It is time to plan your taxes for the year. There are many things that you can do to claim the tax benefits you are entitled to. Here are nine income tax deductions that can be made from the gross taxable income. These will lead to the net income on which tax is calculated to be reduced leading to lesser tax payable.
Executive Summary: Rich people have the problem of plenty. They grapple with various options to invest money and how to maintain a certain lifestyle. They are worried about their kids lives and whether they will have enough money and if their money is earning enough. It is important to develop and follow a financial plan irrespective of the amount of wealth you have.
How Much Money Will Make Your Problems Disappear? Will a lump sum of Rs. 50,00,000 or Rs. 1,00,00,000 be enough or do you need Rs. 10,00,000 every year to be rich?
Credit Suisse's 2018 global wealth report says that there were 3,43,000 millionaires in India by mid-2018. Do the rich have money problems or are they content in life spending on all their whims and fancies? Well, it turns out that the rich also have money problems. Here are some problems that they face -
More Money – More Complex Financial Decisions
The rich have a lot of money. They need to think about all the different investment opportunities and choose the most optimum ones. The ticket size of their investments are big too. Moreover they are bombarded with investment ideas and have to constantly analyse and decide the best investment avenues. They worry about the returns, losses and also the opportunity loss of not investing in certain investment options
People Ask For Money
Wealthy people are surrounded by many people beyond the family and close friends - extended family, friends of friends etc. Many of these people ask for money either as a loan or as investment for their business ideas or personal problems and it is difficult for them to refuse to give money. Random strangers too put in requests for money which can be overwhelming.
Increased Lifestyle Spending
As one grows rich, the wants increase. There is an upgrade from a sedan to a luxury SUV. The family of four has three cars instead of one. Weekend getaways become expensive. More people are hired for help. For example a successful actress hires a manager to manage her schedule, bodyguards, fitness expert, beautician etc. There is a feeling to buy the best brands and most expensive things for the family as anything less seems a compromise.
Deal with expectations and comparisons
Many have to keep up with their counterparts or feel they have to live up to others expectations of the rich. They feel obliged to buy bigger houses, bigger cars, and more accessories due to peer pressure. In certain social setups, people are pressurised to throw lavish parties and maintain a certain image. This results in wasteful expenditure.
Finiteness of Money and Possibility of Opportunity Loss
Money is a finite resource. If it is not managed properly, it will disappear. Rich people constantly worry about earning more to keep up with their increasing expenses. They are also worried about how best to make the money work. People who have not invested properly have lots of idle cash or money invested in low return assets and worried about the opportunity loss.
It might be good to worry about issues such as how best to make your money work or how to earn more. At the same time, spending sleepless nights over purchasing one more limited edition timepiece or a private jet will just prevent you from having a content or a happy life.
Rich or middle class or poor, however you may classify yourself, it is important to have a financial plan in place. Tracking expenses and income and investing regularly for optimum returns will help to ease off some of the worries.
Happy New Year! The festivities and celebrations are done and it is time to work on making 2019 a worthwhile year. Let us make resolutions for our personal finances and stick to them so that we have a successful financial year.
Executive Summary: The Government has approved some changes in the NPS such as increased Government contribution, tax benefits, better withdrawal conditions and compensation for delayed payouts towards contribution by the Government. These changes are beneficial to NPS subscribers.
National Pension Scheme (NPS) is a retirement scheme. It is a defined contribution based pension fund. It is compulsory for Central and State Government employees and optional for other employees.
Employees and employers contribute to their account and the collective fun is invested in equity, government securities, corporate bonds, fixed deposits etc and managed by fund managers. Employees can then withdraw part of their corpus and invest the rest in an annuity product.
Recently, there were some changes approved and announced for NPS. The image below shows these amendments and their implications -
The government is trying to make NPS an attractive product which is useful for investors. For more information about NPS, click here.
Executive Summary: Liquid funds are considered to be a good investment option due low risk, high liquidity and optimum returns. You should consider factors such as credit quality, investment portfolio, fund performance, expenses, your financial goals and average holding period to decide where to invest.
Liquid Mutual funds invest in short-term money market instruments and other debt securities. They key features of liquid funds are -
Liquid funds may not give returns as high as equity funds but are a good option to park idle cash or to meet short term financial goals. Here are some parameters that you should focus to zero in on which liquid fund to invest in -
1) Average Credit Quality
Check the type of securities that the fund is invested in. Its better if the fund has most of its investments in instruments with credit rating AA and above and some holding in the form of cash holdings.
2) Investment Portfolio
Liquid funds invest in treasury bills, certificates of deposits (CDs), commercial papers (CPs) etc. If a scheme is overweight in commercial papers, you need to evaluate the risks. If the extent of CP investment is more and in lesser known companies, it might be a good idea to avoid the fund.
If the investments are across many securities, the risk is less. For example, when the IL&FS bonds were downgraded, mutual funds that held those bonds but had a a diverse investment portfolio were not affected as much as those schemes that had a high exposure to these bonds.
3) Fund Performance
Check the fund performance. Here is a list of few liquid funds and the returns they have generated.
As on December 5, 2018
It is better to go for funds that have good returns for the longer duration as it indicates consistency.
4) Average Holding Period
Liquid funds can invest in securities that have maturity periods ranging from 1 day to 90 days. If the holding period is on the lower side, it means percentage of cash is more. The more holdings in cash, the lower the returns. So select those funds that have the average holding period on the higher side.
5) Expense Ratio
Though SEBI has a cap on the expense ratio which is the annual management fee, it is important to check the value for the scheme you want to invest in as the expenses are paid from the returns which means the higher the expenses the lower the returns. Here is an indication of the expense ratio of some liquid mutual funds.
