saving and investment yearbook 2015

Subscription copy of RAJESH BHUTRA [[email protected]]. Redistribution prohibited.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

The equity market in India has presented investors with the right environment to create wealth. Investors are upbeat and are looking to identify dependable ways to reach their long term financial goals. Which leads to one big question.

There is no guarantee of returns/ income generation in the Scheme. Further, there is no assurance of any capital protection/capital guarantee to the investors in the Scheme. ^Investors should consult their financial advisors if in doubt about whether the product is suitable for them. Note: Risk may be represented as: (Blue): Investors understand that their principal will be at low risk (Yellow): Investors understand that their principal will be at medium risk (Brown): Investors understand that their principal will be at high risk

Now is the time to strengthen your investment portfolio. Consider an equity mutual fund scheme that aims to discover the right opportunities that deliver growth to your portfolio.

With a track record of over 17 years, this diversified equity scheme constantly seeks to generate capital appreciation by investing in high potential stocks. Consider this scheme if you believe in investing for the long term.

So what do I do with my money?

DSP BLACKROCK EQUITY FUNDOpen Ended Growth Scheme

This Scheme is suitable forinvestors who are seeking^

Long-term capital growth

Investment in equity and equity-related securities to form a diversified portfolio

High Risk (Brown)

HOW CAN I POWER MY INVESTMENTPORTFOLIO WITH HIGH POTENTIAL STOCKS?

Speak to your investment advisor, or visit dspblackrock.com/equity for more.


Savings &InvestmentYearbook2015-16


Eighth Edition : June 2015Seventh Edition : December 2014Sixth Edition : August 2014Fifth Edition : April 2014Fourth Edition : April 2013Third Edition : April 2012Second Edition : January 2012First Edition : November 2011Date of Eighth Edition Publication: June 1, 2015

Copyright © Value Research India Pvt. Ltd, New Delhi

All Rights Reserved

ISBN No. 978-93-83177-06-6

Published by Value Research India Private Ltd.

5, Commercial Complex, Chitra Vihar, Delhi-110092

PRINTED AT: OPTIONS PRINTOFAST, DELHI-110092No Part of this book may be reproduced, stored in a retrieval system or transmitted in anyform or means electronic, mechanical or photocopying, recording or otherwise withoutthe permission of Value Research India Pvt. Ltd., New Delhi. Extracts with images are per-mitted for book review only. The structure, outline, approach, content, framework andmaterials in this publication shall be and remain (along with all intellectual propertyrights therein or thereto) to the exclusive property of Value Research India Pvt. Ltd. Everyeffort is made to provide accurate and up-to-date information in this publication as faras possible; we would appreciate if readers would call our attention to any errors thatmay occur. Some details, such as terms and conditions in respect to product features,are liable to change. The publishers cannot accept responsibility for any consequencesarising from the use of information provided in this book. However, we would be happy toreceive suggestions and corrections to be incorporated in the next edition. Please writeto: The Editor, Value Research India Pvt. Ltd., 5, Commercial Complex, Chitra Vihar,Delhi-110092 or [email protected]

EditorialEditorial Update: Sanvee JalanDesign: Mukul Ojha

ProductionHira Lal


PrefaceDear Reader,Knowledge is power, and nowhere is this truer than inpersonal savings and investments. Those who know moreabout various savings and investments options areconsistently able to earn more as well as keep theirinvestments safer.

All of us are often too busy to find out even the basic factsabout the various savings options that are available. As aresult, we often find ourselves at a disadvantage when itcomes to making decisions about our money. The goal of thisbook is to destroy that disadvantage and give the advantage toyou. In one easy-to-read package it gives you the informationthat you will need to choose the options that are most suitablefor you, and also enable you to ask the right questions whensomeone is selling you a financial product.

For over two decades, Value Research has been on a questto make savings and investments simple, easy, interestingand accessible. This book is the latest addition to our rangeof publications. We hope that it will empower you to takecharge of your investments and also enable you to make thechoices that are best for you and your family.

Live Long and ProsperDhirendra KumarValue Research


Contents

SAVINGS AND INVESTMENT

1 Savings Bank Account 5

2 Bank Fixed Deposit 15

3 Company Deposits 23

4 Bank Recurring Deposit 29

5 Post Office Recurring Deposit 35

6 Post Office Term Deposit 41

7 Public Provident Fund 47

8 National Savings Certificate 55

9 Kisan Vikas Patra 61

10 Sukanya Samriddhi Yojana 67

11 Senior Citizen Savings Scheme 73

12 Post Office Monthly 79Income Scheme

13 RBI Savings Bond 85

14 Capital Gain Tax Exemption 91Bond or 54 EC Bonds

15 Rajiv Gandhi Equity Savings 97Scheme

16 Inflation Indexed Bonds 103

17 Mutual Funds 111

18 Stocks and Equity 125

19 National Pension System 131

20 Unit Linked Insurance Plans 143

PROTECTION

21 Health Insurance 151

22 Life Insurance 161

23 Annuity 171

INCOME TAX

24 Income Tax Planning 177

25 Tax Planning Strategies 197

ANNEXURE AND RESOURCES 207

Value Research Online 215


Savings & Investment Yearbook 1

Introduction

When it comes to handling money, you will end up eitherthe victor or the victim; there is no middle ground. Thebiggest problem with money is that it doesn’t come with aninstruction book. The result: many financial decisions thatyou make to save and invest end up eroding your personaland potential wealth. We live in an environment wherechoice rules and whether you are a do-it-yourself investor, amoney neophyte or someone who is in the business ofadvising on financial products, you need to be aware ofvarious savings and investment options available. In suchsituations, knowledge is your first line of defence.

After all, what happens to you financially is what youknow and do, or, by default, what you don’t know andtherefore can’t do. Real financial power is created by


knowing about financial products: what they are, what they aremeant for, how they work and how you can gain from them. TheValue Research Savings and Investment Yearbook 2015-16 is theroadmap to making informed choice to save and invest. ThisSavings and Investment Yearbook consists of an easy-to-readlisting of various types of savings and investment instrumentsthat a typical investor is likely to invest in.

This book does not offer tips on investments that will doubleyour money or guarantee astounding returns. As you wouldknow, nobody can make such promises with any certainty.Written in a simple language, this handbook brings togetherresources and information on the various savings andinvestment options available, highlighting the factors that youshould look out for before making any investment decision. Aseach product has unique features, common investor concernssuch as risks, safety, guarantees, key benefits, minimuminvestments and lock-in are addressed in detail. We tell youways to buy, the various tax implications and suitability besidestips and strategies to make the most of each featured product.

The information in this book can be the building block in thecreation of a secure and comfortable financial future for you.The product details will make you financially unstoppable—areal pro at winning the fight against financial freedom. Thepurpose of this book is not to provide advice but to presentinformation which will help and empower you with investmentdecisions. Once you have gone through the details for eachfinancial instrument, the book leads you to plan your taxes andalso helps you with various strategies that you can adopt tooptimise your tax liabilities.

As this book is intended to be a living document, it will beupdated as the market and regulatory environment continues toevolve and change.

In the Union Budget, the Finance Minister introduced theAtal Pension Yojana, Sukanya Samriddhi Yojana and an

Introduction

Savings & Investment Yearbook2


Introduction


additional tax exemption of up to `50,000 under Section 80CCDfor the National Pension System. This version of the Yearbook isupdated with all the changes.

We have added information on new products: inflation-indexed bonds or inflation-indexed National Savings Securities-Cumulative (IINSS-C), the reintroduced Kisan Vikas Patra andinfrastructure bonds, which offered tax benefits under Section80CCF. We have retained the product snapshot in the Annexure.

You don’t need to be an expert or have financialqualifications to manage your own money because you alreadyhave all you need: a desire to know and a book to lead the way.We hope the Value Research Savings and Investment Yearbookwill give you the tools and information you need to achieveyour savings and investment goals throughout your life. Readon. Savings and Investing can be profitable and fun.



Savings BankAccount

You probably have a savings bank account,but chances are you have not given muchthought to the impact banking has on yourfinances. Being knowledgeable aboutdifferent types of savings bank accountscan save you money.

1


It’s hard to get by without a bank account these days. Banks areessential to making the economy work. Banks offer loans that youcan use to buy a house or a car, they issue debit cards that youcan use to buy goods you want to buy. You may not have realised,though, that you can also save money by banking smartly. Thischapter will describe the several savings bank options that areavailable.

A bank account is a financial account with a bankinginstitution, recording the financial transactions between you (theaccount holder) and the bank. The purpose of a bank account isto encourage savings and bring financial transactions into thebanking network. There are several types of bank accounts thatyou can opt for depending on your needs; for instance, abusinessman will prefer a current account compared to a salariedindividual who will need a savings bank account.

Savings Bank Account Savings bank accounts are meant to promote the habit of savingamong people while allowing them to use their funds whenrequired. The main advantage of a savings bank account is itshigh liquidity, safety and a moderate interest on the savings.

Capital Protection The capital in a savings bank account is not completely safe.Balance in the account including interest earned, is insured up toa maximum of `1 lakh. This sum is insured by the Deposit

Savings Bank Account


Investment Objective and RisksThe savings bank account is the traditional home for cashsavings. Today, a savings bank account is a necessity and isan essential component of an individual’s finances. The mostimportant reason to open an account is the automatic accessthat it offers to other financial instruments such asinvestments, loans and savings. The savings bank accountoffers several other facilities and features that one shouldexplore to make optimum use of cash flows.




FeaturesELIGIBILITYYou nneed tto bbe aa RResident IIndian

ENTRY AGENo aage iis sspecified aand mminors ccan oopen aan aaccount wwith tthe nnatural gguardianoperating iitMinors aabove aage 110 ccan ooperate tthe aaccount oon ttheir oown

ACCOUNT OPENING FEENo ffees, bbut aa mminimum ccash ddeposit iis rrequired tto oopen aan aaccount

ACCOUNT MAINTENANCE AND CHARGESMinimum bbalance rrequired ddepending oon aaccount llocation wwhich ccould bbeurban, ssemi-uurban oor rruralMinimum bbalance rrequired ddepending oon aaccount ttype ssuch aas nno-ffrills,savings, ssalary-llinked, ddeposit-llinkedPredefined nnumber oof ttransactions pper mmonth aare ffree, bbeyond wwhichtransactions aare ccharged ffor

INTEREST Fixed rrate ccompounded hhalf yyearly uup tto `1 llakh, wwith aa mminimum 44 pper ccent aatthe mmoment, tthough ssome bbanks ooffer aa hhigher rrate tthan tthisVariable iinterest rrate oon tthe bbalance aabove `1 llakh iin tthe aaccountThe iinterest iis ccalculated oon aa ddaily bbalance mmethod

OTHER FEATURES OFFEREDCheque bbook ffacility, AATM ccum ddebit ccard, AAccess tto llocker ((fee ccharged bbasedon llocker ssize), IInternet bbanking, PPhone bbanking, MMobile bbanking

TENUREAs llong aas tthe aaccount iis aactive

ACCOUNT HOLDING CATEGORIESIndividual, JJoint, HHindu UUndivided FFamilies ((HUF) nnot eengaged iin aany ttrading oorbusiness aactivity, MMinor tthrough tthe gguardian

NOMINATIONFacility iis aavailable


Insurance and Credit Guarantee Corporation (DICGC) for allcommercial banks, including the branches of foreign banksfunctioning in India, local area banks and regional rural banks. Incase of co-operative banks, you will need to check if it is coveredunder the DICGC because if a bank has not been paying thepremium for the insurance scheme for three consecutive years, itceases to be insured.

Inflation ProtectionA savings bank account does not provide protection againstinflation, which means whenever inflation is above the rate thata savings bank account earns; the account earns no real returns.

GuaranteesThe interest rate in a savings bank is guaranteed up to the first`1 lakh balance in the account. This rate varies across bankssince the Reserve Bank of India deregulated the savings bankdeposit interest rate on October 25, 2011. Banks are now free todetermine the interest on the balance in a savings bank account,which has to be uniform for all types of accounts up to `1 lakh inan account but varies for accounts with a higher balance.

Liquidity The savings bank account is highly liquid and one can withdrawcash from one’s account from the branch during the bankinghours. Today, the automated teller machine (ATM) access isoffered by most banks to savings bank account holders. The ATMallows 24-hour withdrawals within limits in a single day whichvaries across banks and also depending on the account type.When settling payments through real time gross settlement(RTGS) feature; transactions are possible from 9.00 AM to 4.30PM on weekdays and from 9.00 AM to 1.30 PM on Saturdays forreal time settlement.




Exit Option You can close the account on any day within the banking hours.

Other risksBalance, including interest in an account above `1 lakh, isexposed to the risk of a bank folding up.

Credit Rating Opening a savings bank account does not entail credit rating.

Tax Implications Interest earned in the savings bank account up to `10,000 perannum is tax exempt under section Section80TTA since 2012-13.This section allows an income tax deduction to an individual ora HUF for interest earned on the savings bank account held witha Bank, Post Office or a Society. Interest amount above this limitis treated as income and taxed accordingly. The interest earned istaxable under the head ‘Income from other sources’.

Is online banking safe?Online banking takes security very seriously and uses encryptiontechnology to protect account holders from hackers and othersecurity risks. However, you should not take the bank’s word forit blindly; explore your bank’s website and look for the securityprovisions it offers. Online banking works on passwords and theonus of safety partly rests with you.

Is online banking for you? It’s most beneficial if:

You are wired with online accessYou make a lot of bill payments each month; online banking



None of the public sector banks have folded up in India, which is notthe case for co-operative banks. Make sure you are choosing a bankwhich has strong credentials and is safe.


can save you time writing outcheques and associated costsYou can track your expensesand manage your financesefficiently

How does it work?Websites differ across banks, butmanaging your finances onlineshould be as simple as logging onto the bank’s website andentering you user ID andpassword to get started. The sitewill then guide you throughactions you seek to perform, be itviewing the transaction history ofyour account, request for acheque book, accountstatements, stop paymentrequests or for any other bankingfacility that you need.

Banking on the move The advent of mobile telephonyhas touched our lives like neverbefore. Today, banks are making it easier than ever for accountholders to access account information on their mobile devices.Some banks are offering new services or improving existing onesthat allow people to access their accounts while on the go.

You access your bank account through your registered mobilephone with your bank. The features offered in mobile banking areof two types; one-way, where your bank sends you mobileupdates; the other which is a two-way service where you send arequest, which the bank acknowledges.

With evolving technology and improving mobile handsets,



GOING ONLINE It goes by many names, suchas: online banking, Internetbanking, PC banking andelectronic banking. Mostbanks today offer onlinebanking, allowing you toaccess your account onlinewhich is convenient andallows you to control youraccount from anywhere.Online banking permits youto pay bills online, transfermoney between accounts,online shopping, and accessaccount information at anytime and manage differenttypes of accounts with aparticular bank. Online banking opens a newwindow to your finances; youcan invest in stocks, buyinsurance, pay renewalpremiums, and rechargeyour mobile phone, paycredit card bills and evenpay taxes depending onthe facilities offered byyour bank.


banks are creating software for mobile banking interface, openingyet another window to banking. With inter-bank mobile paymentservices (IMPS), you can transfer funds from your account toanother account using your mobile phone if the account wheremoney is being transferred is also IMPS enabled. Currently, IMPStransaction is limited to `50,000 per day per account.

How IMPS Works to transfer fundsRegister your bank account with your bank for mobile bankingservicesGet the mobile personal identification number (MPIN) andmobile money identity number (MMID) from your bankDownload and activate the mobile application on your phoneGet the MMID and MPIN of the person to whom you wish totransfer fundsUse the mobile banking menu to transfer fundsCheck the sms (short message service) on your mobile phoneconfirming debit to your account

How IMPS Works to receive fundsRegister your bank account with your bank for mobile bankingGet the MMID from your bankShare the MMID and your mobile number with the remitterCheck sms confirming credit to your account

Various types of Savings Bank Account on OfferNo Frills

This account is aimed at those with limited cashflows This account allows you to bank with a zero minimum balance



If the balance in this account exceeds `50,000 or if the cumulativevalue of credit transactions exceeds `1 lakh in any financial year, theaccount will no longer be treated as ‘No Frills’. The account will berequired to satisfy the conditions and criteria applicable for a regularsavings account and be subject to relevant charges.




There is stipulation on minimum or average balance

Salary AccountThis account is offered to all salaried employees of companiesbanking with a particular bankThe account comes with concessions on maintaining minimumbalance, number of withdrawals, additional cheque bookfacility and other features including free ATM cum debit cardin most instancesOne can issue multi-city cheques at no additional costs

Sweep-in or Multiplier AccountThis account provides the liquidity of a savings accountcoupled with high interest earnings of a fixed deposit which isachieved through a fixed-deposit linked to the savings account The balance in this account is never idle. Fixed deposit(s) fromthe surplus funds in your savings bank account subject to aminimum balance as stipulated by a bank is created inmultiples of sums stipulated by the bank for tenure of one yearor more as instructed and provides maximum returnsThe account also provides maximum liquidity. All linked fixeddeposits are enabled for automatic reverse sweep in multiplesas stipulated by the particular bank on a last-in-first-out (LIFO)basis when the balance in the savings account falls below thespecified minimum sum. This way the amount that is reversedearns interest rates applicable for the period that the depositwas held with the bank

Miscellaneous AccountsBanks have created accounts to cater to different target groups bybundling features that are addressed to such groups:

Features vary across banks and also depend on the bank’srelationship with the corporate client. Service tax @ 14 per cent isapplicable on facilities offered with this account.




Privilege banking: offers additional services for a fee or onmaintaining higher minimum balanceChildren’s Account: targeted at children, they can operate thisaccount based on pre-set conditions by the parent or guardianAccount for Women: Targeted at women with special featuressuch as privilege cards and special discountsSenior Citizen Account: Aimed at those above 60 years, theaccount offers access to special counters in the bank branchbesides additional interest on deposits and low or no minimumbalance maintenance requirements

Where to open an Account You can open an account at any nationalised, private sector orforeign bank.

How to open an AccountOnce you have selected the bank to open an account you willneed the following documents:

An account opening form which the bank will provideTwo passport size photographsAddress and identity proof such as copy of the passport, PAN(permanent account number) card or declaration in form No 60or 61 as per the Income Tax Act 1961, driving license, voter’s IDor ration cardCarry original identity proof for verification at the time ofaccount openingThese days, you can also also open an online account withoutvisiting the bank branch

How to operate an Account? You need a pay-in slip with the initial account opening sum tobe credited into your account

The savings bank rules can be read in the passbook.




You get a saving bank passbook with your photo affixedstating the nominee. However, some banks, especially privateand foreign banks do not issue a passbook and instead deliveran account statement

Types of TransactionsCash, Cheque, Demand draft, Money transfer and ECS

Points to PonderPenalties when the balance falls below the minimumstipulated sumPenalty when cheques are returnedCollection facilities offered and applicable chargesDetails of charges, if any for issue of cheque books and limitsfixed on number of withdrawals and cash drawings

The joint account holders can give any of the following mandates forthe disposal of balance, which can be modified by the consent of allthe account holders

Either or Survivor: If the account is held by two individuals say, Aand B, the final balance along with applicable interest will be paidto the survivor on death of any one of the account holders.Anyone or Survivor(s): If the account is held by more than twoindividuals say, A, B and C, the final balance along with interest,if applicable, will be paid to the survivor on death of anytwo account holders.

TIPS AND STRATEGIES Search for a savings bank account with this criterion:

The bank offers different types of savings accountsThe bank provides free debit card with no annual feesThe bank insures the savings bank accountThe bank offers payable-at-par cheques all over India



Bank FixedDeposit

Robert Louis Stevenson said; “Don’t judgeeach day by the harvest you reap but by theseeds that you plant.” A bank deposit issimilar to sowing seeds. You park a sum inan account which earns you an interest forthe time that the amount sits in theaccount, growing at a faster pace than whatit would have in an ordinary savings bankaccount.

2


A bank fixed deposit is also known as term deposit, which canbe opened by account holders to earn better interest comparedto the interest that the account balance earns in a savings bankaccount. This is a type of instrument in which a certain sum ofmoney is placed with the bank for a specified time period at afixed interest rate.

The interest rates offered by banks on such deposits dependon the number of days, weeks or months for which the depositis maintained. There is great flexibility in the maturity periodwhich ranges from 15 days to 10 years. The interest is higher incase of longer maturity periods and can be compoundedquarterly, half-yearly or annually and varies across banks. Themain draw for such deposits is the guaranteed higher interestthat deposits earn.

Capital Protection The capital in a bank deposit is not fully protected. Till recently,all bank deposits were insured under the Deposit Insurance andCredit Guarantee Scheme of India, which now has been madeoptional exposing the deposits to risks if the bank is notinsuring deposits.

Inflation ProtectionThe deposit is not inflation protected, which means wheneverinflation is above the deposit interest rate; the deposit earns noreal returns. However, when the interest rate is higher thaninflation rate, it does manage a positive real rate of return.

Bank Fixed Deposit


Investment Objective and RisksThe prime objective of the bank deposit is to earn betterinterest on savings compared to what an ordinary savingsbank offers. Such deposits are preferred by risk-averseinvestors, who find the guaranteed fixed returns extremelyreassuring to invest in.



Bank Fixed Deposit

Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian wwith aa ssavings bbank aaccount

ENTRY AGEYou nneed tto bbe oover 118 yyears ooldMinors ccan oopen aa ddeposit wwith tthe nnatural gguardian ooperating iit

INVESTMENTSMinimum: `1,000 pper aannumMaximum: NNo llimitDeposits aabove `15 llakh qqualify ffor sspecial iinterest rrates

INTEREST Depends oon ttenure oof tthe ddeposit ((See ttable ffor ccurrent rrates)Currently sstarts ffrom 77.50 pper ccent tto 99.25 pper ccent pper aannum

TENURECurrently ooffered uup tto tten yyears

ACCOUNT HOLDING CATEGORIESIndividualJointHindu UUndivided FFamilies ((HUF) nnot eengaged iin aany ttrading oor bbusiness aactivityCompanies oor AAssociations oor TTrustMinor tthrough tthe gguardian



GuaranteesThe interest rate is fixed and guaranteed for the duration of thedeposit at the commencement of the deposit.

Liquidity The bank deposit is liquid, despite the lock-in during the tenureof the deposit. The liquidity is offered in the form of loans andwithdrawals subject to conditions.

Credit Rating Bank deposits do not carry any credit rating.

Exit Option Early closure of a deposit is permitted with a penalty.

Other risksInterest rate changes pose risks to existing deposit holders;for instance, you may have locked-in at a lower interest ratebut due to economic factors; the bank starts to offer a higherrate on deposits later.If the bank where you have the deposit does not have depositinsurance and credit guarantee, you run the risk of losing thecapital and the interest.

Tax Implications The amount invested in deposits with a maturity period of 5 yearsin a scheduled bank is eligible for tax deduction under Section80C. However, the interest earned on the deposit is taxable.

Bank Fixed Deposit


Loan on the deposit up to 75-90 per cent of the depositamount is available from banks against the fixed depositreceipt. Though the interest charged on the loan will bemarginally higher than the interest earned by the deposit.The deposit can be closed prematurely at the cost of losingthe interest it earns.


Various Types of Bank Fixed Deposits

Fixed depositIn this type of deposit both the tenure and the interest rate forthe tenure are fixed

Recurring depositIn this type of deposit, bankaccount holders deposit equalamount of money every monthThe interest rate is fixed forthe deposit tenure and so isthe number of monthlyinstalments

Security depositA few corporate organisationsstipulate new employees toprovide security deposit to checkattrition.

This deposit is made by anemployee and he cannotwithdraw such fixed depositswithout the consent of theemployerThe company has the right tothe FD in case an employeeleaves the organisation before acertain stipulated period

Bank Fixed Deposit


GOING ONLINE Having an online bankinguser and password is likehaving the key to severaldoors. One such door is theability to open a hassle freefixed deposit from thecomfort of your home oroffice or for that matteranywhere as long as youhave access to net banking.You can seamlessly transferfunds from your savingsaccount to higher interestearning fixed deposits.

Flexibility in deciding theamount, tenure, interestpayment and maturity ofyour depositAt the time of maturity, thebalance automaticallytransfers to your bankaccount

As per the term deposit scheme 2006, issued by the CentralGovernment of India, the 5-year tax savings fixed deposit scheme willnot have the following facilities: premature withdrawal, loan againstfixed deposit and auto-renewal facility.


Tax-saver fixed deposit5-year lock-in deposits have tax benefits under Section 80C

Where to Open a Deposit You can open a deposit at any nationalised, private sector orforeign bank

How to Open a DepositSelect the bank branch to open the depositChoose a nominee and get a witness signatureYour existing bank account counts as being KYC compliant

How to Operate a Deposit You can issue a cheque to the bank through your existingsavings bank account to start a depositA deposit receipt or certificate is issued with deposit details

Types of TransactionsChequeMoney transferElectronic clearing service (ECS)

Bank Fixed Deposit


The joint account holders can give any of the following mandates forthe disposal of balance, which can be modified by the consent of allthe account holders.

Either or Survivor: If the account is held by two individuals say, Aand B, the final balance along with applicable interest will be paidto survivor on death of any one of the account holders.Anyone or Survivor(s): If the account is held by more than twoindividuals say, A, B and C, the final balance along with interest, if applicable, will be paid to the survivor on death of any twoaccount holders.


Bank Fixed Deposit


TIPS AND STRATEGIES Check interest rates offered by different banks for dif-ferent tenuresInstead of a large deposit, split the amount into 3-5deposits to reduce impact of interest loss in case ofpremature withdrawalDo not leave the renewal column unfilled; else onmaturity a fresh fixed deposit tenure will commenceAscertain the upward or downward interest rate trendsbefore locking in to a deposit

Points to PonderMinimum sum to start a depositPenal provisions in case of partial or early foreclosure

Interest Rates for Term Deposits below `1 croreMaturity Period General Senior Citizen*7 days to 45 days 6.00% 6.25%46 days to 179 days 7.00% 7.25%180 days to 210 days 7.25% 7.50%211 days to less than 1 year 7.50% 7.75%1 year to 455 days 8.00% 8.25%456 days to less than 2 years 8.25% 8.50%2 years to less than 3 years 8.25% 8.50%3 years to less than 5 years 8.25% 8.50%5 years and up to 10 years 8.00% 8.25%Rates of Interest (% p.a.) w.e.f May 11, 2015*Interest rates for senior citizensSource: https://www.sbi.co.in/user.htm



CompanyDeposits

Someone said, a rupee saved is a rupeeearned. He could not have been wiser.Deposits earn interest and grow thedeposited rupee over a period of time to avalue far more than the initial deposit.

3


Like bank fixed deposits, company fixed deposit is a depositwith financial institutions and non-banking finance companies(NBFC) for a fixed rate of return over a fixed tenure. The rate ofinterest depends on the maturity tenure and these deposits aregoverned by Section 58A of the Companies Act.

Capital Protection The capital in the company fixed deposit is not protectedbecause these are not secured like most bank deposits.

Inflation ProtectionThe company deposit is not inflation protected, which meanswhenever inflation is above the guaranteed interest rate offeredby the deposit; the deposit earns no real returns. However,when the interest rate is higher than inflation rate, it doesmanage a positive real rate of return.

