Income Tax isn't all, there is Wealth Tax, too - DNA (30th Nov 2011)

DID YOU KNOW? - Difference between liquid funds and ultra short-term funds (Live Mint 15th Nov 2011)

High interest rates and volatile equity markets make a good case for liquid and ultra short-term (ST) funds. Given that funds in both these categories are giving around 8.5-9.5% and are considered relatively less risky owing to the short maturity of the securities held by them, they are good instruments to park funds in the interim. But which should you choose--a liquid fund or an ultra ST fund?

LIQUIDITY PROFILE AND RISK

While liquid funds invest in securities with residual maturity up to 90 days, ultra ST funds can invest in securities with maturity higher than 90 days. At present, the average maturities for liquid funds are around 45-60 days; for ultra ST funds, they are about 150 days or lower.
At the time of purchasing liquid funds, if your funds are transferred before 2pm, you get the previous day's net asset value (NAV), else the same day's NAV. For ultra ST funds, there is no such provision; if you transfer funds before 3pm, you can get the same day's NAV, else the next day's NAV. At the time of redemption, the same day's NAV is applicable if the funds (both liquid and ultra ST) are redeemed before 3pm; the redemption pro- ceeds go to the investor the next day. Liquid funds are generally considered less risky as compared with ultra ST funds on account of the fund duration being lower. Moreover, there is no mark-to-market requirement in liquid funds and NAV valuation is done on accrual basis by adding the coupon accrued for the day. For ultra ST funds, the portions of securities with a maturity above 90 days have to be marked to market. In other words, the change in their market price as a result of change in yield has to be recorded on a daily basis, which may cause additional volatility in NAVs. Generally, the marked-to-market portion of the portfolio in ultra ST funds is not high, thereby minimizing the impact of price change.

TAX TREATMENT
The tax implication makes ultra ST funds attractive. Liquid funds are subject to a dividend distribution tax of 25% (effective rate after surcharge and cess is 27.04%). For ultra ST funds, the tax is 12.5% for individual investors (effective rate 13.52%). The short-term capital gains tax (for growth units) in case of both is as per your income-tax bracket; long-term capital gains tax is at 20% with indexation.

EXIT LOADS
Liquids funds usually don't have an exit load. Ultra ST funds charge exit load in the range of 0.1-1% if funds are redeemed before a specified time period, in the range of one week to six months. The exit load helps ultra ST funds maintain stability and manage fund outflows better. This is beneficial for small investors and reduces NAV volatility.

WHAT SHOULD YOU DO?
While liquid funds score better on liquidity, ultra ST funds give better returns. Currently, the category average pre-tax annualized return for ultra ST funds is around 9.5% and for liquid funds 8.25%. Remember to check the exit load and the credit quality of the portfolios.

Only 15% of private sector staff in India are investing for retirement

As low as 15 per cent of employees in the private sector have started investments for retirement so that they can maintain the level of living standard post the work period, says a study by Metlife International.


http://www.financialexpress.com/news/15-pvt-sector-staff-invest-for-retirement/875146/0

Now earn up to 16.53% returns from public provident fund

http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/now-earn-up-to-16-53-returns-from-public-provident-fund/articleshow/10733486.cms

Impact of Direct Tax Code on Insurance - ET (8th Nov 2011)

It’s time for the annual taxsaving rigmarole to start – calls to your chartered accountant or financial planner, poring over documents, discussions on best-suited investment options, and so on. Things may not be much different this year from before, except for one key difference. You could see your planners considering the proposals in the Direct Tax Code (DTC) while drawing up the list of tax-saving instruments for you. Since many individuals prefer to (or are goaded into) buying life insurance policies merely to save tax – a tendency, say financial planners, that is not advisable at all – here’s what you need to know about tax breaks pertaining to life and health insurance policies under DTC. 