6) Your Financial Goals
Liquid funds are better than cash or bank accounts to create an emergency fund. If you have short-term goals like buying a car or funding an exotic trip, you can invest in liquid funds. You will generate better returns and you will not have easy access to the amount to spend it irrationally.
Investing in liquid funds is not risk-free. Use the above mentioned criteria to select funds that have the potential to give good returns.
Executive Summary: 'The Science of Getting Rich' written by Wallace D. Wattles tries to show how to get rich using a scientifically proven method. The book talks about how the right thoughts and right actions can increase our income and wealth.
The core concept of the book - The Science of Getting Rich, written by Wallace D. Wattles is that to become rich we must have a combination of the right thought and right action.
A summary of the book -
The author believes that you have to do your part in the right manner continuously to become successful. You will become rich in proportion to the firmness of your vision, steadfastness in purpose, extent of faith and gratitude and the creative action you put in towards reaching your goals.
The book does not talk about financial concepts but is a self-help guide on your right to be rich. Some of us probably know most of the things in it but it is a good reminder that a certain way of thinking and living will help us become successful.
Executive Summary: Banks are launching credit cards designed for the e-shopper. We compare three e-commerce co branded cards – ICICI's Amazon Pay Credit Card, Snapdeal HDFC Bank Card and Axis Bank Buzz Credit Card.
Co-branded credit cards have been around for quite some time. Online shopping is on a boom in India and has transformed the way we shop. Therefore companies launch products catering to customer wants. Let us look at some credit cards that have been launched to take advantage of the online shopping boom and increase customer base.
ICICI Bank's Amazon Pay Credit Card
ICICI and Amazon have joined hands to launch the Amazon Pay Credit Card.
Regular Amazon customers who are ICICI account holders will be able to apply for the card on the Amazon app. After a certain period, regular Amazon shoppers will be able to apply for the card.
It is a good credit card for Amazon shoppers. Amazon offers a variety of products so there is a chance of earning a lot of reward points. You will get the digital card immediately after applying for it which means you can start shopping and earning points immediately. Your phsyical card will arrive later. There is no expiry of earnings and no limit on the Amazon pay points that you can earn.
Do note that there are no reward points for EMI transactions and purchase og gold. Moreover rewards can be used only on the Amazon portal.
Snapdeal HDFC Bank Card
It is launched by HDFC and Snapdeal together.
If you are a regular Snapdeal shopper, it might make sense. But reward points expire within two years. The scheme of 20 reward points given for every Rs. 150 is applicable only till March 2019. Moreover there is a payment to be made for redemption of rewards. There are better credit cards that can be considered as this does not offer airpot lounge access or dining benefits if you prefer those kind of benefits.
Axis Bank Buzz Credit Card
Axis Bank has launched the Buzz credit card in collaboration with Flipkart.
If you are an avid shopper on Flipkart, you might like this card as there are many Flipkart vocuhers given. You can also convert your purchase to EMI. The interest charge is reasonable at 1.5% per month. The joining fees and renewal fees are high. The cashback points are not so attractive.
A credit card is like a double edged sword. Smart usage of a credit card improves credit score, make large payments and earn attractive rewards and discounts. At the same time, some may over spend or lose track of payments and end up paying interest. Be a disciplined credit card user who does not spend beyond the credit limit, pays dues on time and makes the best of the perks and rewards associated with the card.
Executive Summary: Getting a home loan is a long and stringent process. There are many reasons for banks to reject applications for home loans. These include unapproved builder/property, incomplete documentation, unstable income, other loans etc. You have to ensure that you satisfy the acceptance criteria so that your home loan is not rejected and you get the amount required on the best interest rates.
Buying a home is a big financial decision. We spend a lot of time and effort on selecting our dream house and then apply for a home loan. Banks have a formal process to approve a loan. If all steps of the process are not completed, the application can rejected. Here are some reasons for rejection of home loans -
Builder/Property not approved – If the builder or the property in which you want to buy a house does not meet the requirements of the lender, the home loan can get rejected. Reasons like builder not following necessary guidelines or the property being in some dispute or being old can lead to rejection of home loan.
If the address of the property is in the defaulters' list due to illegal activities or no clean titles, then the home loan application can get rejected.
Previous Loan Records – If you have many outstanding loans or have missed monthly instalments, your application may not be accepted. If your credit score is low, your application will not be accepted.
High FOIR, Financial Eligibility – FOIR stands for Fixed obligations to income ratio. It is the ratio of your total loans (including the home loan applied for) to your total income. Most lenders prefer the ratio to be within 40–50%. If you have more loans that that, your application could be rejected. Your earning capacity would also be checked. If you have been switching jobs too often or have long tenure of unemployment in recent times, your application can be rejected.
Co-applicant's track record – If you have a co-applicant for the home loan who has a bad credit score or has defaulted on loans, then the home loan application can get rejected.
Incomplete Documentation – If you do not have relevant salary slips, IT returns documents and 'No dues' certificate from previous lenders, your application may not be accepted.
Let us look at some steps to take that can ensure that the home loan application gets accepted -
Do remember, that it is not the end of the world if your home loan application is rejected. You might have to wait for some time before reapplying and analysing the reasons for rejection and rectifying them. But of course, if you follow the process properly you can get the loan approved in the first go and acquire your dream house.
Executive Summary: It is important to read the fine details and all terms and conditions mentioned in the health insurance policy before you make the decision to buy one so that you know about the policy exclusions and conditions that have to be met for making a claim.
Health and Medical insurance plans protect us financially when we face medical emergencies. But they do not provide comprehensive cover. They have some exclusions which means some events, some illnesses and/or diseases cannot be considered for making claims. Let us look at the common permanent exclusions -
Medical issues due to External Events
Intentional injuries and injuries due to war, nuclear attacks and terrorism are usually excluded from health insurance. Diseases or health conditions due to HIV, congenital diseases and usage of drugs and alcohol are not covered.
