Tuesday, March 19, 2013

Should you buy Gold from Banks ??

The dream run up in Gold prices in last few years has enticed all and sundry as an attractive investment asset class. It has not only proved to be an excellent hedge against inflation a, reputation it holds with elan since time immemorial, but also, has delivered returns in excess of debt, equity etc as an asset class. Thus , it has emerged as the Best Investment Option in last few years. However, skeptics believe that gold has had its share of dream run and may not be possible for investors who are entering into now, to expect the same kind returns in future .

But, if you are on of those who believe that best years of gold as an asset class is still ahead of us and want to invest in physical gold then you must be pondering where should you buy the gold from? These days we have seen most of the banks aggressively positioning them as place where one can buy physical gold bars/coins etc. The other option is offcourse our old Jeweller , both unorganized and large organised players like Titan, TBJ etc.
Before deciding to buy Gold , ponder on these points:-

1. Purity of the Gold:- The singlemost important factor that must guide your decision is the purity of the metal. Most of small Jewellers dont have the track record to write home about on thei account. Banks can give you complete assurance on quality. They give you 24 Carat Gold as against 22 Carat that Jewellers sell. Besides it is 999 Gold with Certificate of Purity. Some Large Jewellers also give the same.

2. Premium Charged- Banks generally charge a premium on the price of Gold over what is the prevailing rate. Simply put, the Gold that you will buy from Bank will be costlier than  what you wil get in the market.

3.Resale Option - Most of Banks DO NOT buy back the gold that they sell. However, Jewellers normally will take back the gold in case you were to sell it back to them.

You must ,therefore, carefully weigh your options before rushing to buy Gold as an investment asset.

Tuesday, March 12, 2013

Does Pension Plans make sense ? - Should you invest in Pension Plans?

Recently IRDA has allowed Insurance companies in India to launch Pension plans after a gap of over 2 years . Earlier, the insurance companies did have pension plans in the market, but , the regulator viz IRDA had asked them to withdraw all such plans and as such we had a situation where there were no "Pension" plans available in India for some time. However, it has been allowed again . While doing so IRDA has mandated few changes in the product design/features which are aimed at safeguarding the investors interest like offering minimum guaranteed returns etc. 
So , as a person wanting to secure your post retirement years, should you be investing in them? The short answer to this question is NO . Let me elaborate on this. 
1. High charges : Most of Pension Plans offered by Life Insurance companies today, have very high cost structure. Most of the Products have charges to the tune of 4-5% of the overall yearly premium/contribution that you make in the plan. This is against 1.5 to 2% charges on most of the well diversified Mutual Funds. Thus it is one of the most expensive ways of planning for your retirement.

2. Lower guarnateed returns offered  : Most of these plans have guaranteed returns promise attached with it . While on the face of it, guaranteed returns gets people /investors excited and thats the reason why it is offered in first place. What companies dont tell you that while the guarantee is mostly of the premiums paid only ( or negligible returns over it) what they dont tell you i\with as much enthusiasm is that they charge you for providing you that guarantee too . Yes , they have something like guarantee charge in the cost structure.

3. Lower than FD returns on annuities : The annuities offered ( pension ) in most of these plans range from 6-7% annually. This is even lower than what Bank FDs pay today . So there is no compelling reason why one shouldnt simply put money in FD ( the corpus if one has) and get superior returns from it.

4. No Option to buy annuity from other company or pension provider. Another drawback of these plans is that most of them make it mandatory to buy annuities from them only . So if you invest with ABC company , then you are locked with them and will have to necessarily buy the annuity also from them irrespective of the rate they offer you. So , even if there is someone else in the market offering you better annuity rate, you will still not be able to move to that firm for your annuity. This is a serious drawback considering that Pension Sector is proposed to be reformed and opened up in India, which will drive competition among players thereby making it imperative on them to lure customers with better and superior products. 
So , short answer is that planning for retirement doesnt have to be done only by investing in Pension Plans offered by Life Insurance Companies . One would be better off investing in PPF , NPS etc for Pension Planning.
What do you think?

