Systematic Investment Plan (SIP) as we know it, has become the most favoured route of investments for not only the investors but also Financial Advisors in India. That is not surprising since they have so many advantages:
Become a Disciplined Investor
A SIP helps you to discipline yourself. You can commit a fixed amount each month to investments, and the amount gets invested at the pre determined date. This ensures that money does not lie in your savings account at a meagre 3.5% and there is no temptation to spend that amount as it is not there to spend.
Rupee Cost Averaging
Enormous sums of money have been lost by investors in a bid to time the market. But no one has been able to do it consistently. When experts have failed, the rookie investors will obviously not be able to gain much. It is a useless activity, even attempting to time the increasing volatile markets. SIPs ensure that a fixed amount is invested irrespective of the ups and downs in the market and hence the cost of acquisition of investments is averaged out.
The timeless principle is "Buy Low Sell High". However, investors tend to sell out when there is a fall in the markets due to panic. A rising market tempts them to enter the markets at high levels. SIPs help overcome this problem.
Bit by Bit, you can grow your fortune
Achieve your Financial Goals
Your future financial goals like buying a car, buying a house, a child's education can be converted into the required monthly SIPs. For example, if you need INR 6 lakhs after 4 years to purchase a car. Assuming that your investments earn 15% per annum, you will need to save INR 9,198 per month to achieve a corpus of INR 6 lakhs. By converting your goals into monthly investments, you can view the achievability of your goals clearly and this also motivates you to stay on track with your investments.
Compounding Benefits
The biggest advantage of regular long term investments, compounding benefits. The investments made continue to grow year on year and the invested profits participate in growth in future years.
Effortless Investments
Once initiated an SIP can go on for as long as you want it to run with no further intervention required from your side. With a simple instruction, the SIP can be stopped at anytime.
The convenience, returns and all the other benefits of SIPs have made SIPs the most preferred and the favoured form of investments. If you still have any questions, you can ask the same in the comment section below.
Did you know that you could know all the details about your mutual fund investments by just giving one missed call to the mutual fund company? Many people are not aware of this feature provided by most mutual fund AMC's.
This facility is available anytime, anywhere in India round the clock.This is the total cost-effective way of knowing the mutual fund balance instantly.
What are the details you will get it by giving a missed call?
1) Your Folio(s) Details
2) The total valuation of your Folio(s)
3) Scheme-wise valuation(s) for your investment(s)
4) Few AMCs provide facility to send the statement to your registered Email Id too.
Eligibility to know Mutual Fund Valuation with Missed Call facility
It is free but it does not mean all can avail of this facility. There are certain eligibility conditions and they are as below.
The facility is available only for folio(s) where you hold any units.
The mobile number has to be registered in the folio(s).
For receipt of account statement, the email ID has to be registered in the folio(s).
Missed Call Facility – Know Mutual Fund Valuation via SMS instantly
Now let me explain you the procedure to know the mutual fund valuation via SMS instantly at free of cost.
Give a missed call to respective Mutual Fund Companies provided Missed Call facility numbers (I shared the list below) from your registered mobile number. You may prefix “+91” to the number if you are not able to get through or if you are dialing from a registered international mobile number.
You may hear a message acknowledging receipt of your missed call. (The phone will get cut in case of a few companies, however, you must wait, you will receive all the date in the form of text messages)
You will shortly receive SMS on your registered mobile number providing scheme-wise valuation(s) along with total valuation.
The details will be received for all your folio(s) where you hold any units and the aforesaid mobile number is registered.
If email ID is also registered, then the account statement will be additionally received for the folio(s) on your registered email ID.
If your mobile number is not registered, you shall receive an SMS stating the same with a request to get the mobile number registered with us in the folio(s).
List of numbers of Mutual Fund Companies to know Mutual Fund Valuation via SMS instantly
Here are the numbers with respective AMCs whereby giving a missed call, you can know Mutual Fund Valuation via SMS instantly at free of cost.