Health issues or medical conditions that arise from diseases that were existing prior to purchase of insurance policy are not covered by the policy with immediate effect. These are called pre-existing diseases. They are usually covered after 2-4 years of the policy being in force continuously. There might be some other terms and conditions as well.
For example, ICICI Lombard's iHealth insurance policy covers pre-existing diseases after 24 months of continuous coverage for the sum assured of Rs. 2,00,000 and above and after 48 months of continuous coverage for sum assured less than Rs. 2,00,000.
In Apollo Munich's Optima Plus plan, pre-existing diseases are covered after 48 months of policy coverage.
Most policies do not cover illnesses or diseases within 30 days of purchase of policy. This clause is waived for accident.s Some illnesses or diseases have a specific waiting period which might be more than 30 days. It could extend from 12-24 months.
For example, ICICI Lombard's iHealth insurance policy has a waiting period of 2 years for claims arising from conditions such as cataract, hernia, arthritis, sinusitis etc. Bajaj Allianz's policy – HealthGuard – Silver plan has a waiting period of 24 months for claims that arise due to gastric ulcers, sinuses, cataracts, hernia and haemorrhoids.
Many insurance policies do not cover pregnancy and related conditions. If you are thinking of starting a family, you should consider this clause. Some policies cover pregnancy related claims after continuous coverage for a certain duration. For example, Bajaj Allianz's HealthGuard – Gold plan covers pregnancy and related conditions and treatments after 72 months of continuous coverage. ICICI's iHealth plan dies not cover expenses related to pregnancy, abortion miscarriage and other related conditions.
Some insurance companies offer specific maternity plans.
Surgeries like cosmetic surgery, dental surgery, joint replacement, skin related surgeries are usually in the list of permanent exclusions of health insurance policies.
Alternative treatments include the AYUSH treatments - Ayurveda, Unani, Siddha and Homeopathy Many insurers do not cover them. Some insurers do offer some amount of cover. For example, Royal Sundaram LifeLine Health Insurance Plan covers Ayush treatment up to Rs. 50,000 if the treatment is done in a government hospital. Max Bupa Health Companion Plan covers AYUSH treatment in case of inpatient hospitalization. If the treatment is done in a government hospital, one can claim up to the sum assured but can only claim up to Rs. 20,000 in case of inpatient treatment in a private hospital.
It will be frustrating to know that you cannot make a claim when you face a particular medical condition and then find out that you are not covered by the insurance policy that you have. Therefore, do remember the following tips -
Executive Summary: HDFC Ergo's E@Secure and Bajaj Allianz's Cyber Safe Insurance Policy are policies offering financial cover against cyber crimes and cyber liabilities. We provide an overview of these policies.
Today business and personal transactions are carried out increasingly on the web. This is convenient but at the same time brings in more risks to the business. Just as we protect our life financially with term insurance and our factories with fire insurance, we need to insure ourselves against financial losses arising from cyber attacks. Cyber attacks can be in the form of phishing, e-mail spoof, identity theft, malware attacks, cyber stalking etc.
How do we protect ourselves from these cyber liabilities and cyber crimes? Insurance companies have come up with cyber protection products. These insurance policies provide financial cover for cyber threats. We compare two such products – HDFC Ergo's E@Secure and Bajaj Allianz's Cyber Safe Insurance Policy.
Once you take the insurance does not mean you can do away with responsibilities. You are still responsible for safe and secure Internet transactions and online interactions. Maintain the latest anti-virus updates, up-to-date software patches and have backups else the insurance company might hold you as an irresponsible e-citizen and reject your claim. Moreover losses due to government authority transactions are not covered. Even if you are insured agains e-threats, ensure that you conduct online transactions in a safe and secure way.
Executive Summary: Sovereign Gold Bonds are issued by the Government of India. In the next few months, these bonds will be available for investors to buy during certain periods. The interest rate is 2.5% per annum and the tenure is 8 years. You can redeem in the 6th and 7th year too. You can sell them in the secondary market as well. The capital gains on sale and the interest earned are taxable.
Sovereign Gold Bonds are bonds with the underlying asset as gold. They are issued by the Government. An investor can buy these bonds for allocation towards gold in his or her investment portfolio. There is returns potential in the form of capital appreciation and interest receivable.
Key Features of Sovereign Gold Bonds
Tenure and Interest Rates
Tenure - 8 years with an exit option from the 5th year onwards.
Interest - 2.5% per year payable semi-annually on the initial value of investment
KYC documentation is a must. You will receive a holding certificate when you invest in these bonds.
Nomination and Transferability
You can appoint a nominee when you invest in these bonds. An NRI can also be a nominee.
You can transfer the bond to another person using the Instrument of Transfer.
At the end of 8 years, the principal amount and the interest will be credited to the investor's bank account. In case of redemption, in the 6th or 7th year, the investor should approach the institution from where the bonds were purchased before the coupon payment date assigned.
If you are looking for high returns in the long run or quick short term gains, gold bonds are not the best investment option. If you want to diversify your investment portfolio and hedge against market risks, you can allocate some part of your investment to these Gold bonds. If you have a goal of safe gold accumulation for child's marriage, you can invest in these bonds over a period of time to get a sizeable amount in the future.
Executive Summary: SEBI has banned upfront commission payable to distributors and lowered the total expense ratio limit that can be charged by Mutual Fund houses to the MF investors. This will ensure that there will be less mis-selling and more transparency.
Mutual funds are regulated by SEBI. One of the main functions of SEBI is to protect the interests of retail investors. On account of that, SEBI has made some amendments in its guidelines for the MF Industry.
