limit under Section 80C. The figure might be higher next year because this year's budget has enhanced the saving limit to Rs 1.5 lakh.

This week's cover story looks at some of the most common reasons that taxpayers end up paying more tax. We also offer suggestions on how to avoid this higher outgo of tax by realigning investments and optimising the tax deductions that are available. If you are also following a faulty investment strategy or are not aware of the various rules that can help save tax, the nuggets of information in the following pages can prove invaluable for you.

Investing in tax-inefficient options

Fixed deposits are hot favourites of Indian investors. Nearly 56% of total householdsavings are parked in these deposits. But these are also very tax inefficient. The entire interest earned on the fixed deposit is taxed as income at the rate applicable to the investor. In the highest tax bracket, 30.9% tax pares the post-tax yield of these deposits significantly. Recurring deposits, infrastructure bonds and small saving schemes such as NSCs and the newly relaunched Kisan Vikas Patra get the same tax treatment.

Patra get the same tax treatment. What's particularly galling is that you have to pay the tax on the interest that accrues every year, even though you might get the amount only on maturity. If you invested in a 10-year cumulative fixed deposit in April 2014, you will get the principal and the interest in 2024. But you will have to pay tax on the interest it earns every year.
But there are other more tax efficient debt instruments on offer. Debt funds allow you to defer the tax till you withdraw the investment. If you hold them for three years, you also get the benefit of lower tax. The income from debt funds is treated as long-term capital gains after three years and taxed at 20% after indexation.

Indexation takes into account the inflation during the holding period and accordingly adjusts the buying price to reduce the tax liability of the investor. An investor in the 30% tax bracket would have to pay Rs 9,670 in tax on a 3-year fixed deposit of Rs 1 lakh. But if he invests in a debt mutual fund or a 3-year FMP, he can get away by paying a tax of only Rs 175.

Many investors like Rajesh Varma (see picture) are not aware of debt funds and the benefits they offer. They are under the misconception thatmutual funds only invest in stocks. It would save them a lot of tax if they replace the fixed deposits in their portfolios with debt schemes.

Not utilising HRA benefit

The house rent allowance (HRA) is usually a substantial chunk of the salary. Those living in rented accommodation can avail of deduction under Section 10(13A). If you live in your own house, you can't avail of this deduction. However, if you live in your parents' house, there is a way out. You can pay them rent and claim HRA exemption. This is possible only if the property is registered in the name of your parent. This is a useful strategy if you are in the higher tax bracket and your parent's income is lower.

Your parent will be taxed for the rental income after a 30% deduction. So, if you pay your father a rent of Rs 4.2 lakh a year (Rs 35,000 a month), he will be taxed for only Rs 2.94 lakh. If the parent is a senior citizen with no other taxable income, one can effectively pay Rs 35,700 a month without adding a rupee to his tax liability. Mumbai-based Gargi Jain uses this clause very effectively to reduce her tax liability.

Even if the income exceeds the basic exemption limit of Rs 3 lakh for a senior citizen, the tax rate will be only 10% for income up to Rs 5 lakh. High income earners may find it cost-effective to pay rent to their parents and pay the applicable tax.

Even this can be cut by investing under Section 80C options, such as the Senior Citizens' Saving Scheme, five-year bank fixed deposits or tax-saving equity mutual funds. It gets better if the property is jointly owned by both parents. Then you can split the rent so that the tax liability gets divided between the two parents. However, make sure that the property is jointly owned before you do this.

While it is perfectly legal to pay rent to parents, you cannot pay rent to a spouse and claim the HRA benefit. The tax authorities may disallow the deduction if the owner of the property is your own spouse.

Failing to book losses

It may sound bizarre, but you can gain from your losses. If you have made shortterm losses on stocks this year, these can be adjusted against any short-term or long-term capital gains from the sale of property, gold or debt funds. Short-term capital losses can be set off against both short-term capital gains as well as taxable long-term capital gains. This can be especially useful for someone who has booked profits on debt funds this year. Suppose you sold the units in a debt fund and earned a long-term capital gain of Rs 50,000 after indexation. At 20%, the tax payable on this long-term capital gain is Rs 10,000.

However, if you also lost some money in stocks during the year and made a shortterm loss of Rs 25,000, you can set this off against the gains from the debt fund. Then the gain from the debt fund will get reduced to only Rs 25,000 and the tax payable will be Rs 5,000. If your losses are higher and cannot be fully adjusted, you can carry them forward for up to eight financial years and adjust them against future capital gains.