Sr No
AMC Name
Phone Number
1
Aditya Birla Sun life
8976096036
2
DSP Investment Managers Pvt Ltd
9015039000
3
HDFC Asset Management (India) Pvt Ltd
8506936767
4
ICICI Prudential Asset Management Company Ltd
8882244488
5
IDBI Asset Management Ltd
9212993399
6
L&T Investment Management Ltd
9212900020
7
SBI Funds Management Pvt Ltd
8010968318
8
UTI Asset Management Company Ltd
9289607090
9
Karvy Missed Call Facility to receive SMS from Karvy Services AMCs
ELSS or Equity Linked Savings Scheme is a dedicated mutual fund scheme which helps you save tax. When you invest your money into a mutual fund - ELSS scheme, you get a deduction under section 80C of the Income-tax Act, 1961 of an amount up to INR 1,50,000.
An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high returns. Hence, ELSS is an equity mutual fund bearing similar risks and returns.
1. Lock-In period of ELSS of 3 years and more.
You have to stay invested for 3 years into an ELSS fund to continue the benefit of tax savings. However, many people believe that after 3 years you have to sell the ELSS. This is not true. You can stay invested for as long as you prefer based on your goals and market movements. There is no upper limit. In fact, if you want you can sell your ELSS before 3 years as well, you just have to bear the penalty and pay the tax you saved by investing in ELSS in the first place.
In fact, compared to other 80C investment options available, ELSS has the least waiting period. Like PPF has 15 years, the fixed deposit has 5 years and ELSS has only 3 years.
2. You can invest more than INR 1,50,000 into ELSS
Given that ELSS is an 80C investment option, many people assume that only INR 150,000 can be invested in any ELSS scheme. You can invest a minimum of INR 500 and maximum of anything into ELSS (like any other mutual fund).
3. It gives a higher return and hence, higher risk
ELSS are equity-based mutual funds and hence, the return on the same is higher. High returns mean higher risks. There is a good possibility that at the end of 3 years, there are negative returns in ELSS. As we have always said, equity investments are for long term goals and you must stay invested in equity for at least 7 years to avoid the risk of nil or negative returns. Countless studies prove that one can beat volatility and make superior returns from stocks by staying invested for a long period. You should remind yourself that equity has the potential to offer superior returns than other asset classes over a long period.
4. Growth or Dividend - ELSS Fund
If you choose the Growth option it ensures compounding your capital in the mutual fund investments. The final amount can be redeemed once at the end of the lock-in period.
But, the dividend option gives you some amount for various periods of time. It offers some liquidity even during the lock-in period. This dividend paid out can be further invested in other mutual funds depending on the investor’s portfolio or re-invested back into ELSS Fund.
The dividend received by the investors from these mutual funds is tax-free in the hands of the investors.
5. The tax of ELSS mutual funds
ELSS funds are equity mutual funds. Capital gain tax on ELSS funds is the same as in equity mutual funds.
If you sell your equity mutual funds after a year, the returns will qualify for long-term capital gains a tax (LTCG).
Investors will have to pay 10 % tax on profit gains exceeding ₹ 1 lakh made from the sale of stocks or equity oriented mutual fund schemes held for over one year. If you sell your equity mutual funds before a year, you will have to pay short-term capital gains tax of 15 percent on your returns.
Hence, ELSS helps you to save taxes by allowing a deduction of 1,50,000 but they are themselves not a tax-free product and returns from ELSS are taxable exceeding 1 lakh INR.
Wealth Cafe tip - Do not just look at the returns and invest in ELSS, invest with the same mindset in ELSS as you would in any other mutual fund. Also, do not just sell ELSS after 3 years. Sell them only when your goals for which you investing in ELSS is achieved or reaching near.
Annualized return and CAGR are not technically the same thing. They refer to the returns on various investment options computed on per annum basis. All long term investments multiply by your wealth by compounding.
Where investment has grown at different rates over a few years, CAGR is the formula used to define the number at which the investment has grown year on year.
Compounded Annual Growth Rate (CAGR) shows how much a person’s investment grew in one year. In other words, it is the average returns an investor earns on his investments after one year. The bank or the financial institution calculates this rate in terms of annual percentage.
How to calculate CAGR?