Ban On Upfront Commission
Upfront commission is defined the commission paid to the mutual fund distributor when the retail investor buys units of a mutual fund scheme. Upfront commission can be misused as retail investors can be asked to sell their units and buy other scheme units multiple times even when it is not in their best interests. The churn in investments is beneficial to the MF house and the distributors. SEBI has disallowed payment of this upfront commission. This will ensure that the retail investors' investment interests are given priority.
As an exception, upfront commission is only allowed in MF SIP investments. But SEBI will be closely monitoring these transactions for irregularities.
The distributors will be paid trail commission. Trail commission cannot paid upfront.
Reduction in Investment Costs
Expense ratio is the cost of investing in a mutual fund. The investor has to bear this cost proportionate to the investment made. It consists of the administrative and operating expenses. SEBI has put a cap on the maximum expense ratio that an MF can charge -
For other MF Schemes -
Performance Disclosure on AMFI Website
A few months back, SEBI directed the Mutual Fund houses to compare their returns to Total Returns Index (TRI) of the benchmark as compared to the Price Return Index (PRI) of the benchmark. The PRI captures the changes in movements of prices of securities which constitute the benchmark. But the TRI goes a step ahead and captures the movement of prices and dividend/interest paid. The TRI is a better value to use as NAVs are based on capital gains/losses and dividends received in the portfolio. The investor will get a more accurate picture of the performance of his MF investments and how it compares to the benchmark. Fund managers have to ensure that they take this into consideration while making the investments.
These SEBI rulings for the MF Industry will ensure that investors' interests are protected and there is less mis-selling and better transparency.
Executive Summary: Cognitive bias is erroneous thinking and behaviour. It prevents us from thinking objectively. There are many cognitive biases that affect our financial life. We have discussed four of them here – Anchoring, Decoy Effect, Bandwagon Effect and Status Quo Effect.
Cognitive biases affect our daily financial decisions too. They affect our spends, savings and investments. We must be aware of them and avoid being influenced by them -
Anchoring – You get fixated on the first price you saw for a product. Your buying decision gets affected by this price (less than expected or more than expected). For example, you are shopping for a television set and the first one you saw and liked was for Rs. 25,000. You will tend to look for TVs around that price. There might be TVs with the same features for Rs. 15,000 or TVs that offer better value and more suited to your needs for Rs. 35,0000. But you will try to buy one in the Rs. 25,000 range. This can lead you to a wrong buying decision.
AVOID IT by setting a budget and sticking to it. Buy a product or service that suits your requirements.
Decoy Effect – This is a popular method used by retailers to increase the sales of expensive products. There are two models of a phone brand – A and B. A costs Rs. 9000 and B costs Rs. 13,000. Many might go for A. But if the company introduces a third model , C costing Rs. 11,500 with fewer features than those in B, people would tend to buy C as they assume a balance in terms of price and features.
AVOID IT by researching on the different variants available and buying as per your need and budget.
Bandwagon Effect – Many of your colleagues are buying a new car or the new iPhone, so you decide to take a loan and buy one too or even though you may not need it or your financial situation is such that you should not be taking a loan. The “experts” on TV are sure that the agricultural sector will do well and so we buy stocks of companies in that sector without any research on the stocks on on your portfolio.
AVOID IT by filtering information, looking at things objectively, doing your research. Act according to your financial situation.
Status Quo Bias - We think the present state is the best state. We do not prefer change in our job or food. We are hesitant to switch from our current doctor, financial planner or job even if there are reasons to change. We are hesitant to change the Internet service or gym membership even if there are better offers and better service elsewhere. We do not invest in alternative investment modes but invest in known options like FDs and gold. This bias increases spending and reduces income earning capacity which hurts our finances in the long run. We lose out on good opportunities too.
AVOID IT by starting small. Make small changes. Analyse each scenario objectively. Look at the advantages and disadvantages and then take the optimum decision.
Do you think you have any of these cognitive biases? Let us know how they have affected you.
Executive Summary: SBI Arogya Premier Policy is a policy with higher sum assured aimed at HNIs. We look at the key features, benefits, disadvantages and share our analysis of the policy here.
SBI's Arogya Premier policy is a medical policy targeted at the high net worth individuals. It aims to provide a wide health coverage for individuals as well as families.
Features and Benefits
A 30 year old male with an annual income of Rs. 10,00,000 will pay an annual premium of Rs. 10,547 (with taxes) for a policy with sum assured of Rs. 10,00,000.
Treatments taken abroad, cosmetic procedures, vaccination, congenital disorders, AIDS and related diseases are not covered. Treatments for illnesses or injuries due to war, nuclear attacks etc. are not covered.
Comparison with Similar Policies
SBI Arogya Premier Policy is cost effective and has significant medical coverage. It has many advantages over other medical insurance plans. But the sum assured starts at a high amount which means the premium payable will be higher. If you wish to get medical treatment abroad, the policy will not help as treatments abroad are not covered.
But if you are a person looking for higher coverage, wider coverage and want non-allopathic treatments covered, it is a good insurance plan to go for.
Executive Summary: Warren Buffet reads for about 5 to 6 hours a week. Bill Gates reads a new book every week. Most successful people list out reading as one of the factors for their success. Here is a summary of four books that you can read to make your financial life better.
There are scores of books on the topics of finance, investment and getting rich. Here is a summary of four books that I find relevant and interesting -
Think and Grow Rich By Napoleon Hill
Book Quote - “There are no limitations to the mind except those that we acknowledge.”
This book, though written in 1937 is relevant even today. Napoleon Hill talks less about financial planning, budgeting or investing but more about the power of thoughts and action. He has interviewed more than 500 people successful in different walks of life and compiled their views, ideas, thoughts and actions into 13 principles to be followed for success. The book talks about how one must control one's thoughts and subconsciousness and have faith in one's decisions. This mental transformation will lead us to take actions to achieve our desires.