GuaranteesThe interest rate on the company deposit is guaranteed as longas the company can manage to pay the depositors. However,company deposits are known to be delayed and at times defaulton payments.

Liquidity The company deposit is liquid, despite the stipulated lock-inthat deposits have. The liquidity is offered in the form ofwithdrawals subject to conditions.

Company Deposits


Investment Objective and RisksThe prime objective of investing in company deposits is toearn a higher interest rate compared to bank fixed deposits.They are a good source of regular income by means ofmonthly, quarterly, half-yearly, or yearly interest incomes.



Company Deposits

Features

ELIGIBILITYResident IIndians

ENTRY AGE18 yyears oor oolderMinors ccan oopen aan aaccount wwith tthe nnatural gguardian ooperating iit

INVESTMENTSMinimum: `1,000 pper aannumMaximum: NNo llimit

INTEREST Depends oon ttenure oof tthe ddeposit aand tthe iissuer

ACCOUNT HOLDING CATEGORIESIndividualJointAs sspecified bby tthe iissuer



Credit Rating A company deposit has to have a credit rating, which they canobtain from any of the credit rating agencies such as CRISIL,CARE or ICRA.

Exit Option Premature encashment of the deposit is permissible.

Other risksSavings in this product are risky because deposits are notsecured.

Tax Implications The sum invested in a company deposit or the interest that itearns is not eligible for any tax concessions. The interest earnedon a deposit on a yearly basis is added to the total income underthe head ‘Income from other sources’ and taxed accordingly.

Going Online Most company deposits are offered offline, unless it is beingsold online through a broking account.

Where to open a DepositDeposits can be made directly with the companies offering thedeposit or distributors selling the same.

Company Deposits


If a lender such as a bank or NBFC is willing to accept the companydeposit as collateral; you can pledge the deposit to obtain loans,the amount and rate at which the loan is permitted depends on thelending institution. A company deposit can be prematurely encashed and eachcompany deposit has different charges on exit that is governed bythe time that the deposit has been held for.


How to Buy Once you have decided on the sum that you wish to invest andthe tenure:

You need to fill the deposit application form available withthe companyCarry original identity proof for verification at the time ofbuyingYou can invest in deposits with cash, cheque or demand draftdrawn in favour of the company or the specified entity

Points to PonderCompany deposits are riskyTDS is applicable only when interest is above `5,000 in afinancial yearInterest income is available in monthly, quarterly, half-yearly, or yearly frequenciesThe recourse in case of delays or defaults are not very tight orregulated

Company Deposits


In case of default by a company, the investor cannot sell thedeposit documents to recover his investment.The investor has no claim over the assets of the company in casethe company is wound-up. This makes a company fixed deposit arisky option to invest in.

To spread the risk of holding company deposits, make deposits withdifferent companies for different tenures to minimise risks.


Company Deposits


TIPS AND STRATEGIES The assured return on company deposit, like any otherdeposit, can be used to create an income ladder.Certificates can be bought every month or quarter forappropriate denominations, which on maturity will actas a steady income streamTo spread the risk of holding company deposits, makedeposits with different companies for different tenuresto minimise risks



BankRecurringDeposit

Albert Einstein once said, “The mostpowerful force in the universe is compoundinterest.” When someone as brilliant as himtalks about the power of compounding, onetends to listen! Recurring deposit offerscompounding; the fact that interestincreases the value of interest as well asthe value of principal.

4


A bank recurring deposit (RD) is a type of deposit wherein onesaves predefined sums of money every month in an account fora fixed tenure. The committed monthly investment earns ahigher interest compared to savings bank account. Therecurring deposit provides an element of compulsive savings ata higher interest rate depending on the tenure of the deposit.

The interest rates offered by banks on such deposits dependon the number of days, weeks or months for which therecurring deposit is maintained. There is great flexibility in thematurity period which ranges from 6 months to 10 years. Theinterest is higher in case of longer maturity periods, but largelydepends on prevailing interest rates.

Capital Protection The capital in a recurring deposit is not fully protected. Tillrecently, all bank deposits were insured under the DepositInsurance and Credit Guarantee Scheme of India, which nowhas been made optional exposing the deposits to risks if thebank is not insuring deposits.

Inflation ProtectionThe recurring deposit is not inflation protected, which meanswhenever inflation is above the deposit interest rate; the depositearns no real returns. However, when the interest rate is higherthan inflation rate, it does manage a positive real rate of return.

GuaranteesThe interest rate is fixed and guaranteed for the duration of therecurring deposit at the commencement of the deposit.

Bank Recurring Deposit


Investment Objective and RisksThe prime objective of the recurring deposit is to earn betterinterest on savings compared to what an ordinary savingsbank offers and instil discipline to save regularly.




Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian wwith aa ssavings bbank aaccount

ENTRY AGEYou nneed tto bbe oover 118 yyears ooldMinors ccan oopen aa ddeposit wwith tthe nnatural gguardian ooperating iit

INVESTMENTSMinimum: `100 pper aannumMaximum: NNo llimitSenior ccitizens qqualify ffor sspecial iinterest rrates

INTEREST Depends oon ttenure oof tthe ddeposit ((see ttable ffor ccurrent rrates)Currently aavailable ffrom 88.25 pper ccent tto 99.25 pper ccent pper aannum

TENURECurrently ooffered ffor tten yyears

ACCOUNT HOLDING CATEGORIESIndividualJointHindu UUndivided FFamilies ((HUF) nnot eengaged iin aany ttrading oor bbusiness aactivityCompanies oor AAssociations oor TTrustMinor tthrough tthe gguardian



Liquidity The recurring deposit is liquid, even if the depositor defaults ona payment during the account’s tenure. The liquidity is offeredin the form of loans and withdrawals subject to conditions.

Credit Rating Recurring deposits do not carry any credit rating.

Exit Option Premature closure of a deposit is permissible with a penalty.

Other risksInterest rate changes poserisks to existing deposits; forinstance, you may havelocked-in at a lower interestrate but due to the economicfactors, the bank starts to offera higher rate on deposits laterIf the bank where you havethe deposit does not havedeposit insurance and creditguarantee, you run the risk oflosing the capital and theinterestA bank has special powers toend an RD account before itsmaturity



Loan up to 90 per cent of the deposit balance is available at thediscretion of the bank at a rate fixed by the bank, which varies fromtime to time. The loan interest rate has to be more than the interestrate on the closed RD account.The deposit can be closed prematurely at the cost of losing theinterest it earns.

GOING ONLINE With online banking access,you can initiate recurringdeposits and regularly savewithout any defaults with theseamless transfer of fundsfrom your savings account tothe recurring depositaccount.

Flexibility in deciding theamount, tenure, interestpayment and maturity ofyour depositAt the time of maturity, thebalance automaticallytransfers to your bankaccount


Tax Implications There is no tax advantage on these deposits and the interestearned on maturity is treated as income from other source whencomputing income tax. Effective from June 1, 2015, TDS will bededucted on interest income above `10,000 at 10%.

Where to Open a Deposit You can open a recurring deposit at any nationalised, privatesector or foreign bank.

How to Open a DepositSelect the bank branch to open the depositChoose a nominee and get a witness signatureYour existing bank account counts as being KYC compliant

How to Operate a Deposit You can issue a cheque to the bank through your existingsavings bank account to start a deposit. Future payments canbe instructed through direct debt from your account to theRD accountA recurring deposit passbook is issued with deposit featuresPassbook needs to be updated to track the monthly deposits


Points to PonderMinimum sum needed to start a depositPenal provisions in case of partial or early foreclosure






TIPS AND STRATEGIES Check the interest rates offered by different banks fordifferent tenuresSome banks offer flexible or variable recurringdeposits. In these flexible RDs, the person is allowedto deposit even higher amount of instalments, with afixed upper limitUse direct transfer from your bank account to keep anRD account active and from missing paymentsBefore investing in a deposit it is important to considerthe rate of interest and the inflation rate. A highinflation rate can eat into your real returns. So, it isvital to have a look at the inflation rate before arrivingat the real rate of interest

Rates for some key tenuresMaturity Period General Senior Citizen*1 year to 455 days 8.00% 8.25%456 days to less than 2 years 8.25% 8.50%2 years to less than 3 years 8.25% 8.50%3 years to less than 5 years 8.25% 8.50%5 years and up to 10 years 8.00% 8.25%**Only Senior Citizens are eligible for higher rates of interest.Rates of Interest (% p.a.) w.e.f May 11, 2015Note: Interest rates are subject to periodic changes. The applicable inter-est rates will be given based on the date and time of receipt of the fundsby the bank.



Post OfficeRecurringDeposit

A mountain is composed of tiny grains ofearth. The ocean is made up of tiny drops ofwater. Your regular small savings help youbuild a sizeable savings over time. Thepostal recurring deposit is an instrument forthe small saver.

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The Post Office Recurring Deposit (PORD) is a systematicsavings plan, where you save a small but finite equal sum ofmoney each month for a period of 60 months. The savings inthe PORD earn a fixed interest which can be used to accumulatea sizeable and predetermined savings over time.

Capital Protection The capital in the PORD is completely protected as the schemeis backed by the Government of India with guaranteed returns.

Inflation ProtectionThe PORD is not inflation protected. Whenever inflation isabove the guaranteed interest rate; the scheme earns no realreturns. But when the inflation rate is below the guaranteedrate, it does manage a positive real return.

GuaranteesThe interest rate is guaranteed and is currently 8.40 per centcompounded quarterly. The interest rates on this deposit arenotified every year before April 1, and is aligned with G-Secrates of similar maturity, with a spread of 0.25 per cent.

Post Office Recurring Deposit


Investment Objective and RisksThe main objective of the PORD is to provide an assured 8.40 per cent return compounded quarterly on every monthlydeposit made over 60 months. Though it offers no taxincentives, it is a preferred instrument amongst small saversfor the government backing that this product offers.

The facility of pledging the deposit in the PORD account to obtainloans is not permitted as it defeats the purpose of regular savings.

Premature closure of this account is permitted after completion ofthree years from the date of opening of the account.One withdrawal up to 50 per cent of the balance is allowed afterone year.




Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian ppreferably wwith aa ppost ooffice ssavings aaccount

ENTRY AGENo aage llimit iis mmentionedMinors aabove aage 110 yyears ccan oopen aan aaccount iin ttheir oown nname ddirectly

INVESTMENTSMinimum: `10 oor iin mmultiple oof `5 tthere oofMaximum: TThere iis nno uupper llimit

INTEREST 8.40 pper ccent ccompounded qquarterly

TENURE60 mmonths

ACCOUNT HOLDING CATEGORIESIndividualJointMinor tthrough tthe gguardian



Liquidity The PORD is liquid, despite the 60-month stipulated lock-in.The liquidity is offered in the form of withdrawals subject toconditions and penalties.

Credit Rating As the PORD is offered by the Government of India, it does notrequire any commercial rating.

Exit Option Premature closing of the account is permitted with penalty.

Other RisksThere is no risk associated with this investment and it iscompletely risk-free.

Tax Implications There is no tax benefit on the savings or income earned fromthis scheme.

Where to open an Account You can open the account at any post office.

How to Open an AccountOnce you have selected the post office to open the PORDaccount, you will first need to open a post office savingsaccount to link the monthly payment to the PORD and you willneed the following documents:

An account opening form which the post office will provide Two passport size photographsAddress and identity proof such as copy of the passport, PAN(permanent account number) card or declaration in form No 60or 61 as per the Income Tax Act 1961, driving license, voter’sidentity card or ration cardCarry original identity proof for verification at the time of




account openingChoose a nominee and get awitness signature to completethe formalities to start thedeposit

How to Operate the Account? You need a pay-in slip with the initial account opening sumto be credited into your accountPayment can be made by cash, cheque or instructions totransfer it through your post office savings account

Points to PonderPortability of the account from one post office to anotherFive year tenure of the accountFacility of continuing the recurring deposit for a maximumperiod of five years on completion of the first five-year tenureAccounts with not more than four defaults in deposits can beregularised within a period of two months on payment of adefault feeAccount becomes discontinued after more than four defaultsInterest income is taxable with no TDS certificate issued



GOING ONLINE There is no online access topost office accounts as yet.

The PORD account has a passbook with rules applicable to theaccounts stated in it.




TIPS AND STRATEGIES To avoid defaults in deposits, link the post office savingsaccount to the recurring deposit account for standingtransfer instruction to the RD. Use the advance payment on deposit to gain ondiscounts on the recurring deposit sum. Case 11: In an active account: six or more deposits butnot exceeding eleven deposits made in any calendarmonth, fetches `1 rebate on every `10 denominationrecurring deposit. Case 22: Twelve or more deposits made in any calendarmonth, fetches a rebate of `4 for every twelve depositsand `1 for the balance, if any, of not less than sixdeposits.

Full maturity value allowed on the recurring depositaccount restricted to `50 denomination in case ofdepositor’s death subject to certain conditionsAutomatic credit of monthly interest to saving accountif accounts are at the same post office

Post Office Recurring Deposit over the yearsDec-2011

Maturity Period 2014-2015 2013-2014 2012-2013 Mar-2012

5-year Recurring deposit 8.4 8.3 8.4 8.0All figures in per cent



Post OfficeTerm Deposit

The futility to predict is best described byPeter Drucker, who said; “Trying to predictthe future is like trying to drive down acountry road at night with no lights whilelooking out the back window.” Yetpredictability in life, especially with financesis something that many people look up to.Many of the financial products available atthe post office provide this predictabilitywhich makes them one of the preferredproducts among the small savers.

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The Post Office Term Deposit (POTD) is similar to a bank fixeddeposit, where you save money for a definite time periodearning a guaranteed return through the tenure of the deposit.At the end of the deposit’s tenure; the maturity is made up ofthe capital deposited and the interest it earns.

Capital Protection The capital in the POTD is completely protected as the schemeis backed by the Government of India, making it totally risk-freewith guaranteed returns.

Inflation ProtectionThe POTD is not inflation protected, which means wheneverinflation is above the guaranteed interest rate; the return fromthe scheme earns no real returns. However, when the inflationrate is below the guaranteed return, it does manage a positivereal rate of return.

GuaranteesThe interest rate on the POTD is guaranteed for the tenure oneopts for which varies from 8.40 per cent for a year to 8.50 percent for a five-year deposit. The interest rates on this depositare notified every year before April 1, and is aligned with G-Secrates of similar maturity, with a spread of 0.25 per cent.

Liquidity The POTD is liquid, despite the deposit lock-in. One can borrowagainst the deposit or withdraw the deposit prematurely.

Post Office Term Deposit


Investment Objective and RisksThe main objective of the POTD is to provide an assured returnon the deposit depending on the duration of the deposit. Thelow-risk associated with this deposit scheme makes it apopular small savings deposit.




Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian ppreferably wwith aa ppost ooffice ssavings bbank aaccount

ENTRY AGENo aage llimit iis mmentionedA mminor aabove aage 110 yyears ccan oopen aan aaccount oon ttheir oown nname ddirectly

INVESTMENTSMinimum: `200 aand iin mmultiples tthereofMaximum: TThere iis nno uupper llimit

INTEREST Interest rrate oof 88.40 pper ccent tto 88.50 pper ccent ddepending oon tthe ttenure oof tthedepositInterest ppayable aannually bbut ccalculated qquarterly

TENURE1,2,3 oor 55 yyears




Other risksThere is no risk associated with this investment and hence, it isrisk-free.

Credit Rating As the POTD is offered by the Government of India, it does notrequire any commercial rating.

Tax Implications There is no tax benefit ondeposits with less than five-yeartenure. The five-year depositqualifies for tax deductionsunder Section 80C on the sumdeposited.

Where to open an Account You can open the account at any head post office or general postoffice.

How to Open an AccountOnce you have selected the post office to open the POTDaccount, you can open a POTD for which you will need thefollowing documents:

A deposit opening form provided by the post officeAddress and identity proof such as copy of the passport, PAN(permanent account number) card or declaration in form No60 or 61 as per the Income Tax Act 1961, driving license,




Premature withdrawal or closure of the POTD is permitted aftercompletion of six months of initiating the deposit.Withdrawal after six months but before completion of a year willearn 4 per cent that post office savings account earns.Withdrawal after a year earns interest which is 1 per cent less thanwhat the deposit earns for that specific deposit tenure.


voter’s ID or ration cardCarry original identity proof for verification at the time ofaccount openingChoose a nominee and get a witness signature to completethe formalities to start the deposit

How to Operate the Account? You need a pay-in slip with the initial deposit opening sumto be credited into your accountPayment can be made by cash or cheque

Points to PonderPortability of the account from one post office to anotherFacility of extending the deposit on maturityInterest income is taxable but there is no TDS certificateissuedMaturity proceeds not drawn are eligible to saving accountinterest rate for a maximum period of two years



The POTD has a passbook with rules applicable to the accountstated in them.

Time Deposit Interest Rates over the yearsMaturity Period 2015-16 2014-2015 2013-2014 2012-20131-year time deposit 8.4 8.4 8.2 8.22-year time deposit 8.4 8.4 8.2 8.23-year time deposit 8.4 8.4 8.3 8.45-year time deposit 8.5 8.5 8.4 8.5All figures in per cent




TIPS AND STRATEGIES Instead of depositing a large sum in a single deposit,one should consider splitting the deposit, which couldalso be across varying tenures. This way, in case ofany premature withdrawal; only a few deposits will loseinterestOne can stagger the deposits over different tenures tocreate variable income streams over time



PublicProvidentFund

Warren Buffett said, “Only buy somethingthat you’d be perfectly happy to hold if themarket shut down for ten years.” For taxsavers, the public provident fund does onestep better; it guarantees returns. Thissystematic savings plan works on the dualbenefit of power of compounding andregular investments.

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The public provident fund (PPF) is a long-term savingsinstrument established by the Central Government, whichoffers tax concessions on savings as well as withdrawal after thelock-in period. This scheme came into force from July 1, 1968and is backed by the government with the objective of providingold-age income security to the self-employed and those workingin the unorganised sector. Though the scheme is voluntary, theassured return and tax deduction on savings has fuelled itspopularity.

Capital Protection The capital in a PPF account is completely protected as thescheme is backed by the Government of India, making it fullyrisk-free with guaranteed returns.

Inflation ProtectionThe PPF account is not inflation protected, which meanswhenever inflation is above the current guaranteed interest rateof 8.70 per cent; the deposit earns no real returns. However,when the inflation rate is below 8.70 per cent, it does manage apositive real rate of return.

GuaranteesThe interest rates on this deposit are notified every year beforeApril 1, and is aligned with G-Sec rates of similar maturity, witha spread of 0.25 per cent. Currently, the interest rate on PPFdeposits is 8.70 per cent per annum which is guaranteed for thedeposits made in financial year 2015-16.

Public Provident Fund


Investment Objective and RisksThe primary objective of saving in the PPF account is to availtax deduction on deposits, guaranteed returns on investmentand tax free withdrawal on maturity.




Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian

ENTRY AGENo aage iis sspecified ffor aaccount oopening

INVESTMENTSMinimum: `500 pper aannumMaximum: `1.5 llakh pper aannumA mmaximum oof 112 ddeposits aallowed iin aa ffinancial yyear

INTEREST 8.70 pper ccent ccompounded aannually

TENURE15 yyearsOn ccompletion oof 115 yyears, tthe aaccount ccan bbe eextended bby 55 yyearsThe PPPF aaccount mmatures aafter 115 yyears bbut tthe ccontribution hhas tto bbe mmade ffor16 yyears iin aall. TThe 115-yyear pperiod iis ccalculated ffrom tthe ffinancial yyear ffollowingthe ddate oon wwhich tthe aaccount iis oopened. EEffectively tthe PPPF aaccount mmatureson tthe ffirst dday oof tthe 117th yyear

ACCOUNT HOLDING CATEGORIESIndividualMinor tthrough tthe gguardian



Liquidity The PPF is liquid, despite the 15-year lock-in stipulated withthis account. The liquidity is offered in the form of loans fromthe third year and withdrawals subject to conditions from theseventh year.

Credit Rating As the PPF is backed by the Government of India, it does notrequire any commercial rating.

Exit Option Premature closure of a PPF account is not permissible except incase of death of the account holder.

Other risksSavings in this product is completely risk free because of thegovernment-backing.



Loan available from the third year of opening the account to thesixth year, wherein the loan amount will be up to a maximum of 25 per cent of the balance in the account at the end of the firstfinancial year. However, the loan has to be repaid with interestwithin 36 months. For loans before Decemeber 1, 2011, theinterest rate is 1 per cent and for loans thereafter, it is 2 per cent.One withdrawal during a financial year which is up to 50 per cent of the balance at the end of the fourth year, preceding the year inwhich the amount is withdrawn or the end of the preceding year,whichever is lower. For example, if the account is opened in 2010-11, and the first withdrawal is made during 2016-17, theamount one can withdraw is limited to 50 per cent of the balanceas on March 31, 2013, or March 31, 2016, whichever is lower.Thereafter, one withdrawal every year is permissible.

The balance amount in the PPF account is not subject to attachmentunder any order or decree of court in respect of any debt or liability.


Tax Implications The sum invested in PPF account is eligible for tax deductionunder Section 80C subject to a maximum savings of `1.5 lakhin a financial year. On maturity, the entire amount including theinterest is tax free. The deposit is also exempt from wealth tax.

Where to Open an Account You can open the account at various places such as:

Any head post office or general post officeState Bank of India or branches of its associated banks likethe State Bank of MysoreBranches of nationalised banks such as Bank of Maharashtraare permitted to collect direct taxesPrivate sector banks such as ICICI Bank

How to Open an AccountOnce you have selected thelocation to open an account youwill need the followingdocuments:

An account opening form. Two passport sizephotographsAddress and identity proofsuch as copy of the passport,PAN (permanent accountnumber) card or declarationin form No 60 or 61 as per theIncome Tax Act 1961, drivinglicense, voter’s identity cardor ration cardCarry original identity proof for verification at the time ofaccount openingChoose a nominee and get a witness signature to completethe formalities to get started



GOING ONLINE Online access to the PPFaccount is yet to completelytake-off. Some banks suchas SBI and ICICI offer onlineaccess to PPF accountsopened through them. Withthis facility you can makeonline deposits to youraccount.

PPF accounts opened atpost offices do not haveonline access facility yet




TIPS AND STRATEGIES Exhaust the full investment permissible to avail taxdeduction on the first day of each financial year. Thiswill ensure that your yearly investment earns interestfor the complete year and enjoys the compoundingeffect of interest in PPF and accumulates significantsums over the long-term. By investing the full sum(See: Making the most of PPF) each year into PPF willaccumulate `36.75 lakh at the end of the 15-year PPFtenure of which the investment contribution is only`19.5 lakh; the rest is the advantage of compounding.Deposit the PPF contribution between the 1st and 5thof the month to earn interest for the whole month.

How to Operate a Deposit You need a pay-in slip with the initial account opening sumto be credited into your accountYou get a PPF passbook with your photo affixed stating thenominee you have selected


Points to PonderMinimum sum needed to start an accountPenal provisions in case of loans and withdrawals

The PPF account rules can be read in the passbook.




Making the most of PPFAnnual Interest Year end

Year Deposit (`) earned (`) Balance2003-04 1,00,000 8,000 1,08,000 2004-05 1,00,000 16,640 2,24,640 2005-06 1,00,000 25,971 3,50,611 2006-07 1,00,000 36,049 4,86,660 2007-08 1,00,000 46,933 6,33,593 2008-09 1,00,000 58,687 7,92,280 2009-10 1,00,000 71,382 9,63,663 2010-11 1,00,000 85,093 11,48,756 Apr-Nov 2011 1,00,000 66,600 13,15,356 Dec-2011 to Mar-2012 1,00,000 37,748 13,54,549 2012-13 1,00,000 1,24,551 15,39,907 2013-14 1,00,000 1,42,672 17,82,579 2014-15 1,50,000 1,68,134 21,00,714 2015-16 1,50,000 1,95,812 24,46,526 2016-17 1,50,000 2,25,898 28,22,424 2017-18 1,50,000 2,58,601 32,31,024 2018-19 1,50,000 2,94,149 36,75,174 Interest rate from 2003-04 to November 2011: 8%; Dec-2011 to March 2012:8.6%; April 2012 to March 2013: 8.8%; From April 2013: 8.7%The PPF is a good long-term accumulation instrument. Over a 16-year periodinvesting the full sum to claim tax deduction under Section 80C each year from2003-4 would be worth `36.75 lakh

Public Provident Fund over the years2015-16 2014-2015 2013-2014 2012-2013

PPF 8.7 8.7 8.7 8.8All figures in per cent



NationalSavingsCertificate(Series VIII & IX)

To have the cake and eat it too is a popularfigure of speech, which is true when itcomes to NSC investments. You can havethe best of both the worlds, with assuredreturns and tax benefits on investment. Ifplanned well, one can create a regularincome stream using this instrument.

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The National Savings Certificate (NSC) is a popular and safesmall savings instrument that combines tax-savings withguaranteed returns. This scheme is backed by the government,and is one of the safest investment options available at postoffices. The distribution reach of post office has added to thepopularity of this scheme and is much sought after across allinvesting classes.

Capital Protection The capital in the NSC is completely protected as the scheme isbacked by the Government of India, making it totally risk-freewith guaranteed returns.

Inflation ProtectionThe NSC is not inflation protected, which means wheneverinflation is above the current guaranteed interest rate; thedeposit earns no real returns. However, when the inflation rateis below the guaranteed interest rate, it does manage a positivereal rate of return.

GuaranteesThe interest rate on the NSC is guaranteed. Currently, theinterest rate on NSC is 8.5 per cent on the 5-year option and 8.8per cent per annum on the 10-year option, compounded halfyearly. The interest rates in this scheme are notified every yearbefore April 1, and is aligned with G-Sec rates of similarmaturity, with a spread of 0.25 per cent on the 5-year option and0.5 per cent on the 10-year option.

National Savings Certificate (Series VIII & IX)


Investment Objective and RisksThe main objective of investing in the NSC is to avail taxdeduction on deposits and guaranteed returns on investment.The five and ten year tenure is used by many to create aregular monthly income stream in retirement.




Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian tto bbuy tthese ccertificates

ENTRY AGENo aage iis sspecified ffor aaccount oopening

INVESTMENTSMinimum: `100 pper aannumCertificates aare aavailable iin ddenominations oof `100, `500, `1,000, `5,000and `10,000

INTEREST 8.5 pper ccent ccompounded hhalf yyearly oon 55-yyear ttenure8.8 pper ccent ccompounded hhalf yyearly oon 110-yyear ttenure

TENURE5- aand 110-yyears




Liquidity The NSC is liquid, despite the 5- and 10-year stipulated lock-in.The liquidity is offered in the form of loans.

Credit Rating The NSC is government backed and does not require anycommercial rating.

Exit OptionPremature encashment is possible after three years or in case ofdeath of the certificate holder.

Other risksSavings in this product is risk free because of the government-backing.

Tax Implications The sum invested in an NSC is eligible for tax deduction underSection 80C up to the `1.5 lakh limit stipulated in a financialyear including the accrued interest on existing certificates. Theinterest earned on NSC on a yearly basis is added to the totalincome under the head ‘Income from other sources’ and thesame can be claimed as deduction under Section 80C, makingthe interest tax-free. But if the accrued interest is not taxedevery year on an accrual basis then the entire income is taxableon maturity.



