Personal Finance Articles, Tools, Calculators and Resources

Step by step tax saving with ELSS

ranjanvarma@gmail.com (The RupeeManager Team) — Thu, 10 May 2012 18:55:25 +0000

An Equity linked saving scheme (ELSS) is similar to tax saving instruments like National Savings Certificate and Public Provident Fund. However the returns are directly linked to equity. An ELSS has a lock-in period of 3 years.

It is covered under Section 80C of Income Tax Act and allows investment of up to Rs. 1 lakh in the current financial year. The amount invested can be deducted from total income, reducing total taxable income.

ELSS offers benefits by ways of shorter lock-in period (3 yrs) than NSC & PPF. ELSS has the potential of earning higher returns and Dividend payout available during lock-in period

Moreover, Investing through Systematic Investment Plan (SIP) averages out your investments over a period of time.

How to set up ELSS?

Systematic Investment Plan & ELSS :

Invest small monthly amounts to reduce burden
Take advantage of fluctuations in stock markets to average the unit cost
Get more units when the markets are bearish & less when the markets are bullish
No entry load & other charges

If your total annual income is Rs. 5 lakh and you invest Rs. 1 lakh in ELSS then your taxable income will become Rs. 4 lakh

You may also read "All You Wanted to know about Mutual Fund ELSS" and

Implications of Direct Tax Code on ELSS (Update: DTC not yet implemented)

Cost of Free Advice is more than One Crore!

ranjanvarma@gmail.com (Ranjan) — Tue, 08 May 2012 08:27:19 +0000

Why pay for financial advice when you can get it for free? You get it free from friends, colleagues, relatives, bank executives and insurance agents, right?

But have you ever wondered that the free advice might cost you a lot of money? For example, if you buy costly insurance plan that you don’t need or a mutual fund that does not suit your investment profile, you will lose much more than the annual fee of a financial planner. True Financial Planners are not Advisors or Product Sellers and they prepare a Financial Plan that is based on your need, your situation, your goals and your risk appetite.

Let's do some maths to find out the cost of free advice. Let us assume that a paid financial plan where the recommendations are not based on commission considerations will fetch you a better return. If you are prepared to assume this, let’s move forward.

Here are the assumptions. Imagine you invest Rs 15000 every month and that adds up to Rs 1,80,000/-. We have assumed the returns for 8% and 10%. Generally the commissions work out to just 2% of your investments and the difference between the returns @ 8% and 10% would be the cost of free financial advice.

Initially the difference looks too small. It is only Rs 3600 in the first year and approximately Rs 68000/- for an investment of Rs 9 lakhs after 5 years. But the difference continues to compound and the difference of Rs 1,05,47,560 happens at the end of 30 years!

Here's the table that calculates the cost as Rs 1 crore, 5 lakhs, 47 thousand and more!(Rs 1,05,47,560/-)

Investment	Growth @8%	Investment	Growth @10%	Difference
180000	194400	180000	198000	3600
374400	404352	378000	415800	11448
584352	631100.16	595800	655380	24280
811100.16	875988.1728	835380	918918	42930
1055988.173	1140467.227	1098918	1208809.8	68343
1320467.227	1426104.605	1388809.8	1527690.78	101586
1606104.605	1734592.973	1707690.78	1878459.858	143867
1914592.973	2067760.411	2058459.858	2264305.844	196545
2247760.411	2427581.244	2444305.844	2688736.428	261155
2607581.244	2816187.743	2868736.428	3155610.071	339422
2996187.743	3235882.763	3335610.071	3669171.078	433288
3415882.763	3689153.384	3849171.078	4234088.186	544934
3869153.384	4178685.655	4414088.186	4855497.004	676811
4358685.655	4707380.507	5035497.004	5539046.705	831666
4887380.507	5278370.948	5719046.705	6290951.375	1012580
5458370.948	5895040.623	6470951.375	7118046.513	1223006
6075040.623	6561043.873	7298046.513	8027851.164	1466807
6741043.873	7280327.383	8207851.164	9028636.281	1748309
7460327.383	8057153.574	9208636.281	10129499.91	2072346
8237153.574	8896125.86	10309499.91	11340449.9	2444324
9076125.86	9802215.928	11520449.9	12672494.89	2870279
9982215.928	10780793.2	12852494.89	14137744.38	3356951
10960793.2	11837656.66	14317744.38	15749518.82	3911862
12017656.66	12979069.19	15929518.82	17522470.7	4543402
13159069.19	14211794.73	17702470.7	19472717.77	5260923
14391794.73	15543138.3	19652717.77	21617989.54	6074851
15723138.3	16980989.37	21797989.54	23977788.5	6996799
17160989.37	18533868.52	24157788.5	26573567.35	8039698
18713868.52	20210978	26753567.35	29428924.08	9217946
20390978	22022256.24	29608924.08	32569816.49	10547560