Rich Dad Poor Dad by Robert Kiyosaki
Book Quote - “Most people fail to realise that in life, it’s not how much money you make, it’s how much money you keep.”
The book tells the story of two people – Robert Kiyosaki's dad and his best friend's dad and their way of dealing with finances. Though there are controversies around the book that the story is made up, it nevertheless is a good book with solid financial advice. He considers the main difference between the rich and poor is financial literacy. The rich make their money work for them by being entrepreneurial, financially literate and fearless. They are also generous and at the same time always ask the question – “What is in it for me?”
To become rich, one should formulate a plan for acquiring assets, reducing liabilities, paying oneself first in terms of investments and savings.
I Will Teach You To Be Rich by Ramit Sethi
Book Quote - “The single most important factor to getting rich is getting started, not being the smartest person in the room.”
Ramit Sethi's book is an easy and witty read. He asks you to take charge of your financial life today. The book lists out the essential things to do like reducing debt, building an emergency fund and investing. Formulate a conscious spending plan to take care of necessities, savings, investing and then spend the rest on non-essential items or luxuries. You can become an expert in finances with some quality research and learning and take care of your investments using the Internet. The book has many examples to simplify concepts and has actionable steps to improve your financial life. The book is more geared towards readers in United States but still is a good book to understand personal finance.
You Can Be Rich Too : With Goal Based Investing by P V Subramanyam and M Pattabiraman
Quote – Returns are not the sole deciding factor of how much money you are going to make from your investments.
The book aims to make investing logical and simple. It caters to beginners by describing money management in simple terms as well as to experts by having sections on portfolio allocation, links to online calculators such as life insurance calculator, monthly investment tracker, time value of money calculator etc.
The book covers topics such as evaluation of current networth, goal setting, risk management, mutual funds, insurance and portfolio management. It is a good guide for people who have just started earning money. It lists strategies to fine tune financial portfolio which will help people who already have a financial plan.
Let us know if you have read any of these books and if they helped you in your financial life.
Executive Summary: The rising fuel price affects all aspects of our life - Basic Necessities, Travel, Government policies on economy etc. We can attempt to do a few things to reduce the impact of it on our financial life.
The spiralling petrol prices have left everyone in a frenzy. There are economic and political repercussions of the same. But the layman is affected by a rise in prices of goods and services and increase in commute/travel costs. In Mumbai, the price of petrol has risen by about Rs. 11 as compared to the price in January, 2018. So if you drive 600 kms a month, your fuel bill would have gone up by Rs. 500- Rs. 1000.
Let us look at some ways to reduce the effect of rising fuel prices -
Use Alternate Modes of Transport - Do you use your car daily for your commute to work? You should try out alternate modes of transport. You can use the public transport system at least for a couple of days if possible. Can you use your motorbike/ scooter? It will reduce the commute time and also trim the fuel bill. If the traffic and roads permit it, maybe you can take a bicycle to work. It is eco-friendly and cheap. Moreover it will keep you fit.
Telecommute - In today’s age of technology, it is not really necessary to be at your office desk every single day in many jobs. You can get a respite from your daily commute hassle and fare even if you work from home once a week. Check your company policies about telecommuting or if you are the decision maker, see if you can incorporate a work-from-home policy.
Change working hours - If you have a typical 9 am to 7 pm job, you will be stuck in traffic, which will increase your fuel consumption and at the same time cause health issues. You can adopt a flexible hours strategy wherein you go to office a couple of hours earlier or later and/or leave a couple of hours earlier or later. If your work involves collaborating with people in the Far East or Australia, you can start work earlier. If you work closely with people in Europe, you can consider going to work a little later in the day.
Carpooling - You can carpool with colleagues who live in your vicinity or neighbours who work in the similar vicinity as your place of work. Many companies have adopted a carpooling process, where people can connect with others in their office and commute together. This helps save costs and also network with employees across departments which can be beneficial to your career.
Change your Job - Experts say that the commute should not be more than one hour one way. But many of us spend much more time in our daily commute. Consider changing your job. If you wanted to start something different but have been holding back, maybe it is time to get started on it.
Buy Fuel Efficient Vehicles - Do you own a gas guzzling machine? Replace it with a fuel efficient car. If you are just one person commuting to work in an SUV, maybe you should look for a different car. This will definitely save some money and also reduce your carbon footprint.
Better Driving Habits - Here are some good driving habits will help to increase the fuel efficiency and increase safety -
Let us know if you have taken any steps to to deal with rising fuel prices.
Executive Summary: A financial crisis can give you a stressful time. Understand the reasons of the financial crisis, take steps such as reducing expenses and adding sources of income to reduce its impact and plan your finances such that you are prepared better if another crisis hits you.
A financial crisis is the last thing one wants. It can happen due to many reasons like job loss, unexpected losses in your business or investments that have gone horribly wrong or emergencies that have made a big dent in your financial status.
Financial crises can cause stressful times that can extend to long periods. It is easier said than done but you have to keep calm and take steps to reduce the effects of the financial crisis -
Evaluate the situation
Evaluate the financial crisis. Ask yourself what caused the crisis so that you will know the root cause of the problem and deal with it appropriately. Then understand and accept the financial hit that you have taken in numbers and how it will affect your lifestyle, your budget, your dependents, investments and liabilities. The extent of loss depends on the type of financial crisis. If you have gone through a divorce and do not earn an income, it will be a tough road ahead. If you have lost your job, you might still be able to get back quicker even if you take a lower paying job or part time assignments.
Take Steps to Curtail the crisis
There are many ways to reduce the impact of the crisis or curtail its effects.
1) Prioritize and Reduce Expenses – You have many items of expenditure and you may not need to pay for all of them. Make a list of the expenses and arrange them in order of importance. Expenditure on food, rent and medicines are required. Arrangements can be made to made to postpone payments on cable bills, gym membership etc.