Thursday, March 7, 2013

Retired Recently? -Best investment option for Retired Person

Best investment option for Retired Person

There are broadly 2 kinds of retirees viz 1. Those who draw pension from their employers 2. Those who dont have any pension from Employers . Now lets look at how each one of them should approach their investments for post retirement phase.
1. Retired Persons having Pension from Employers
 Since they already have some kind of pension income coming in they are better placed and have less daunting task to plan for this phase of their life.  They need to do following things :
1. Buy a comprehensive Health Insurance Plan - There are lot of general insurance companies in India who are offering health covers upto 65-70 years . There are few options from Life Insurance Companies where one can have the health plan before 70 years and then can continue to renew it for their lifetime. Example is Health Assure Plan for HDFC Life. It is an absolute must that you cover yourself adequately against any untoward health shocks at this stage, since one such shock can wipe out your entire savings.

2. Invest in Senior Citizens Savings Scheme -  At the time of retirement if you have received any lumpsum amount, then, invest teh same in Senior Citizen Savings Scheme. Its Govt of India Scheme meant for providing attractive returns to retired people. One can invest upto maximum Rs 15 lakhs and get 9% returns payable quarterly on it.

3. Invest in Debt/Balanced Fund - Balance surplus investible amount may be invested in good debt or balanced mutual funds . This will ensure it gives better than FD returns with minimum risk. You may consider HDFC Prudence in this category.

2. Retired Persons having  No Pension from Employers

This set of people need to be very meticulous in planning their investments. They need to plan to ensure that they get regular monthly income but also guard against inflation. They must do the following things:-
1. Buy a comprehensive Health Insurance Plan - They too are equally exposed to all the health risks and as such need to cover themselves adequately. Buy cover for both yourself and your spouse.

2. Invest in Senior Citizens Savings Scheme -  Invest upto Rs 15 lakhs in this scheme . This will give them 9% pa.

3. Invest in Post office Monthly Scheme - This will ensure that they get decent returns monthly which will help them keep their basic household expenses going.

4. Invest in good Balanced or Well diversified Equity Fund - Since they do not get any inflation adjusted pension income from their employers , they have to ensure that they invest their money in instruments which gives them superior inflation adjusted returns. I would suggest they can invest in good balanced fund or well diversified  large cap equity funds  like Reliance top 200 , BNP ParibasEquity, HDFC Equity etc.

If you stick to this , I think you will have a comfortable retired life without worrying for paying your next electricity bill .
What do you think? Pl comment.

Wednesday, March 6, 2013

How to File Income Tax Returns? - 5 Must Dos.

Filing Income Tax returns is one of the activities about which there is lot of anxiety among lot of people .  We need to understand that while filing ITR is important and necessary , it is also important that we do so correctly . So what are the things that you should keep in mind while filing ITR.
1. File ITR within specified time - The first things that you must ensure is that you file the ITR within the specified period and not delay it. Any delay in filing ITR ( especially wehere you have to pay taxes ) may attract penalty from the Govt .  And  as such , sticking to the timeline is a great idea.

2. Disclose all incomes - The most common mistake tax payers make is failing to report all the sources of their income. One type of income that is forgotten by many individuals is interest earned on a bank savings account and on Fixed Deposits (FDs). This income is taxable according to your respective tax slab. Usually banks deduct 10 percent as Tax Deductible at Source (TDS) on the interest income earned on FDs. However, if you fall under a higher tax slab of say, 30 percent, you are liable to pay tax accordingly. Not reporting these incomes might attract a notice from the income tax department.
In addition, if you have changed your job recently, make sure that you report the income earned through your previous employer as well.
Also, any income earned by a minor through investments is taxable according to the tax slab of the parent with higher income. The income of the minor is clubbed with that parent’s income while computing net taxable amount. In case you have made investments in your children’s name, keep this in mind while filing your taxes.

3.Paying tax on House Property - Lot of people assume that there is no tax to be paid on house property . While the truth is all house property owned by the person attracts tax and one needs to pay the same.

4.Filing details of income which is tax exempt - Some people assume that we have to file details of income where there is tax liability and as such do not disclose incomes which are tax free. For example, Long Term capital gains out of equity invetsments , dividends received etc are tax free but still need to be disclosed in your tax returns. This reflects your total income accurately and removes any chances of receiving any notice from Income Tax Dept since most of the AMCs, brokerages  etc from where you receive this income will anyway report this to the authorities.