However, there are some conditions to be fulfilled. One, you should file your tax return before the 31 July deadline to be eligible for carrying forward the losses. Also, one cannot set off short-term gains from stocks against longterm capital losses from other assets.

Opting for dividend in non-equity funds

The dividend distribution tax (DDT) is an invisible tax that many investors pay without even knowing. It is levied on dividends paid by mutual fund schemes other than equity funds and equity-oriented balanced schemes. For all other schemes, fund houses deduct a DDT of 28.33%. Many investors, especially senior citizens who have opted for the dividend option of monthly income plans or debt funds, don't even know that they are paying DDT. They may not be in the tax net but pay a 28.33% tax on the dividend income from their mutual fund investments.

Instead of dividends, one should go for the growth option in non-equity funds. If you are looking for a regular monthly or quarterly income, start a systematic withdrawal plan (SWP). A predetermined amount is redeemed on the day of the month fixed by you. If you are looking for a lump sum, just redeem the amount when the need arises.

The growth option is more tax-efficient because unlike in the dividend option, the entire sum is not taxed. Only the capital gain is taxable. So, if you bought the fund when the NAV was Rs 12 and sold it when it was Rs 15, the tax will only be on Rs 3 per unit. In the first three years, this Rs 3 will be added to your income and taxed at normal rates. As we explained earlier, after three years, the gain is eligible for indexation. In recent years, high inflation has reduced the capital gains tax to almost nil.

Not availing of the tax deductions available

As mentioned earlier, many taxpayers are not aware of all the deductions available to them. For instance, not many know that if you rent out a house bought on a loan, the entire interest paid can be claimed as deduction. Hyderabad-based IT professional Ramesh Chandra uses this clause to bring down his tax liability by almost Rs 38,500. Of course, the rent he receives is taxable (after 30% standard deduction) as income.
There are many other little known clauses in the tax laws. For instance, even if you don't get HRA as part of your salary, you can still avail of deduction of up to Rs 2,000 a month under Section 80GG. Then there is tax deduction of Rs 50,000 available if you or your dependant suffer from a handicap. If the condition is severe, the deduction under Section 80DD is up to Rs 1 lakh. Similarly, there is a deduction of Rs 40,000-60,000 if a dependant is suffering from any of the specified diseases listed under Section 80DDB.

There is tax deduction on donations as well, but you must remember to retain the receipts of the donations you make to avail of the benefit under Section 80G.

Not acting in time to avoid tax, avail credit

Lethargy can be a costly habit, especially when it comes to your finances. Tilak Raj Gaur understands this only too well. The Delhibased marketing executive incurred losses in stocks in 2013 but did not mention these in his tax return. He also missed the 31 July deadline, so he can't carry forward his losses or even revise his return now.

Some investments are subject to tax deduction at source (TDS). If the interest on your bank deposits in a branch exceeds Rs 10,000 a year, there will be 10% TDS. If the investor's income is below the basic exemption limit, he can submit a declaration using Form 15G (15H for senior citizens) to avoid TDS. But this form must be submitted before the TDS is deducted. If you send it late and TDS has already been deducted, you can get the refund only by filing your return. For senior citizens and retirees who are out of the tax net, this can be quite cumbersome.

Some taxpayers end up paying more tax because they don't take the trouble of verifying their tax credits in the Form 26AS. The Form 26AS can be accessed online after a simple registration process. It has details of all the taxes paid on your behalf by your employer, bank, insurance company, bond issuer or even by yourself. Tax professionals say that one should periodically verify that all tax payments have been duly credited to one's PAN

How you should save and spend for kids

2014-11-19T21:15:00.000-08:00

The ING Zing survey looks at the moneyhabits of parents and children and how they adapt to each other's requirements. This year's survey had 4,067 respondents from across the country. Here are some interesting findings of the study.

Source :-
By ET Bureau | 17 Nov, 2014, 08.00AM

Ten steps for young couples to help them lead a financially stable life

2014-11-11T21:12:00.001-08:00

With high disposable incomes, fewer liabilities and time on their side, young working couples have a great opportunity to build wealth. Here are a few tips for young couples to help them make wise choices:

Discuss finances jointly

It's important for both partners to be on the same page when it comes to money matters. One needs to keep the other informed about insurance policies, mutual funds and other investments. Ensure you assign your spouse as nominee in all investments.