2) Sell Things – If you look around your house, there might be things that you do not need or use. Is your treadmill being used for hanging clothes? Do you have antiques or some furniture that you can sell? You can use online markets to sell these items.
3) Communicate with Lenders – Do you have loans like a home loan, educational loan etc.? If you cannot pay the EMIs, renegotiate with the bank and try to increase the tenure so that the monthly EMI goes down or ask for a grace period. Do remember, this will come with a cost – higher interest rate, penalty etc. On the other hand, if you have a car loan, sell the car and use that money to pay off the debt. It will bring down your monthly expenses as well.
4) Reduce Debt Burden – Liquidate your FDs, mutual funds and pay off at least part of your debt, credit card dues so that you save on some interest.
5) Find Alternative Sources of Income – Find out additional/ other sources of income. Take tuitions, freelancing assignments or part-time jobs. You can try to monetise your hobbies if you have any.
Plan for future Financial Emergencies
Once you have overcome the financial crisis, analyse the methods you used to get over the crisis. There might be some steps that you can continue to follow like reducing some of the expenses or debts. Analyse the situation that put you in the financial crisis and make a plan to be ready to face something similar. The plan can include -
1) Increased savings and investments – You will be able to sustain better with more wealth or avoid a crisis in the future.
2) An emergency fund – Set up a financial buffer to take care of unforeseen circumstances like an accident, illness of a dependent etc.
3) Adequate insurance coverage - Do you have adequate medical insurance? If not, this is the right time to increase the coverage. Ensure you have enough life insurance so that dependents do not have to face a financial crisis in case of unexpected circumstances.
4) Better Budgeting – Revisit your budget and check whether you can reduce your expenses. If possible, continue with the second source of income even after things have stabilised so that your income will increase and you will be financially better off.
Life is unpredictable. You might have to face tough situations. If you take the right steps and have a proper plan in place, the financial aspect of the crisis will not affect you severely.
By Vidya Kumar
Executive Summary: Health Insurance Providers have started offering insurance cover for medical treatment abroad. We compare three plans here - Max Bupa Heartbeat Individual - Platinum, New India Global Mediclaim Policy and Apollo Munich's Health Wallet.
Medical facilities in India are quite good and cost effective as compared to many countries. Many people from abroad come to India for their treatment or surgery. But many Indians are interested to get treatment abroad. The health insurance companies have realised this and started offering policies to cover medical treatments abroad. Let us look at some of the policies -
There is increasing mobility among Indians and we want to be medically covered all across the world. Moreover many people prefer treatment abroad for a range of reasons be it privacy or advanced medical treatment. Therefore it is good that insurers are waking up to the call of coverage of medical treatment in other countries as well.
Executive Summary: Government sector employees who have been appointed before 31 December, 2003 and have a minimum of 10 years service are eligible for pension. The taxability of pension depends on who is receiving the pension and how is it being received. Other employees have contributory pension plans such as EPF, NPS and Superannuation fund that they can participate in to secure their financial life post retirement.
Pension is a retirement benefit. It is given to retired employees when they are alive. When it is given to dependent family members (spouse, children under the age of 25, unmarried daughter) in the event of the retired employee's death, it is called as Family Pension.
Eligibility - Pension is given to employees in the pensionable establishments of the Government sector who have been appointed on or before 31 December 2003 and have spent 10 years in service in that establishment.
Pension can be of two types -
Uncommuted Pension - Pension received as periodical payments. If a person is entitled to a pension of Rs. 10,000 per month, he receives that amount every month.
Commuted pension - A lump sum payment made to the employee on retirement from the pension kitty in lieu of the regular pension. For example, if an employee has to receive Rs. 10,000 as monthly pension, he would decide to get 20% of the monthly pension as advance for the next 5 years. This means, Rs. 1,20,000 (2000 x 12 x 5) would be paid as a lump sum amount to him when he retires. The other 80% will be paid on a monthly basis. After 5 years, he will receive 100% of the amount on a monthly basis.
Taxability - Uncommuted pension or monthly pension is treated as salary income and is fully taxable in the hands of the pension receiver. If the family members get the uncommuted pension, 1/3rd of the pension amount or Rs. 15,000 whichever is less is deducted and the rest is taxable.
Commuted pension is exempt from tax for government employees if they receive it themselves. For non-government employees, it is exempt partially based on gratuity received. If the employee is in receipt of gratuity. If gratuity is receivable, 1/3rd of pension that may have been received is exempted if the retired employee had commuted the whole of the pension.
If gratuity is not applicable, 1/2 of pension that may have been received is exempted if the retired employee had commuted the whole of the pension.
Employees who joined the services of the government organizations after 2003, do not receive defined pension but can participate in contributory pension schemes such as NPS, EPF and Superannuation Fund.
National Pension Scheme (NPS) - One can participate in this scheme with any amount of contribution. The amount is invested as per the subscriber’s choice. Employee contribution up to 10% of salary is eligible for deduction from employees’ taxable income subject to a maximum of Rs. 1,50,000. An additional deduction of Rs. 50,000 is allowed. Employer contribution up to 10% of salary is not included in employees’ taxable income.
Employee Provident Fund (EPF) - An employee makes a certain contribution and an equal contribution is made by the employer. The employee gets the full amount with interest on retirement. Currently the interest rate is 8.55% p.a.
Superannuation Fund (SAF) - The employer sets up a fund for the employee and contributes a defined amount regularly. Employees can contribute voluntarily to the fund set up for them. The fund can be managed either by the organization's trust or the company can open a superannuation fund with an approved company like LIC or ICICI. Employee contribution is eligible for deduction from employees’ taxable income up to Rs. 1,50,000 per annum. Employer contribution up to Rs. 1,00,000 per annum not included in employees’ taxable income.