You can pledge the NSC certificates to obtain loans. The amount andrate at which the loan is permitted depends on the lending institution.

Risks associated with loss or mutilation of certificate exists, for whicha duplicate certificate can be issued on furnishing an indemnity bondin a format prescribed by the post office.


Where to Buy Certificates can bebought from anyhead post office orgeneral post office.

How to BuyOnce you have decided on thesum that you wish to invest:

You need to fill the NSCapplication form available atthe post officeCarry original identity prooffor verification at the time ofbuyingYou can buy the certificatewith cash, cheque or demanddraft drawn in favour of thepostmaster of the post officefrom where the NSC is beingboughtChoose a nominee and get awitness signature to completethe formalities when buying the certificate

Points to PonderCertificates are encashable at any post office in Indiaprovided one has obtained transfer of the certificate to thedesired post office



GOING ONLINE Currently there is no facilityfor online access to theNSCs. As a pilot project, afew years ago the NSDL andthe postal department hadgot into issuing NSC in adematerialised formatallowing for online access ofthe same through onlinebroking websites. Thisfacility is not availableanymore. However, effortsare on to reconsider issuingNSC in demat form for theconvenience and benefit ofinvestors

National Savings Certificate2015-2016 2014-2015

5-year NSC 8.5 8.510-year NSC 8.8 8.8Prior to April 2012, NSC was a six year instrumentAll figures in per cent

Certificates are transferable from one person to another personbefore maturity.Facility of purchase or payment to the holder of power of attorney.




TIPS AND STRATEGIES The assured return on NSC can be used to create anincome ladder. Certificates can be bought every monthor quarter for appropriate denominations, which onmaturity will act as a steady income stream. Forinstance, someone retiring in 2020 can create anincome ladder by investing a fixed sum every monthfrom August 2015. Some people use this ladder effectto create an income stream that will last 10-15 years by timing NSC maturity and re-investment to create anassured income in retirement.

Illustration for a 6-month income stream on a 5-year NSCInvestment Amount (`) Maturity Amount (`)

April 2015 5,000 April 2020 `7,581May 2015 5,000 May 2020 `7,581June 2015 5,000 June 2020 `7,581July 2015 5,000 July 2020 `7,581August 2015 5,000 August 2020 `7,581September 2015 5,000 September 2020 `7,581

Certificates are transferable across post officesInterest income is taxable but no TDS certificate is issued



Kisan Vikas Patra

Kisan VikasPatra

Some people say the quickest way todouble your money is to fold it in half andput it back in your pocket. However, forease of understanding among investorsthere exists a post office savings schemewhich just does that; doubles yourinvestment after a fixed term.

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The Kisan Vikas Patra (KVPs) is a popular and safe small savingsinstrument that doubles the invested money in 8 years and 4months. This scheme is backed by the government, which wasrelaunched by the government on November 18, 2014.

Capital Protection The capital in the KVP is completely protected as the scheme isbacked by the government of India, making it risk-free withguaranteed returns.

Inflation ProtectionThe KVP is not inflation protected, which means wheneverinflation is above the current guaranteed interest rate of 8.7 percent; the deposit earned no real returns. However, when theinflation rate is under 8.7 per cent, it can manage to give a positive real rate of return.

GuaranteesThe interest rate in the KVP is guaranteed and is 8.7 per centcompounded yearly.

Liquidity The KVP has liquidity, despite the 8 years and 4 months that ittakes to double the deposit. The liquidity is offered in the form ofloans and withdrawals subject to conditions. One can pledge theKVP to take a loan from any bank or financial institution.

Kisan Vikas Patra


Investment Objective and RisksThe main objective of the KVP is to double the sum depositedin 8 years and 4 months. The simplicity of doubling the invest-ment is easy for every investor to understand, the governmentbacking and guarantee make it a preferred route of invest-ment for small savers.



Kisan Vikas Patra

Features

ELIGIBILITYOne hhas tto bbe aa RResident IIndian tto ppurchase tthis pproduct

ENTRY AGENo aage llimit iis mmentionedCertificate ccan bbe ppurchased bby aan aadult ffor hhimself oor oon bbehalf oof aa mminor or bby ttwo aadults

MINIMUM INVESTMENTSMinimum: `1000 pper aannumMaximum: TThere iis nno uupper llimitCertificates aare aavailable iin ddenominations oof `1,000, `5,000, `10,000 aand`50,000

INTEREST 8.7 pper ccent ccompounded yyearly

TENURE8 yyears aand 44 mmonths

OTHER ASPECTS Premature eencashment aallowed ffor iinvestors`100 wwould ddouble uup tto `200 iin 88 yyears aand 44 mmonths


NOMINATIONFacility iis aavailable ffor eexisting iinvestors


Credit Rating As the KVP is backed by the government of India, it does notrequire any commercial rating. This holds good for investors aswell.

Exit Option Premature withdrawal is permitted at a cost for investors.

Other RisksThere is no risk associated with this investment for investors.

Kisan Vikas Patra


The facility of pledging the KVP to borrow is allowed and one cantake loans against the KVP from banks and financial institutions. Premature closure of the KVP is permitted wherein a pre-fixed valueof the KVP is paid as indicated in the table.

Amount PaidPer cent of on `1,000

Tenure face value (%) face value (`)2 yrs 6 mths or more but less than 3 yrs 20.1 1,2013 yrs more but less than 3 yrs 6 mths 24.6 1,2463 yrs 6 mths or more but less than 4 yrs 29.3 1,2934 yrs or more but less than 4 yrs 6 mths 34.1 1,3414 yrs 6 mths or more but less than 5 yrs 39.1 1,3915 yrs or more but less than 5 yrs 6 mths 44.3 1,4435 yrs 6 mths or more but less than 6 yrs 49.7 1,4976 yrs or more but less than 6 yrs 6 mths 55.3 1,5536 yrs 6 mths or more but less than 7 yrs 61.1 1,6117 yrs or more but less than 7 yrs 6 mths 67.1 1,6717 yrs 6 mths or more but less than 8 yrs 73.3 1,7338 yrs or more but less than 8 yrs 7 mths 79.8 1,798

Liquidity on premature withdrawal


Tax Implications For existing investors there is notax benefit on the deposit or theinterest that it earns. The yearlyinterest accrued in the KVP istaken as ‘Income from othersources’ to compute income tax.However, there is no TDS deducted.

Where to Buy One can buy the KVP at any head post office or general postoffice or at any designated nationalised banks.

How to BuyOnce you decide on the sum to invest

You have to fill the KVP application form available at the postoffice or the designated banks.Original identity proof for verification at the time of buyingis required.You can buy the certificate with cash, cheque or demanddraft drawn in favour of the postmaster of the post office fromwhere the KVP is bought.You have to choose a nominee and get a witness signature tocomplete the formalities when buying this product.

Points to PonderThe KVP can be encashed at any post office or nationalisedbank in India provided one has obtained transfer of the cer-tificate to the desired post office or bank for existing investorsin this instrument.KVPs are transferable across post offices and designatedbanks for existing investors.Interest income is taxable but no TDS certificate is issued.

Kisan Vikas Patra


GOING ONLINE Financial products offered atthe post office have notgone online as yet.


Kisan Vikas Patra


TIPS AND STRATEGIES The doubling of money in a KVP is used to accumulatefunds and create an income ladder. KVPs are boughtevery month or quarter for appropriate denominations,which on maturity work as a steady income streamwhich is twice of what one deposited. Some people usethis ladder effect to create an income stream that last10-15 years by timing KVP maturity and re-investing thesame to create an assured income in retirement.



SukanyaSamriddhiYojana

Investments in the Sukanya SamriddhiScheme are already eligible for deductionunder Section 80C. All payments to thebeneficiaries, including interest payment onthe deposit, will also be fully exempt.

- Finance Minister, Arun Jaitley, in hisBudget speech

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The Sukanya Samriddhi Yojana (SSY) is a tax-free small savingsscheme for the girl child. It was launched on January 22, 2015.Parents or the legal guardian of a girl child of age ten years or lesscan open an SSY account in the name of the girl child indesignated branches of public sector banks or in a post office,with a minimum amount of `1,000.

Entry AgeParents or legal guardian of a girl child, ageing ten years or less,can open an SSY account.

Minimum InvestmentThe account can be opened with a minimum deposit of `1,000.Failure to make payments as per the chosen frequency can lead tothe deactivation of the account. It can then be revived only afterpaying a penalty of `50 along with the missing payments.Deposits can be made multiple times in a year, with an upperlimit of `1,50,000.

Capital ProtectionSince the scheme offers a relatively fixed rate of interest, thecapital is adequately protected.

Inflation ProtectionSince the returns are linked to the government bond yield, thereis no assured inflation protection.

Sukanya Samriddhi Yojana


Investment Objective and RisksThe Sukanya Samriddhi Yojana is a special initiative for thegirl child. The scheme aims to encourage savings for the girlchild. The potential risk is that there is no inflation protection,though the capital is adequately protected.




FeaturesELIGIBILITYYou nneed tto bbe aa rresident IIndian aand pparent/legal gguardian oof tthe ggirl cchild.

ENTRY AGEParents oor llegal gguardian oof aa ggirl cchild, aageing tten yyears oor lless, ccan oopen aanSSY aaccount.

ACCOUNT OPENING FEENo ffee. AA mminimum ccash ddeposit oof `1,000 iis rrequired tto oopen aan aaccount

ACCOUNT MAINTENANCE AND CHARGESFailure tto mmake ppayments aas pper tthe cchosen ffrequency ccan llead tto tthe ddeactiva-tion oof tthe aaccount.A ddeactivated aaccount ccan tthen bbe rrevived oonly aafter ppaying aa ppenalty oof `50along wwith tthe mmissing ppayments.

INTEREST The iinterest rrate iis tto bbe 775 bbasis ppoints oover tthe tten-yyear ggovernment bbondyield oof tthe pprevious ffinancial yyear.

OTHER FEATURES OFFEREDThe sscheme wwill hhave tthe eexempt-eexempt-eexempt ((EEE) mmodel.

The aaccount ccan bbe oopened aat aany ppost ooffice iin IIndia ddoing tthe ssavings bbankwork oor aat aany bbranch oof aan aauthorised ccommercial bbank.

The ccorpus wwill ccontinue tto eearn iinterest iif tthe aaccount iis nnot cclosed oon mmaturity.

TENUREThe aaccount wwill mmature oon tthe ccompletion oof 221 yyears ffrom tthe ddate oof oopening

of tthe aaccount oor aat tthe ttime oof mmarriage oof tthe aaccount hholder oon aattaining 118 yyearsof aage, wwhichever iis eearlier.

Up tto 550 pper ccent oof tthe ccorpus ccan bbe wwithdrawn oonce tthe ggirl tturns 118.

ACCOUNT HOLDING CATEGORIESGirl cchild uunder tten yyears tthrough tthe pparents oor tthe llegal gguardian

NOMINATIONNot aavailable


LiquidityThe contributions under the SSY cannot be withdrawn before thegirl attains 18 years of age. Therefore, the minimum lock-inperiod is eight years. As of now there is no loan facility available.

GuaranteesThe interest rate under the SSY is to be 75 basis points over theten-year government bond yield of the previous financial year. Atpresent, the deposit will fetch a yearly interest rate of 9.2 percent.

Tax ImplicationsThe scheme will have the exempt-exempt-exempt (EEE) model,where the deposits, the interest earned as well as the maturityamount will be tax-free.

Exit OptionsThe account will mature on the completion of 21 years from thedate of opening of the account or at the time of marriage of theaccount holder on attaining 18 years of age, whichever is earlier.However, up to 50 per cent of the corpus can be withdrawn oncethe girl turns 18. The corpus will continue to earn interest if theaccount is not closed on maturity.

Where to Open the AccountThe account can be opened at any post office in India doing thesavings bank work or at any branch of a commercial bankauthorised by the central government to open an account underSukanya Samriddhi Account Rules, 2014.



The SSY account can be opened only for the girl child and the girlchild must not be older than ten years. Also, the minimum lock-inperiod is eight years.


How to Open the AccountThe parent/guardian can approach any post office or bank withthe birth certificate of the girl child, along with the ID andaddress proof of the parent/guardian.

Points to PonderThe depositor can open only one account in the name of one girlchild and a maximum of two accounts in the name of twodifferent children. However, the guardian can open the thirdaccount in the case of birth of twin girls as the second birth, or ifthe first birth itself results into three girl children.



TIPS AND STRATEGIES

The SSY could be a good avenue for tax savingIt has the benefit of the EEE tax model Attractive yield makes it stand out in debt investmentsThe scheme keeps earning interest even post maturity



Senior CitizenSavingScheme

George Foreman said; “The question isn’t at what age I want to retire, it’s at whatincome.” He could not have been more right about income in retirement. Definedpensions are a lot better to look forward toin retirement than anything else.

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Retirement brings with itself several complications and doubts,but there are savings products that are safe and ensure guaranteedretirement income. The Senior Citizen Savings Scheme (SCSS),launched in 2004, is a deposit scheme introduced by theGovernment of India to provide guaranteed returns to seniorcitizens through a safe investment. This scheme ensures a regularincome stream for senior citizens in retirement.

Capital Protection The capital in the SCSS is completely protected as the schemeis backed by the Government of India, making it totally risk-freewith guaranteed returns.

Inflation ProtectionThe SCSS is not inflation protected, which means wheneverinflation is above the current interest rate; the deposit earns noreal returns. However, when the inflation rate is below thecurrent interest rate, it does manage a positive real rate of return.

GuaranteesThe interest rates on this scheme are notified every year beforeApril 1, which is aligned with G-Sec rates of similar maturity,with a spread of 1 per cent. Currently, the interest rate in theSCSS deposit is 9.30 per cent per annum compounded quarterly.

Liquidity The SCSS is liquid, despite the 5-year stipulated lock-in. Theliquidity is offered in the form of withdrawals subject toconditions and penalties.

Senior Citizen Saving Scheme


Investment Objective and RisksThe main objective of the SCSS is to provide an assured 9.30per cent return paid every quarter to senior citizens whichhelps them create a guaranteed regular income flow.




Features

ELIGIBILITYYou nneed tto bbe aa rretired RResident IIndian tto oopen aan aaccount

ENTRY AGE60 yyears55 yyears ffor tthose wwho hhave rretired oon ssuperannuation oor uunder aa vvoluntary oorspecial vvoluntary sschemeThe rretired ppersonnel oof DDefence SServices ((excluding CCivilian DDefenceEmployees) sshall bbe eeligible tto iinvest iirrespective oof tthe aage llimits ssubject tto tthefulfilment oof sspecified cconditions

INVESTMENTSMinimum: `1,000Maximum: `15 llakhDeposits hhave tto bbe iin mmultiples oof `1,000

INTEREST 9.30 pper ccent pper aannum ccompounded qquarterlyThe iinterest iis ppaid oon MMarch 331, JJune 330, SSeptember 330 aand DDecember 331,each yyear

TENURE5 yyears wwhich ccan bbe eextended bby 33 mmore yyears

ACCOUNT HOLDING CATEGORIESIndividualJoint wwith sspouse



Credit Rating As the SCSS is backed by the Government of India, it does notrequire any commercial rating.


Other RisksThere is no risk associated with this investment which is whythe investment is totally risk-free.

Tax Implications The sum invested in the SCSSon or after April 1, 2007 iseligible for tax deduction underSection 80C of the Income TaxAct. However, the interestearned on the deposit is fullytaxable and tax is deducted atsource (TDS) only if the total interest in a year is above `10,000.However, if the income is not taxable, one has to provide form15H or 15G so that no tax is deducted at source.



GOING ONLINE If one has an online bankaccount with a bank whichalso offers SCSS; the twocan be linked which enablesonline access to the SCSS.

The facility of pledging the deposit in the SCSS account to obtainloans is not permitted as it defeats the purpose of regular income. Premature withdrawal or closure of the SCSS account is permittedafter completion of one year from the date of opening the accountafter deducting a penalty for early withdrawal or closure that variesfrom 1-1.5 per cent depending on the completed tenure of theaccount.

If the account is closed after the first year and before the end of thesecond year, an amount equal to 1.5 per cent of the deposit shallbe deducted as penalty.If the account is closed on or after the second year, an amountequal to 1 per cent of the deposit shall be deducted.


Where to open an Account Any head post office or general post office. Select branches ofseveral designated nationalised banks: State Bank of India,State Bank of Hyderabad, State Bank of Indore, State Bank ofBikaner and Jaipur, State Bank of Patiala, State Bank ofSaurashtra, State Bank of Mysore, State Bank of Travancore,Allahabad Bank, Bank of Baroda, Bank of India, Bank ofMaharashtra, Canara Bank, Central Bank of India, CorporationBank, Dena Bank, Indian Bank, Indian Overseas Bank, PunjabNational Bank, Syndicate Bank, UCO Bank, Union Bank ofIndia, United Bank of India, Vijaya Bank and ICICI Bank.

How to Open an AccountOnce you have selected the bank to open the SCSS account, youwill first need to open a savings bank account and you will needthe following documents:

An account opening form which the bank will provide Two passport size photographsAddress and identity proof such as copy of the passport, PAN(permanent account number) card or declaration in form No60 or 61 as per the Income Tax Act 1961, driving license,voter’s identity card or ration cardCarry original identity proof for verification at the time ofaccount opening

Points to PonderPortability of the account from one bank to anotherECS transfer of interest to the savings bank accountPenal provisions in case of early closure of the account



The SCSS rules can be found in the passbook.




TIPS AND STRATEGIES The guaranteed interest from this scheme can be usedto create income streams to manage cash flows inretirement.

Extend the SCSS account on completion of five yearsby an additional three yearsSplit the SCC account into two individuals accounts forself and spouse to reduce the impact of early closureof an account in case of emergenciesIt is wise to foreclose the account and invest in a banksavings account whenever banks offer higher interestrate on long-term deposits

Payout on the SCSS Deposit

Amount of Deposit (`) Quarterly interest (`)10,000 23025,000 57540,000 92070,000 1,6101,00,000 2,3002,00,000 4,6005,00,000 11,5008,00,000 18,40011,00,000 25,30015,00,000 34,500

SCSS over the years2015-2016 2014-2015 2013-2014

5-year SCSS 9.3 9.2 9.2All figures in per cent



Post OfficeMonthlyIncomeScheme

Though the postal system is finding fewtakers with the advent of email and otherforms of communication, the guaranteesoffered by post office small savings makethem still one of the most sought afterlocations for financial products.

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The Post Office Monthly Income Scheme (POMIS) is aguaranteed return investment available at the post office. Onthe deposit that you make with the post office, you get anassured monthly income. Currently, one earns an 8.4 per centinterest per year on the deposit, which is paid every month andhence the name monthly income scheme. Once you make thedeposit you get the interest payout each month from the date ofmaking the investment, not from start of the month.

Capital Protection The capital in the POMIS is completely protected as the schemeis backed by the Government of India, making it totally risk-freewith guaranteed returns.

Inflation ProtectionThe POMIS is not inflation protected, which means wheneverinflation is above the current guaranteed interest rate of 8.40per cent; the return from the scheme earns no real returns.However, when the inflation rate is below 8.40 per cent, it doesmanage a positive real rate of return.

GuaranteesThe interest rate in the POMIS is guaranteed and is currently8.40 per cent per annum and paid out monthly. The interestrates on this scheme are notified every year before April 1, andis aligned with G-Sec rates of similar maturity, with a spread of0.25 per cent.

Post Office Monthly Income Scheme


Investment Objective and RisksThe main objective of the POMIS is to provide an assured 8.4per cent returns paid monthly to the account holders and helpthem create a guaranteed regular income. Though it offers notax incentive, it is a preferred instrument amongst smallsavers for the government backing that this product offers.




Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian ppreferably wwith aa ppost ooffice ssavings aaccount

ENTRY AGENo aage llimit iis mmentionedMinor aabove 110 yyears oof aage ccan oopen aan aaccount iin ttheir oown nname ddirectlyThere iis aa llimit oof `3 llakhs sset ffor mminors tto oopen tthis aaccount wwith aa gguardian,which iis nnot cclubbed wwith tthe iinvestment llimit aapplicable tto tthe gguardian aas aanindependent iinvestor

INVESTMENTSMinimum: `1,500Maximum: `4.5 llakh iin aa ssingle aaccountMaximum: `9 llakh iin aa jjoint aaccount

INTEREST 8.4 pper ccent pper aannum ppaid mmonthly

TENURE5 yyears




Liquidity The POMIS is liquid despite the 5-year stipulated lock-in. Theliquidity is offered in the form of withdrawals subject toconditions and penalties.

Credit Rating As the POMIS is backed by the Government of India, it does notrequire any commercial rating.


Other RisksThere are no risks associated with this investment and it istotally risk-free.

Tax Implications There is no tax benefit on theinvestment or income earnedfrom this scheme.



The facility of pledging the deposit in the POMIS account to obtainloan is not permitted as it defeats the purpose of regular income.

Premature withdrawal or closure of the POMIS account is permittedafter completion of one year from the date of opening of theaccount after deducting a penalty for early withdrawal or closurethat varies from 1-2 per cent depending on the completed tenure ofthe account.If the account is closed on or before the completion of three yearsof opening the account, an amount equal to 2 per cent of thedeposit is deducted and the remainder is paid to you.If the account is closed after completion of three years fromopening the account, an amount equal to 1 per cent of the deposit is deducted and the remainder paid to you.



Where to open an Account You can open the account at any head post office or general postoffice.

How to Open an AccountOnce you have selected the post office to open the POMISaccount, you will first need to open a post office savingsaccount to link the monthly payout from your MIS account andyou will need the following documents:

An account opening form which the post office will provide Two passport size photographsAddress and identity proof such as copy of passport, PAN(permanent account number) card or declaration in form No60 or 61 as per the Income Tax Act 1961, driving license,voter’s identity card or ration cardCarry original identity proof for verification at the time ofaccount openingChoose a nominee and get a witness signature to completethe formalities to get started

How to Operate the Account? You need a pay-in slip with the initial account opening sum tobe credited into your account.

Points to PonderPortability of the account from one post office to anotherFacility for reinvestment on maturity of the accountMaturity proceeds not drawn are eligible to saving accountinterest rate for a maximum period of two yearsInterest income is taxable but there is no TDS certificateissued



The savings and MIS account have passbooks with rules applicable tothe accounts stated in them.




TIPS AND STRATEGIES By initiating an investment cycle wherein the MIS sumacts as a recurring deposit instalment results in ahigher and more effective return from the MIS. This isa strategy adopted by many who do not need the MISpayout and wish to use it for further assured return Getting into a recurring deposit cycle with the POMISis a good way to increase the returns that one caneffectively earn from this instrument

POMIS over the years2015-2016 2014-2015 2013-2014 2012-2013

5-year MIS 8.4 8.4 8.4 8.5*Prior to December 2011, MIS was a 6-year instrument; all figures in per cent



RBI SavingsBonds

The one, who said predictability is boring,did not realise how important it is to severalinvestors. Bonds are financial products thatguarantee returns and are amongst themost preferred financial instruments forthose looking for a fixed income source.

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The RBI Savings Bonds or Government of India Bonds is anassured return scheme backed by the government, and is one ofthe safest instruments available to those seeking fixed andassured returns. These bonds do not offer any tax benefits, areexempt from wealth tax and guarantee returns.

Capital Protection The capital in this bond is completely protected as the schemeis backed by the Government of India, making it completelyrisk-free with guaranteed returns.

Inflation ProtectionThis bond is not inflation protected, which means wheneverinflation is above the current guaranteed interest rate of 8 per cent;the deposit earns no real returns. However, when the inflation rateis below 8 per cent, it does manage a positive real rate of return.

GuaranteesThe interest rate on thisbond is guaranteed andcurrently, the interest rateon this bond is 8 per centper annum.

Liquidity The RBI bond is liquid,despite the 6-year stipulated lock-in. The liquidity is offered onlyin the form of loan and premature encashment is not allowed.

RBI Savings Bonds


Investment Objective and RisksThe main objective of investing in this bond is the guaranteed8 per cent returns on investment. The 6-year year tenure isused by many investors, especially retirees who haveexhausted investments in the Senior Citizens Savings Schemefor the guaranteed returns that it offers.

Premature Withdrawal (`)Non-

Half year cumulative Cumulative 7th 1,016.25 1,231.258th 1,016.25 1,271.209th 1,016.25 1,312.50



RBI Savings Bonds

Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian tto bbuy tthese bbonds

ENTRY AGENo aage iis sspecified tto bbuy ccertificates

MINIMUM INVESTMENTMinimum: `1,000Maximum: NNo uupper llimitCertificates aare aavailable iin ddenominations oof `1,000 aand iits mmultiples

INTEREST Interest rrate oof 88 pper ccent pper aannumNon-ccumulative ppayable hhalf yyearly aand ccumulative ppayable oon mmaturityMaturity vvalue sshall bbe `1,601 bbeing tthe pprincipal aand iinterest ffor eevery `1,000in tthe ccumulative ooptionInterest ppaid oout oon FFebruary 11 aand AAugust 11 eeach yyearInvestors ccan aalso oopt ffor ccumulative iinterest wwhich iis ppaid oon mmaturity

TENURE6 yyears

ACCOUNT HOLDING CATEGORIESIndividualJointMinor tthrough tthe gguardian HUFCharitable iinstitutions



Credit Rating As the RBI Bond is backed by the Government of India, it doesnot require any commercial rating.

Exit Option Premature encashment of the certificate is not permissiblebefore completion of three years.

Other risksSavings in this product is completely risk free because of thegovernment-backing.

Tax Implications There is no tax benefit on the investment or the interest paidout by this bond. The interest earned from this bond is added tothe total income under the head ‘Income from other sources’and taxed accordingly.

Where to Buy You can buy the bond at authorised branches of State Bank ofIndia and associate banks, Nationalised banks such as Bank ofMaharashtra, private sector banks such as HDFC Bank andICICI Bank and the Stock Holding Corporation of India (SHCIL).

How to BuyOnce you have decided on the sum that you wish to invest

You can fill the form provided by the bond issuer

RBI Savings Bonds


You can pledge the RBI Bonds to obtain loans, the amount and rateat which the loan is permitted depends on the lending institution.Premature encashment is permitted after three completed years;the amount payable, inclusive of interest for the denomination of`1,000 is as indicated in the table (Premature Withdrawal).The effective date of premature encashment on non-cumulativebonds is January 1 and July 1 every year.


You will need your PANnumber and demat accountnumber to hold the bondelectronicallyYou can hold the bond inphysical form as a certificate orhold it in an account calledbond ledger account which issafe Carry original identity prooffor verification at the time ofbuyingYou can buy the certificatewith cash, cheque or demanddraft drawn in favour of thepostmaster of the receiving officerChoose a nominee and get a witness signature to completethe formalities to purchase the bond

Points to PonderThe interest received from these bonds is not tax-freeInterest income is treated as ‘Income from any other sources’and will be added with your total income and taxedaccording to the tax slab that you fall in that financial yearThe bond in the form of bond ledger account is nottransferableNo interest would accrue after the maturity of the bond

RBI Savings Bonds


GOING ONLINE The option to invest onlineexists if you have an onlinebank account or a demataccount which is accessedonline. Once the bond is sixyears old and matures, youcan redeem the maturedvalue of the bond to yourbank account. Likewise, byinstructing the bank to creditthe half yearly payouts toyour bank account you canaccess the interest received.