To calculate CAGR, you must know the following:
The investment made in the initial year (the year of investment)
Amount invested in the current year and
Tenure of investments
CAGR = [(End value/beginning value)^(1/year)] – 1
Example:
For example, you bought a stock for ₹100 in 2015. It appreciated by 25% to ₹125 in the year 2016 and further appreciated to ₹150 in the year 2017. Therefore, the appreciation in the rate from 2015 to 2017 was 20%.
If you want to know the growth rate of your investments for the complete period of time, use CAGR. If we put the above values in the formula, Compound Annual Growth Rate for your investment between 2015 and 2017 will be 14.47%.
Mutual Funds/Equity and CAGR
Return on any investment is discussed in terms of CAGR. Especially, in case of equity and mutual fund investments. When you invest in mutual funds, the return that is shown in CAS statements and your Dmat statements are in CAGR.
This is because the actual return % on mutual funds is dependent on the movement in the stock market which keeps changing. It never grows or falls at a fixed rate.
Hence, it could be possible that an investment in mutual fund grew at the rate of 20% in year 1, 30% in year 2, 10% in year 3. In such a case, it becomes very difficult to discuss the actual gains. This is when and why CAGR is used in market-related variable returns investments.
In our Article, how to set goals, we have discussed the expected returns on various asset classes, we are always talking about CAGR.
Wealth Cafe Note:
CAGR is an average rate. Hence, if a CAGR is of 15% of an investment made for 4 years. It could be possible that the first 3 years have 30% gains and the next 2 years lower gains.
The gains are not distributed evenly over the period of investments. One must stay invested for the right time based on the asset class to benefit the most.
CAGR is different from absolute returns and year-on-year gains.
There is a chance that two investments may reflect the same CAGR, with one being more lucrative than the other. This could be because the growth was faster in the initial year for one, while the growth happened in the last year for the other.
Income-tax on Long term gains made from mutual fund investments was introduced in the budget last year. It is very important to know how your mutual fund gains are taxed and report correct numbers in your returns.
3 Factors that determine the Mutual Fund Taxation
Your Residential Status-Resident or Non-Resident (NRI)
Any fund which invests 65% or more in equity is called as Equity Fund. For example, large-cap funds, multi-cap funds, small and mid-cap funds or equity-oriented balanced funds (where the equity exposure is 65% or more) are all called equity-oriented funds.
If the equity portion is less than that, then they are all treated as debt funds or non-equity funds. For example liquid funds, ultra-short term funds, short-term funds, income funds, gilt funds, debt-oriented balanced funds, gold funds, fund of funds or money market funds.
Holding periods of Investment–
The holding period for Equity and Debt Funds will be different for taxation purpose.
Equity
Debt
STCG
If the holding period is less than or equal to 12 months
If the holding period is less than or equal to 36 months
LTCG
If the holding period is more than 12 months
If the holding period is more than 36 months.
Mutual Fund Taxation FY 2018-19 -Capital Gain Tax Rates
Now that you have clarity on what is Short term capital gains (STCG) and Long term Capital gains (LTCG). Let us move further and understand the Capital Gain Taxation for mutual fund investors.
The biggest change from FY 2018-19 is the introduction of LTCG in Budget 2018. The table below will give you a brief of the same:
Note: Surcharge @ 15%, is applicable where the income of Individual/HUF unit holders exceeds Rs. 1 crore. Also, surcharge @10% to be levied in case of individual/ HUF unitholders where the income of such unitholders exceeds Rs.50 lakhs but does not exceed Rs.1 Cr. Further, Health and Education Cess @ 4% will continue to apply on the aggregate of tax and surcharge.
Where an individual/HUF total income (income from all sources) is less than the slab rate, then any income from long term or short term is a part of the slab rates.
Short Term Capital Gains on Equity Mutual funds/Equity Shares
Cost price of MF (10,000*100)
1 January 2018
10,00,000
Selling price (10,000*120)
31 March 2018
12,00,000
Gains
STCG
200,000
Tax payable (15%)
30,000
Note: There is no change in the STCG with the new amendment. STCG remains taxable as it always was. It is to be computed based on the equity or debt fund. There is no impact of 31 January 2018, cut off dates prices for STCG.