Executive Summary: Minimalism aims at reducing excesses in life. You can simplify your financial life by adopting even some aspects of minimalism. It will help you lead a content life and control your financial life better.
Minimalism is a way of life that focuses on living with less. It aims at reducing the excesses in life so that you can be free of burden and possessions. It aims to find a more fulfilling life. Jainism has a concept called Aparigraha. It is a key virtue in the religion. Aparigraha means restraint from greed and possessiveness. The key principle of Aparigraha is that one should stay away from material gains or happiness that is derived from hurting, killing or destroying others' lives or even nature.
Though we need not live the life of an ascetic, we can extend these concepts to Personal Finance to bring contentment to our lives and at the same time bring a balance in our personal finances -
Less Greed and Less Wants leads to Less Expenses – Many people are not content with that they have. They want the latest smartphone, yet another luxury car, more food, more wine and one more vacation house. It leads to many problems like overspending, health problems and lack of mental peace.
With minimalism, you will spend less and therefore have more money. The money can be used in different ways – investment, charity etc. You will also have lesser things to manage and organize which means more time, effort and money in your hands to do what you really want to do.
Less Materialism leads to Less Work – Our grandparents had a good life. They had fixed hours at work. Working from home and checking mails from home were alien concepts. They had a good work-life balance. You are probably spending many hours at work and commute. You will spend even more time and effort at work if you have more wants. This leads to health problems, overspending etc.
With fewer wants, you need not spend every minute of your life earning money. You can use the time to nurture yourself and be with loved ones. This will surely enrich your life.
Reduced Debt leads to Better Finances – How many loans do you service? How much of credit card payments are overdue? Debt leads to increased expenditure in terms of interest and penalty payable. If you buy less, you will spend less and borrow less. A debt free life improves your financial portfolio. You will not have too many monthly payments and can use that money in better ways like monthly SIPs. More so, if you have no debt, the decision of taking a break from your job or trying out a new venture is easier.
Earlier Achievement of Financial Goals – Leading a minimalist life means you will have less of consumerist financial goals. It also means you have less of expenditure and debt. In this simple life, you will achieve your financial goals smoothly. You will have your retirement fund or children’s education fund much earlier in life than if you lived a non-minimalist life.
More Generosity and Charity – We can all do our bit in giving back to the society. We can use our time and/or money to help the underprivileged. With a minimalist lifestyle, you will have more to give and more time to utilise on charity work. You will not cling on to your possessions and donate them whenever required. Apart from helping those in need, generosity makes you feel better and brings more meaning to your life. You might even motivate your children and friends to give back to the society. At the same time, it gives you tax breaks and reduces clutter in your life.
A minimalist lifestyle reduced physical stress, emotional stress and even reduces your carbon footprint. Thus it helps you and Mother Earth.
Let us know if you can implement some changes to bring some amount of minimalism and if it has helped you improve your lifestyle and financial portfolio.
There are many platforms that allow you to manage direct plan investments in Mutual Funds. Here we compare MF Utility, Bharosa Club, Kuvera Club, Invezta, Zerodha Coin and Clearfunds.
Direct Mutual Funds are mutual fund schemes that an investor buys directly from the MF company or through a platform that offers direct plans. The difference between direct and regular plans is that regular plans have to be bought and sold through an agent, be it online or offline.
The advantage in buying direct mutual funds is that the expenses are lower compared to a regular MF and therefore overall returns would be higher.
Many platforms are present for investing in direct plans of MFs. Let us compare a few here -
MF Utility – It is a platform funded by many MF houses for investors to avail of direct plans. You can register with a Common Account Number (CAN) on the website www.mfuindia.com.
Existing MF schemes can be mapped to the account on MF Utility. There is no fees for their services. It also offers SIP, SWP and STP transactions.
On the other hand, the user interface is not the most easy or user friendly one.
Bharosa Club – It is a third party utility that allows for investment in direct MF plans. You need to register online using your CAN. If you do not have a CAN, you have to use the offline option. The fees is 0.25% per annum with a maximum limit of Rs. 10000. It uses MF Utility to manage transactions. It offers portfolio evaluation.
Kuvera – Investors can sign up with their KYC in place and transact in direct plans of Mutual funds. Kuvera charges neither commission nor fees. They also provide services such as fund recommendations, risk profiling, goal planning and portfolio monitoring. An investor can also move existing MF investments to Kuvera by switching to Direct Plans. It provides services such as multiple accounts (of a family) under one login, STP, SIP and SWP facilities.
Invezta – It is a third party application for management of direct MF plans. CAN is not required for opening an account. Investments up to Rs. 50,000 is free. Beyond that, Invezta charges Rs. 79 per month for a basic plan and Rs.109 for a premium plan. Users of the premium plan get access to features such as goal tracking, alerts for portfolio rebalancing and other checks and suggestions on asset allocation. The User Interface is good and easy to use. It offers facility for SWP and STP transactions.
It does not allow for integration with existing MF investments and is working on a process for the same. It does not have all AMCs listed to invest in.
Zerodha – Zerodha has a platform called Zerodha Coin for direct MF investments. Investments up to Rs. 25,000 are allowed free of charge. Beyond that there is a flat fee of Rs. 50 per month irrespective of the investment value. It offers mobile and desktop applications.
All schemes are not available for investment. It has account opening charges. There is no option for SWP and STP transactions.
Clearfunds - Investors can buy and sell on this platform free of charge. Clearfunds provides a service of smart portfolios where a customised portfolio is provided to the investor. This costs Rs.999 per year. The portfolio is managed, tracked and rebalanced as required. It provides for flexible SIPs and Auto pay options. It also has a mobile app.
They do not offer SWP and STP options.
It is a good idea to switch to direct plan options in Mutual Funds. Understand the features of different MF platforms including features such as privacy and security of data and robustness of the application and choose the most appropriate one for your MF transactions.