While DTC is yet to be formally legislated and, hence, is subject to change till it is implemented, it wouldn’t hurt to keep an eye on the proposals while planning for the current year. And the chief reason why you need to understand DTC’s provisions on insurance is because it will have retrospective effect, which means policies that you may buy this year keeping the current norms in mind (and even those bought in the past, if any) might see different tax treatment in future. Under the current laws, an individual can claim deduction on premium of up to . 1 lakh per annum paid as premium for life insurance. Life insurance is among the many tax-saving avenues under section 80 C of the Income-Tax Act. The section also offers tax breaks on investments in provident fund, pension fund, and ELSS (equity-linked saving schemes), besides home loan principal repayment and children’s tuition fees. If DTC is implemented in its existing form, the total savings-related deduction will be . 1.5 lakh. 
However, out of this, an aggregate deduction on life as well as health insurance premium and children tuition fees will be restricted to . 50,000. What’s more, you will not be entitled to deduction on life insurance premium if it exceeds 5% of the policy’s sum assured. That is, if your policy offers a cover of . 10 lakh, then your annual premium cannot be more than . 50,000. 
If your policy structure does not meet this condition in any of the years, you will also have to pay tax on the proceeds received upon completion of the tenure. This apart, the maturity proceeds will be exempt from tax only if they are received upon completion of the original period of contract of the insurance. 
Another change is that both forms of insurance – life and health – are clubbed together for calculating deductions unlike now, where health insurance-related concessions for premiums up to . 35,000 (or up to . 40,000 in some cases) fall under section 80D.

Buy Health Insurance as Early as Possible to Make the Most of it - ET (2nd Nov 2011)

Over the past decade, the entry of private players has managed to change customers’ perception about health insurance policies. With all the information about insurance being readily available and considering the fast-changing lifestyles, customers are waking up to the fact that it is an absolute necessity to insure their health. This rapidly changing state of affairs has also made insurers to drastically improve their levels of services and concentrate on customer satisfaction. Insurers now customise their products according to the needs of their customers, thereby improving the service levels in the market. 

With the ever-increasing medical costs, an unexpected illness/disease/accident leading to hospitalisation is likely to make a serious dent in the pocket of those hospitalised. It is, therefore, imperative for one to invest in good health insurance policies to guard against unexpected contingencies. 
Gone are the days when consumers bought insurance policies to just save tax. Now, many buy health insurance as a collective security tool for his/her family, as everyone is bound to go through unforeseen circumstances. However, there is still a sense of doubt in the customers’ mind on what product package suites them the best. 
There are various aspects one needs to look at while purchasing health insurance policies: 
    The right age to purchase the policy 
    The appropriate medical tests the customer needs to go through prior to purchasing the policy 
    Ways to maximise returns from the policy 
    The appropriate riders or addons that go hand-in-hand with the policy purchased 
    The ailments the policy covers 
    Family history of critical illnesses, when the customer is advised to go for a smart health critical illness cover 
When it comes to health insurance, the golden rule is ‘the earlier the better’. Insuring self and family from a relatively young age and ensuring that policies are renewed on time to ensure uninterrupted coverage will enable the policyholder to get the best possible coverage at the most competitive prices. Most companies have minimum and maximum entry ages for their policies and it is important to check these before opting for an insurance policy. Many companies also insist on mandatory medical tests once the proposer crosses a certain age (usually 40 to 45 years of age) and, hence, it is advisable to avail of insurance cover before this age. 
It is also advisable to get your insurance consultant to brief you thoroughly on the salient features and benefits of the insurance policy you intend to purchase and also obtain a comparison between various insurance policies on offer to decide which one best suits your needs. Medical insurance policies, like all others, have exclusions and it is equally important to understand what is not covered under a policy. Understanding the exclusions will go a long way in sparing you the frustration associated with the rejection of a claim. 
Many medical insurance policies provide add-on benefits either free or at nominal additional cost. It is always worthwhile to check out these benefits since they cover certain expenses, which would not otherwise be covered. Some prominent add-on benefits include: 
    Hospital cash allowance 
    Home nursing 
    Parent accommodation as a companion for children 
    Ambulance charges 
    Cover for charges on in-patient physiotherapy 
    Cover for expenses incurred by accompanying person 
    Children’s education fund 
It is also recommended that apart from investing in a basic medical policy that covers expenses incurred during hospitalisation, one should look at other policies that provide comprehensive medical coverage. Some of the important products to be considered include: 
    Critical illness policies 
    Hospital cash policies 
    High deductible policies 
Investing in medical insurance also entitles customers for tax deduction under section 80D of the Income-Tax Act. 
In short, purchasing a medical insurance policy is a serious, deliberate and long-term decision. It is imperative for one to opt for a custom-made product to suit their specific individual needs. Expending some time and effort to select policies with the most comprehensive coverage would be a very worthwhile investment that would guarantee piece of mind.