Long term Capital Gains on Equity Mutual funds
There is a cut-off date of 31 January 2018, which has been introduced for the purpose of computing LTCG. LTCG is to be computed in 2 parts:
Units purchased on or before 31 January 2018
Units purchased post 31 January 2018
Gains up to Rs. 1,00,000 is exempt while computing LTCG from equity-oriented mutual funds or shares.
Long term Capital gains on mutual funds purchased before 31 January 2018 and sold after 12 months.
There was a benefit introduced to investors by considering the cost on 31 January 2018 for the purpose of computing LTCG. However, this method can be a bit confusing so you may take expert advice. We have described the same below for your understanding:
The Cost to be considered :
Higher of Actual cost or (the formula amount)
The Formula Amount is Lower of
The highest price of the unit on 31 January 2018 from all recognized stock exchange.
Actual Selling Price
For Example:
Date of buying – 1 April 2017
Date of selling – 31 April 2018
Number of Units – 10,000
Price of MF on following Dates
Sr. No
Dates
Price
1
Date of buying (1 April 2017) – Actual Cost
100
2
31 January 2018 (highest price on cut-off date)
150
3
Date of selling ( 30 April 2018)
120
Step 1 – Calculate the Formula Amount i.e. Lower of (2) and (3) i.e. 120 (lower of 150 or 120)
Step 2 – Calculate the cost to be considered i.e. higher of (1) or Step 1 answer – 120 (higher of 100 0r 120)
Hence,
Cost price of MF (10,000*120)
12,00,000
Selling price (10,000*120)
12,00,000
Gains
Nil
LTCG (10%)
Nil
Things to Note:
Comparison of prices on 31 January 2018 is done to compute the considered cost price.
The highest price of the MF/share as on 31 January 2018 is to be considered for this calculation.
Final selling price is the lower of 31 January price or the price on the selling date.
Hence, this cost determination method may lead to nil gains, benefitting the investor.
The gains will not be Nil in all the cases.
This method will never lead to a long term capital loss for an individual/HUF.
Long term Capital Gains on mutual funds purchased after1 February 2018
No comparison of prices as on 31 January is required. However, the exemption limit of Rs. 1,00,000 is available.
Cost price of MF (10,000*100)
1 February 2018
10,00,000
Selling price (10,000*120)
10 February 2019
12,00,000
Gains
LTCG
200,000
LTCG (10%)
20,000
TAX – Savings Equity Mutual Funds
Equity Linked Savings Schemes or tax saving mutual funds are one of the most sort out for financial products under section 80 C of the Income-tax Act, 1961.
ELSS comes up with a lock-in period of 3 years. It means that once you invest in ELSS, you cannot redeem your units before the expiration of 3 years. You can claim a tax deduction of up to Rs 1.5 lakhs and save taxes up to Rs 45,000 by investing in ELSS.
Upon redemption after 3 years, the long-term capital gains (LTCG) up to Rs 1 lakh are tax-free in your hands. LTCG in excess of Rs 1 lakh is taxed at the rate of 10% without the benefit.
You can read about various ways to save taxes under section 80 C in out Article - How to save tax?
Note: It is not compulsory to redeem ELSS mutual funds after 3 years. You can stay invested for a longer duration. To maintain the 80C benefit, you must stay invested for 3 years.
Mutual Fund Taxation FY 2018-19 – Dividend Distribution Tax (DDT)
There are few investors who opt for dividend option in mutual funds. Hence, let us see the taxation on the dividend of such funds. Earlier there was no DDT for equity investors. However, from the Budget 2018, DDT @10% will be applicable to equity investors also.
Base Tax Rate
Surcharge and Cess
Total Tax
Equity Oriented Schemes
Nil
Nil
Nil
Debt Oriented Schemes
Nil
Nil
Nil
Tax Payable by Mutual Fund Companies
Equity Oriented Schemes
10%
12% SC + 4% cess
11.648%
Money Market/Liquid Schemes/debt funds
25%
12% SC + 4% cess
29.12%
Infrastructure Debt Fund
25%
12% SC + 4% cess
29.12%
Note: In spite of the 10% long term tax now payable on mutual fund investments. It is a very good form of investments and the gains made are far more to compensate the taxes to be payable on the Long term. However, it is advisable to get your returns working reviewed by an expert where you have a lot of equity/ mutual funds gains in a particular FY.