We will also talk about the other costs like cost of buying a product you don't need, cost due to lack of holistic financial planning, cost of buying term insurance from an agent compared to buying it online, etc. Stay tuned for the updates on the cost of free advice

Does LIC has an Achille's Heel?

ranjanvarma@gmail.com (PV Subramanyam) — Sat, 05 May 2012 06:42:43 +0000

Editor's Note: LIC is the number 1 service brand in the country and statistically the number 1 in claim settlement operations. However, we all know about Achilles' heels which is a deadly weakness in spite of overall strength, that can actually or potentially lead to downfall. PV Subramanyam takes a look at Why LIC will underperform.

Here's what Subramanyam writes:

.... have been saying why one should not buy LIC policies, let me tell you the exact / specific reasons why, and I have these views for the past umpteen years, even pre 2001, when you had NO CHOICE:

1) LIC policies like classic endowment are opaque (this is actually true for all classic end policies , not just LIC). Here the returns one gets will be a sub optimal investment return. From this you reduce LIC’s costs of doing business and you will surely be left with a sub optimal, NEGATIVE real returns over long periods of time.

2) LiC’s top management has only ONE BOSS to please – the ruling party (not the government, note). This is scary. When I see fund managers beating the Sensex and the Nifty, I realise that it is by being underweight on the PSU stocks. LiC does not have this choice.

3) LiC has some excellent fund managers, but they are pushed into a sword fight with BOTH hands tied.

4) On 12th April, Shilpy Sinha has done a lead story in ET about how LiC had to invest Rs. 22,000 crore – most of it as a bail out – in PSU shares. This is awful – clearly proving Rajaji’s words: “Raja bane vyapari, praja bane bhikari’.

5) The government is the biggest BORROWER in the country (Gilts account for more than70% of the debt raised). Thus the government will not give a fair rate. LiC has been mandated to invest a huge amount in G-Secs. Given this combination, a classic endowment policy is a captive buyer, and the government OBVIOUSLY knows this.

6) Corporate governance is not applicable to PSUs and surely not to LiC.

7) The government guarantee for a LiC policy is a huge unfair advantage, but it does exist. The fact that it is unfair means even the spineless IRDA may just force LiC to drop it. This takes away the other ‘excuse’ people had for ‘investing’ in LiC.

8) The government will want to meet is ‘development’ objectives of setting up finance and guarantee companies for doing ‘development’ work in North East, as well as some other areas. Who bears the brunt?

9) When the government decides to ‘support’ Kingfisher (air travel is a very imp part of the infrastructure) it asks SBI to ‘convert’ a portion of the equity into debt. When Kingfisher does not find a buyer for its shares at Rs. 35 a share, who will be forced to pick up the stake? What about Air India’s IPO?

10) Corporate governance my foot. Coal India is forced to sell coal at HALF the international prices. NTPC is told that it cannot price electricity beyond a particular price……and shareholders like LiC even have a seat on the boards.

Sad but true list……and it could be increasing…..