5. Give Correct email Id and Postal Address : Since all the necessary information is communicated by the income tax department via email or post, it is extremely important to enter these details correctly before filing your taxes. A minor mistake in filling these details means that you may miss important notifications. So check and re-check your postal and email address when you file your income tax.

Tuesday, March 5, 2013

Best Tax Savings Mutual Funds (ELSS) - FY 12-13

Its that time of the year again when all of us scramble to do tax planning. We have lot of options under Sec 80 C of the IT act to invest upto Rs 1,00,000 and save taxes on it. Some of the options under Sec 80C are as under:-

2. Insurance Plans - ULIPs
4.PF and VPF( Voluntary Provident Fund)
5. Tax Saving FDs

There are quite a few other options as well like deduction on account of paying tuition fees for kids, housing loan deductions etc.

Out of the 5 options listed above, ELSS is my own favourite for following reasons:-
1. It has lock in period of just 3 years . This is lowest among all the options available.
2. It gives you equity exposure while PPF and FDs give only debt exposure.
3. Is more likely to give inflation adjusted positive returns .

So , if you are looking to invest in ELSS, following are the top ELSS schemes that you may consider.

Happy Investing!!

Sunday, March 3, 2013

CTS Compliant Bank Cheque - What is it?

What are CTS  Compliant Cheques ? CTS is an acronym for Cheque Truncation System . CTS is a new clearing system proposed by RBI wherein the need for physical movement of cheques between drawer bank and drawee bank will be eliminated. In place of physical cheques , only the image of the cheque having relevant information like MICR code , date of presentation, bank details etc will be sent for clearing. The cheques used for such clearing are called CTS complaint cheques.

What are the advantages of CTS based clearing system ?

 Following are the advantages of CTS based clearing system:
1. Since the need for physical movement of cheques is removed, the whole process of clearing will be faster . One will be able to get credits ion their account faster than is possible today.
2. This will result in lower cost in clearing since banks will save money which is currently spent in physically moving cheques from one place to another during the clearing process.
3. Lower scope of issues arising out of loss of cheques in transit etc.
4. Lower frauds related to cheque clearing  since it is much more safe and secure than physical clearing system currently practised.
5. Superior customer service .

When will it be applicable?

CTS based clearing is proposed to go live from 1st April 2013 and as such CTS compliant cheques alone will be valid from that day onwards.

How to find out if the cheque you have is CTS complaint ?

The new cheque leaves which are CTS compliant will have  following features:-
1. " Please sign above this line" notation will be marked on the right hand bottom side of the cheque.
2. "Payable at par at all branches " will also be written on the cheque at the bottom.

Will alterations on the cheque be accepted post launch of CTS based clearing?

Any kind of ccorrections in payee's name , amount in figures /words etc will NOT be accepted on CTS complaint cheques and as such one needs to be very clear both while writing cheques and also while accepting it.Do not accept any cheque which has over-writing or corrections done on it since banks will not be able to honor such cheques and will be returned back.  Similarly , while issuing cheques , take care to ensure that you write the cheque correctly the first time itself so that there is no need for alterations.

What happens to non CTS complaint cheques /PDCs etc post 31st March 31?

All post dated cheques given for EMI payments  should be replaced by new CTS 2010 compliant cheques . The non complaint cheques given as PDCs etc wont be accepted/valid post 31st March 13.

Thus , its amply clear that non CTS cheques needs to be replaced if you already havent. Apply for new cheques immediately so that there is no last moment rush for you on this account.

Happy Banking !!

RGESS - Is it Good One for Tax Planning?

Rajiv Gandhi Equity Saving Scheme ( RGESS) is s a new equity tax advantage savings scheme for equity investors in India. The scheme got it's approval on September 21, 2012. It is exclusively for the first time retail investors.