Avoid splurging

With two incomes and enough disposable money, one might be tempted to buy the latest gadget or upgrade to a bigger car, but do not be impulsive. Buy only what you actually need and can afford. Buy a car that fits your budget. Your car loan EMI should not exceed 10% of your monthly net takehome pay. Ensure that you have made your savingsbefore you spend your salary

Don't ignore retirement

It's easy to lose track of retirement planning when you are young. Put away at least 10% of your income for retirement savings. Go for equity funds because you have time on your side. The ultra cautious can go for the PPF, though the returns will not be spectacular

Set up an emergency fund

Always be financially prepared for emergencies. Have at least 3-6 months' expenses kept aside as an emergency fund. This should include your living expenses, lifestyle expenses and EMIs. It's a good idea to open a joint account, so that both can have access to the funds in case of an emergency

Buy sufficient life cover

Buy a life insurance cover big enough to replace your income as well as repay outstanding loans. The cover should be at least 8-10 times your annual income plus debt obligations. A term insurance policy is the best form of life cover. Buy online to save on costs.

Get the right health plan

Medical insurance is a must. Get a family floater cover of at least Rs 5 lakh for medical needs over and above the medical insurance provided by your employer. Buy a top-up plan to save on costs.

Get your investment mix right

Choose a good mix of debt and equity products. If you are too risk-averse when you are young, you might miss the opportunity to create wealth. Invest in equity funds because you are young. Age-based asset allocation is a good strategy. To arrive at the equity exposure in your portfolio, subtract your age from 100.

Don't take debt

One of the biggest temptations for young couples is to buy things on credit. Do not take a loan to spend recklessly on exotic vacations, expensive health clubs and latest gizmos. If you use a credit card, ensure you don't roll over the credit or pay only the minimum amount due. In no time, the debt may become too big to handle.

Buy a house if emi below 40% of income

Don't rush into buying. Choose the property after due diligence and if it's within your budget. If your home loan EMI is more than 40% of your net take home pay it is beyond your budget. Buy the home jointly so that both partners can avail of the tax benefits on the home loan.

Start saving for child

Ideally, you should start planning your finances for your little bundle of joy a year or two in advance. Most employers offer maternity benefits as part of their group insurance policy. But, it's good to build a small corpus over a period of one or two years especially for post-delivery expenses

Source :-- ET wealth 10-Nov-2014.

Don't hate tax, it can be your good friend & save you money

2014-10-25T01:41:00.003-07:00

My name is Tax, and I know you hate me. If you had your way, I would be abolished forever. I don't blame you, though. Nobody likes parting with his hard-earned money. Believe me, even I don't like to take away 10-30% of your salary, but you leave me with no choice with your haphazard savings and unplanned investments.

For 11 months of the year, you ignore my presence, as if I don't even exist. When the accounts department of your company asks for a declaration of Section 80C investments, you give out random figures. Then, when the financial year is drawing to a close and you are asked for actual proof, you run around in a desperate attempt to avoid me. With no time for research, you choose suboptimal investments and low-yield insurance policies. This happens year after year.

My advice to you is simple: start thinking about me from the very first month of the financial year. Choose investments where I won't have to shave off your gains. My friendELSS (equity-linked savings scheme) fund, for instance, is a tax-efficient investment option in the Section 80C umbrella.

Fixed deposits and the National Savings Certificates (NSCs) are not very helpful. I know you like them, but every time you invest in FDs, I get a fat chunk of the gains. My assistant TDS (tax deduction at source) collects the money on my behalf. TDS takes only 10% of the interest earned by you. If you don't submit your PAN, it is authorised to take away 20%. It pains me when I have to eat into your profits but only you can stop me.

Apart from the Section 80C investments, there are other ways to save me. You can ask your employer to structure your salary in a way that it is friendly to me. Claim your house rent allowance if you live in a rented accommodation. Take a home loan and claim benefits on the interest and principal repayment. If your employer offers NPS as a retirement benefit, ask if you can opt for an additional contribution under Sec 80CCD(2).

I am also friendly with other perks and allowances, such as conveyance, newspaper and periodicals, LTA and food coupons. If your firm offers you a car, opt for a leased vehicle rather than one owned by the company.

Try out these tactics to save me this year and I am sure we can become good friends.

(The author is Founder & Ceo, Getting You Rich)

SOURCE :-- 20 Oct, 2014, 08.00AM

12 common mistakes to avoid when you quit a job

2014-10-13T22:29:00.000-07:00

By Devashish Chakravarty

Leaving a job can be difficult, especially if it is not out of choice. However, if you intend a smooth career transition and do not want to diminish your prospects, you must avoid making the following mistakes.