Owning health insurance covers your basic risk of health and secures your family. We have discussed in detail what are things to note while buying health insurance.
What's more, the premium paid for health insurance also provides a tax benefit by reducing your taxable income and thereby your tax liability. We are going to discuss the same here:
Deduction under section 80D of the Act
Premium paid for self, spouse and children
The premium paid towards health insurance policies qualifies for deduction under Section 80D of the Income Tax Act. The benefit is available to individuals on health insurance premium paid for self, spouse, children, and parents. Importantly, it does not matter whether the children or parents are dependent on you or not.
The quantum of tax benefit depends on the age of the individual who is medically insured.
You can claim a deduction of INR 25,000 for the premium paid for self, spouse, and children. If you and your spouse are of the age 60 and above, then you can claim a benefit of INR 30,000 for the premium paid.
Preventive Health Check-up
You can claim a deduction towards health check-ups too. It is included in the above limitations of INR 25,000 (or INR 30,000). Preventive health check-up of up to INR 5,000 is allowed.
Premium paid for parents
Premium paid for health insurance of parents/ guardians up to INR 25,000 is allowed. If they are above the age of 60, then you can claim a benefit of INR 50,000 for the premium paid.
Health checkup expenses for super senior citizens
Very Senior Citizens (who are above 80 years of age), can claim a deduction of up to Rs 50,000 incurred towards the medical expenditure, in case they don’t have health insurance.
Things to Note:
We have tabulated below the maximum health insurance and medical expenses you can claim under section 80D for the year ended 31 March 2019.
Health insurance premiums paid in cash will not be allowed as a deduction. It has to be paid from banking channels. A Health check-up of INR 5,000 can be paid in cash.
Premium paid for health insurance of your siblings is not allowed as a deduction.
*Nature of the amount spent on your senior citizens' parents and self-family can be towards medical expenditure as well.
If you are making direct investments in various mutual funds or making the same through any portal/website. You could see in the mutual fund statements that a column states absolute return and a % is mentioned next to it.http://www.wealthcafe.in/understanding-a-mutual-fund/
Absolute return is the simplest return metric that is used to quantify how much gain or loss you have made from an investment. It simply tells you how much money you have made or lost as a percentage of the money you invested over a given period of time.
For example – you invested Rs. 100 in 2010 and it became 130 in 2012, your absolute return is 30% for 2 years. It is not a per annum return.
Absolute return is the actual return that you receive for the specific period i.e. from the start to the end.
If you invested INR 10,000 in October 2018 and currently, in Feb 2019, its value is 10,600. The absolute return is 6% on this investment.
Absolute Return = Current Saleable Value - Purchase Value / Purchase Value * 100
Absolute Returns are not used for mutual fund calculations until the investment period is less than one year. The returns can be very misleading. It is mostly used for real estate investments. You must have heard people say that they bought a house in 2000 for 30 lakhs and today in 2019 the value of that house is 1 crore. This is absolute returns of 235%
Why Absolute Returns are not favorable?
It is hard to compare 2 different investments return where the time periods vary: The scope of using absolute return metric to evaluate performance is limited as it does not take into account the time period of investment and its compounding effect. For example, if Fund A gave you 25% return over 2 years and Fund B gave you 25% returns over 1 year, both of them would rank the same if you take the absolute return metric when clearly, one fund has taken longer to deliver the same returns.
It does not allow comparison against various asset classes: Different asset classes returns are generally referred to differently. Real Estate and gold are generally discussed in absolute terms whereas fixed deposits and mutual funds are discussed in annualized returns.