The investors who invest up to Rs.50,000 in 'Eligible Securities and MFs' and have gross total annual income less than or equal to Rs.12 Lakhs will benefit from a new section 80CCG under the Income Tax Act, 1961 on 'Deduction in respect of investment under an equity savings scheme' has been introduced to give tax benefits.
Let us say, you invest Rs.50,000 under RGESS, the amount eligible for tax deduction from your income will be Rs.25,000. Alternatively, if you invest Rs.40,000 under RGESS, the amount eligible for tax deduction will be Rs.20,000. So you may save about Rs.2,575, Rs.5,150 for income tax slabs 10% and 20% respectively under this scheme.
Who can invest in it ?
 Individuals who have never invested in equity markets are eligible . Definition of such individuals is as under:-
- Person who hasnt opened a Demat Account.If Demat is opened , then there should be no transactions.
- Person who hasnt invested ever in equity -cash and FnO.
-Resident individual having annual income of less than 12 lakhs.
- The second or third holder of the demat account would not be considered as investor having equity exposure . Its only the first holder who shall be considered that way. hence all such people can open a new demat account and take advantage of this scheme.
Is it worth it? 
 It is worth it because of following reasons:
- Helps you save taxes over and above Sec 80 C to the extent of Rs 25000 as direct deduction from taxable income , if your annual income is less than 12 lacs pa.
- It allows you to take advantage of tax saving even while investing in well diversified Mutual Funds. Of all the tax saving instruments available in India today, ELSS is the best one owing to its low cost and low lockin period besies high return potential. RGESS is just like ELSS only and as such makes sense to invest in it and save extra taxes.

Sunday, October 16, 2011


What is an HUF? 
Down the ages, the Hindu community has largely believed in the concept of joint families, joint income and joint property that is shared and enjoyed by all the members of the family. This concept is now recognized as a legal expression in the form of the Hindu Undivided Family (HUF)– a rather efficient tax-planning tool under the Income Tax Act. 

How do you form HUF? As the name suggests, an HUF is a family of Hindus. However, under the tax laws, even Jain and Sikh families can set up HUFs. Typically, an HUF will consist of a person who have lineally descended from a common ancestor, and includes their wives and unmarried daughters. Do note: in Maharashtra, even married daughters are recognised as HUF members. 
While the senior most member is called the karta (manager), the male members are known as coparceners, and the females are referred to as members. In the ordinary sense, an HUF should consist of at least two male members. However, in case the HUF is partitioned, the smaller family that receives the property can constitute an HUF even if it has only one male member. 

What income is regarded as HUF income? All the income that arises on the utilisation of the HUF’s assets and on the investment of its funds is regarded as the HUF’s income that is assessed separately and chargeable to tax. Importantly, the income should have been earned using HUF property or funds or property only; if it arises on account of the personal investments of any member, it will generally be regarded as the individual income of the member. 
 If an HUF contributes funds to the capital of a partnership firm in which it is represented by the karta or any other member who represents the HUF, then the profits and interest received from the firm will be treated as HUF income. This is because the income arises on the investment of HUF funds, and so the income belongs to the family. If, however, the partnership firm also pays the karta (or the member who represents the HUF) a salary for efforts put in by him, the remuneration will be regarded as the individual income of the karta/member. 
It’s important to remember that the same person can be taxed separately as an individual, as well as for and on behalf of the HUF. The two capacities are totally different. And so, the individual and the HUF are totally different units for tax purposes–they are two different assessees. 
Since an HUF is a separately entity, it can earn income from house property, income from business and capital gains, and income from other sources. However, since emoluments are given for personal skills, an HUF cannot earn income from salaries. An HUF can also carry on a business that is managed on its behalf by the karta. It can also hold shares, securities, jewellery and any other valuable articles or articles, apart from movable and immovable property. 

What are the assets of an HUF? Any gift that is given specifically to an HUF can be treated as HUF property. The assets received on the partition of a larger HUF of which the coparcener was a member is also perceived as HUF property is also treated as the property of the HUF. 
Assets can also be bequeathed to an HUF by way of a will that specifically favours the HUF. A point to be noted: in the absence of a will, the assets received on the death of a benefactor after 1956 (when the Hindu Succession Act came into force) will not be regarded as HUF property, but as individual property, even though such assets have been inherited.