LIC Increases Rates for Financial Transactions

ranjanvarma@gmail.com (The RupeeManager Team) — Sat, 05 May 2012 06:24:17 +0000

LIC revised it’s interest rate for various financial transactions like loan and dating back of policies for year 2012-13. Major change you look for is loan rate which is currently 9% changed to 10%.

Revival and Dating Back of policies changed from existing 8% to 9.5%. The details of the same are as below

Srl No.	Type of Transaction	Current Rate of Interest (%)	Revised Rate of interest (%)
1	Policy loans (under all plans except Jeevan Aastha (Plan 195) and Jeevan Vridhhi (Plan 808)	9	10
2	Policy Loans under Jeevan Aastha (Plan 195) and Jeevan Vridhhi (Plan 808)	10.25	10.5
3	For policies issued on or after 1/1/1987 a) Arrears of premiums within 6 months from the date of FUP and b) For revivals	8	9.5
4	Arrears of premiums for alterations and age providing higher	-	9.5
5	Dating back of policies	8	9.5
6	Discount factor for a) Commutation of instalments under educational annuity policies, b) commutation of Income Benefits under Multi-purpose, Guaranteed benefits under annuity policeis and c) unpaid instalments under settlement options	-	9.5
7	Settlement options for Maturity Claims	-	6
8	a) Advance payment of premiums (for all plans except Jeevan Sneha (Plan 128)	5	6
8	b) Advance payment of premiums for jeevan Sneha (Plan 128)	-	10
9	Delayed payment of claims	-	11.5
10	Discounted value or accumulated value for calculation of Special Surrender Value under Jeevan Saral (Plan 165)	-	7.5
11	Accumulation of survival benefits under Jeevan Bharati (Plan 160) and Jeevan Bharati I (Plan 192)	-	4
12	Discounting of claims during the last year of policy term	-	9
13	Reinstatement of surrendered policies	-	10.5

Insurance Digest For Indians

ranjanvarma@gmail.com (The RupeeManager Team) — Sat, 28 Apr 2012 04:52:59 +0000

Insurance is a subject matter of solicitation. Every print ad from an insurance company has to compulsorily say that. It is another sentence which fails to make a meaning clear. Solicitation is what? To solicit means to ask for or try to obtain. From whose perspective? The client or the agent!! Actually it officially means that the client or the policyholder must ask or try to obtain insurance.

But in reality, insurance solicitation is entirely the job of the agent! So the difference between theory and practice starts with the slogan mentioned above.

In Insurance, life insurance and health insurance and motor insurance and other types of insurance, there is much that we need to know about. We need to learn about insurance companies, insurance comparisons, insurance quotes and understand the insurance products.

Here's a digest of links that will help you with the insurance information you need. Let's start with the fundamentals of insurance.

Fundamentals:

Buying Insurance Online:

Buy Cheap Online Term Insurance: Aviva, Religare, ICICI
Buying ULIPs Online

Beware of Mis-selling:

Insurance Products:

Aegon Religare Invest Maximiser Plan Cheapest ULIP ?

Health Insurance:

Do share with us what you want to know more about insurance? Email us on editor@personalfinance201.com

Mis-selling by Relationship Managers: The HSBC & Suchitra Episode

ranjanvarma@gmail.com (The RupeeManager Team) — Sun, 15 Apr 2012 07:37:36 +0000

MoneyLife has a story about how HSBC Bank took Actor/Singer Suchitra Krishnamoorthy for a ride over a five year period by promising an extravagant assured return of 24%. Here’s the link

Suchitra is looking for legal and divine help in sorting out the case. Here's a screenshot of the outcry on Twitter. Hope it creates more awareness among HNIs who blindly believe their Bankers and get duped.

Jayant Pai's tweet says it all: For every @suchitrak that speaks out, there are thousands of #HNIssuffering in silence not only at #HSBC but at other foreign banks too.