RBI Savings Bonds


TIPS AND STRATEGIES The assured return on the bond can be used to createan income ladder. Certificates can be bought everymonth or quarter for appropriate denominations, whichon maturity will provide a steady income stream



Capital GainsTaxExemptionBond or 54EC Bonds

Albert Einstein said, “The hardest thing inthe world to understand is income tax.” Hecould not have been more right. You makea gain on an investment and to offset thetax on the gain, you make an investment inanother instrument which earns you areturn as well.

14


The Capital Gains Tax Exemption Bond or 54 EC Bonds arebonds in which investments offset the long-term capital gains(LTCG) that investors make on capital gains. Only LTCG earnedby selling a residential flat or independent house, which youowned for at least three years, can be invested in this bond.

Capital Protection The capital in the 54EC bonds is completely protected as thebond is backed by the Government of India, making it totallyrisk-free with guaranteed returns.

Inflation ProtectionThe 54EC bond is not inflation protected, which meanswhenever inflation is above the interest rate offered on thebond; the return from the scheme earns no real returns.However, when the inflation rate is below the rate offered by thebond, it does manage a positive real rate of return.

GuaranteesThe interest rate on the bond is guaranteed and varies acrossbond issuers.

Liquidity The 54EC bond is completely illiquid during the three-yearlock-in.

Capital Gains Tax Exemption Bond or 54 EC Bonds


Investment Objective and RisksThe main objective of this three-year bond is to avoid payingincome tax on LTCG. Gains made on capital transfer need tobe invested in this bond within six months from the sale ofcapital assets in order for the proceeds of such sale to beexempt from capital gains tax. However, the interest earned on these bonds is fully taxable.




Features

ELIGIBILITYYou nneed tto bbe aa RResident IIndian aand hhave mmade ccapital ggains

ENTRY AGENo aage llimit iis mmentioned

INVESTMENTMinimum: `10,000Maximum: `50 llakh iin aa ffinancial yyear tto aavail ttax bbenefitsThe bbond hhas aa fface vvalue oof `10,000

INTEREST For bbonds aavaialable ttill MMarch 331, 22014 tthe rrate wwas 66 pper ccent ppayable aannu-ally oon MMarch 331 eeach yyear

TENURE3 yyears

PAYMENTCheques oor DDemand DDrafts Direct ttransfer tthrough NNEFT oor RRTGS

ACCOUNT HOLDING CATEGORIESIndividuals aand HHUFPartnership ffirms, CCompanies aand CCorporatesBanks, RRegional RRural BBanks, CCo-ooperative BBanks aand FFinancial IInstitutionsInsurance CCompanies, PProvident FFunds, SSuperannuation FFunds aand GGratuity FFundsMutual FFundsForeign IInstitutional IInvestors ((Subject tto eexisting rregulations)Trusts wwhich aare aauthorised tto iinvest iin tthe BBondsNRIs iinvesting oout oof NNRO aaccount oon nnon-rrepatriable bbasis



Credit Rating So far the bond has managed a high credit rating.

Exit Option Premature termination of the bond is not permitted.

Other RisksFixed income instruments always carry interest rate risk.Increase in market interest rates will have a negative impact onthe price of the bonds.

Tax Implications To claim Section 54 EC following conditions have to be satisfied:

Long-term capital asset means any capital asset held by theassessee for more than three yearsIf the assesee has sold the long-term capital asset during theprevious year and made a long-term capital gain then he caninvest the money from the capital gain in capital gain bondsand save tax on the LTCGAmount to be invested in bonds is only capital gain and notnet consideration received on sale of long-term capital assetAmount exempted under this section will be the amount ofcapital gain or amount invested in capital gain bondwhichever is lower, up to a maximum of `50 lakhAmount of capital gain should be invested in capital gain bondwithin 6 month from date of transfer or sale of capital asset

Where to Buy the Bond Download the form from www.nhai.org currently offering thebond



The facility of pledging 54EC bonds is not permitted. These bonds arenon-transferrable and non-negotiable. You can’t use them as securityagainst any loan or advance.


Many banks are authorised to sell these bonds such as UnionBank of India, IDBI Bank and select branches of HDFC Bank,Canara Bank, Punjab National Bank and Syndicate Bank

How to BuyYou will need to fill the form provided by the bond issuer.You will need self attested copy of PAN Card (in case of jointapplication, self attested copy of PAN Card of all theapplicants).Photocopy of cancelledcheque for ESC facility (incase the subscriber has optedfor the said facility andallotment of bonds has beenopted in physical mode)Address and identity proofsuch as copy of the passport,PAN (permanent accountnumber) card, driving license,voter’s identity card or ration cardCarry original identity proof for verification at the time ofbuying

Point to PonderInterest income is treated as ‘Income from any other source’and will be added to your total income and taxed as per the



GOING ONLINE The option to hold the bondsin demat mode is permitted,which can be useful whenthe bond comes up forredemption on maturity andis credited to your savingsaccount linked with thedemat account.

The investment in 54EC bond does not attract any tax; however, theannual interest payout is treated as income and taxed accordingly.

A bond certificate bearing your name is issued if holding inphysical form.There will be TDS deducted at source on the interest payment.




tax slab you fall in that financial year

Should you invest?Assuming indexation benefit, let’s says you made a LTCG of `10lakh after selling a property. If you go ahead and invest this entireamount in NHAI bond, which offers 6 per cent rate of interest,and assuming that you are in the highest tax bracket, your post-tax returns will be 4.2 per cent and your investment of `10 lakhwill become ̀ 11,31,366. Alternatively, if you choose to pay 20 percent tax on `10 lakh, which comes to `2 lakh and invest theremaining `8 lakh in any one of the three instruments, a fixeddeposit (FD), mutual fund (monthly income plan, or MIP) and anequity-oriented mutual fund, you will end up with `9,80,034,`10,94,105 and `12,16,700, respectively.

For FD, the rate has been assumed at 10 per cent, but the post-tax return will be down to 7 per cent for those in the highesttax bracket. For MIP, we have assumed 11 per cent and forequity fund 15 per cent. Though returns from the two mutualfund options are comparable with that of the bond, rememberthat they are market-linked and are not guaranteed.12 per cent rate of return is a break-even point; which means,you may consider paying a 20 per cent tax on LTCG andinvesting in an alternate instrument only if your expectedreturn is more that 12 per cent. Anything less than 12 per cent,it’s best to invest the amount in 54 EC bonds.Keep in mind that when you invest in bonds you get a benefitof saving 20 per cent tax on LTCG. More importantly, this is arisk-free investment and there is no cost in the form of anybrokerage. For risk averse investors, these bonds make sense.



Rajiv GandhiEquity SavingsScheme

Alfred E. Neuman said that it takes morebrains and effort to make out the incometax form than it does to make the income.But, tax saved is money earned.

15


The Rajiv Gandhi Equity Savings Scheme is a Government ofIndia initiative to encourage retail investors into the equitymarkets. The scheme is open to all resident Indians who arefirst time investors with an annual income of up to `12 lakh andhave never invested in equity or derivatives before November23, 2012. One can invest in direct equity from a select list ofstocks, approved exchange traded funds (ETF) and approvedmutual fund schemes. The investment has a 3-year lock-inInvestments up to `50,000 in a financial year qualify for 50 percent tax deduction of the invested sum from the taxable incomefor that year under Section 80CCG.

Capital ProtectionThere is no capital protection on investments in this scheme asthe capital is invested in the equity markets which do notguarantee returns. However, the list of securities that qualify forinvestments are less volatile and relatively stable.

Inflation ProtectionThis scheme is not inflation protected as like every other equityinvestment, it is subject to market risks.

GuaranteesThere is no guaranteed return on investment under thisscheme.

LiquidityThe scheme is quite liquid. It has a fixed lock-in of one year and

Rajiv Gandhi Equity Savings Scheme


Investment Objective and RisksThe objective of the scheme is to inculcate the habit ofinvesting in equities for which the scheme provides taxincentive. The scheme is open for a 3-year period fromfinancial year 2012-13. Though it offers less tax incentives,nevertheless tax saved is money earned.




Features

ELIGIBILITYYou aare aa rresident iindividual aand aa nnew rretail iinvestorYour ggross ttotal aannual iincome ddoes nnot eexceed `12 llakh

YOU ARE A NEW RETAIL INVESTOR IF You hhave nnot oopened aa ddemat aaccount aas oon tthe ddate oof nnotification oof tthescheme, wwhich wwas NNovember 223, 22012You hhave oopened aa ddemat aaccount bbefore tthe nnotification ddate, bbut hhave nnotmade aany ppurchases iin tthe eequity oor tthe dderivative ssegment ttill tthe nnotification You aare nnot tthe ffirst aaccount hholder oof aan eexisting jjoint ddemat aaccount, mmakesyou eeligible tto oopen aan iindividual ddemat aaccount tto iinvest iin tthis sscheme

INVESTMENTSMaximum: `50,000 iin eeach ffinancial yyears tto cclaim ttax ddeduction

ELIGIBLE SECURITIES DEFINED UNDER THE RGESSEquity sshares oof ccompanies rrepresenting BBSE-1100 IIndex oor CCNX-1100 IIndexincluding ttheir FFollow oon PPublic ooffers ((FPO)Equity sshares oof MMaharatna, NNavratna oor MMiniratna ppublic ssector eenterprises aandtheir FFPOs Units oof EExchange TTraded FFunds ((ETFs) oor MMutual FFund ((MF) sschemes iinvestingin RRGESS eeligible ssecurities pprovided tthese uunits aare llisted aand ttraded oon sstockexchange aand ssettled tthrough ddepository mmechanismInitial PPublic OOffer ((IPO) oof aa PPSU wwherein tthe ggovernment sshareholding iis aatleast 551 pper ccent wwhich iis sscheduled ffor ggetting llisted iin tthe rrelevant ppreviousyear aand wwhose aannual tturnover iis nnot lless tthan `̀4,000 ccrore dduring eeach oof tthepreceding tthree yyears NFOs oof eeligible EETFs aand mmutual ffunds


flexible lock-in period of two years on completion of the firstyear. In the flexible lock-in period, investors are allowed to altersecurities in their portfolio, provided the total value ofsecurities remain the same as invested under the RGESS in thefirst year. Moreover, the demat account gets converted into anordinary account after completion of three years.

Credit RatingThere is no credit rating on Rajiv Gandhi Equity SavingsScheme.

Exit OptionInvestor can withdraw invested amount after the three years oflock-in. It also allows to sell and book gains on securities afterthe one year completion of the compulsory lock-in.

Other RisksCapital markets are uncertain and do not guarantee returns. Thescheme intends to invests in equity shares of listed companieshence, the scheme poses all risks associated with stocks andequity.

Tax ImplicationsThe scheme allows a tax deduction of maximum up to `25,000(50 per cent of `50,000) under section 80CCG of the Income TaxAct, 1938. An investor is free to invest a higher sum, but the taxbenefit will be available only up to `50,000. The tax benefit isapplicable for three consecutive financial years.

Where to buyOne can invest in the scheme through a SEBI registered stockbroker for direct equity. When investing in a compliant mutualfund scheme, one can invest through the AMC, mutual funddistributor or a SEBI registered stock broker.




How to buyAs only first time investors areeligible to invest in this scheme,they will need a demat accountto get started.

Open a demat accountthrough any of the DepositoryParticipants of NSDL or CDSLif you do not have oneYou will need a Permanent Account Number (PAN)Fill Form A available with DPs of NSDL and CDSL to convertyour new/ existing Demat Account to assign under RGESSPurchase eligible securitiesThe list of eligible securities is on NSE and BSE websites andis also available with Depository Participants

Points to ponderDeposit a duly filled Form B if you do not wish to includecertain stocks that you have bought within RGESSinvestment limitWhile there is no limit on maximum investment under thescheme, the tax benefit will be available on investment up toa maximum `50,000 onlyMake sure you mention the demat account details whenclaiming the tax deduction



GOING ONLINE Eligible shares can bebought online using yourdemat account. You can alsoinvest in RGESS mutual fundschemes through the AMCswebsite.




TIPS AND STRATEGIES Direct equity investment is the most cost effectiveoption, promotes long-term buy and hold approach toinvesting.Facilitates learning first hand equity investing from auniverse of large-cap stocks with a proven history.The ETF option is low cost, and easy way to invest in a broad market and the options available are well-diversified. Moreover, ETFs have a track record toevaluate performance.The new fund offers could deliver superior returns anddissuade panic selling or redemptions if market slips.



InflationIndexed Bonds

It is a way to take people’s wealth fromthem without having to openly raise taxes.Inflation is the most universal tax of all.

16


Inflation Indexed National Savings Securities-Cumulative(IINSS-C) is a bond that guarantees a real return, or a returnhigher than the rate of inflation. Such bonds are indexed tocombine final inflation rate, or in simple words, they’re bondswith their capital appreciation and coupon payments linked toinflation rates. IINSS-C will protect investor savings frominflation and allow investors to earn more interest on theirsavings. IINSS-C will have a fixed real coupon rate and anominal principal value that is adjusted against inflation.Periodic coupon payments are paid on adjusted principal. Atmaturity, the adjusted principal or the face value, whichever ishigher, will be paid. Interest rate on these securities would belinked to final combined Consumer Price Index [CPI (Base:2010=100)]. Interest rate would comprise of two parts, i.e.,fixed rate (1.5 per cent per annum) and inflation rate based onCPI and the same will be compounded in the principal on half-yearly basis and paid at the time of maturity.

Capital ProtectionThe capital in the IINSS is completely protected, as the schemeis backed by the government of India, which makes it risk freeand guarantees returns that are linked to inflation.

Inflation ProtectionThese bonds protect savings from inflation, as they are designedto be inflation-linked.

GuaranteesYes, fixed rate of 1.5 per cent would act as a floor, which means

Inflation Indexed Bonds


Investment Objective and RisksThe primary objective of IINSS is to protect investor savingsfrom inflation and allow investors to earn more interest ontheir savings.




Features

ELIGIBILITYAn iindividual nnot bbeing aa NNon-RResident IIndianin hhis oor hher iindividual ccapacity, oorin iindividual ccapacity oon jjoint bbasis, oorin iindividual ccapacity oon aanyone oor ssurvivor bbasis, ooron bbehalf oof aa mminor aas ffather/mother/legal gguardian.

INVESTMENTSMinimum: `5,000 ((face vvalue) aand iin mmultiples tthereofMaximum: `10 llakh pper aapplicant; `25 llakh pper aannum ffor iinstitutions ssuch aasHUFs, CCharitable TTrusts, EEducation EEndowments aand ssimilar iinstitutions wwhichare nnot ppro-pprofit iin nnature.

TENURE10 yyears

ACCOUNT HOLDING CATEGORIESIndividualsA HHindu UUndivided FFamilyJoint hholding iis aallowedCharitable IInstitution’ tto mmean aa CCompany rregistered uunder SSection 225 oof ttheIndian CCompanies AAct 11956An iinstitution wwhich hhas oobtained aa CCertificate oof RRegistration aas aa ccharitableinstitution iin aaccordance wwith aa llaw iin fforceAny iinstitution wwhich hhas oobtained aa ccertificate ffrom aan IIncome TTax AAuthority fforthe ppurposes oof SSection 880G oof tthe IIncome TTax AAct, 11961‘University’ mmeans aa uuniversity eestablished oor iincorporated bby aa CCentral, SState oorProvincial AAct, aand iincludes aan iinstitution ddeclared uunder ssection 33 oof ttheUniversity GGrants CCommission AAct, 11956 ((3 oof 11956), tto bbe aa uuniversity ffor tthepurposes oof tthat AAct

WHO WILL DO THE KYC?As ccustomers wwill bbe oowned bby tthe bbanks, KKYC wwill aalso bbe ddone bby tthe bbanks


that 1.5 per cent per annum interest rate is guaranteed if thereis deflation. For example, if inflation rate is (-) 5 per cent, theninterest rate should be (-) 3.5 per cent by simple calculation. Butin such case, negative inflation will not be recognised andinvestors would get fixed rate of 1.5 per cent. The otherguarantee is the inflation adjusted return with a combinedconsumer price index (CPI) will be used as reference CPI with alag of three months. For example, the final combined CPI forSeptember 2014 will be used as reference CPI for whole ofDecember 2014.

When do you get interest?Interest will be accrued and compounded in the principal onhalf-yearly basis and paid along with principal at the time ofredemption.

What will you get on redemption?On redemption, investors will get principal and compoundedinterest.

LiquidityYes, the IINSS is liquid, despite the ten year duration of thebond, the liquidity is offered in the form of loans and prematureredemption. You can use these securities as collateral for loansfrom banks, financial Institutions and Non Banking FinancialCompanies, (NBFC). As per extant RBI’s guidelines, banks willbe free to decide interest rate on loans against these securities,subject to the condition that such interest rate is to be at baserate or above.

Exit OptionPremature redemption is allowed. For senior citizens above 65years, the premature redemption is allowed after one year. Forothers, it is allowed after three years. Penalty at the rate of halfof the last payable coupon will be charged from the investors.




For example, if last payable coupon is `1,000 then `500 will becharged as penalty.

In what form will be these securities?These securities will be issued in the form of Bonds LedgerAccount (BLA). The securities in the form of BLA will be issued



Fixed rate 1.5% per annumIssue/ Coupon/ Fixed Inflation Interest ratematurity date rate CPI rate* (Compounding rate) PrincipalI II III IV V=II+IV VI=VI*V

25-Dec-13 150 - - 5,00025-Jun-14 0.75 160 6.67 7.4 5,37125-Dec-14 0.75 166 3.75 4.5 5,61325-Jun-15 0.75 175 5.42 6.2 5,95925-Dec-15 0.75 185 5.71 6.5 6,34425-Jun-16 0.75 190 2.70 3.5 6,56325-Dec-16 0.75 200 5.26 6.0 6,95825-Jun-17 0.75 210 5.00 5.8 7,35825-Dec-17 0.75 218 3.81 4.6 7,69325-Jun-18 0.75 228 4.59 5.3 8,10425-Dec-18 0.75 235 3.07 3.8 8,41425-Jun-19 0.75 246 4.68 5.4 8,87025-Dec-19 0.75 255 3.66 4.4 9,26225-Jun-20 0.75 265 3.92 4.7 9,69425-Dec-20 0.75 280 5.66 6.4 10,31625-Jun-21 0.75 290 3.57 4.3 10,76125-Dec-21 0.75 305 5.17 5.9 11,39925-Jun-22 0.75 316 3.61 4.4 11,89525-Dec-22 0.75 330 4.43 5.2 12,51225-Jun-23 0.75 340 3.03 3.8 12,98525-Dec-23 0.75 355 4.41 5.2 13,655*Inflation rates are calculated on half yearly basis.




and held with RBI and thus, RBI will act as central depository.A certificate of holding will be issued to the holder of securitiesin BLA.

Do you need to open a BLA account with a bank for makingan investing?You do not need to open a BLA with any bank for makinginvestment. After receiving the money and registration of theinvestor on RBI’s CBS (E-Kuber), the RBI will open a BLA foreach investor and issue a ‘Certificate of Holding’ indicatingnumber of units of IINSS-C held by you.

How can you redeem the securities?In case of redeeming prematurely before the maturity date,investors can approach the concerned bank few days before thecoupon date and apply. In case of redemption on maturity, theinvestor will be advised one month before maturity regardingthe ensuing maturity of the bond advising them to provide aLetter of Acquaintance, confirming the NEFT account details,etc. If everything is in order, the investor has to be paidimmediately on the maturity date for payments throughelectronic mode and within maximum five days for anypayment through physical instruments.

Are the securities transferable?Yes. Transferability is allowed to the nominee(s) only forindividual investors on death of holder. Transferability is notallowed for other investors

Tax implicationsInterest income from IINSS-C is taxable. Existing taxationapplicable to Government of India securities issued as part ofthe market borrowing will be applicable to these securities.

Sub-section (iv) of the Section 193 of the Income Tax Act,1961 stipulates that no tax shall be deducted from any interest




payable on any security of the Central Government or a StateGovernment, provided that nothing contained in this clauseshall apply to the interest exceeding rupees ten thousandpayable on 8% Savings (Taxable) Bonds, 2003 during thefinancial year. As per the above Section, TDS shall not bededucted from any interest payable on IINSS-C, until andunless notified by the Government of India otherwise.

Where to invest?Investors can invest through the authorised banks and StockHolding Corporation of India (SHCIL). They will fill anapplication form and submit the same along with otherdocuments and payment to the bank. On receipt of money, thebank will register the investor on the RBI’s web-based platform(E-Kuber) and on validation, generate the Certificate of Holding.

The authorised banks are SBI & Associates, NationalisedBanks, HDFC Bank, ICICI Bank, and Axis Bank. You canapproach any of the authorised banks, including SHCIL forsuch investment irrespective of whether they hold an accountor not with that bank.

The banks through which these securities have beenpurchased will provide other customer services. You canapproach the banks for other services such as change ofaddress, early redemption, nomination, lien marking, etc.

When will you be issued the securities?You should be issued the securities after receiving clear money.After receiving clear money, banks should register the customeron CBS and generate Certificate of Holding.



Mutual Funds

“If you have trouble imagining a 20 per centloss in the stock market, you shouldn’t be instocks,” said John Bogle, founder of TheVanguard Group and a great believer inindex funds. Mutual funds are the way outfor anyone looking at gains from equityinvesting with limited sums to invest andyet get diversity with the investments.

17


Mutual funds combine the savings of a large number of investorsand manage it as a single pool of money. Instead of the investorsworrying about which stock or bond or commodity to invest in,professional fund managers do the job. Mutual funds are run bymutual fund companies, also known as Asset ManagementCompanies (AMC). Each AMC operates a number of fund schemethat suit different types of investment needs.

For individual investors who don’t have the time to study andresearch investments, mutual funds are the best option forreaping the benefits of diversified investments with minimumeffort. In most funds, it is possible to start investing with as littleas a few hundered rupees. Also, unlike many other investments,mutual fund investments are highly liquid and can be withdrawnwithout any delay.

Diversity of FundsThere are a wide variety of mutual funds with a wide range of risklevels, profit potential, and quality of fund management.

As you would expect, funds that invest in equity offer thehighest potential returns with the highest risk. At the otherextreme there are funds that invest in short-term bonds anddeposits which offer returns that are in the range of what bankdeposits offer with a high degree of safety. Moreover, there is awide diversity within the quality of funds. Which means, not allfunds have the ability to deliver what they promise and investorsalso have to keep an eye on the track-record of specific funds, thefund manager and asset management companies.

Benefits of Mutual FundsInstant and Easy Diversification: The basics of safe investing isto spread your money across different investments. Mutual fundsare an easy way to do this. Each fund spreads the money across alarge number of investments.Professional Research and Investment Management: There areliterally hundreds of companies to track and their prospects

Mutual Funds




Mutual Funds

Value Research makes it easyOne potential problem for the mutual fund investors can be the bewilderingchoice of funds available. This problem is easily solved by using ValueResearch’s publications and website. Value Research analyses every mutualfund in India and also rates them on a scale of 1- to 5-stars.

Moreover, Value Research’s analysts also maintain a list of roughly 50 fundscalled ‘Value Research Fund Analyst’s Choice’. The Value Research FundAnalyst’s Choice is a carefully chosen list of funds which have been classifiedaccording to common investing needs.

Once you have invested, you can use www.valueresearchnline.com to track yourinvestment portfolio through the most advanced portfolio manager that isavailable in India. Valueresearchnline.com and the portfolio manager arecompletely free for investors.

We also publish a monthly magazine, ‘Mutual Fund Insight’. Every issue hasnews, data, analysis and interviews of interest to mutual fund investors, as wellas a complete scorecard containing up-to-date information on every mutualfund.

Our annual ‘Mutual Fund Yearbook’ is a handy 200 page guide to investing inmutual funds. It contains detailed guide on learning to build a winning portfolio,tracking your portfolio, expert analysis and detailed data on more than 100hand-picked funds and performance data on every mutual fund in India.

Go to www.valueresearchonline.com to start with all these immediately.


could change without warning. Mutual funds employprofessional, whole-time investment managers and research staff.Their cost and effort gets shared ‘mutually’ among all theinvestors in a fund.Variety: There are mutual funds available for every kind of returnand risk level and suitable for every kind of time horizon. Nomatter what kind of investment you want, there’s likely to be avariety of funds that suit you.Convenience: You can easily make investments and withdrawany amount that you like. Investments can be made by filling upa simple form or by going online with direct debit from your bankaccount. Similarly, redemptions can be made directly into yourbank account, within three working days. If you go directly tobuy enough shares to have a diversified set, you will need a lot ofmoney. However, through a mutual fund, you can invest in adiversified set of stocks for far less.Tax Efficiency: When you buy or sell any investments, you haveto pay tax on the profit you make. However, this doesn’t happenwhen that buying and selling is done on your behalf by a mutualfund. To maximise profits, the fund manager could keep buyingand selling stocks as needed, but you have to pay tax only whenyou redeem your investments from the fund.Transparent, well-regulated Industry: Mutual funds areobligated by law to release comprehensive data about theiroperations and investments. Almost all funds release NAV dailyand most release their complete portfolio every month. SEBIregulates the fund industry very tightly and is constantly refiningthe applicable rules to protect investors better.Providing access to inaccessible assets: There are manyinvestments you can make only through a mutual fund:Government Securities: Individuals can’t buy government bonds,but they can buy funds that invest in such bonds. International Stocks: You can easily invest in global markets byinvesting in funds that reside in India, but invest in internationalmarkets.

Mutual Funds



Capital ProtectionMutual funds do not offer any capital protection in a legallyenforceable way. Mutual funds invest in market-linkedinvestments and losses are always possible. However, AMCs areallowed to run ‘Capital Protection Oriented Funds’. These fundsinvest in a high proportion of safe fixed-income securities and asmall proportion in equities. Investors who stay invested for afixed period of time are unlikely to suffer any capital loss.

Inflation ProtectionMutual funds do not offer any kind of a contractual or formalinflation protection. However, when you invest in well-chosenequity funds for a period of several years, your chances of beatinginflation are better than any other type of investment.

LiquidityAs per SEBI’s rules, all mutual funds must offer liquidity.However, the liquidity is of a different nature depending onwhether a fund is open-ended or closed-end. Open-end funds areperpetual funds that are always available for investment orredemption with the AMC. In the case of open-ended funds, theAMC itself will redeem the money at the NAV-based selling pricewithing three working days.

Closed-end funds are launched for a fixed period (generallythree to ten years) and you can invest in them only at the time ofthe initial offer. For closed-end funds, the AMCs get the fundlisted on a stock exchange so that you can sell your units like astock through a stock broker. However, this is not a great optionbecause the stock-exchange price of a fund is generally a lot lessthan the NAV. In practice, you should consider closed-end fundsto be locked in for their full duration.

Tax-saving funds have a three-year lock-in. These funds helpyou save tax as per Section 80C of the Income Tax Act but youcannot redeem for three years as per the tax law.

Mutual Funds



Mutual Funds


Credit RatingThere is no credit rating for mutual funds. However, if you needa simple-to-understand rating system that tells you how good orbad a fund is then Value Research’s Fund Rating System has beendoing that job for knowledgeable investors since early 1990s.