Amarnath Ananthanarayanan 
MD & CEO 
Bharti AXA General Insurance

Make your Insurance Portfolio DTC ready - ET (2nd Nov 2011)

Review your insurance portfolio now as the proposed Direct Tax Code won’t offer tax breaks for all your life plans

PREETI KULKARNI 

    Endowment plans (or traditional plans, in life insurance industry parlance) may see some changes soon. Always a crowd favourite, traditional plans — life insurance plans that give you insurance cover plus a bonus on maturity or the insured amount to your dependants on your death — have regained their lost glory after the recent changes in the guidelines on unitlinked insurance plans, or Ulips. Ulips had stolen the thunder from traditional plans, but that changed after the new guidelines were introduced. Insurance sellers have again started focussing on traditional plans for attractive commissions. However, the Insurance Regulatory and Development Authority, or Irda, chief J Hari Narayan has expressed concerns over the low protection component in these (traditional) products. He feels such products may not match the requirements of the Direct Tax Code (DTC) proposals, which would offer tax breaks only if the sum assured is at least 20 times the annual premium. As a result, the regulator is considering prescribing a minimum threshold in terms of the life cover to be offered by such traditional products. Even as the regulator carries on with its deliberations, it is time for you to assess the protection component of your endowment policy. 
THE TAX ANGLE In fact, this is the right time to do the exercise, as you will be giving finishing touches to your tax planning investments. You can also expect calls from insurance agents, who would try to sell you policies that offer the triple benefits of tax-saving, insurance and investment. And, most probably, the agent will try to sell you a traditional product. “Insurance policies entail recurring premium payments and, thus, the decision you make this year may have an impact in the future years, too, if the DTC takes effect in its current form,” says Rajesh Srinivasan, senior director - tax, Deloitte India. The DTC is likley to come into effect from April 2012. 
Ideally, it is best to address the objectives of insurance, investment and tax-saving separately. However, if you have decided to choose insurance this year to reduce your tax outgo, it would be wise to keep an eye on the annual premium payable and the other terms and conditions of the policy. Ensure that the premium does not exceed 5% of the sum assured. Also, see if the endowment plan comes with a decreasing cover option, and if it does, whether it’s likely to fall short of your requirements any time in future. 
SECURE YOUR FAMILY’S INTERESTS Apart from the tax implications, you need to remember that the primary purpose of taking a life insurance policy is to provide for your family financially on your death during the tenure of the policy. However, due to blind reliance on agents’ advice and lack of awareness or research, it is not rare to hear of policyholders being stuck with multiple policies — for instance Ulips, endowment, moneyback and pension policies — and yet being low on cover. 
The total premium payout may run into lakhs of rupees a year, but the amount that the policyholder’s dependants may get in his/her absence may not be enough to fulfil their needs. 
Therefore, the first step while buying insurance or reviewing your portfolio is to find out if the current policies add up to your ideal protection requirement. There are various methods of determining this figure, but as a thumb rule, financial planners suggest that the sum assured should be at least 100 times your current monthly income. 
WEEDING OUT THE UNDESIRABLES Now, after a review, if you feel that your portfolio is not overloaded with policies and that you need to boost the sum assured, you can simply go for a pure term life policy – the cheapest and the most-recommended form of insurance. Buying such policies online will reduce your premium further. However, if you find yourself in a situation where the protection element is minimal despite the presence of several policies, the solution could be a bit more complicated. For, it would necessitate ending some policies, and, if required, replacing them with requisite term cover. 
You need to take into account several factors, including the cost structure of your policies, returns, tenure, number of policy years completed and the cost of acquiring a new policy, before arriving at a decision. 
“Low-yield traditional policies can be converted into paid-up ones, if it does not make any sense to continue with them,” says Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories. “One of the things to look for is how much cash a policy is sucking in and what kind of returns one can expect if the policy is continued with. One can figure out based on conservative estimates what an endowment or moneyback policy has offered as bonus in the past.” An endowment policy acquires a surrender value after completing three policy years. “However, the decision to surrender or make a policy paid-up also depends on a person’s circumstances. There are certain people who may not be able to get new policies. In such cases, we take a call on keeping the policy on if it does not pose a cash-flow problem,” Sadagopan says. 
In case of Ulips, the lock-in period is five years for plans issued after September 1, 2010. The accumulated funds of the Ulips discontinued before five years will be locked in and paid out on the completion of this period. Here, you can look at the increase sum assured option, too, but you need to bear in mind that even if premiums do not go up, the amount allocated towards investments will go down, as the mortality charges will certainly see a rise. 
In short, you would do well to take a cue from the regulator and evaluate your insurance needs and the level of preparedness that your current policies offer, particularly if they are endowment products with low insurance component. 
TOMORROW It is the End of Advisors as You Know Them