Absolute Return gives a false impression of high worth: Further, because absolute figures are usually high, it gives a false impression of the worth of that investment compared to others. Take the real estate example. The investment in Bombay house which fetched a gain of Rs.70 lakhs does sound grand, and an absolute return of 235% sounds even better. But when we look at the same gains in CAGR terms, it works out to be a modest 6.54%.
Tip – Absolute returns are feel-good returns but they do not give the real gain scenario. In our view, you should always compute the annualized return or CAGR. Refer our Article on the same.
Cash inflows and outflows may not always be evenly matched and instead, these could be at irregular intervals.
Specially, in a mutual fund SIP. In the case of SIP, there are investments made at regular intervals, some withdrawals, then investments and so on. There is no fixed pattern of such investments and it makes calculating the exact return on these investments a bit difficult.
XIRR or extended rate of return is a measure of return when multiple investments at different points of time are made in a financial instrument.
SIP Investments Method
In a SIP, you keep investing regularly over a long period and get back the maturity amount upon exit. SIP investments happen on a pre-decided date and even the amount is fixed and depending on the NAV of the scheme on that day, you get a certain number of units. You can read more about SIP in our Article http://www.wealthcafe.in/why-should-you-do-a-sip/
Hence, you keep accumulating units from the day your SIP starts. On the day you exit the scheme, i.e., redeem your total units, you get the maturity amount, which is NAV (of redemption day) multiplied by total units (on redemption day). You may also choose to redeem a part of your investments as and when you need them.
XIRR is used to calculate the return in the case above where various investments are made on different dates and the simple return formula is not applicable.
XIRR can be computed using an excel as excel has an inbuilt XIRR formula. To compute XIRR, we do not need the NAV amount or number of units.
The details required :
SIP Amount
SIP dates
Any lumpsum Investments
Date of such investments
Redemption Amounts
Date of Redemptions
Steps to Compute XIRR. (The steps are explained with reference to the image below)
Step 1 – Enter all the transactions in column B
Step 2 – In the next column (Column C), enter all the amounts of SIP and the lump sum investments. All the investments amount should be in negative. Also, any lump sum amount should be added to this column and the same should also be in negative.
Step 3 – In the case of redemption, add that amount in Column C in positive.
Step 4- In the next box, enter the XIRR formula which is = XIRR (select all dates, select all values)*100. This shall give you the XIRR amount.
You can see the extract of the excel in the photo below.
Senior citizens (Aged 60 years and above but below 80 years)
Super senior citizens (Aged 80 years and above)
Up to 2,50,000
Nil
Nil
Nil
From 2,50,000 to 3,00,000
5%
Nil
Nil
From 3,00,000 to 5,00,000
5%
5%
Nil
From 5,00,000 to 10,00,000
20%
20%
20%
Above 10,00,000
30%
30%
30%
You notice that there is no change in the Income Tax Slab Rates for FY 2019-20. Then how can be it is judged that there is no tax on an individual whose income is up to Rs.5,00,00? There is a change in the rebate available to individuals. Read our Article - -
2. Standard Deduction for Salaried individuals and pensioners increased from existing Rs.40,000 to Rs.50,000
In the last year budget, Government introduced Rs.40,000 standard deduction available for all salaried individuals in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses.
Now, this limit is raised from Rs.40,000 to Rs.50,000.
3. TDS Limit on Bank FDs and Post Office Schemes raised from Rs.10,000 to Rs.40,000
Earlier the TDS limit on the interest you earn was Rs.10,000. Now, this limit is raised to Rs.40,000.
This seems to be the biggest relief to many of us. BUT keep one thing in mind that AVOIDING TDS does not mean AVOIDING TAX.
4. The benefit of rollover of capital gains under section 54 of the Income - Tax Act raised
The benefit of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses for a taxpayer having capital gains up to Rs.2 Cr. This benefit can be availed once in a lifetime.
5. Your Income Tax Returns and Refunds will be processed within 24 hours
The government has now approved a path-breaking, technology-intensive project to transform the Income-tax Department into a more assessee friendly one. All returns will be processed in twenty-four hours and refunds issued simultaneously. Within the next two years, almost all verification and assessment of returns selected for scrutiny will be done electronically through anonymized back office, manned by tax experts and officials, without any personal interface between taxpayers and tax officers.