Value Research follows a range of parameters to evaluate thelong-term returns a fund has generated and the risks it has takenin doing so. The funds are then graded along five levels rangingfrom 1- to 5-star. This is a relative rating that is given incomparison to other funds of the same type.

Where and How to InvestYou can invest in mutual funds directly through the AMC orthrough an intermediary. Directly through the AMC: To invest directly through the AMC,you can get each AMC’s details through its website. Most AMCsalso have a toll-free phone helpline which can also be a goodstarting point if you do not use the internet.Intermediaries: There are a wide variety of intermediariesavailable. These include banks, some stock brokers and a largenumber of individuals and small financial advisory companies.All intermediaries have to be registered with the Association ofMutual Fund of India (AMFI), which also maintains a searchableonline directory at www.amfiindia.com. The website also has alist of intermediaries who have been suspended for somemalpractice. Investing in a fund involves going through a KYC (Know YourCustomer) process, much like other financial transactions. Youwill need the following documents for the KYC:

Individual investors will have to produce their proof ofidentity (Photo PAN card copy or PAN card copy and copy ofthe passport, driving license etc) and Proof of Address (anyvalid documents listed in Section B of the KYC Applicationform for individuals)

Direct Plan: From January 1, 2013, all AMCs have rolled out a


Mutual Funds


new plan under their existing fund schemes—the Direct Plan.These are targeted at investors who want to invest themselves,hence these have a lower expense ratio compared to existing fundschemes of the AMC.

This means that you, as an investor, will get an opportunity toearn a slightly higher return from your mutual fund despite thesame portfolio. The direct plans will not charge annual recurringcommissions, resulting in them having lower annual charges anda different (higher) NAV compared to the regular plans. Theexpense ratio on a direct plan could be anywhere between 0.30and 1 percentage point lower than the regular plans.

How to ExitIf you invest online or if you are registered for onlinetransactions, then you can seek online redemption and theproceeds will be deposited in your bank account. For offlineinvestors, there is a redemption slip that comes with youraccount statement. This has to be filled up, signed and depositedat the nearest ‘investor service centre’. The intermediary you haveinvested through will facilitate the process. In all cases,redemption proceeds come to your bank account.

SIP, SWP and STPThere are some special ‘systematic’ ways of investing andredeeming your money in mutual funds. They are enormouslyuseful in making you a more disciplined investor, as well asenhancing your returns.Systematic Investment Plan (SIP): An SIP is a regular investmentin a fund for a fixed sum at a fixed frequency. Generally, thefrequency is monthly. SIPs neatly solve two main problems thatprevent investors from getting the best possible returns frommutual funds. Firstly, since SIPs mean investing with a fixed sumregularly regardless of the NAV or market level, investorsautomatically buy more units when the markets are low. Thisresults in a lower average price, which translates to higher


Mutual Funds


returns. If you invest a large sum at one go, you could end upcatching a high point of the equity markets. This would meanthat you have invested at a high NAV and that would reduce yourgains if the market falls. An SIP is a good way to invest at anaverage price over a period.

Secondly, SIPs are also a great psychological help whileinvesting. Investors inevitably try to time the market. When themarket falls, they sell and they don’t invest any more. When itrises, they invest more. This is the opposite of what should bedone. An SIP puts an end to all this by automating the process ofinvesting regularly.Systematic Withdrawal Plan (SWP): SWPs are a regularredemption from a fund. There are a number of variations.Investors can either redeem a fixed amount, a fixed number ofunits or all returns above a certain base level. These provide aconvenient way for regular income from a fund investment. Systematic Transfer Plan (STP): An STP is a regular transfer fromone fund to another. It’s like an SIP but the source of the moneyis another fund. The most frequent use of an STP is when youhave a lump sum to invest in an equity fund. For reasons listedabove, it is always better to invest gradually through an SIP.Instead, you could put the lump sum in a debt fund of an AMCand simply give instructions to transfer a fixed amount into achosen equity fund every month. This is called STP.

LoadLoad is a small percentage of your investment that can bededucted by the AMC at the time of redemption. Loadpercentages can range from zero to 4 per cent. The actualpercentage (and whether it will be charged at all) depends on thetype of fund and the period of investments. Typically, there couldbe a load of 1 per cent if you redeem within a year of investmentand no load after that. Earlier, there could also be an entry loadthat was charged at the time of investment but in August 2009,this was abolished by SEBI.


Mutual Funds


TaxationInvestments in ELSS qualify for tax deductions under Section80C. Apart from this, other types of mutual funds have taxliability depending on the type of assets they invest in. Taxabilityof capital gains and dividend is detailed in the accompanyingtable. Tax implication is different for NRIs, especially whentreating TDS on short- and long-term capital gains.

* Securities transaction tax (STT) will be deducted on equity funds at the time of redemption/ switch to theother schemes/ sale of units.

** The Finance (No. 2) Bill, 2014 proposes that for the purpose of determining the tax payable, the amountof distributed income be increased to such amount as would, after reduction of tax from such increasedamount, be equal to the income distributed by the Mutual Fund. The proposed change is effective from 1October 2014.

Dividend

Tax on distributed income (payable by the scheme) rates**

Individual/HUF$ NRI$/#Domestic Company@

Tax Implications on Dividend received by Unit holders

Equity orientedschemes

Nil NilNil

Debt Orientedschemes

Nil NilNil

Equity orientedschemes*

Nil NilNil

Money marketand Liquidschemes

25% + 10%Surcharge + 3%Cess = 28.325%

25% + 10%Surcharge + 3%Cess = 28.325%

30% + 10%Surcharge + 3%Cess = 33.99%

Debt schemes(other thaninfrastructuredebt fund)

25% + 10%Surcharge + 3%Cess = 28.325%

25% + 10%Surcharge + 3%Cess = 28.325%

30% + 10%Surcharge + 3%Cess = 33.99%

InfrastructureDebt Fund

25% + 10%Surcharge + 3%Cess = 28.325%

5% + 10%Surcharge + 3%Cess = 5.665%

30% + 10%Surcharge + 3%Cess = 33.99%


Mutual Funds


Equity oriented schemes 15% Nil

Other than equity orientedschemes

30%^ Listed - 20%Unlisted - 10%^

Short term capital gains Long term capital gains

Tax Deducted at Source (Applicable only to NRI Investors)

$ Surcharge at 10% to be levied in case of individual/ HUF unit holders where their income exceeds `1 crore.@ Surcharge at 5% to be levied for domestic corporate unit holders where income exceeds `1 crore but lessthan 10 crores and at 10%, where income exceeds 10 crores.# Short term/ long term capital gain tax will be deducted at the time of redemption of units in case of NRIinvestors only.~ After providing indexation.^ Assuming the investor falls into highest tax bracket.Education Cess at 3% will continue to apply on tax plus surcharge.

Long TermCapital Gains

Nil NilNil

Short TermCapital Gains

15% 15%15%

Equity Oriented Schemes from April 1, 2014; Long Term Capital Gains (unitsheld for more than 12 months) and Short Term Capital Gains (units held for12 months or less)

Individual/HUF$ NRI$/#Domestic Company@

Capital Gains Taxation

Other than Equity Oriented Schemes from July 11, 2014 onwards Long TermCapital Gains (units held for more than 36 months) and Short Term CapitalGains (units held for less than 36 months)

Long TermCapital Gains

20%~ Listed - 20%Unlisted - 10%^

20%~

Short TermCapital Gains

30%^ 30%^30%^


Mutual Funds


Value Research Fund ClassificationThere are about 2,000 fund schemes in the market. ValueResearch divides this entire universe into 26 categories with theintention that enables a combination of these funds, when puttogether, to create a portfolio for every possible investor profile.

Of the 27 categories, 12 are pure equity categories, 6 arehybrids (equity and debt) and 8 are pure debt categories withthe last one being gold. For equity fund categories, the size(market capitalisation) of the companies that these funds investin is used, except the ELSS which consists of all funds that arecompliant with the section 80C of the Income Tax Act. Forhybrid fund categories, the categorisation is based on thebalance between debt and equity that a fund maintains. For debtfund categories, funds are slotted according to the residualmaturity of the securities they invest in. Across all these threecategories, the underlying principle is to slice the universealong a risk-return continuum.

This process serves two goals. First, readers can zero in onthe exact balance of risk and return that they are looking for;and second, funds can be compared with others that aregenuinely their peers without the comparison getting muddiedby whatever marketing positioning a fund might take. Theentire categorisation is based on the actual portfolios that thefund managers are running, and not their self-stated intentions.The actual portfolios that have been considered are thosespread over the last three years and the Value Research fundrating and both the fund Scorecard, rest on this fundclassification.


Mutual Funds


Equity FundsLarge-Cap: Funds with more than 80per cent of assets in large-capcompanies over the last three yearsLarge- and Mid-Cap: Funds withbetween 60 to 80 per cent of assetsin large-cap companies over the lastthree years Multi-Cap: Funds with between 40 to60 per cent of assets in large-capcompanies over the last three years Mid- and Small-Cap: Funds with atleast 60 per cent of assets in small-and mid-cap companies over the lastthree years Tax Planning: Funds which offer taxrebate under section 80C of theIncome Tax Act International: Funds with more than 65 per cent of assets invested abroad Sector FundsBanking sector funds: as perdeclared objectiveFMCG funds: as per declaredobjectiveInfrastructure sector funds: as perdeclared objectivePharma sector funds: as per declaredobjectiveTechnology, IT sector funds: as perdeclared objectiveMiscellaneous: Other funds, whichcannot be classified in any of theexisting categories and which do nothave the numbers to warrant aseparate category such as Birla SunLife Buy India, Reliance DiversifiedPower Sector Retial and TATA LifeSciences and Technology amongstothers.

Debt FundsIncome: Fundswhich can vary theiraverage maturitywidely, as per theirdeclared objective Gilt: Medium- andLong-term: Fundswhich invest in giltsecurities and canvary their averagematurity widely, asper their declaredobjective Short-Term: Fundswhose averagematurity over thelast 6 months isbetween 1 year and4.5 years Gilt: Short-Term:Funds which investin gilt securities withaverage maturity ofover the last 6months is between 1 and 4.5 years Ultra Short-Term:Funds whoseaverage maturityover the last 6months is less than1 year, but which arenot liquid funds Liquid: Funds whichdo not invest anypart of assets insecurities with aresidual maturity ofmore than 91 days FMPs: tenure fixedby the issuer

Hybrid FundsEquity-oriented: Hybridfunds whose averageequity exposure overthe last one year isgreater than 60 percent Debt-orientedAggressive: Hybridfunds whose averageequity exposure overthe last one year isbetween 25 and 60 per cent Debt-orientedConservative: Hybridfunds whose equityexposure over the lastone year is less than25 per cent Arbitrage: Funds whichseek returns fromarbitrage opportunitiesbetween equity andderivatives, and investin debt when noarbitrage is possible Asset Allocation:Funds which may investfully in equity or debtdepending on themarket conditions Miscellaneous: Otherfunds, which cannot beclassified in any of theexisting categories andwhich do not have thenumbers to warrant aseparate category suchas Axis TripleAdvantage, PeerlessMF Child and FidelityIndia Children’sMarriage amongstothers


Mutual Funds


TIPS AND STRATEGIES Invest systematically and regularly in mutual fundsthrough SIPs to make the most of long-term investingand the power of equityThere are several strategies adopted by investorsdepending on their risk appetite, requirements andunderstanding of mutual funds. One can find thesestrategies and investing style in several books and ourwebsite (www.valueresearchonline.com)



Stocks andEquity

Warren Buffett said; “Price is what you pay.Value is what you get.” Long-term stockinvesting is described no better by anyone.Equity is the asset class with inflationbeating potential and wealth creation in the long run.

18


A stock is an actual share in the ownership of a business. If youbuy a hundred shares of a company whose ownership isdivided into 1 crore shares, then you are owner of 1/1 lakh partof the company. Such a share is tiny, so you don’t have any sayin how the company is run, but you can gain financially fromyour ownership.

Investment Objectives and RisksThere are two ways to gain from your ownership of shares:Capital Gains: Profit made by selling a share at a higher pricethan you bought it.Dividend: Part of the company’s profit that is distributed by thecompany.

Most investors have capital gains as their primary goal withthe dividend playing only a supporting role. Stocks have thehighest risk and the potential to earn the highest returns fromall the investment products featured in this book. Most of theother chapters in this book contain all the information that youmay need to invest in them. That is not true for stocks. Stockinvesting is complex and what you read here is certainly notenough for you to start investing in stocks.

Stocks or Mutual Funds?For most investors, investing in equity mutual funds is a betteralternative to get the gains of stock investing with lower riskand less hard work. Unless you are prepared to devoteconsiderable time, money and energy to becoming an expertstock investor, you should consider equity mutual funds forsuperior gains with much less pain.

Investing vs TradingStock investing encompasses two very different kinds ofactivity. One consists of identifying fundamentally soundcompanies and investing in them for a relatively long-term. Theother consists of identifying trends in stock prices and trading

Stocks and Equity



Stocks and Equity


in them for short periods of time in the hope of turning a largeand quick profit. The period may be as short as a few days oreven hours. The first is investing and the second is trading orspeculation. Trading is a high-involvement activity thatgenerally carries a high-risk. It’s not really suitable as a savingsmedium.

Capital ProtectionThere is no capital protection when investing in stocks.

Inflation ProtectionThere is no guaranteed inflation protection with stockinvesting. However, over the long-term stocks are capable ofbeating inflation better than any other investment product.

GuaranteesThere are no guarantees in stock investments.

LiquidityGenerally speaking, stocks are extremely liquid investments.There’s no lock-in of any kind. You can sell your investment atany time and realise your money within three days or less.However, the ability to sell your stocks depends on someoneelse willing to buy them. This is never a problem for the two tothree hundred largest companies. However, for smallercompanies, it can take time to actually be able to sell.

Credit RatingThere is no official rating system for stocks.

Where and How to InvestAll stock trading must be routed through a stockbroker. Theactual trading is done through a stock exchange of which thestock-broker is a member. For all practical purposes, there areonly two stock exchanges in India, BSE (Bombay Stock


Stocks and Equity


Exchange), and the NSE (National Stock Exchange). Both havecomputerised systems and all trading is computerised.

One basic prerequisite for trading in stocks is to have adepository account. This is like a bank account which, insteadof money, holds your shares. The provenance of yourownership and transactions of shares is not any physicalcertificate but the records maintained by the depository. Thereare two depositories in India, National Securities DepositoryLimited (NSDL) and Central Depository Services Limited(CDSL). Your stock broker will facilitate the setting up of yourdepository account.

Opening an account with a depository involves goingthrough a KYC (Know Your Customer) process, much like otherfinancial transactions. You will need the following documentsfor the KYC:

Individual investors will have to produce their proof ofidentity (Photo PAN card copy or PAN card copy and copy ofthe passport, driving license etc) and proof of address (anyvalid documents listed in section B of the KYC Applicationform for Individuals)

How to ExitSelling a stock is also a transaction to be executed through yourstockbroker. After your stock is sold, you will get the moneycredited to your bank account a day after the transaction.

Choosing a StockbrokerChoosing a stockbroker is an important decision. Stockbrokersrange from large online services like ICICIdirect.com,Edelweiss.in and HDFC securities to smaller outfits that servecustomers in a more personalised manner. For a small investor, anonline service might make more sense. Besides carrying out theactual transaction, a stockbroker’s major function is to give youinvestment advice. However, the quality of this advice tends to behighly variable and it is for you to judge that for yourself.


Stocks and Equity


TaxationDividends earned from the stocks you earn are not taxed Capital gains are taxed at 15 per cent if you sell a stock afterholding it for less than a year. There is no tax if you sell aninvestment after holding it for more than a yearA 0.1 per cent tax is imposed on the value of each stock incase of delivery of the transaction (whether buying orselling). This is called the Securities Transaction Tax (STT).In case of intraday transactions, 0.025 per cent tax is chargedon selling the stocks, whereas there is no STT on intradaypurchase. However, you don’t have to get involved in payingthe STT, as it is deducted by the stockbroker and paid to thegovernment through the stock exchange



NationalPensionSystem

Someone with a good pension planexclaimed, “Goodbye tension, hellopension!” This of course, will be possibleonly when one plans well for retirement andstarts saving early to have no tensions laterin life.

19


National Pension System


As per the latest government directive, all employees will nowneed to choose between the Employees’ Provident FundOrganisation (EPFO) and the National Pension System (NPS).The NPS is a Government of India initiative to extend pensionbenefits to all Indian citizens. The NPS is by far the leastcomplicated, simplest and the lowest cost pension system.

Capital Protection As the scheme is regulated by the Government of India, it is oneof the most safe investment options with complete capitalprotection.

Inflation ProtectionThe NPS is a market-linked product which does not guaranteereturns or inflation protection.

GuaranteesThere are no guaranteed returns in the NPS.

Liquidity An investor can withdraw up to 25 per cent of the contributionfor purposes like higher education and marriage of children,purchase/construction of own house or treatment of illness of

Investment Objective and RisksThe main objective of the NPS is to offer tax deductions oninvestments up to `1.5 lakh under Section 80C and `50,000under Section 80CCD in a financial year, and instill thediscipline to save and invest towards old-age pension. The NPSis a defined contribution scheme regulated by the Pension FundRegulatory and Development Authority (PFRDA) where theinvestment is to be maintained until maturity or retirement. Onretirement, a part of the corpus will be allowed to be withdrawnas lump sum, and the balance will be mandatorily paid out aspension annuity.




Features

ELIGIBILITYResident IIndian

ENTRY AGEBetween 118 aand 660 yyears oon tthe ddate oof aapplication

ACCOUNT OPENING FEEOne-ttime aaccount oopening ccost aand iissuance oof PPRAN: `50Initial ssubscriber rregistration aand ccontribution uupload: `100 Future ffixed uupfront ccharges: `20Annual mmaintenance ccharges: `190Each ttransaction oor ddeposit: `4Annual ccustodian ccharge: 00.0075-00.05 pper ccent oof tthe ffund vvalueAnnual ffund mmanagement ccharge: 00.1 pper ccent oof tthe ffund vvalueInitial ccontribution uupload oor aany ssubsequent ttransaction iinvolving ccontributionupload wwill bbe 00.25 pper ccent oof tthe iinitial ccontribution oor tthe ssubscribedamount, ssubject tto aa mminimum oof `20 oor aa mmaximum oof `25,000

MINIMUM INVESTMENTInitial ccontribution aalong wwith tthe ssubscription aapplication iis `1,000Minimum aamount tto bbe ddeposited aannually iis `6,000

INTEREST Not gguaranteed

ACCOUNT HOLDING CATEGORIESIndividualNon-rresident IIndian ccan bbe aa mmember iif KKYC ccompliant aand bbetween aage 118 aand60 yyears





self or spouse, only after completing at least ten years. Themaximum number of withdrawals allowed are three, with aminimum difference of five years between two consecutivewithdrawals.

In the case of untimely death of the subscriber beforeretirement, the nominee(s)/legal heir(s) can claim the corpusamount. For government subscribers, 80 per cent of NPS corpuswill have to be used to buy annuity while the remaining 20 percent can be claimed as a lump sum. For individual/ corporatesubscribers, the entire corpus can be claimed as a lump sum.

Credit Rating There is no credit rating on the NPS funds.

Exit Option Tier-I: If you retire before 60, you can withdraw 20 per cent ofyour savings as a lump sum and use the remaining 80 per centin your Tier-I account to purchase the annuity.

If you retire at 60 years, you will be required to investminimum 40 per cent of accumulated savings towards life

annuity. The remaining amount can be withdrawn in lumpsumor spread over a period between age 60 and 70 years.

Tier-II: In this voluntary account, you will be free to withdrawyour savings from this account as per your wish.

Other RisksThere are no guarantees on investment as the NPS is a defined

Value of your investments in NPS may go up or down dependingupon the forces and the factors affecting financial markets ingeneral.Tax laws may change, affecting the return on investment (ROI).




Tier I

Registration Registration through the pen-sion accounting office (PAO) forGovernment subscribers andthrough POP service provider(POP-SP) for all other sub-scribers.

Tier II

Registration only throughPOP-SP for Governmentas well as all other sub-scribers. PRAN card to actas KYC, no separate documentation required.

The NPS in a Snapshot

Contribution Government SubscriberMandatory contributionthrough PAO or the chequedrawing and disbursementoffice (CDDO) forGovernment subscribers(10% of Basic +DA permonth by the subscriberand the government).

Other subscribers (all citizenexcept those mandatorily cov-ered by NPS)

At least one annual contri-bution and `500 per contri-butionMinimum `6,000 annual contribution

Voluntary contributionthrough POP or POP-SP for Government aswell as other sub-scribersMinimum `1,000 atthe time of accountopeningMinimum `250 per contributionMinimum balance of `2,000 at the end ofeach financial year

SchemePreference

Unorganised sector subscribers3 asset classes and 7 PFMsAvailability of auto choiceGovernment subscribersDefault Scheme under Tier I3 PFMs

All subscriber shall haveChoice of seven PFMsand three assetsclasses (E,C,G)Availability of autochoice

Bank Account Non Mandatory Mandatory

Withdrawals No withdrawals allowed duringvesting period except as per thenorms prescribed by PFRDA

No limit on withdrawals




contribution plan and thebenefits would depend on theperformance of the investmentup to the point of exit from theNPS.

Tax ImplicationsTax deduction on investmentsup to `1.5 lakh (under Section80C) and `50,000 (under Section80CCD) can be availed in afinancial year. However, as perthe current law, the amountreceived at the end from theNPS would be taxable.

Where to Open the AccountYou can open an NPS accountwith Allahabad Bank, AxisBank, Bajaj Allianz GeneralInsurance, Bank of Maharashtra, Central Bank of India, Citibank,Computer Age ManagementServices (CAMS), ICICI Bank,IDBI Bank, IL&FS Securities Services, Kotak Mahindra Bank,LIC of India, Oriental Bank of Commerce, Reliance Capital,State Bank of Bikaner & Jaipur, State Bank of Hyderabad, StateBank of India, State Bank of Indore, State Bank of Mysore, StateBank of Patiala, State Bank of Travancore, The South IndianBank, Union Bank of India, UTI AMC and Post Offices.

How to open an accountVisit a point of presence (PoP), fill up the prescribed formwith the required documents which includes KYCcompliance

GOING ONLINE Opening an online NPSaccount is easy if you alreadyhave an online account withinstitutions where the NPShas a point of presence(PoP). All you need is to loginto your existing accountwith these institutions andopen an NPS account withoutany additionaldocumentation. For example,ICICIdirect.com andFundsIndia.com offer NPSonline. You need to completethe paperwork which isallowed part online and partoffline. As ICICIdirect is adesignated PoP; it does notcharge any additional feewhen maintaining the NPSaccount; however, withFundsIndia one pays aservice charge of `4 for everytransaction through them.




Once registered, the Central Record Keeping Agency (CRA)will send you a Permanent Retirement Account Number(PRAN) unique to every personSelect the amount you wish to invest and the investment option

If you are not KYC compliant you will need:2 copies of identity proof2 copies of address proofProof for date of birthSelf declaration indicating not a pre-existing member of NPSColoured passport size photographECS signed by the banker if you plan to initiate one

Account StatementYou get a welcome kit when you subscribe to the NPSAn account number with statements detailing transactions

Points to PonderLong lock-inTaxability: The contributions get tax benefit under Section80C & 80CCD. However, at the time of withdrawal, the lumpsum would be taxable as per the individual’s tax slabIt is a case of EET (exempt on contributions made, exempt onaccumulation, taxed on maturity) unlike EPF and PPF whichare EEE (exempt, exempt, exempt at all stages)Comparison to mutual funds – since the NPS is meant forretirement and financial security, it does not permit flexiblewithdrawals as are possible in the case of mutual funds

NPS for Government EmployeesAll new government employees (Central and State) who joined theservices after January 1, 2004, will no longer have generalprovident fund (GPF) accounts and NPS account will bemandatory for them. NPS will work on defined contribution basisand will have two parts-Tier I and Tier II. Government employees




can exit after age of 60 years from Tier I scheme and it will bemandatory for them to invest 40 per cent of pension amount topurchase an annuity through a life insurance company. In case amember wants to leave NPS before age of 60, the mandatoryannuity will be 80 per cent of the pension amount.

Tier I: Mandatory no withdrawal pension account – monthlycontribution will be 10 per cent of basic salary and equalamount will be deposited by the government. This amountwill be kept in a non-withdrawal Pension Tier I account.Tier II: Voluntary withdrawal savings account – it will bevoluntary Tier II withdrawal account from which individualscan withdraw money anytime. There will be no contributionfrom the Government in this account.

List of Pension Fund Managers (PFMs)HDFC Pension Management CompanyICICI Prudential Life Insurance CompanyKotak Mahindra Asset Management CompanyLIC Pension FundReliance Capital Asset Management CompanySBI Pension Funds UTI Retirement Solutions

Investment Options and Structure Structure-wise they are very similar to unit linked investmentplan (ULIP) or unit-linked pension plan (ULPP). There will bedifferent kind of funds options with different exposure to:

Equity instruments Corporate debtFixed income instrumentsGovernment securities

Investment OptionsRisky option: The higher allocation in this option will be inequity. To decrease the risk, equity investment is allowed




only in index funds which track Sensex or Nifty with theequity exposure is capped at 50 per cent Moderate: In this option most of the exposure would be tocorporate debt and fixed income securities with someexposure in equity and govt securities. It will be moderatelyrisky and rewardingSafe: In this option the investment will be done ingovernment securities, with very little investment in equitiesDefault option: Allocation will be decided on your age, withhigh equity allocation when you are young, which reduce asyour age increases. You can also decide your asset allocationas per your risk appetite

Moreover, individual will also have choice to choose from 3different asset classes: equity (E type), Govt securities (G Type)and Credit risk-bearing debt or fixed income based investments(C Type).Active Choice investment: Investor can mix E, C and G typeoptions as per their choice proportionately.

Auto Choice investment: This is auto choice life cycle fundand the investment allocation will be done based ofinvestor’s age. In this scheme, equity portion (Asset class E)will be 50 per cent till age 35 after which it will reduce 2 percent per year until it becomes 10 per cent by age 55. Creditrisk portion (Asset class C) will be 30 per cent till age 35 afterwhich it will reduce 1 per cent per year until it becomes 10per cent by age 55Investor will have the option of investing monthly orquarterly, but minimum one investment in a year iscompulsoryAs per the notification by PFRDA, currently only half of theinvestment can go into equities, even if investor chooses theequity type funds. This limit will only be reviewed after ayearThere will be regular account statements to keep informationtransparent




Atal Pension YojanaIntroductionThe Atal Pension Yojana (APY) is a pension-oriented savingsscheme focused on all citizens, in the unorganised sector, whojoin the National Pension System (NPS) and who are notmembers of any statutory social security scheme. Under thisscheme, the central government will co-contribute 50 per centof the subscriber’s contribution or `1,000 per annum,whichever is lower, to each eligible subscriber account for aperiod of five years – from 2015–16 to 2019–20. The subscribermust join the NPS before December 31, 2015, and must not bean income taxpayer.

Investment Objective and RisksThe main objective of the Atal Pension Yojana is to provide afixed amount of pension to unorganised sector workers whofind no coverage under other social security schemes.