Histrionics: You were just told that your services are no longer required. You are tempted to abuse, scream or maybe plead to be retained. Control your emotions. Resist the urge to sulk and snap at your teammates. You want them to remember your achievements, not your breakdown.

Stealing or damaging: You may feel that you got a raw deal and were laid off for no fault of yours. Perhaps your financial dues have been withheld. Don't seek revenge. It's a terrible idea to damage office property or take away stuff/data that does not belong to you. Your reputation will be tarnished, leaving you unemployable. In the worst case, you could risk going to jail.

Checking out mentally: Your notice period has commenced and your last working day is fast approaching. Be a thorough professional and work with the same intensity as before. People may not remember your contributions, but if you slack off, they will remember for a long time how you let them down.

Not planning a transition: Once you leave, your colleagues will deal with the projects you leave behind. The impact of these unfinished tasks will help determine your professional reputation. So sit down with your manager and make a knowledge transfer plan for your replacement. Communicate the plan and progress with everyone concerned in person and on e-mail. Let your work speak for you after you leave.

Forgetting data and equipment: Don't forget to hand over data and equipment and get a clearance certificate or e-mail from every stakeholder, including teammates, HR, accounts, IT and vendors. Upload a copy of the certificates to your personal e-mail ID before you submit the clearance to your superviser and HR.

Keeping claims pending: If your reimbursements, travel and medical bills are pending with your employer, make sure you pursue the matter to conclusion and get your money before you leave. Recovery will be difficult once you are outside. Where possible, sign off in advance on the date and amount of your full and final settlement.

Offering criticism: You will have an exit interview before you leave. This is not the time to show your angst or pour your heart out. Your misplaced 'constructive criticism' can either harm your teammates or brand you as a person who chose not to speak up while at work. Discuss only what worked for you and what was good about your team.

Withdrawing PF: Are you afraid that you may run out of cash if you don't find another job shortly? Resist the temptation of withdrawing from your Provident Fund (PF) account. Though it is an easy way out, you will lose the savings meant for retirement. Dip into your PF only if you are retiring, or if you plan to reinvest the amount in an asset like property. If not, find ways of curtailing your expenses until your cash flow stabilises.

Discussing your future employer: Do not share your future plans with your colleagues. Whether you are interviewing elsewhere or have job offers in hand, do not talk about them. Discussing the 'fantastic opportunity' at your workplace will cause resentment and negativity among colleagues. If, for some reason, the new job does not work out, you will face ridicule.

Badmouthing the employer: As you head down to the pub or catch up with your colleagues over coffee, it will be tempting to vent out against your manager or teammates. Don't do so. Whatever you say will invariably find its way to your workplace. Also, at future job interviews, you will be asked to justify your exit. Badmouthing your last firm or manager will get you rejected for coming across as a disgruntled employee. It is best to focus on your desire for better growth opportunities.

Fudging your CV: While you craft your resume for a new role, be extra cautious in describing your present responsibilities and achievements. Most employers will run a third-party verification check. At the very least, the HR at the firm you have applied to will call your present employer for a quick reference check. A negative verification report will not only cost you your job but also tarnish your reputation in the industry. Similarly, don't tweak your joining and relieving dates or designation on your CV.

Holding a grudge: As you walk out for the last time, drop the grudges at the office step. Leave your ex-colleagues empowered and energised in your final conversations. Take the emotional high ground of forgiveness and gift yourself freedom and energy to propel yourself in your next role.

5 things to do

Make a personal plan:

Much before you quit, think through your reasons and consequences of quitting. Work out your finances and cash-flow options. If you have been fired and are feeling overwhelmed, plan out one day at a time.

Share contacts

The biggest benefit you carry from your workplace are the relationships you have built. Note everyone's contact details and share your own. Offer your help and connections to people who need them. Your network will serve you well in the future.

Get a reference

Ask your boss to write a reference letter for you. If it's a challenge, get references from colleagues, vendors and people who appreciate your work. Collect appreciation letters, e-mails, awards and citations and mail them to your personal e-mail ID.

Clean up

Clean up your official mail box—discard drafts, complete pending replies and archive and transfer all data from your laptop. Clean up your desk/office space, leaving no cause for complaint for the next person.