How to file Income Tax Returns in India

ranjanvarma@gmail.com (The RupeeManager Team) — Sat, 14 Apr 2012 14:43:58 +0000

"'In this world nothing can be said to be certain, except death and taxes." (Benjamin Franklin). So let's get over the taxes anyway. Even after you pay your taxes according to what the government dictates, you still need to file your tax returns. This article is about how to file your tax returns. Today it is possible to file income tax returns online and is popularly known as e filing.

To file Income tax returns one needs to fill different Income Tax returns form which are : ITR-1 (Sahaj) ,ITR-2 ,ITR-3, ITR-4 and ITR-4S( Sugam). ITR-5 and ITR-6 can only be filed through e filing mode.

These forms are released every year by Income Tax Department. Details of forms for individuals and Hindu Undivided Family (HUF) are as follows:

Form	Category	Details
ITR-1 SAHAJ	Individual	1. Income from salary/pension: or 2. Income from one house property(excluding where loss brought forward from previous year): or 3. Income from other sources( excluding winnings from lottery and income from races horses)
ITR-2	Individual/HUF	Those who can not file Sahaj above as the total income also includes Income from Capital Gains. So sources of income become:1. Income from salary/pension: or 2. Income from one house property(excluding where loss brought forward from previous year): or 3. Income from other sources( excluding winnings from lottery and income from races horses) 4.Income from Capital Gains. They should not have Income from Business or Profession.
ITR-3	Individual/HUF	Being partners in firms and not carrying out business or profession under any proprietorship.
ITR-4S SUGAM	Individual/HUF	It is applicable for small businessmen and professionals covered under presumptive taxation. They derive business income which is computed in accordance with special provisions referred to in section 44AD and section 44AE of the Act.
ITR-4	Individual/HUF	Carry out any business or professional activity in addition to having sources of income applicable to ITR-3 i.e Not covered in ITR 1 to 4S mentioned above and deriving income from a proprietory business or profession

Forms for the year 2012-13 can be downloaded from Income tax website:NEW RETURN FORMS FOR ASSESSMENT YEAR 2012-13

The e-filing process is as follows

Select appropriate type of Return Form .
Download Return Preparation Software for selected Return Form.
Fill your return offline and generate a XML file.
Register and create a user id/password .
Login and click on relevant form on left panel and select "Submit Return".
Browse to select XML file and click on "Upload" button .
On successful upload acknowledgement details would be displayed. Click on "Print" to generate printout of acknowledgement/ITR-V Form.
Incase the return is digitally signed , on generation of "Acknowledgement" the Return Filing process gets completed. Assessee may take a printout of the Acknowledgement for his record.
Incase the return is not digitally signed , on successful uploading of e-Return, the ITR-V Form would be generated which needs to be printed by the tax payers. This is an acknowledgement cum verification form. The tax payer has to fill-up the verification part and verify the same. A duly verified ITR-V form should be submitted to CPC Benagaluru using Ordinary Post or Speed Post within 120 days of transmitting the data electronically. This completes the Return filing process for non-digitally signed Returns.

Now there are very intuitive tax applications helping you to file your taxes online. It also gives you an opportunity to learn a bit of your finances yourself. I mean by doing it by yourself, you learn a lot about your finances and how you can improve upon it.

What is Income Tax?

ranjanvarma@gmail.com (The RupeeManager Team) — Sat, 14 Apr 2012 07:39:07 +0000

Do you know that 200+ years ago, there was nothing like an income tax? Surprised? Well, today income tax is a part of our lives and the Governments all over the world have elaborate establishments to ensure that you and me pay taxes and file returns.

Income taxes are not without criticism. The Government of India gets the right to take money from your income and property without providing commensurate services. The government "unashamedly proclaims the doctrine of collectivized wealth. ... That which it does not take is a concession. Some have argued that the economic effects of an income tax system penalize work, discourage saving and investing, and hinder the competitiveness of business and economic growth.

An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities). Here's some information about indian income tax slabs and rates for 2012-13.