Entry AgeThe minimum age of joining the APY is 18 years and themaximum age is 40 years.

GuaranteesUnder the APY, subscribers will receive a fixed pension of`1,000, `2,000, `3,000, `4,000 or `5,000 per month at the age of60 years, depending on their contributions, which will dependon the age of entering into the scheme.

Tax ImplicationsThe scheme is meant for people who are not income taxpayers.

Where to Open the AccountAll points of presence (service providers) and aggregators under




the Swavalamban Scheme will enrol subscribers through thearchitecture of the National Pension System.

How to Open the AccountThe subscriber needs to have a bank account and an Aadharcard. The Aadhar card needs to be linked to the bank account.The application form has to be filled and submitted before June1st of every year. The premium will be paid by auto-debit fromthe bank account.

TIPS AND STRATEGIES Use the switch option available between funds andfund managersTrack the performance of fund managers to allocateinvestments to the one who has the best performanceas fund management costs are fixed



Unit LinkedInsurancePlan (ULIP)

Adam Smith said, “All money is a matter ofbelief.” He could have said the same forUlips, which for some people is insurance,while for some it is investment. The debatenever seems to end.

20


Ulips might have caught your fancy for all the noise aroundthem over the past few years. These are hybrid products thatmix life insurance and investments. Like any other lifeinsurance product, these offer life cover along with investment.However, it is left to the policyholder to make the investmentchoice from the available fund option, thereby transferring therisk of investment to the policyholder. Though these policiescan be more profitable than a traditional insurance policy; theyalso have a higher risk.

Capital Protection The sum assured in a life insurance policy is guaranteed as perthe terms of the policy as long as the premiums are paid and thepolicy is in force.

Inflation ProtectionLife insurance is not inflation protected because insurance is afixed cover, fixed tenure product, wherein the sum assured isfixed. However, the equity fund option has all the potential tobeat inflation and create wealth over the long-term. But it doesnot guarantee inflation beating returns.

GuaranteesThe sum assured is guaranteed and the premium is fixed for thetenure of the policy. There are a few with profit policies thatguarantee a minimum return, which varies across insurers andpolicies.

Unit Linked Insurance Plan (ULIP)


Investment Objective and RisksThe main objective of these policies is to combine risk coverand investments. The choice of fund options available can beused as per one’s risk profile to make the most of investmentswith a fixed insurance cover.




Traditional Plan

InvestmentObjective

Tilted towards savingsRate of return may ormay not match inflationWorks towards capitalprotection

Ulips

Tilted towards investmentUnderlying investmentobjective is to outpaceinflationWorks towards wealthcreation

How Ulips differ from traditional life insurance plans

Risk andReturn

Low risk and returnSame investment decision is taken bythe insurer for all policyholders

Risk and return are linkedto the selected fundoption Choice of fund optionenables policyholders toselect a fund that fitstheir risk profile

Transparency Investments are less trans-parent

Complete transparency withinvestments and costs

Charges In-built and not shared Clearly defined charges undervarious heads

Liquidity Depending on the policytype, the only element ofliquidity is through loanssubject to conditions

Offers financial liquidityagainst the policy after thelock-in period depending onthe market value of the fund

Flexibility Fixed sum assured and pre-mium

There is scope to enhancecover on additional premiumpayment

Death benefit(Sum assured)

Fixed Option between fixed, higherof the sum assured and fundvalue or death benefit alongwith fund value offered


LiquidityUlips are liquid only after the lock-in period of five years,which, with changes in the budget, technically goes up to tenyears. This is achieved by redeeming units in which thepremiums are invested in. One can also make prematurewithdrawal or surrender the policy at a loss.

Credit Rating Life insurance policies do not have any credit ratings.

Exit Option One can surrender or terminate the policy at a financial loss.

Other RisksThe risk of premiums going down after you have bought apolicy exists and so does the risk of premiums going up. Thereis also the risk of new policies emerging that suit your financialrequirements better.



The insurer will credit and refund the proceeds of the discontinuedpolicy to the policyholder only on completion of the lock-in period .The proceeds of the discontinued policy for the purpose of refundto the policyholder shall mean the fund value on the date ofdiscontinuance plus interest computed at a minimum rate of 3.5per cent per annum.

Loans are available against the policy depending on the policytype, the years it has been in force, its sum assured or the fundvalue at the time of seeking loan.The maximum loan amount that can be approved by insurers shallnot exceed 40 per cent of the net asset value in case the Ulip fundis predominantly equity-oriented.The maximum loan amount that can be approved by insurers shallnot exceed 50 per cent of the net asset value in case the Ulip fundis predominantly debt-oriented.




Tax ImplicationsPremiums paid towards the life policy qualify for tax deductionsunder Section 80C with a limit of ̀ 1.5 lakh in a financial year onlyif the life cover is ten times the annual premium.

When Buying the PolicyUnlike traditional plans where a sum assured decides thepremium, Ulips work the other way around wherein thepremium that one pays dictates the extent of cover that isoffered. As policies can be of regular premiums or a one-timesingle premium, the sum assured varies accordingly.

At the time of Ulip sales, the benefit illustration irrespectiveof the fund schemes that the policyholder selects is based on 6per cent and 10 per cent return. The policy types are similar totraditional forms such as endowment, whole life and term.

The commission that agents or brokers receive has to bedisclosed as part of the benefit illustrationThe net yield indicated should include all policy relatedcharges for mortality, morbidity, riders and any investmentguarantees

Points to PonderFive-year lock-in period, including top up premiumsAny additional premiums or top-ups will be treated as asingle premium with an appropriate sum assuredThe grace period for payment of premium for all Ulips isfixed as 15 days from the due dateOverall charges in Ulips will be evenly distributed during thelock-in period

If the premium paid exceeds 10 per cent of the sum assured of thelife insurance policy, the tax deduction under Section 80C will beavailable only up to 10 per cent of the sum assured.The proceeds from the maturity or claims on a life insurance policyare exempt under Section 10(10D).




Life or health cover could be offered along with the pensionor annuity products as ridersIn case of pension policies, no partial withdrawal is allowedduring the accumulation phase. The policyholder will havethe option to commute up to a maximum of one third of theaccumulated value as lump sum at the time of vestingIn the case of surrender of pension policies, only a maximumof one third of the surrender value can be commuted after thelock-in period, with the remaining amount mandatorilyutilised to purchase an annuity contract

Types of UlipsThere are broadly three types of Ulips that are based on thebenefits they offer and are classified as Type I, Type II andPension Ulips (ULPPs).

Type I Ulip: In this plan, on death of the policyholder, thepolicy pays the higher of the sum assured or the unit value ofthe investment to nominees Type II Ulip: In these plans on death of the policyholder thepolicy pays out both the sum assured and the net asset valueof the fund the policyholder invested in to nominees.Premiums on such plans are higher than those on Type IUlips and as investments come at a high level of risk, youshouldn’t abandon your policy in the early yearsPension Ulips: This type of Ulip combines life insurance andretirement income. The part of this insurance that relates tolife coverage is similar to Types I and II: Upon death, theinsurer pays the nominees the death benefit; if you live toretirement age, this pension plan pay back the premiums andaccrued returns to you in full to buy an annuity

All Ulip-oriented pension plans currently guarantee positive returns,without fixing a minimum return as specified by IRDA (InsuranceRegulatory and Development Authority) from time to time, payable onthe maturity date.




Caps on Surrender chargesIRDA has stipulated the maximum difference between grossand net yields at maturity based on the policy term as tabulated.Further, the insurance regulator stipulates a cap on thesurrender charges that insurers can levy on discontinuedpolicies.

Entry Age (years) Less than 45

Single premium 125% of Single Premium

Greater than or equal to 45

110% of Single Premium

Minimum Sum Assured

Regular and limited Premium

Maximum of 10 X annualised premium

ORPolicy term X 0.5 X

annualised premium

Maximum of 7 Xannualised premium

ORPolicy term X 0.25 Xannualised premium

Entry Age (years) Less than 45 Greater than or equal to 45

Minimum Health Cover

Regular and limitedPremium

Maximum of 5 X annualised premium

OR`1 lakh per annum

Maximum of 5 Xannualised premium

OR`75,000 per annum

Death Benefit can not be less than 105 per cent of the total premium paid at any time

Policy Term Maximum permitted difference between grossand net yields at maturity

Less than or equal to 10 years 3 per cent (excluding mortality charge)

Greater than 10 years 2.25 per cent (excluding mortality charge)

Maturity Yield

Maximum fund mgmt. charge 1.35 per cent

Death Benefit Cannot be less than 105 per cent of the total premium paid at any time




TIPS AND STRATEGIES Use the free fund switch option between equity anddebt funds to maximise returnsBe exposed highly to equity in the initial years andtaper towards debt as the policy maturity yearapproachesBuy policies online to cut on intermediary costs andsave on premiums without compromising on extent ofcoverUse riders to enhance the scope of cover

Policy year ofdiscontinuance

Annual premium less than orequal to `25,000

1 20% X Minimum of FV andAP (subject to a maximumof `3,000)

Annual premium greater than`25,000

6% X Minimum of FV and AP(subject to a maximum of`6,000)

Surrender Charges





4 5% X Minimum of FV and AP(subject to a maximum of`1,000)


5 onwards NIL NIL

AP - Annual Premium, FV - Fund Value at discontinuance



HealthInsurance

Someone said, “Without health life is notlife; it is only a state of languor andsuffering; an image of death.” While wewould not argue on that count, risinghealthcare costs and growing lifestylediseases have necessitated the need forhealth insurance as a vital financial tool to address healthcare needs.

21


Health insurance works as a financial protection tool againstmedical expenses. It is an insurance which usually provideseither direct payment or reimbursement for expenses associatedwith illness, injuries and hospitalisation as detailed in the scopeof the policy cover.

The cost and range of protection provided by the healthinsurance policy depends on the insurer and the policy typepurchased by you. Some policies also cover pre- andpost-hospitalisation expenses.

Capital ProtectionThe sum assured in a health insurance policy is guaranteed asper the terms of the policy as long as the premiums are paidregularly and the policy is in force.

Inflation ProtectionHealth insurance is not inflation protected, which meanswhenever insurance needs increase or cost of healthcare goesup, one needs to buy additional cover. Some policies do providethe facility to add cover with time, which can address inflationat an additional cost.

GuaranteesThe sum assured is guaranteed and the premium is fixed for thepolicy tenure.

Health Insurance


Investment Objective and RisksThe main objective of a health insurance policy is to protectagainst healthcare risks that one is exposed to. The policyprovides reimbursement or payments towards healthcare costsincurred by the policyholder in the event of poor health andhospitalisation as mentioned in the policy document.



Health Insurance

Features

ELIGIBILITYAny aadult

ENTRY AGEStarting aage iis 118 wwhich ggoes uup tto 660 iin mmost ccases, bbut ddepends oon tthe ppolicytype aand iinsurerYoung ddependents ccan bbe aadded tto ppolicies ttaken bby aadults

MAXIMUM AGE TILL WHICH COVER IS OFFERED75 yyears iin mmost ccasesSome ppolicies ooffer ccover ffor llife

POLICY TENUREIt iis aan aannual rrenewal ppolicy iin ccase oof mmost ppolicies aacross iinsurers

PREMIUMDepends oon iinsured’s aage aand sstate oof hhealthDepends oon ppolicy ttype aand ssum aassured

SUM ASSURED Depends oon ppolicy ttypeDepends oon ppolicy ttenure

OTHER ASPECTS Premium ffrequency iis aannualGrace pperiod iin ppremium ppayment

POLICY HOLDINGIndividual, FFamily aand GGroup

NOMINATIONNot aavailable


Health Insurance


Insurance type What it offers

Death

Accident cover

Lump sum payment in caseof death due to accident.

Permanenttotal disability

Lump sum payment in caseof loss of limbs resulting inpermanent total disability.

Permanentpartialdisability

Lump sum payment in caseof permanent partial dis-ability, for instance partialvision or hearing loss.

Temporary totaldisability

Lump sum payment in caseof temporary total disabilityarising from an accident; forinstance fractured leg.

Individualhealth plan

These are traditionalhealthcare plans modelledon the old mediclaim typepolicies offered by the PSUinsurers. Typically, thebenefits include room, boardand other hospital servicessuch as x-ray, lab expensesand operating room use. Thecover extends to pre- andpost-hospitalisationexpenses on medication anddiagnostics, subject to limitsand conditions in the policy.

Acts as the base of yourhealth insurance portfolioand is a must even if it isprovided by an employer.

Familyfloater plans

An extension of the individ-ual plan, these cover a familyby spreading the risk acrossthe members. For instance, a

For those who can notafford individual plans forthe entire family; a floater isa good start. It is also good

Comment/Suited for

Anyone who is mostlytravelling by publictransport, and is in a jobwhere accident risks arehigh (construction sites,manufacturing setups etc).

Health Insurance Variants


Health Insurance


Insurance Type What it offers

Seniorcitizenhealth plan

Most individual health plansare capped at 60 years;these are plans for senior citizens and come with alower value of cover

Those who are senior citizens and looking for abasic health cover.

Familyfloater plans

`2 lakh cover is spreadacross four family members;two adults and two children.

for those who have a coverfrom their employer toaugment it.

Groupshealth plans

Employer backed. Is goodas long as you stay with theemployer. Do not justdepend on this cover.

Comment/Suited for

Hospitalisat-ion cash

Pays a fixed sum for each dayspent in hospital, totallyindependent of the roomrental and treatment costs onmedication.

Should supplement a healthplan. And can be useful to provide for income losswhen hospitalised. Take abasic cover.

Critical illness plan

Typically offered by life insur-ers, long-term critical healthlists a host of high-cost, low-incidence critical health con-ditions such as cancer, strokeor kidney failure that it coversfor 20-year tenures.

Should be added only aftera basic health plan,especially if there is a familyhistory of critical ailment orlifestyle that is likely to leadinto one.

Riders withlife insurance(These areaccident benefit,critical illness ordisease, hospitalcash, waiver ofpremium)

These are defined benefitplans with fixed pay out anddoes not compensate for thecause.

Their merits are few; buttake them if you are yet totake an individual plan.Waiver of premium is useful;as it waives future premiumson the life cover if youencounter any of theconditions it covers.

The table illustrates the benefits of each plan and what one can gain from it. Atbest, it should act as a reference point to choose and prioritise insurance plans.

For employees inorganisations, comes withcertain additional benefitsthat individual plans do notoffer; for instance,pregnancy cover.


PortabilityThe health insurance policies are portable, which means onecan move from one insurer to another by transferring theirexisting policies to a new insurer. Portability also enablestransfer of the credit gained bythe policyholder for pre-existingconditions and time boundexclusion if the policyholderchooses to switch from oneinsurer to another or from oneplan to another plan of the sameinsurer, provided the previouspolicy has been maintainedwithout any break.

The policy holder has toinform the new insurer aboutthe time regarding the choiceof switchingInsurer should be informed45 days before the existingpolicy’s renewalIf the request for theportability is made after 45days, the insurer may rejectthe request

Health Insurance


The facility of pledging health insurance policy to obtain loans isnot permitted as it defeats the purpose of insurance.The only premature exit is to surrender the policy in the free lookperiod at no loss or exit during the term of the product at a loss.Depending on when the policy is being foreclosed a portion of theannual premium is repaid on a pro rata basis.

GOING ONLINE Buying online healthinsurance is a much happybuying process. But it isnot completely online.There is need for offlineintervention such asverification, signatures,proof of income and healthchecks if necessary. You can start by accessingcompany or third partywebsites that featurepolicies from severalinsurers. This helps incomparing productfeatures and price.Moreover, certain policiesare differentially priced foronline sales and availableat a significant discountcompared to buyingthrough a company agent.


Health Insurance


Other RisksPremium rates may go up or down on renewal. The scope ofpolicy cover can also change depending on the insurer, becausehealth insurance is most often an annual contract.

Tax Benefits Premiums paid towards health insurance are tax deductibleunder Section 80(D) of Income Tax Act

Premium of the assessee or family not exceeding `25,000 isdeductible and also includes payment on account ofpreventive health check-up subject to a cap of `5,000.Premium paid on the health of parent or parents of theassessee up to `25,000 in deductibleFor senior citizens the limit of deduction is `30,000 onpremiums paid

Where to Buy?Policy can be bought from individual health insurance agents,banks, insurance brokers or on the internet.

How to buyOnce you have evaluated the amount of insurance you need andthe insurer offering the policy, you need to fill the proposal formprovided by the insurer and will need to provide for:

You will need documents to prove your date of birth andidentity proof such as a copy of driving license or voter’s cardYou may have to undergo medical tests depending on yourage or the cover that you seek

How to manage the policy? Premium payments can be made by cash or chequeA policy certificate with details including your name,premium, policy tenure, terms and conditions are listedPremium receipts confirming payment is issued on premiumpayment


Health Insurance


Points to PonderFree look period to return the policy which varies from 15days to a month depending on the insurerHospital networks covered under the policyProvisions to make late premium payments with penaltiesCosts and charges on facilities offered to policyholdersThe workings of the policy through its tenurePolicy terms and conditions

Reading the fine printThe truth lies in the detail. And, in case of health insurance,reading the fine print will help to know what the policy coversand what it excludes instead of finding the truth when it comesto raising a claim. Here are a few common exclusions in mosthealth insurance policies.

No claim on pre-existing diseases – diseases that were inexistence before the policy commencement, are not covered,even if you were unaware of their existence. Some companiesnow relax this requirement by reimbursing the treatment ofsuch diseases after a period of 2-4 years of the policy. Somedo so after four no claim years on a policyCool off period – This is the period when claims are notpaid on medical expense incurred on the treatment of anyhealth related condition occurring within 30 days of thepolicy coming into force (except through bodily injuries dueto accidents). Also, in some cases, such as in a cataractsurgery, there are sub-limits on reimbursement even afterthe cool off periodEye-expenses on laser treatment of eyesight; cost ofspectacles or contact lenses are not coveredDental-expenses incurred on dental treatment or cosmeticsurgery to get the right smile are excludedWar-injuries due to wars, invasions or any claim directly orindirectly caused or contributed by nuclear weaponsOthers – treatment through non-allopathic methods such as


Health Insurance


ayurveda or unani medicine is not paidFurther, there are provisions that curb the facilities you canavail during hospitalisation. Insurers restrict certaindiscretionary costs associated with hospitalisation byintroducing sub-limits for reimbursement. For instance:

Room rent: 1.5 per cent of the sum insured per day. If yourinsurance cover is `2 lakh, room rent will be capped at`3,000 per dayICU charges: 3 per cent of the sum insured per dayDoctors’ fees: 40 per cent of the sum insured

TIPS AND STRATEGIES Be honest about your medical track record beforebuying the policy, in case of any ailment, wait for yourhealth condition to improve before buying the policyNormally, medical check-up is waived before you turn30 years old, so if you are deciding to buy a policy do itjust before the threshold ageDo not buy a very high cover, as your health condition inyoung age is expected to be good. Add more cover withincreasing ageIf your employer offers a group cover, check what the pol-icy covers – group health insurance covers sometimesmore ailments than what it would for an individual



Life Insurance

Gamblers make bets they hope to win.There is one bet that everyone would love to lose—betting on life insurance. Lifeinsurance policy is a bet, which a policyholder only wins by dying early.

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Life insurance is chiefly a risk management tool meant to offerfinancial protection to your dependents in the unfortunateevent of your death. If you are adequately insured, your lifeinsurance should enable your dependents; spouse, children orparents to maintain their current lifestyle and pursue life’sfinancial goals till such time that they are able to set up analternate income stream on their own.

Capital ProtectionThe sum assured in a life insurance policy is guaranteed as perthe terms of the policy as long as the premiums are paidregularly and the policy is in force.

Inflation ProtectionLife insurance is not inflation protected because insurance is afixed cover, fixed tenure product, wherein the sum assured isfixed. However, a few policies do offer a cost of living adjustment(COLA) option where the cover and premium increase to matchincreasing need for insurance cover over time.

GuaranteesThe sum assured is guaranteed and the premium is fixed for thetenure of the policy. There are a few with profit policies thatmay guarantee a minimum return, which varies across insurersand policies. Policies from the Life Insurance Corporation ofIndia carry a sovereign guarantee.

LiquidityLife insurance policies are liquid depending on the policy type

Life Insurance


Investment Objective and RisksThe only objective of life insurance is protection. There are of course policies that offer savings and investments, whichcould be considered once adequate life protection needs aretaken care of.



Life Insurance

Features

ELIGIBILITYYou nneed tto bbe RResident IIndian

ENTRY AGE18 yyears aand aaboveUpper llimit vvaries aacross iinsurers aand ppolicy ttypes

TENUREUp tto 440 yyears, wwhich ddepends oon tthe ppolicy ttype aand iinsurer

SUM ASSUREDDepends oon tthe ppolicy ttype, ttenure, ppremium, yyour hhealth ccondition aand iincome

PREMIUMDepends oon tthe iinsured’s aageDepends oon tthe ssum aassuredDepends oon tthe ppolicy ttype aand ttenurePremium ffrequency ccan bbe mmonthly, qquarterly, hhalf yyearly, yyearly oorsingle ((premium)

POLICY HOLDING IndividualJoint



Life Insurance


and the number of years a policy has been in force. There aresome policies that are illiquid such as a pure risk terminsurance policy.

Credit Rating Life insurance policies do not carry any credit ratings.

Exit Option Premature closing of the policy is permitted at a financial loss.

Other RisksThe risk of premiums going down after you have bought apolicy exists and so does the risk of premiums going up. Thereis also the risk of new policies emerging that suit your financialrequirements better.

Tax Implications Premiums paid towards a life insurance policy qualify for taxdeductions under Section 80C with a limit of `1.5 lakh in afinancial year.

Where to buy a life policy Life insurance can be bought from different sales points such as:

Individual life insurance agents representing a particularinsurer

The facility of pledging the life insurance policy to obtain loans ispossible with policies that are with profits such as endowmentplans.Premature withdrawal or closure of life policies is permitted whichdepends on the policy type. Policies that do offer prematurewithdrawal do so after three or five full years of the policy’sexistence, depending on the policy type. The premiums paid forduring this tenure along with profits, if any, is paid back afterdeducting penalties for early closure of the policy. The penaltiesvary across insurers and policy types.


Life Insurance


Banks representing a particular insurerCorporate agents representing a particular insurerNBFCs representing a particular insurerBrokers representing many insurersDirect Mail from an insurerTelemarketingRetail stores and mallsPolicies packaged with banking productsNGOs or SHGs for rural and social sectorsInternet sales

How to Buy a PolicyOnce you have evaluated the amount of insurance you need andthe insurer offering the policy, you need to fill the proposal formprovided by the insurer and will need to provide for:

You will need documents that provide your date of birth andidentity proof such as a copy of passport, driving license orvoter IDIncome proof in case of high value coversYou may have to undergo a medical examination dependingon your age or the cover that you seekChoose a nominee and get a witness sign

How to manage the policy? Premium payments can be made by cash or cheque andthrough Electronic Clearing Service (ECS)A policy certificate is issued with details including your

If the premium paid exceeds 10 per cent of the sum assured of thelife insurance policy, the amount eligible for deduction undersection 80C will be limited to 10 per cent of the sum assured. Forpeople with disability, the limit is 15 per cent.The proceeds from the maturity or claims on a life insurance policyare exempt under Section 10(10D).


Life Insurance


Policy Type Salient Features

Term Plan This is essentially a no-frills insurance policy in which, thenominee gets the sum assured if the policyholder diesduring the tenure of the policyNothing accrues if you outlive the policy term

Life Insurance Policy Variants

Endowment Plan

If you die during the policy term, your nominee gets thesum assured plus some returns depending on the policyperformanceIf you survive the policy term, you still get back the sumassured and returns earned by the policy

Child Plans

MoneyBack Plan

A variant of endowment plans, a part of the sum assured isreturned to the policyholder at periodic intervals through-out the policy tenure. The balance sum assured, along withprofits earned is returned at the end of the tenure

Whole Life Plan

A variant of endowment plans, these provide cover to the policy-holder throughout their lifetime, and not just over a fixed term

Pension

Annuities In an annuity, the insurer agrees to pay the insured astipulated sum of money periodicallyThe purpose of an annuity is to protect against risk as well asprovide money in the form of pension at regular intervals

ULIP (Unit Linked Insurance Plan)

Similar to endowment plans, these are savings-oriented plansthat are used to create savings for child’s education or marriage

Ulips combine insurance and investmentsUlips are expected to deliver inflation-beating returns inthe long-term, irrespective of the short-term marketfluctuationsUlips offer several fund investment options with insuranceand leave the asset allocation decision in the hands ofinvestors

The policy works in two ways. One; it is an accumulationtool that collects premiums and earns a return. Two; onattaining the vesting age (the year the payout happens),the accumulated fund is paid back as an annuity. This alsooffers insurance cover


Life Insurance


name, premium, policytenure and terms andconditionsPremium receipts confirmingpayment is issued onpremium payments

Points to PonderFree look period to return thepolicy which varies from 15days to a month depending onthe insurerAdditional cover in the formof ridersProvisions to make latepremium payments withpenaltiesCosts and charges on facilitiesoffered to policyholdersThe workings of the policythrough its tenurePolicy terms and conditions

All About RidersRiders are additional(protection) benefits attached tothe basic (life) insurance policy.They are generally limited insize relative to the base sum assured and may have separateterms and conditions, possibly with additional exclusionclauses. Simply put, riders are options that allow you toenhance your insurance cover, qualitatively and quantitatively.

Riders cover three aspects that may need to be covered –critical illness insurance, medical expenses cover and disabilityinsurance cover, they may be termed differently but, these are

GOING ONLINE Life insurance can be boughtonline through the websiteof the insurers, brokers orthird party aggregators.However, most often buyinga life insurance policy is notcompletely online with cer-tain obligations that requirephysical intervention such assignatures on forms andhealth check-ups which maybe necessary depending onpolicy types. However, onlineinsurance buying is veryhelpful and a much happybuying process.

You can access thirdparty websites that fea-ture policies from severalinsurers to compareproduct features and pre-miums before decidingthe insurance cover bestsuited for your needsCertain policies are dif-ferently priced for onlinesales and available at asignificant discount com-pared to buying throughother sales channels


Life Insurance


the three areas that they cover broadly. Of course there isanother set of riders that do not fall under any such categorysuch as waiver of premium.