Executive Summary: Inattention blindness is caused when our brain filters out a large amount of information so that the conscious mind can process information properly. The Monkey Business illusion video shows how the brain filters out information that is not considered important.
Take a look at this video - https://www.youtube.com/watch?v=IGQmdoK_ZfY (Monkey Business Illusion By Daniel J Simons).
Did you spot the gorilla? Did you notice that the curtains changed colour? Did you see the person in the black t-shirt leave?
The phenomenon of missing out certain pieces of information is called as inattention blindness. Some information is filtered out by our brain because there is too much infrmation all around. But many a times, useful information or critical information is filtered out which can lead to problems. Sometimes obvious information is missed because the brain is trying too hard to find out information. Let us look at its effect on personal finance -
It is important to perceive things that we read, see and hear properly so that we do not make mistakes. In case of personal finance, we should analyse the information that we get appropriately so that our financial plan does not get derailed. We can take the help of financial advisors too who can guide us in an unbiased manner to reach our financial goals.
Executive Summary – Are you still holding physical shares of public limited company listed on stock exchange? If yes then you have only 5 months to convert them into demat form because from 5th Dec 2018 onward transfer of physical shares and selling will not be allowed and certificate will become worthless.
Government of India and market regulator SEBI recently issued a notification stating that with effect from 5th Dec 2018 all the physical shares will become worthless. Which means prior to this date all the shareholders of public limited company which is listed in stock market and who holds its equity shares in the form of physical certificate, have to convert them into dematerialised form if they need to transfer or sell them.
The issued notification is a part of amendment done under Listing Obligation and Disclosure Requirements (LODR) Norms and is applicable from the date it was first published on 8th June 2018. This rule is only for Non promoter share holder. SEBI in 2011 has already made it mandatory for promoters of the company to keep shares in demat form.
According to the data available with SEBI, about 2.3% of market capitalisation is still held in the form of physical shares. This includes both retail as well as institutional investors. Institutional investors like mutual funds and others hold physical stock worth Rs. 45,760 crore and retails investors holds physical stocks worth Rs. 1.24 Lakh Crore. Companies like ITC, Reliance Industries, Sun Pharma, HUL have most investors who have physical stocks.
Please note one can only convert those physical shares into demat which are listed on stock exchange.
There are two main reasons why these amendments have come into force –
What is dematerialisation of Physical Stocks?
Dematerialisation is the process of converting physical stocks into electronic format. Depository is responsible for storing and maintaining stocks in electronic format with the help of depository participant. In India there are two depositories – NSDL and CDSL.
What is the process of Dematerialisation?
To convert physical shares into demat form, first an investor needs to open a demat account with any of the Depository participant who in addition also provides trading account. Once DP account is opened, an investor need to fill out Demat Request Form and submit it along with original physical share certificate. It is then cross verified with the help of company registrar and depository. Once it is confirmed and data matches with the record then shares are allocated in the demat account.
Do you also hold shares in physical format? Do you remember your father or grandfather talking about having physical shares? If yes then this is the right time to get them into demat account. Feel free to contact us if you need any help with regards to this matter.
Executive Summary: The sum assured in an increasing term insurance plan can be periodically increased during the policy term. The premium also increases appropriately. We have compared two policies - SBI Life Smart Shield and Birla Sun Life Protector Plus Plan that provide increasing term insurance.
An increasing term life insurance plan is an insurance policy in which the sum assured can be increased by a specific amount each year.
It caters to the requirements based on the premise that cost of living changes, our lifestyle changes and inflation increases the financial requirements over the years.
The premium of course will increase accordingly each year.
Many companies offer increasing term insurance plans. Let us compare two of them -
An incremental term insurance plan offers the advantage of hedging against inflation. The value of the policy remains more or less intact. The premium payable also increases but if you are earning income, it usually is on an upward curve. When you are younger and have no liability or zero dependents, you may not want a huge sum assured. But as you grow older, your liabilities may increase and you may have dependents. In this case, such a plan is useful as you can continue with the same plan but with increased sum assured. On the other hand, if you have a spouse who earns well and you have a big corpus, you could skip this option.
Executive Summary: The deadline to file IT returns for the financial year 2017-18 is July 31. We have compared Taxsmile, Taxspanner, Cleartax and Income Tax department's website for e-filing IT returns.
Have you filed our IT returns for financial year 2017-18? The deadline is July 31, 2018. Citizens who earn more than Rs. 2,50,000 per year, senior citizens who earn more than Rs. 3,00,000 and super senior citizens earning more than Rs. 5,00,000 have to file taxes.
Many websites assist in filing returns online. Let us compare a few of them -
Create an account, upload relevant documents, get the tax computation, e-filing, Get ITR-V.
Create an account, upload relevant documentation and answer the questions. Taxsmile will compute the tax payable and refund if applicable. Make the payment if applicable and authorise Taxsmile to e-file your return. Taxsmile will e- file the return and you will get the ITR-V.
Register with Taxspanner. Upload one or more Form 16 documents. The relevant fields are populated and tax is computed. Select the package and e-file your return by filling all relevant details.
The Do-it-yourself package costs Rs. 299.
Other packages for assisted filing, planning and filing, tax filing for freelancers, Securities traders etc. are available The price ranges from Rs. 499 to Rs. 4,999.
IT Department's Website
You can go to the Income Tax Department's Website to file your returns too.
Register on the website, Select the method of filing returns, select the appropriate ITR. Fill in all the details. Submit the form. Verify the ITR V.
No charges for filing returns.
If your tax filing is simple and if you are an expert or experienced in filing returns, you can file using the official website, else you may use the third party websites. But most third party websites charge for their services. Some offer add-on services. You also share your confidential financial details with them. Remember to go through their offers and security features thoroughly before selecting an appropriate service.