Various income tax systems exist in different countries of the world and with different tax rates and slabs. The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (identified as body of individuals and association of persons) and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India. There are close to 35 million income tax payers in India.

Tax Rates in India

For Financial year 2011-12 or Assessment Year 2012-13

TAX	MEN	WOMEN	SENIOR CITIZEN(60 – 80 yrs)	Very Senior Citizens(Above 80 years)
Basic Exemption	180000	190000	250000	500000
10% tax	180001 to 500000	190001 to 500000	250001 to 500000	-
20% tax	500001 to 800000	500001 to 800000	500001 to 800000	500001 to 800000
30% tax	above 800000	above 800000	above 800000	above 800000
Surcharge	here is no surcharge in the case of every individual, Hindu undivided family, Association of persons and body of individuals
Education Cess	3% on Income-tax

Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs). Various systems define income differently, and often allow notional reductions of income (such as a reduction based on number of children supported).

If you want to learn more about income tax, here's the wikipedia article on income tax in India.

We will cover how to file your tax returns shortly

LIC's Jeevan Vriddhi: A Review

ranjanvarma@gmail.com (The RupeeManager Team) — Thu, 01 Mar 2012 06:51:28 +0000

LIC has launched a single premium plan today, i.e. March 1, 2012 which guarantees a maturity amount as well as a possible loyalty bonus and which looks very attractive. Let's dig deeper and find out the pros and cons of the new LIC policy.

But before we start, the perennial question of comparing insurance and investments. Insurance is of course different from Investments and we need not confuse the two. Insurance is generally a long term contract, and with potentially higher commission costs. However, insurance premium gives you a tax deduction and the insurance lump sums are tax free.

On the other hand, pure investment products like stocks and mutual funds sound much more alluring but comes with a risk tag. And generally, the common investors make a mess of the returns because of greed and fear.

While we debate the insurance v/s investment in theory, here comes a policy which combines the best of both worlds. Enter LIC. Jeevan Vriddhi combines a risk cover (five times the premium), tax benefits under Sec 80C, guaranteed maturity amount, one time payment, liquidity (loans available after 1 year) and also tax free maturity amount. And not to forget a possible return of 12% over the 10 year term!!. Here are the details:

Benefits

i) Maturity Benefit: On maturity, the Guaranteed Maturity Sum Assured along with Loyalty Addition, if any, shall be payable.

ii) Loyalty Addition: Depending upon the Corporations experience the policy will be eligible for Loyalty Addition on date of maturity at such rate and on such terms as may be declared by the Corporation.

iii) Death benefit: On death, Basic Sum Assured shall be payable. The Basic Sum Assured shall be 5 times the Single Premium excluding extra premium, if any.

ELIGIBILITY CONDITIONS AND OTHER RESTRICTIONS:

a) Minimum Entry Age : 8 years (completed)

b) Maximum Entry Age : 50 years (nearest birthday)

c) Minimum Basic Sum Assured : Rs.150, 000/-

d) Maximum Basic Sum Assured : No Limit

e) Minimum Premium : Rs. 30,000/-

Premium shall be available in multiples of Rs. 1,000/-.

f) Policy Term : 10 years

g) Premium payment mode : Single premium only

h) Guaranteed Maturity Sum Assured : The Guaranteed Maturity Sum Assured will depend on the single premium payable and the age at entry of the life to be assured.

GUARANTEED MATURITY SUM ASSURED:

Guaranteed Maturity Sum Assured for each age at entry per Rs.1000/- Single Premium (exclusive of Service Tax) is as under:

Age at entry	Guaranteed Maturity Sum Assured (Rs.)	Age at entry	Guaranteed Maturity Sum Assured (Rs.)	Age at entry	Guaranteed Maturity Sum Assured (Rs.)
8	1984.60	23	1952.65	37	1894.60
9	1982.10	24	1951.85	38	1883.65
10	1979.15	25	1950.95	39	1871.20
11	1975.55	26	1949.90	40	1857.10
12	1972.10	27	1948.55	41	1841.45
13	1968.90	28	1946.85	42	1823.95
14	1966.35	29	1944.55	43	1803.90
15	1964.05	30	1941.60	44	1781.05
16	1961.90	31	1937.70	45	1755.30
17	1960.00	32	1932.80	46	1726.55
18	1958.30	33	1927.00	47	1694.75
19	1956.80	34	1920.40	48	1659.95
20	1955.50	35	1912.85	49	1622.60
21	1954.40	36	1904.30	50	1582.25
22	1953.45

INCENTIVE FOR HIGHER PREMIUM:

Incentive for higher single premium by way of increase in the Guaranteed Maturity Sum Assured is as under:

Premium (excluding extra premium)	Increase in Guaranteed Maturity Sum Assured
Below Rs.50,000	Nil
Rs.50,000 to Rs. 99,000	1.25%
Rs.1,00,000 and above	3.00%

Benefit Illustrations:

LIC's website has the illustrations where the Rs 1 lakh invested returns Rs 197023 or Rs 221651 at the end of the 10 year term. Take as look:

The Returns:

Case 1: If someone who is in 30% tax slab invest Rs 1,00,000/- in it he will save Rs30,000/- as tax benefit so his net investment becomes Rs 70,000/- and on which he is getting Rs 2,21,651 which is 100% tax free so the net yield in this plan is more than 12%.

Case 2: If the investor is in 30% tax slab and his 1lac limit of secton 80 C already used, even it is great investment for him as if he had invested in banks he has to pay the taxes on maturity @30% (Rs 121651 @ 30% = 36495 goes in taxes ) but here in LIC JEEVAN VRIDDHI he is not taxed at all so still it is a good investment.

What's the catch?

While the plan looks very attractive, here are some things to watch out for:

Service tax @10.3% has been excluded from the calculations. So if you add the service tax, the returns come down to 11% from 12%
If you don't add the tax benefits, the returns come down to approx. 6 - 7 %.
The loyalty addition is not guaranteed and will depend on LIC's experience
The tax benefits is as per existing laws. When the Direct Tax Code sets in from April, 2012, the tax benefit under Sec 80 C will go.
The tax free maturity amount is an assumption under existing tax laws. That can change 10 years from now.
Risk cover is only 5 times and may not be adequate.

We think it is a nice combination of insurance and investment. Disclaimer: We are not agents of LIC

Any questions? Please send us a mail on editor@personalfinance201.com

Fixed Maturity Plans: UTI Launches New Series

ranjanvarma@gmail.com (The RupeeManager Team) — Wed, 18 Jan 2012 16:41:18 +0000

Top Fixed Maturity Plans have given a return of 9.5% over the last one year. (See top FMPs on ValueResearch). Fixed Maturity Plans is a type of Mutual Fund that invest in debt instruments and has a fixed maturity date. The FMPs are for Investors who want to park money for a fixed period of time with a view to meeting certain financial goals in near future. It is also for risk-averse investors who seek avenues for investment and in the process keep money in the form of bank deposits.

You can see a list of FMPs on offer on Valueresearch

UTI Mutual Fund has launched UTI Fixed Term Income Fund – Series X – VI (368 days) and the details are as given below:

Launch Date/Specified Transaction Date (in case of interval fund)	Last Date	Maturity Date	Minimum Amount	Entry Load
16 January 2012	19 January 2012	21 January 2013	Rs 10,000/- under Dividend Option & Rs 5,000/- under Growth Option and in multiples of Rs 10/-	Nil

The Tax Angle – Subject to prevalent tax laws. You may refer to the clause on Taxation in the Statement of Additional Information (SAI)) of the scheme.

In the case of Fixed Term Income Funds (FTIFs) the return can be in the form of dividend or capital appreciation depending upon the option of the investor.

Dividend is tax free in the hands of the investor while the fund has to incur a Dividend Distribution Tax