Critical Illness: Added to a life insurance policy, it providesan additional cover to the insured in the event of a ‘criticalillness’. In most cases, the extra cover is paid upon diagnosisof a critical illness. The illnesses covered and the premiumsyou have to pay vary among insurers, but most insurers covercancer, coronary artery bypass, kidney or renal failure, majororgan transplant and paralytic stroke, the list can get verylong. Medical Expenses: Riders under this category cover risk forailments that may require medical treatment. With livingexpenses on medical treatments going up, riders under thiscategory are useful, especially with age, when most oftenmedical conditions start to alter (deteriorate). Hospital Cash Benefit: The worry of settling hospital bills(room rental charges) adds to the trauma of hospitalisation.This rider reduces this financial burden and helps you torecover with peace of mind. But these come in with hugeexclusions, do check before you sign on, as most insurerscover hospitalisation with a minimum stay of 48 hours.Major Surgical Assistance: This rider provides financialsupport in the event of medical emergencies. Specifiedsurgical procedures are covered under this rider, with clearlystated exclusions. Disability Benefits: It is probably the worst thing that canhappen to an individual—disability, which can seriouslyimpair the ability to earn a livelihood. While most of us coverlife and medical insurance the thought of disability neverarises. However, it is one cover that everyone must consider.The riders that fall under this category address exactly thesituations that arise in case of disability.Disability or Dismemberment Benefit: This rider providesfor an additional cover equal to the sum assured on the base


Life Insurance


policy, in the event of disability as a result of an accident. Ifthe accident results in total and permanent disability, therider provides for other benefits: a proportion of the benefitswill be paid to the insured person every year until herecovers. Some insurers provide the ‘waiver of premium’benefit as well, in the event of disability. Waiver of Premium: This rider gets activated in the event of aperson (who has taken a life insurance policy) becoming‘completely disabled’ (or loses his ability to earn a living dueto the disability) owing to an injury. In that case, thepremiums due on the base policy are waived till the person isable-bodied again. Even though the premium is not paidduring this period, the policy cover is not terminated; itcontinues as if the premiums were being paid. In other words,this rider acts as a ‘disability insurance’ against your lifeinsurance policy.

Other Riders Accident Death Benefit: This rider gets into effect in case ofdeath due to accident during the term of the policy. This addsto the sum assured in the life policy but excludes normalcauses of death and it comes into effect only in case of deathdue to an accident. Level term cover rider: This rider provides you additionallife cover for a specific interval which is less than the tenureof the policy. These are useful when you are in a stage in lifewith additional responsibilities or financial liabilities. Guaranteed insurability option rider: In effect, this rider‘insures your insurability’ in the future. It gives you the rightto purchase additional insurance (of the nature of your basepolicy) at different stages in your life, without having toundergo any further medical examination.


Life Insurance


TIPS AND STRATEGIES There are ways to optimise on the premium outgo in alife policy that help in reducing the premiums paid:

Buy life insurance when you are young and healthy topay less as you age by way of premiumsCertain policies work well if the premium payment isone-time and not periodically regular like monthly oryearlyBuy policies online to cut on intermediary costs andsave on premiums without compromising on the extent of coverUse riders to enhance the scope of cover



Annuity

Jane Austen said, “Annuity is a very seriousbusiness.” She could not have been moreright. In the absence of guaranteed pensionscenario, annuities are the lifeline availableto individuals to create their own assuredincome streams.

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Annuity is a type of financial investment which pays out a fixedand regular dividend. These are flexible retirement plans usedto create income in retirement and are available as immediateannuity to manage instant pension needs or as deferred annuityfor retirement income at a later date. There are many types ofannuities; and an annuity product is normally priced on thebasis of product features as well as interest rates and otherprevelant economic variables.

Capital Protection The annuity payout is fixed and guaranteed as per the terms ofthe policy through the tenure of the annuity.

Inflation ProtectionAnnuity is not inflation protected, as the payout is fixed anddoes not match inflation-adjusted cost of living. However,certain annuity variants offer increasing annuity payout, whichattempts to match inflation.

GuaranteesThe annuity is assured and guaranteed according to the termsand conditions of the annuity contract.

Liquidity Annuity is liquid and one has the option to exit the plan at apenalty.

Annuity


Investment Objective and RisksThe main objective of an annuity is to provide income in retire-ment. The annuity can be purchased on retirement or earlierand be structured to provide fixed as well as variable income,with or without insurance cover. There are several options withinannuities, which address the specific needs of individuals seek-ing a defined income source in retirement from their savingsand investments.



Annuity

Features

ELIGIBILITYResident IIndian

MINIMUM ENTRY AGEMost iissuers ooffer iit tto aadults aabove 118 yyears

MAXIMUM ENTRY AGE 80 yyears iin mmost ccases

TENUREFixed ooptionLife LLong

PAYOUTFixed ssumCan hhave aan iincreasing oor ddecreasing aannuity ddepending oon tthe pplan

OTHER ASPECTS Annuity ppayout ccan bbe mmonthly, qquarterly, hhalf yyearly oor yyearly

POLICY HOLDINGIndividualJoint, eeither oor ssurvivor



Annuity


Credit Rating Annuity does not carry any credit ratings.

Exit Option Premature closing of the annuity contract is permitted withpenalty and is stated by each issuer in the policy document.The penalty varies across insurers and depends on the specificannuity option.

Other RisksAnnuity rates vary, asand when the insurer,reviews the rate.

Tax Benefits In the accumulationphase of a deferredannuity plan, thecontributions qualify fortax deductions underSection 80C with a limitof `1.5 lakh in afinancial year. At thetime of vesting, up to onethird of the corpus canbe withdrawn tax freeunder Section 10(10D)with the remaining paid out as annuity, which is treated asincome and taxed accordingly.

The facility of pledging annuity to obtain loans is not permitted as itdefeats the purpose of the annuity.Annuities carry high surrender charges, which means thatinvestors can lose a significant amount of money if they opt outof the annuity early.

Annuity Variants There are several annuity options availablewhich can be modified and tailored to suitan individual’s unique requirements. Annuity Types VariantsFrequency of Premium Single

RegularType of Payouts Fixed

VariableTime Payouts Start Immediate

DeferredDuration of Payouts Life annuity

Term certainNo. of People Single lifeBenefitting Joint/survivor Nature of Purchaser Individual

Group


Annuity


The five payout options offered in an annuity are as follows:Life Annuity: Annuity for lifeLife Annuity with Return of Purchase Price: Life Annuity forannuitant with return of purchase price on death to thebeneficiaryJoint Life, Last Survivor without Return of Purchase Price:The annuity is first paid to the annuitant. After the death ofthe annuitant, the spousereceives a pension equal tothe annuity paid to theannuitantJoint Life, Last Survivor withReturn of Purchase Price: Theannuity is first paid to theannuitant. After the death ofthe annuitant, the spousereceives a pension which isan amount that is equal to theannuity paid to the annuitant.After the death of the lastsurvivor, the purchase price isreturned to the nomineeLife Annuity guaranteed for5/10/15 years and thereafter:Guaranteed annuity is paid for the chosen term (5, 10 or 15years) and after that, the annuity continues as long as theannuitant is alive

Where to buy annuityAll life insurers offer deffered annuity, while most offerimmediate annuity.

How to buyOnce you have evaluated the amount of annuity you need, lookat the available options and fill the appropriate proposal form.

GOING ONLINE Buying annuity online is notfully online as it requiresoffline process. Thedeferred annuity plansallow you to manage yourinvestments online, bywhich you can switchbetween fund options tomaximise your retirementcorpus. Moreover, once theannuity starts to pay,through online banking youcan manage your annuitycash flows efficiently.


Annuity


You will need to provide for: You will need documents that provide date of birth andidentity proof such as a copy of passport, driving license,PAN or voter IDYou may have to undergo a medical examination if youinclude insurance cover with the annuityChoose a nominee and get a witness signatureYou will need a bank account where the annuity payout willbe transferred

How to manage the policy? You can buy an annuity through a cheque, demand draft orthrough electronic clearing service (ECS).A policy certificate with details including your name,annuity type and tenure, with terms and conditions listed

Points to PonderFree look period to return the policy which varies from 15days to a month depending on the insurerCosts and charges on facilities offered to annuitant such as anannuity card with the bank where the annuity is transferredThe workings of the policy through its tenurePolicy terms and conditionsPenal provisions in case of early closure of the annuity

TIPS AND STRATEGIES Compare the annuity rates before taking a planCheck for additional features such as free debit-cardwith the annuity accountThough very rare, look for annuity plans where youhave the flexibility to change the payout option



Income TaxPlanning

Franklin D Roosevelt said; “Taxes, after all,are dues that we pay for the privileges ofmembership in an organised society.” Tax isa compulsory payment made to theGovernment for services it provides us,though people may not be completelysatisfied or convinced with these services.

24


Income tax is an instrument used by the government to achieveits social and economic objectives. Simply put, tax is duty ortariff that income earning individuals pay to the government inexchange of certain benefits such as law and order, healthcare,education and a lot more. With proper planning, your taxliability can be reduced and optimised effectively, leaving youwith a greater share of your income in your hands than beingpaid out as tax.

Income earned in the twelve months contained in the periodfrom 1st April to 31st March (Financial Year) is taken intoaccount when calculating income tax. Under the Income TaxAct this period is called the previous year.

Assessment Year: It is the twelve-month period 1st April to31st March immediately following the previous year. In theassessment year a person files his return for the incomeearned in the previous year. For example, for FY2014-15 theAY is 2015-16. You are required to pay tax if your income ina particular year is above the minimum threshold in thecategory of taxpayer that you fall in. There are, however,certain other criteria which decide the need to pay incometax depending on your residential status in India.

The three different residential status’ are: Resident IndianNon-Resident Indian (NRI)Not Ordinarily Resident (NOR)

What is Gross Total Income?The gross total income is the sum of all sources of income thatan individual has or the total income he earns in a financialyear. It can fall into one of the five heads:

Income from SalaryIncome can be charged under this head only if there is anemployer-employee relationship between the payer and payee

Income Tax Planning


1



Income Tax Planning

Features

ELIGIBILITYAny iindividual oor ggroup oof IIndividuals oor aartificial bbodies wwho oor wwhich hhaveearned iincome dduring tthe pprevious yyears iis rrequired tto ppay iincome ttax oon iitThe IIT AAct rrecognises tthe eearners oof iincome uunder ddifferent ccategoriesEach ccategory iis ccalled aa sstatus, wwhich iincludes: IIndividuals, HHindu UUndividedFamily ((HUF), AAssociation oof PPersons ((AOP), BBody oof iindividuals ((BOI), FFirms aandCompanies, LLocal AAuthorityWhen ccompanies ppay ttaxes uunder tthe IIncome ttax AAct iit iis ccalled CCorporate TTax

ENTRY AGENo aage iis sspecifiedIncome aarising oor aaccruing tto mminor iis tto bbe iincluded iin tthe ttotal iincome oof tthatparent wwhose ttotal iincome ((before ssuch iinclusion) iis ggreaterIncome aarising tto tthe mminor cchild aas aa rresult oof ssome mmanual-wwork ddone bby hhimor ffrom ssuch aactivity iinvolving aapplication oof hhis sskill, ttalent oor sspecialisedknowledge aand eexperience iis nnot tto bbe iincluded iin tthe hhands oof tthe pparents. FForexample, iincome oof aa cchild aactor oor ssinger dderived ffrom aacting oor ssinging iis nnotcovered bby tthis cclubbing pprovision

OTHER ASPECTS Need aa PPAN ((permanent aaccount nnumber) tto ffile rreturnsNeed tto hhave aadequate iincome tto ffile rreturnsCondition oof rresidency

TAX PAYEEIndividualHindu UUndivided FFamilies ((HUF)


Income Tax Planning


Salary includes basic salary or wages, any annuity, gratuity,advance of salary, leave encashment, commission, perquisitesin lieu of or in addition to salary and retirement benefits. Theaggregate of the above incomes, after exemptions available, isknown as gross salary and this is charged under the headincome from salary.

An allowance is a fixed monetary amount paid by theemployer to the employee for expenses related to office work.Allowances are generally included in the salary and taxedunless there are exemptions available. Some allowances arefully taxable such as dearness allowance, city compensatoryallowance, overtime allowance, servant allowance and lunchallowance. Whereas specific exemptions are available for someallowances.

Conveyance Allowance: Up to `1,600 per month is exemptfrom taxHouse Rent Allowance (HRA): This allowance is given by theemployer to take care of your rental or accommodationexpenses. The employer can choose to offer you HRA in thesalary package irrespective of whether you live in a rentedaccommodation or in your own house. It is important tounderstand how the income tax department treats HRA touse it efficiently. To arrive at HRA, salary is defined as sumtotal of basic, dearness allowance and a percentage ofcommissions of turnover achieved by employee

Eligibility for HRA exemptionTo be eligible for HRA exemption, you must first receive HRA inyour salary and live in a rented accommodation for which youpay the rent. So if you live in a house of your own, you will notbe eligible for HRA exemption.

Basic salary along with commissions and bonuses is fully taxable.


Income Tax Planning


To claim HRA exemptionYou should receive HRA from your employer in your salaryYou should live in a rented accommodation for which youpay the rentYour rent should be more than 10 per cent of your salary

Calculation of HRA exemptionThe actual exempt HRA from tax is the lowest of the threepossibilities:

Actual HRA received from employer50 per cent of salary in case of metros or 40 per cent for ofnon-metrosActual rent paid minus 10 per cent of salary

Other considerations with HRAIf you stay in a house which belongs to your parents and youpay rent to them, then you can claim HRA. However, theincome that your parents earn will need to be shown as salaryin their income tax returns.

Calculating HRARam Prasad’s basic monthly salary is `6,000 and the dearnessallowance is 80 per cent of the basic. He resides in Delhi andpays an actual rent of `3,000 a month while his employers payhim a monthly HRA of `2,500. His annual salary works to:(6,000 x12) + (0.80 x 6,000 x 12) = `1,29,600

Rent receipts need to be produced as proof to your employer toshow that you are indeed paying rent to claim HRAIf you own a house and have a house loan on it, you can still avail ofthe HRA benefits along with the home loan tax benefits. It does notmatter where your house is located, as both the home loan incometax benefits and the house rent allowance benefits can be availedsimultaneously. For instance, if your house is in the same citywhere you are living on rent, you can justify your choise of stayingon rent and still claim the HRA exemption


HRA is calculated as Actual annual HRA received is `30,000. Since Ram Prasad isbased in Delhi, take 50 per cent of his salary, which works to`64,800The actual rent paid is `36,000 and 10 per cent of his salaryworks to `12,960; the difference being `36,000 - 12, 960 =`23,040The minimum of these is `23,040. So, `23,040 of HRA isexempt from tax, while the remaining `6,960 is taxedLeave Travel Allowance (LTA): LTA accounts for expenses fortravel when you and your family go on leave. While this ispaid to you, it is tax free twice in a block of four years and thetravel to avail LTA is restricted within IndiaMedical Allowance: Medical expenses up to `15,000 a yearis tax free which can be incurred by the employee or hisfamily membersPerquisites: Perquisites (or personal advantage) are benefitsin addition to the normal salary to which an employee has aright by way of his employment. Examples of these are rentfree accommodation or car loan. There are some perquisitesthat are taxable in the hands of all categories of employees,some of which are taxable when the employee belongs to aspecific group and some that are tax free

Income from House PropertyAny residential or commercial property that you own will betaxed. Even if your piece of real estate is not let out, it will beconsidered earning rental income and you will need to pay taxon it. The income tax authorities tax you on the capacity of thereal estate (not let out) to earn income and not the actual rent.This is called the property’s Annual Value and is the higher of

Income Tax Planning


2

After the financial year ends, your employer will give you Form 16 whichwill contain all the earnings, deductions and exemptions available.


Income Tax Planning


the fair rental value, rent received or municipal rent. A standard deduction of 30 per cent of the Annual Value ispermitted Deduction on property tax paid on the rented property Any interest paid against outstanding loans taken against theproperty

Income from Profits and Gains of Business or ProfessionIncome earned through your profession or business is chargedunder the head ‘profits and gains of business or profession.’ Theincome chargeable to tax is the difference between the creditsreceived on running the business and expenses incurred. Thedeductions allowed are depreciation of assets used for business;rent for premises; insurance and repairs for machinery andfurniture; advertisements; travelling and many more.

Income from Capital GainsAny profit or gain arising from transfer of capital asset held asinvestments are chargeable to tax under the head capital gains.The gain can be on account or short- and long-term gains. Acapital gain arises only when a capital asset is transferred.Which means if the asset transferred is not a capital asset; it willnot be covered under the head capital gains. Profits or gainsarising in the previous year in which the transfer took placeshall be considered as income of the previous year andchargeable to income tax under the head Capital Gains and theconcept of indexation shall apply, if applicable.

Capital Asset: It is any property held by the income tax assesseeexcluding

Jewellery, drawings and paintingsAny item held for a person’s business or profession (stock,ready goods, raw material) will be taxed under the headprofits and gains of business or professionAgricultural land means any land from which agricultural

3

4


Income Tax Planning


income is derived. Land which is not urban and is outside of8 kilometres of a municipality, where population is less than10,000 qualifies to be agricultural land

Capital assets are of two types: Short- and long-term capitalasset

Short-term capital asset: This is an asset that is held for notmore than 36 months immediately preceding the date of itstransfer. However, some assets qualify as short-term capitalassets if held for 12 months– Equity or preference shares held in a company– Any other security listed on a recognised stock exchange of

India– Units of specific Mutual Funds– Zero coupon bonds

Long-term capital asset: This is an asset that is held for morethan 36 months or 12 months as the case may be. Transfer isdefined as the sale of the asset, giving up of rights on theasset, forceful takeover by law or maturity of the asset. Manytransactions are not considered as transfer, for example,transfer of a capital asset under a will. Stocks and units ofequity diversified mutual funds qualify for long-term capitalgains if held for more than a year. Similarly, if real estate isheld for 3 years, it qualifies for long-term capital gains. If soldbefore 3 years, it qualifies for short-term capital gains.

Capital Gains: Any profits or gains arising from the transfer ofa capital asset effected in the previous year shall be chargeableto income-tax under the head capital gains. Examples of assetsare a flat or apartments, land, shares, mutual funds, gold,among many others. There are two types of capital gains:

Short-term capital gain-capital gain arising on transfer ofshort-term capital assetLong-term capital gain – capital gain arising on transfer of


Income Tax Planning


long-term capitalasset

Capital gains can betaxed subject to thefollowing conditions:

The assessee musthave owned a capitalassetThe assessee musthave transferred thecapital asset in theprevious year. So it isnot necessary that theproperty should havebeen a capital asset onthe date of acquisitionof the asset by theassesseeThere must have been profit or gains as a result of such transfer

Computing capital gainsAs per Section 10(38) of Income Tax Act, 1961, long-termcapital gains on shares or securities or mutual funds on whichSecurities Transaction Tax (STT) has been deducted and paid,no tax is payable. Higher capital gains taxes will apply only onthose transactions where STT is not paid.

Concept of IndexationThe value of a rupee today is not same as will be its valuetomorrow because of inflation. Likewise, to be fair when payingcapital gain tax, the effect of inflation on the purchase isincluded. For instance, if you bought a flat in January 2002 for`20 lakh and sold it in January 2011 for `35 lakh; you don’t paytax on the `15 lakh gain. The tax authorities allow the concept

Computation of short-term capital gainsFull Value of ConsiderationLess (1) Expenditure incurred in such a

transfer(2) Cost of acquisition(3) Cost of improvement(4) Exemptions available, if any

Taxable short term capital gains

Computation of long-term capital gainsFull Value of ConsiderationLess (1) Expenditure incurred in such a

transfer(2) Indexed cost of acquisition(3) Indexed cost of improvement(4) Exemptions available, if any

Taxable long term capital gains


Income Tax Planning


of indexation so that you can show a higher purchase cost,lowering the overall profit and reducing the tax you pay on thegain. Using the inflation index, one needs to increase thepurchase price of the asset to reflect inflation-adjusted trueprice in the year of sale.

Cost Inflation Index (CII) = (Cost Inflation Index (CII) for yearin which asset is transferred or sold divided by CII for year inwhich asset was acquired or bought). So in the above example,the year in which assetis transferred or sold is2011 and the CostInflation Index (CII) for2011 = 711. The yearin which asset isacquired or bought is2002 and the CostInflation Index (CII) for2002 = 426. So theCost Inflation Index(CII) = 711/426 = 1.67

The CII is thenmultiplied with thepurchase price to arriveat the indexed cost ofacquisition which isthe actual or true costat the time of taxcomputation orcalculation. Theindexed cost ofacquisition = `20,00,000 x 1.67 = `33,40,000

Hence, long term capital gain = full value of sale - indexedcost of acquisition = `35,00,000 - `33,40,000 = `1,60,000

Cost Inflation Index for all yearsCost Inflation Index from FY 1981-82FY (CII) FY (CII)1981-82 100 1998-99 3511982-83 109 1999-2000 3891983-84 116 2000-2001 4061984-85 125 2001-2002 4261985-86 133 2002-2003 4471986-87 140 2003-2004 4631987-88 150 2004-2005 4801988-89 161 2005-2006 4971989-90 172 2006-2007 5191990-91 182 2007-2008 5511991-92 199 2008-2009 5821992-93 223 2009-2010 6321993-94 244 2010-2011 7111994-95 259 2011-2012 7851995-96 281 2012-2013 8521996-97 305 2013-2014 9391997-98 331 2014-2015 1024


Income Tax Planning


Tax liability on capital gain with indexation and withoutindexationIn case of long-term capital gains, the tax liability is the lowerof the amount arrived at by the two:

20 per cent tax liability arrived at by indexation method10 per cent tax liability arrived at by without using indexationmethod

In the example above, using indexation, the tax liability comesto (20/100) x 1,60,000 = `32,000

If you were to not use indexation: Capital gains = Sale priceof asset - Cost of acquisition = 35,00,000 - 20,00,000 =`15,00,000. Capital gains tax on this at 10 per cent = (10/100) x15,00,000 = `1,50,000. This is the advantage of usingindexation as you benefit in saving taxes.

Income from other SourcesAny income that does not fall under any of the four heads ofincome above is taxed under the head income from othersources. An example is interest income from bank deposits,winning from lottery, any sum of money exceeding `50,000received from a person (other than from relative, on marriage,under a will or inheritance).

Tax Deductions Deduction is the reduction that one can claim under differentheads to reduce the tax liability, thereby reducing the incometax that one pays.

Section 80CSection 80C offers a window of investment opportunities on up to`1.5 lakh and additional `50,000 under section 80CCD in eachfinancial year. This benefit is available to everyone, irrespective oftheir income levels. For instance, if you are in the highest taxbracket of 30 per cent, the investment of `1.5 lakh under thissection will save you `45,000 each year. The various financial

5


Income Tax Planning


products that qualify for Section 80C benefits are as follows:Life Insurance premium paymentHome loan principal, wherein the principal portion of thehome loan EMI qualifies for deduction under Section 80CEmployees Provident Fund (EPF) where 12 per cent of yoursalary is deducted every month and an equal amount iscontributed by your employer and put into a fund maintainedby the government or your company’s provident fund trust.Only your contribution towards the fund is eligible fordeduction from taxable income of the basic salary towardsEPFTuition fees for up to two children can be claimed. However,any payment towards any development fees or donation toinstitutions is excludedContributions to the public provident fundInvestments in the senior citizens savings schemeSavings in notified term deposits in scheduled banks with aminimum period of five years under the bank term depositscheme, 2006. Savings in post office time deposits with 5-yearlock-inNational Savings Certificate, six-year government-backedsecurity available at post officesInvestments in tax planning mutual funds, popularly knownas Equity-Linked Savings Scheme (ELSS)Investments in pension plansInvestments in national pension scheme

Other DeductionsSection 80D: Premium payments towards medical insurancefor self, spouse, children and parents qualify for deduction.The limit is `25,000 for self, spouse and dependent children.Additional deduction up to `25,000 for the parents going up`30,000 if the parent, for whom the policy is bought is aged60 years. Preventive health check-ups up to `5,000 withinlimits qualify for tax deductions under this section.


Income Tax Planning


Deduction Comments

1 80C Certain investments and expenses YES

NOR

YES

NRI

YES

2 80CCC Annuity Plan of LIC or Other LifeInsurance Companies

YESYESYES

Tax Deductions based on Resident Status

3 80CCD Contribution to National PensionScheme

YESYESYES

4 80CCG Investment in RGESS YESNONO

5 80D Medical Insurance YESYESYES

6 80DD Medical treatments for disableddependents

YESYESNO

7 80DDB Expenses on curing specified dis-eases

YESYESNO

8 80E Interest Paid on Education Loan forself, spouse and children

YESYESYES

9 80G Donations to certain Organizations YESYESYES

10 80GG House Rent deduction YESYESYES

11 80GGA Donations for Scientific Research orRural Development

YESYESYES

12 80GGC Donations to Political Party YESYESYES

13 80U Person with Disability YESYESNO

Resident

Section 24: Interest on home loan with a maximum deductionof `2 lakh as interest payment on home loan for self-occupiedproperty and unlimited for property that is let out. Further,this year, anyone taking a loan for the first home up to `25lakh till March 31, 2014, can claim an additional deductionup to `1 lakh.Section 80E: Interest on educational loan qualifies for deductionon full-time studies for any graduate or post graduate course.


Income Tax Planning


ResidentialStatus Condition 1 Condition 2 Comments

You are aResident

If you stayedin India for182 days ormorebetween April1, 2014 andMarch 31,2015

If you stayed in Indiafor 60 days or morebetween April 1,2014 and March 31,2015.And, if you stayed inIndia for 365 days ormore between April 1,2009 and March 31,2014.

If you satisfyany one of thetwo conditions,then you are aResident

Not OrdinarilyResident (NOR)Only applicableto NRIs who havereturned to Indiaafter at least 8years of stayabroad. Uponyour return toIndia, for the first2 years you canclaim yourself asNOR.

You should notbe a residentfor at least 8years in theprevious 10year period.

You should not havestayed in India for730 days or morebetween April 1,2006 andMarch 31, 2013.

If you satisfyboth theseconditions youcan claim NORstatus.

Residential Status

You are a Non-Resident Indian(NRI)

If you haven’tstayed in Indiafor 182 daysor morebetween April1, 2012 andMarch 31,2013.

If you haven’t stayedin India for 60 days ormore between April 1,2012 and March 31,2013.And, if you haven’tstayed in India for365 days or morebetween April 1,2009 and March 31,2013.

If you satisfyany one of thetwo conditionsthen you are a non-resident.


Income Tax Planning

Residential Type Income that are taxable

Resident Taxable Income includes from the following sourcesIncome from SalaryIncome from Bank InterestIncome from PensionIncome from AgricultureIncome from House Rental IncomeIncome from sale of Stocks or Mutual FundsIPO or Employee Stock OptionsIncome from sale of House PropertyAny other income or Business Income or Income fromForeign sources

Non-ResidentIndian (NRI)

Taxable Income includes income from the followingsources:Income from Indian salaryIncome from bank interest (from the India Resident savingsaccount)Income from pensionIncome from agricultureIncome from House rental incomeIncome from sale of Stocks or Mutual FundsIPO or Employee Stock Options (ESOP)Income from sale of house propertyNon-taxable income includes: Any Income earned in theforeign country and Interest received from your NREAccount

Income that is Taxable

NOR Same as Resident except income from your foreign sourceis not taxable



Income Tax Planning


However, there is no benefit on principal repayments Section 80G: Donations to funds and charities from 50 or 100per cent of the donated amount, depending on the charity, isdeductible from income. But this shouldn’t exceed 10 per centof your gross total incomeSection 80DD: Deduction up to `50,000 or `1 lakh on themedical treatment of a dependent with a disability, certifiedby a medical authoritySection 80DDB: Deduction up to `40,000 for assessee under60 years, `60,000 for senior citizens and `80,000 for supersenior citizens on costs incurred for treatment of specifiedillnesses such as malignant cancer, chronic renal failure, andother listed diseases

When Pay Income TaxAn individual having salary income and no businessincome must file his return not later than June 30 of the

Tax Slabs and RatesVery Senior Senior All Resident Indians

Total Income (`) Citizen Citizen under 60 yearsUp to 2.5 lakh Nil Nil Nil2.5 (3*)–5 lakh Nil 10% 10%5–10 lakh 20% 20% 20%Above 10 lakh 30% 30% 30%

Very senior citizen: 80 years and above. Senior citizen: 60–79 years. These aretax rates for resident Indians and not NRIs. Additional educational cess of 3 per cent on tax payable. Tax credit of up to `2,000 toeveryone earning `5 lakh. Tax payers with income more than `1 cr are liable topay an additional 10 per cent surcharge. *`3 lakh for senior citizens only.