Take a break Take a clean break from work and career-related activities before joining your new office. Put your feet up for at least a week or plan a longer trip away from the routine places. This will help you unwind and you will return refreshed and rejuvenated.

(The writer is Director, Executive Search, QuezX.com)

SOURCE :-- ET WEALTH 13 Oct, 2014, 10.30AM IST

What’s stopping you from getting rich? Not bad luck, but faulty investing strategies

2014-10-05T22:05:00.001-07:00

You are a diligent saver, a careful investor and a meticulous planner. Yet, you have not been able to build wealth even as everyone around you seems to be wallowing in money. What's stopping you from getting rich? If it's bad luck, you can buy one of those good fortune charms hawked on late night TV shows. But if you really want to get to the root of the problem, you need to assess where you are going wrong in your investments.

Our cover story this week is about the money myths and investing flaws that prevent you from getting rich. It could be the lure of penny stocks or the tantalising potential of the futures and options segment. Small investors often lose their shirts (and nearly everything else) when they enter these high-risk arenas without adequate knowledge.

But mistakes can happen even if you play ultra safe. If a fixed deposit offers 9%, the post-tax returns for someone in the 30% tax bracket will be barely 6.3%. That's not too bad until you factor in 8% inflation. So even though the investor does not feel it, his money is losing value. This is one of the biggest investing mistakes Indians make when they pour money into fixed deposits. In the following pages, we have listed the common hurdles that prevent investors from getting rich.

Many of these hurdles are really self made. They can be done away with by changing your approach to investing. Gold, for instance, should not occupy more than 5-10% allocation in your portfolio. This can happen if you treat the yellow metal less as an investment and more as a hedging tool.

There's no point in dwelling on mistakes unless we can offer a solution. So, each financial mistake has been followed by advice on how to avoid it. This stress on utility has been ET Wealth's hallmark since the time it was launched. In this 200th issue of the newspaper, we hope to live up to the expectations of our readers.

You might be losing your money in the following ways:

Investing in equities? Avoid penny stocks and value traps

Don't chase 'stable returns' promised by FDs, recurrent deposits

Here's why SIPs are a better option than a lump-sum investment

Buying life insurance for the wrong reasons can jeopardise your financial goals

Why real estate is not quite a failproof investment

Why exiting gold might not be the best investment move

Short-term trading will incur tax liability that can shave off gains

Be sure about your capabilities to negotiate a better salary

Don't get confused by interest rates on loans & don't borrow without need

Source :--By ET Bureau | 6 Oct, 2014, 10.15AM IST.

Want your income to move up? Plan your taxes better

2014-09-30T02:18:00.000-07:00

Do you want your income to go up? Who doesn't? That's why a lot of us slog it out, first at school and college, then at the workplace. While many people go through the grind to be able to earn more, they fail to take simple steps that can boost their income significantly.

Tax filing data shows that Indian taxpayersare not taking full advantage of the tax deductions and exemptions available to them.

Nearly 50% of the taxpayers who filed their returns through Taxspanner.com last year, did not fully utilise the tax-saving investment limit under Section 80C. Only one out of four claimed the deduction for medical insurance under Section 80D.

Our analysis shows that younger taxpayers are the worst tax planners. They may have done very well in academics and could be drawing handsome salaries, but most of them score an F in tax matters. According to the tax filing data, those in the 25-30 year age bracket pay a significantly higher tax than the older taxpayers. The average minimum tax paid by a 25-year-old earning Rs 10-11 lakh a year is 12% of his income. However, 34-year-olds with the same income paid only 6% tax.

The busiest professionals are the lousiest at planning their taxes. They happily outsource the job to wealth advisers and investment consultants, who sell them high-commission and low-yield products.

Interestingly, senior citizens are more clued into tax rules and, therefore, manage to curtail their tax liability to a great extent. Data shows that one in every five senior citizen assessees paid no tax even though their average income was `4 lakh a year. Only 26% of the senior citizen taxpayers had not claimed the full deduction under Section 80C.

Taxation rules are not rocket science. Anybody with a basic understanding of arithmetic and tax rules can figure out how much tax he can save. You need to spend just one day to work out a tax plan for yourself. Don't have the time? Look at it this way. If your salary is Rs 90,000, you are earning about Rs 3,000 a day. Take a day of unpaid leave to plan your taxes and you might save Rs 10,000-15,000. That still leaves you with an extra income of Rs 7,000-12,000. Think about it.

Source :---29 Sep, 2014, 08.00AM IST ET WEALTH .