There are two ways of filing your returns online: e-filing using digital sig-nature, or e-filing without a digital signature.


Income Tax Planning


assessment yearThe due date offiling returns by anindividual havingbusiness incomeand whose accountsare not required tobe audited is August31The return shouldbe in the pre-scribed formIt is necessary tofile a return toclaim a refund ofany excess tax paid

Documents neededYou need to attachdocumentary sup-port for tax deduct-ed at source,investments or pay-ments made thatallow you to claimdeductions and taxrebates andemployer’s certifi-cate in Form 16AThe income taxyear or assessmentyear is the year inwhich income ofthe previous year is to be assessed. The financial year follow-ing a previous year is called the assessment year in relation to

Calculation of Taxable IncomeIncome from Salary ——Income from house property ——Profit or gain from Business or profession ——Short Term capital gain* ——* Exclude STCG on STT ——Income from other sources** ——**Exclude casual income ——Other Gross Total Income ——Less Deduction Under Section 80 (C/D/DD) ——Add short-term capital gain on STT ——Add long-term capital gain ——Add casual income ——TOTAL TAXABLE INCOME ——Casual income in the nature of winning from lotteries,crossword puzzles, horse races, card games and othergames of any sort, gambling, betting etc. Such winningsare chargeable to tax at a flat rate of 30 per cent undersection 115BB.Total Taxable Income subject to clubbing of income and carry forward of lossesTotal Taxable Income must be rounded to nearest multipleof Ten.

Calculation of Tax on Taxable IncomeTax on Casual Income @30 per cent ——Tax on Long-term Capital gain @20% ——Tax on Short-term Cap gain on STT @15% ——Tax on other taxable income* ——*At applicable rates ——Tax on TOTAL TAXABLE INCOME (Y) ——Add education cess @3 per cent on Y ——Tax on other taxable income* ——Tax liability of assessee ——Less advance tax ——Less Tax deducted at source (TDS) ——Balance Tax Payable or Refundable ——


Income Tax Planning


that previous year. Thus, the assessment year for the previousyear 2014-15 is 2015-2016An assessment, therefore, comprises of two stages Computationof total income, and Determination of the tax payable thereonOn completion of both these stages, anassessment is said to bemade

Where to pay Income TaxThrough online depositThrough Nationalised banks

How to pay Income TaxSelf filingAuditor or Chartered accountant or Tax Return PreparersOnline filing

Transaction mode to pay taxCashChequeMoney Transfer

Considerations when filing returns Right tax computationRight details such as PAN, bank account number, address andnamePayment by the due date

ITR V acts like a proof of filing.Fill in the form and mail it in an envelope to “Income TaxDepartment-CPC, Post Box No.1, Electronic City Post Office,Bangalore-560100, Karnataka” within 30 days of e-filing.You can expect to receive an e-mail from the income taxdepartment, acknowledging the receipt of ITR-V.This is the final acknowledgement and concludes the e-filingprocess.


Income Tax Planning


Visit the Income Tax Dept / NSDL website.https://onlineservices.tin.nsdl. com/etaxnew/tdsnontds.jspClick on the “CHALLAN NO./ITNS 280On this page choose (0021)INCOME-TAX (OTHER THANCOMPANIES)Type your Permanent Account No (PAN)Choose Assessment Year: choose 2014 - 2015Fill up all other details requested

For Type Of Payment choose (300)SELF ASSESSMENT TAXChoose your Bank Name where you have online banking, sothat you can pay your taxesClick on Proceed, (located at thebottom of the web page)Once you have paid your taxes,Income tax department willissue you a receipt.

Using this receipt please fillup our Advance Tax or SelfAssessment Tax page you cancontinue filing returns throughthe online interface for preparingand processing your returns.

Digital signature: It is a privatekey which ensures the authenticity of an electronic document,which may be an e-mail or a spreadsheet. Digital signature isissued by the Ministry of Corporate Affairs. So, if you have adigital signature, go tohttps://incometaxindiaefiling.gov.in/portal/ individual_huf.do.Choose the respective form, read the instructions mentioned inthe excel file. Fill the sheets and save it on your computer. Toupload it, go to https://incometaxindiaefiling.gov.in/portal/uploadXML.do?assyr=2010. Create a user ID and follow theinstructions that come on the screen.

GOING ONLINE Unlike the traditional time-tested method of filing yourreturns through a charteredaccountant or auditor or taxreturn preparers; one caneasily file returns online.There are several online tax-filing portals that have easyto use features which allowtax computation,preparation and filing.


Income Tax Planning


If you don’t hold a digital signature, don’t worry. It’s notmandatory that all tax filers possess a digital signature. In fact,for those who don’t have one, the process is more or less thesame as above, except that it would not be completely paper-free. Once you are done with uploading the excel file from theincome tax department’s site, you need to submit ITR-V (orincome tax verification form). This can be downloadedfromhttp://law.incometaxindia.gov.in/DITTaxmann/IncomeTaxRules/pdf/ay2008-09/FormITR-V.pdf).



Tax PlanningStrategies

Franklin D Roosevelt said; “Tall men can seethese tactics whereby I conquer, but whatnone can see is the strategy out of whichvictory is evolved.” Tax strategies are ruleswithin the Income Tax Act which allows taxpayers to use tactics to reduce tax liabilitysmartly.

25


Income tax is a complex subject, yet it offers ways to reduceone’s tax liability by offering ways to offset losses that one mayhave incurred on investments. Losses set off on a broader termcan be defined as the loss from a particular source that can beadjusted against the profit from another source. There are twodifferent types of loss adjustments that can be set off againstyour income:

Current Year Loss Adjustment (CYLA)Brought Forward Loss Adjustment (BFLA)

Current Year Loss Adjustment (CYLA)CYLA is the adjustment of loss incurred this year, from onesource, to be adjusted against the profits earned in anothersource this year. For example, Ram, earning a salary of `8 lakhper year, also owns a house property from which he suffers aloss of `2 lakh in the current year. He can adjust this loss of `2lakh with his income from salary. His total taxable income nowbecomes `6 lakh.Income from Salary: `8 lakhLoss from House Property: `2 lakhTaxable income : `6 lakh

The table below explains in detail, as to what losses can beadjusted against what type of income or profit.

Brought Forward Loss Adjustment (BFLA): This is the losswhich is brought forward from the previous years to adjustagainst profits in the current year. For example, Lakshman, who

Tax Planning Strategies


Adjusting Loss against IncomeHouse Short-term Long-term

Loss or Income Property Capital loss Capital lossSalary, Bank Interest Yes No NoHouse Property NA No NoShort-term capital gains Yes NA NoLong-term capital gains Yes Yes NA




owns a house property; in the current year earns a profit of `5lakh from this house property. However, in the previous year hesuffered a loss of `2 lakh from this house property. He thereforedecides to bring forward his previous year losses and adjust itagainst this year’s profit.Current Year Profit: `5 lakhPrevious Year Losses: `2 lakh

The total taxable income now becomes `3 lakh instead of `5lakh because Brought Forward Loss is adjusted against thisyear’s profit. At any current date, it is possible to bring forwardthe losses of the last eight years and adjust it against the currentyear’s profit.

The table below explains in detail, as to what losses can beadjusted against what type of income or profit.

It is fine if you could set off all your losses this year. Sometimesyou may not be able to set off all your losses this year. What canyou do with those losses? Can you carry forward them? Yes. Theycan be done so by carrying the losses into the future.

Adjusting Capital LossAn important aspect of filing income tax returns is theadjustment of losses. The Income Tax Act allows taxpayers,under certain conditions, to set-off loss against income or gains,reducing the net tax liability. If such loss is not fully set-off inone year, it can be carried forward. It is necessary for everytaxpayer to understand and take advantage of this facility.

Adjusting Loss against different Income headsPrevious Year House Short-term Long-termLoss or Income Property Capital loss Capital lossSalary, Bank Interest No No NoHouse Property Yes No NoShort Term Capital Gains No Yes NoLong Term Capital Gains No Yes Yes




Inter-Source AdjustmentOf the five heads under which source of income falls, therecannot be a loss from salary and income from other sources.But, you could suffer losses under other heads of income. Lossunder one head has to be adjusted against any gain under thesame head. This is known as Inter-Source Adjustment (ISA). Forinstance, if you have two businesses, one is making a loss andthe other is profit-making; then the loss from the first one canbe set-off against profit from the second one. Similarly, if youhave two house properties, one self occupied and the other onrent. Loss from the first property can be adjusted against theincome from the second property.

Inter-Head AdjustmentIf there is some loss leftover, even after setting it off with ISA; itcan be adjusted against income from other heads. This is calledInter-Head Adjustment (IHA). For instance, if you have a singleself-occupied house property bought on mortgage, it will showloss because the annual value of a single self-occupied propertyis taken to be nil and the adjustment of any interest will resultin a negative value. Such a loss may be adjusted with salary orbusiness income, if any. However, there are two exceptions tothis rule; losses under capital gains cannot be set-off withincome from any other head and loss from business cannot beset off against salary income.

Carry Forward theLossAny loss that cannotbe set-off against thesame or other headsbecause ofinadequacy ofincome may becarried forward to

Adjusting LossesLoss carried forward Adjust AgainstHouse Property Loss House property incomeBusiness Loss Business gainCapital LossShort-term Capital gainsLong-term Only long-term capital gains*Losses can be carried forward for the next 8 years




the subsequent year. Such a carry-forward exercise can be donefor eight years. After eight years, if the loss has still not beenadjusted fully, it has to be written off.

Capital Gains Losses under capital gains have a boundary. This means, thesehave to be adjusted against other capital gains only and notagainst other incomes. Long-term capital loss (LTCL) can beadjusted only with long-term capital gains (LTCG), not short-term gains. But, short-term capital loss (STCL) can be set-offeither with long- or short-term capital gain (STCG).

If the income from some source is exempted from tax, lossfrom such a source cannot be set-off. Any long-term loss on saleof shares or equity funds cannot be set-off at all, as the long-term gain from the sale of these instruments is exempted. Forinstance:

LTCL (shares): `20,000 LTCG (equity funds): `15,000 STCL (shares): `40,000 LTCL (debt funds): `25,000 STCG (shares): `50,000 LTCG (gold): `15,000LTCL from non-equity funds (`25,000) can be adjusted onlywith LTCG from gold (`15,000). Therefore, only `15,000 canbe adjusted and not the balance `10,000STCL from shares (`40,000) can be set off against the STCGfrom it (`50,000) and only the balance `10,000 would betaxedLTCL from shares (`20,000) cannot be set-off, since the LTCGfrom it (`15,000) is tax exempted

To be eligible to carry forward and set-off any loss againstprofits, it is important to file tax returns. If the loss return isfiled after the due date, the Income Tax department maycondone the delay only if it is satisfied with the reason behindyour inability to file the returns on time.




Deductions on Educational ExpensesCost of children’s education has gone up substantially in recentyears. However, there are certain deductions eligible foreducation expenses under the Income Tax Act, which to someextent can lessen the burden of increasing education expenses.

Lakshman Prasad has two children staying in hostel; one isstudying in school and the other one in college. He has availedan education loan for `8 lakh to meet the expenses of his sonstudying in college on which he pays an interest of `1 lakhduring the year. Here are the various provisions, under theIncome Tax Act, that provide tax relief to Lakshman.




Section Nature ofExpenses Conditions Amount of deduction

10 (14) ChildrenEducationAllowanceAllowancegiven to meetthe hostelexpenditure

For maximum of 2 children

For maximum of 2 children

`100 per monthper child

`300 per monthper child

80C Tuition fees Paid to school, college,university or othereducational institution,situated within India, for thepurpose of full timeeducation of any twochildren of an individual.Tuition fees should notinclude payment towardsdevelopment fees ordonation.

`1.5 lakh perannum

Deduction on Education Expenses

80E Interest onloan for high-er education

Only interest on loan takenfrom banks or an approvedcharitable institution, forpursuing higher educationfor self, spouse or children.Higher education means fulltime studies for graduate orpost graduate course inengineering, medicine,management, appliedsciences or pure sciencesincluding mathematics andstatistics but does notinclude humanities, socialsciences, commerce, law oraccountancy.

100 per cent ofinterest paid onloan (in this case`1 lakh) withoutany monetary limit.Deduction isallowed for theinitial year and forseven successiveyears or until theinterest on suchloan is paid by thetax payer in fullwhichever isearlier.




Six Expenses to Save Taxes How some of your expenses can also be deducted from your income towardsthese tax saving options resulting in less tax outgo

Expense Criteria

1 School or Collegefees

School or College feespaid for up to 2 children

80C

Eligibility

Up to`1.5 lakh

2 Interest Paid onEducation Loan

Interest paid on educa-tion loan for yourself orspouse or children

80ENo Limit

3 MedicalInsurance

Premium can be paidfor self, spouse, anddependent children

80D`25,000.(`30,000 if policy includessenior citizens)

Medical insur-ance for parents

Premium can be paidfor parents

80D`15,000.(`20,000 if par-ents are senior citizens)

4 MedicalTreatments

Expenses incurred onmedical treatment fordependent children orspouse or parents

80DD`75,000(`1,25,000 ifsevere disability)

5 Expenses on curing specifieddiseases

Payment can be madefor self, dependentspouse, children, parents, brothers and sisters

80DDB`40,000(`60,000 ifspent for senior citizens and80,000 for verysenior citizens)

6 House Rent Rent paid for youraccommodation in afinancial year. This isnot applicable if HRA ispart of your salary pack-age

80GGUp to `24,000

Under Section




InvestmentInterest orReturn

Investmentamount (`)

EligibleDeduction Feature

AssuredIncome

PublicProvidentFund (PPF)

8.70% Min: 500Max:100,000

Under 80C,up to`1.5 lakh

Principaland inter-est are taxfree

Yes

NationalSavingsCertificate(NSC)

5-year:8.5%10-year:8.8%

Min: 100Max: NoLimit

Under 80C,up to `1.5 lakh

Interest istaxable

Yes

Six Investments to Save Taxes

EquityLinkedSavingsScheme(ELSS)

No fixedreturns

Min: 500Max NoLimit


Principaland inter-est are nottaxable

No

Life insur-ance pre-mium orULIPs

No fixedreturns

Dependson the plan

Under 80C,up to `1.5 lakh

Tax free onthe maturi-ty sum

No

EPF 8.5% Up to 12%on basicsalary byemployeeandemployer


Tax free onmaturitysum

Yes

You can use these six investments to get an idea on how you can save on taxesthrough investments that can help you with your financial goals

RajivGandhiEquitySavingsScheme

No fixedreturns

Up to`50,000 ina financialyear toclaim taxbenefits

Under80CCG, upto`25,000

Principal istax free upto`25,000and inter-est is fullytax free

No



Annexure andResources

26

Form DetailITR-1 SAHAJ Indian Individual Income tax ReturnITR-2 For Individuals and HUFs not having Income from business or

professionITR-3 For Individuals or HUFs being partners in firms and not carry-

ing out business or profession under any proprietorshipITR-4SUGAM Sugam - Presumptive Business Income tax ReturnITR-4 For individuals and HUFs having income from a proprietary

business or professionITR-5 For firms, AOPs and BOIsITR-6 For Companies other than companies claiming exemption

under section 11ITR-7 For persons including companies required to furnish return

under section 139(4A) or section 139(4B) or section 139(4C)or section 139(4D)

TAX FORMS

In this section you will find tax forms that will help you fileyour income tax returns, followed by important tax dates andyou will also find investor protection resources that will enableyou to find recourse to grievances and complaints that you mayhave after investing in a financial product. Tax forms are avail-able at http://law.incometaxindia.gov.in/


Annexure and Resources


Date Obligation Form No.

November 30, ofthe relevantassessment year

Submission of annual return of incomeor wealth for the relevant assessmentyear for a corporate assessee.

Income: Form No.1Wealth: Form BA

November 30, ofthe relevantassessment year

Furnish audit report under section44AB for the relevant assessment yearin the case of a corporate assessee.

Form No. 3CA &3CD

Important Tax Dates

December 15, ofeach year

Payment of second instalment (in thecase of an assessee other than acompany) or third instalment (in thecase of a company) of advance taxfor that financial year.

No statement orestimate isrequired to be submitted.

March 15, of eachyear

Payment of third instalment (in thecase of an assessee other than acompany) or fourth instalment (in thecase of a company) of advanceincome-tax for that financial year.

No estimate orstatement isrequired to be submitted.

April 30, of eachyear

Certificate of tax deducted at sourceto be given to employees in respectof salary paid and tax deductedduring for the preceding financialyear ended March 31.

Form No.16


Certificate of tax deducted at sourcefrom insurance commission duringthe preceding financial year endedMarch 31 to be given.

Form No.16A


Consolidated certificate of taxdeduction (other than salary) duringthe preceding financial year endedMarch 31.

Form No.16A


Submission of annual return ofdividend and income in respect ofunits under section 206 of the I.T. Act1961 for the preceding financial yearended March 31.

Form No.26





May 31, of eachyear

Submission of annual return ofwinning from lottery, crosswordpuzzle for the preceding financialyear ended March 31.

Form No.26B

May 31, of eachyear

Submission of annual return of win-ning from horse races for the preced-ing financial year ended March 31.

Form No.26BB

May 31, of eachyear

Submission of annual return of salaryincome in respect of salary paidduring the preceding financial yearended March 31.

Form No.24

June 15, of eachyear

Payment of first installment ofadvance tax in the case of a companyfor that financial year.

No statement orestimate is requiredto be submitted.


Submission of annual return ofincome or wealth for the relevantassessment year in case thefollowing conditions are satisfied:a. the assessee is not a corporate

assessee b. the assessee is not a cooperative

societyc. the assessee’s total income does

not include any income from abusiness or profession

Income: Form No.3or 2A Wealth: Form BA


Submission of annual return of insur-ance commission for the precedingfinancial year ended March 31.

Form No.26D


Submission of annual return of insur-ance commission paid or creditedwithout tax deduction during preced-ing financial year ended March 31.

Form No.26E


Submission of annual return of insur-ance commission paid or creditedwithout tax deduction during preced-ing financial year ended March 31.

Form No.26E






Submission of annual return of interest(not being on securities) for the pre-ceding financial year ended March 31.

Form No.26A


Submission of annual return of pay-ment to contractors or sub-contrac-tors for the preceding financial yearended March 31.

Form No.26C


Submission of annual return of pay-ments in respect of deposits underNational Savings Scheme, 1987 forthe preceding financial year endedMarch 31.

Form No.26F


Submission of annual return of pay-ments on account of repurchase ofunits by Mutual Fund or UTI for the pre-ceding financial year ended March 31.

Form No.26G


Submission of annual return of pay-ment of commission on sale of lot-tery tickets for the preceding finan-cial year ended March 31.

Form No.26H


Submission of annual return of rentfor the preceding financial yearended March 31.

Form No.26J

July 14, of eachyear

Submission of statement of taxdeduction from interest or any othersum payable to non-residents duringthe period April 1 to June 30 immedi-ately preceding.

Form No.27

August 31, ofeach year

Submission of annual return ofincome or wealth for the relevantassessment year, if the following con-ditions are satisfied:a. the assessee is neither a corporateassessee nor a co-operative society.b. he is not required to get hisaccounts audited under any law.

Income: Form No.2Wealth: Form BA





c. his total income includes incomefrom a business or profession.

September 15, ofeach year

Payment of first instalment (in thecase of a non-corporate assessee) orsecond instalment (in the case of acorporate assessee) of advanceincome-tax for that financial year.

No statement orestimate isrequired to be submitted

October 14, ofeach year

Submit statement of deduction of taxfrom interest, dividend or any othersum payable to non-resident duringJuly 1 to September 30 immediatelypreceding.

Form No.27


Submission of annual return ofincome or wealth for the relevantassessment year if the following con-ditions are satisfied:a. the assessee is a cooperative socie-ty or a non-corporate assessee; b. he is required to get his accountsaudited under the income-tax Act orunder any other law.

Income: Form No.2Wealth: form BA


Furnish audit report under Section44AB for the relevant assessmentyear, in the case of a non-corporateassessee.

Form Nos.3CA,3CB or 3CC and3CD or 3CE


Submission of half-yearly return inrespect of tax collected at sourceduring April 1 and September 30immediately preceding.

Form Nos.27EA,27EB, 27EC and27ED


Submission of annual auditedaccounts for each approved pro-grammes under section 35 (2AA).




AHMEDABADGujarat, Union Territories of Dadraand Nagar Haveli, Daman and DiuK. ChandrachoodanC/o Reserve Bank of IndiaLa Gajjar Chambers, Ashram Road,Ahmedabad-380 009Tel.No.(079)- 26582357/ 26586718/ 2657 5807Fax No.(079)-26583325

BANGALORE KarnatakaM. PalanisamyC/o Reserve Bank of India10/3/8, Nrupathunga RoadBangalore-560 001Tel.No. (080)-22210771 /22275629Fax No.(080) - 22244047

BHOPALMadhya Pradesh and ChattisgarhT. KarunakaranC/o Reserve Bank of IndiaHoshangabad Road, Post Box No.32,Bhopal-462 011Tel.No.(0755) - 2573772 / 2573776Fax No. (0755) -2573779

BHUBANESWAR OrissaK. C. MahapatraBiplab ChakrabortyC/o Reserve Bank of IndiaPt. Jawaharlal Nehru MargBhubaneswar-751 001Tel.No.(0674) -2396207/ 2396008Fax No.(0674) -2393906

CHANDIGARHHimachal Pradesh, Punjab and UnionTerritory of ChandigarhLalit SrivastavaC/o Reserve Bank of India4th Floor, Sector 17, Central Vista,Chandigarh - 160 017Tel.No.(0172) - 2721011 / 2784261Fax No. (0172)-2721880

CHENNAITamil Nadu, Union Territories ofPondicherry and Andaman andNicobar IslandsS. GaneshC/o Reserve Bank of India, FortGlacis,Chennai 600 001Tel No. (044) 2539 9170 /25395964 / 2539 9159 Fax No.(044)-25395488

GUWAHATIAssam, Arunachal Pradesh, Manipur,Meghalaya, Mizoram, Nagaland andTripuraB.B.SangmaC/o Reserve Bank of IndiaStation Road, Pan BazarGuwahati-781 001Tel.No.(0361) - 2542556 / 2540445Fax No.(0361) - 2540445

HYDERABADAndhra PradeshM. SebastianC/o Reserve Bank of India6-1-56, Secretariat RoadSaifabad, Hyderabad-500 004Tel.No. (040) - 23210013

AREA OF OPERATION and ADDRESS of BANKING OMBUDSMAN




/23243970Fax No. (040) - 23210014

JAIPURRajasthanN.P.TopnoC/o Reserve Bank of India, 4th floor,Rambagh Circle, Tonk Road, Jaipur-302 052 Tel.No.(0141) -5107973/5101331Fax No. (0141) - 2562220

KANPURUttar Pradesh (excluding District ofGhaziabad) and UttaranchalB.K.BhoiC/o Reserve Bank of IndiaM.G. Road, Post Box No.82Kanpur-208 001Tel.No. (0512) - 2361191 / 2310593Fax No. (0512) - 2362553

KOLKATAWest Bengal and SikkimC.V.GeorgeC/o Reserve Bank of India15, Nethaji Subhas RoadKolkata-700 001Tel.No. (033) - 22306222 /22305580Fax No.(033) - 22305899

MUMBAIMaharashtra and GoaO.P. AggarwalC/o Reserve Bank of IndiaGarment House, Ground Floor,Dr. Annie Besant Road,Worli, Mumbai-400 018Tel.No. (022) - 24924607 /24960893 / 2493 3358

Fax No. (022) - 24960912

NEW DELHIDelhi, Jammu & Kashmir, Haryana(except the districts of Ambala,Yamuna Nagar and Panchkula), andthe districts of Ghaziabad andGautam Budh Nagar of Uttar PradeshM. Rajeshwara RaoBanking OmbudsmanReserve Bank of India Building2nd Floor, 6, Sansad margNew Delhi - 110001TelNo.(011) - 23730633 /23736270 / 23736271 /23725445 / 23710882Fax No. (011) - 23725218

PATNABihar and JharkhandA. F. NaqviC/o Reserve Bank of India,South Gandhi Maidan,Patna-800 001Tel.No.(0612) - 2322569 / 2323734Fax No.(0612) - 2320407

THIRUVANANTHAPURAMKeralaF. R. JosephC/o Reserve Bank of IndiaBakery JunctionThiruvananthapuram-695 033Tel.No. (0471) - 2326852 /2332723 / 2323959Fax No. (0471) - 2321625




Insurance related complaints IRDA GRIEVANCE CELL CALL CENTER: TOLL FREE NUMBER (155255)

Private InsurersK.Srinivas, Asst. Director, IRDAConsumer Affairs DepartmentUnited India Tower, 9th floor, 3-5-817/818,Basheerbagh, Hyderabad - 500 029Email: [email protected]

Public Sector InsurersR.Srinivasan, Officer on Special Duty,IRDAConsumer Affairs Department

United India Tower, 9th floor, 3-5-817/818,Basheerbagh, Hyderabad - 500 029Email: [email protected]. Venkateswara Rao, DeputyDirector, IRDAConsumer Affairs DepartmentUnited India Tower, 9th floor, 3-5-817/818,Basheerbagh, Hyderabad - 500 029Email: [email protected]

Complaints against Non-life insurers

West Zone: Mumbai (Bombay)Head Office: Plot No.C4-A,’G’ Block, Bandra Kurla Complex, Bandra(East), Mumbai 400051 Tel : +91-22-26449000 /40459000E-mail :[email protected]

North Zone: New DelhiRegional Office: The RegionalManager, 5th Floor,Bank of Baroda Building,16,Sansad Marg, New Delhi - 110 001.Tel. Board: +91-11-23724001-05Fax : +91-11-23724006.E-mail :[email protected]

South Zone: Chennai (Madras)Regional Office: The RegionalManager, D’ Monte Building, 3rdFloor, 32 D’ Monte Colony, TTK Road,Alwarpet, Chennai : 600018.Tel : +91-44-24674000/24674150

Fax: +91-44-24674001 .E-mail :[email protected] Zone: Kolkata (Calcutta)Regional Office: The RegionalManager, L&T Chambers,3rd Floor, 16 Camac Street,Kolkata 700 017Tel : +91-33-23023000. Fax: +91-33-22874307. E-mail :[email protected]

West Zone: AhmedabadRegional Office: Western RegionalOfficeUnit No: 002, Ground FloorSAKAR I, Near Gandhigram RailwayStationOpp. Nehru Bridge Ashram RoadAhmedabad - 380 009Tel : +91-79-26583633-35E-mail :[email protected]

SEBI GRIEVANCE CONTACTS



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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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saving and investment yearbook 2015

Investor Relations