6. Income tax on notional rent on a second self-occupied house abolished
Currently, taxpayers who own two residential houses, which are not self-occupied, are required to impute a notional value for rental income for one property and the value for the other house is taken as zero. The government proposed to exempt levy of income tax on notional rent on a second house self-occupied. Now imputation of notional rental value will apply if the taxpayer owns more than two self-occupied residential houses (i.e. to the third house)
The deduction available on interest paid on the mortgage loan is restricted to INR 200,000 for both above residential houses, on which no notional rent imputation is required.
7. TDS threshold for deduction of tax on rent increased
TDS threshold for deduction of tax on rent is proposed to be increased from Rs.1,80,000 to Rs.2,40,000 for providing relief to small taxpayers.
To inculcate a habit of compulsory saving for retirement, the government of India in 2015 announced the Atal Pension Yojana for Private sector employees or employees working with such an organization that does not provide them a pension. The goal of the scheme is to ensure that no Indian citizen has to worry about any illness, accidents, or diseases in old age, giving a sense of security. It is an extension of the recognized National Pension Scheme and replaces Swavalamban Pension Yojana which wasn’t accepted well by the people.
The Government would also make a co-contribution of 50% of the total contribution, or Rs. 1000 per annum, whichever is lower, to all the subscribers who are not a part of any other statutory social security schemes (For eg: Employee’s provident fund), or should not be paying income taxes.
1. How does the scheme work?
Under this scheme, you can choose how much pension you want after you turn 60 and your contribution amount would be determined as per the table below. You contribute that fixed amount till 60 and then post you are 60, you would get the pre-selected pension amount till you are alive. After your death, your spouse would get the pension amount. Post your spouse's death, your nominee would get the lump sum amount.
Let us understand this with an example, For instance, Riya is 23 and she decides that she will contribute for a pension of INR 5000, so she would have to contribute INR 346 per month till she is 60 and post that she would get a pension of INR 5000 from APY.
There is an option of getting a fixed pension of Rs 1000, Rs 2000, Rs 3000, Rs 4000, or Rs 5000 on attaining an age of 60.
The following table tells you how much you need to contribute per annum based on your age and pension plan.
2. Eligibility
To avail of benefits from the Atal Pension Yojana, you must fulfill the below requirements:
Must be a citizen of India.
Must be between the age of 18-40
Should make contributions for a minimum of 20 years.
Must have a bank account linked with your Aadhar
Must have a valid mobile number
Those who are availing of the benefits of Swavalamban Yojana will be automatically migrated to Atal Pension Yojana.
3. How to Apply?
Follow these steps to avail the benefits of APY
All nationalized banks provide the scheme. You can visit any of these banks to start your APY account.
Atal Pension Yojana forms are available online and at the bank. You can download the form from the official website.
The forms are available in English, Hindi, Bangla, Gujarati, Kannada, Marathi, Odia, Tamil, and Telugu.
Fill up the application form and submit it to your bank.
Provide a valid mobile number, if you haven’t already provided to the bank.
Submit a photocopy of your Aadhaar card.
You will be sent a confirmation message when the application is approved. Also, you can apply for it online from your bank’s official website.
4. How to Exit From Atal Pension Yojana?
Following are the 3 withdrawal rules :
Subscriber's Death
Upon the death of a beneficiary before 60 years of age, here are the two options one can follow:
Close the APY Account
If the spouse is keen to close the APY account, he/she will get the accumulated corpus. In case a spouse is not present, the nominee will get the pension amount.
Continue the APY Account
If the spouse wants to continue the APY account, one can maintain the account in his/her name. The spouse will get the same amount as that of the beneficiary until death.
Voluntary Exit
The scheme offers flexibility in providing a voluntary exit from this scheme. In this case, the Government will only refund your accumulated contributions and earned interest over the years. You are not eligible to get the Government co-contributions in case of voluntary withdrawal.
Exit Due to Illness
You can withdraw from this scheme based on specified illness. Accordingly, the Government will refund your accumulated pension corpus to your bank account.
5. Tax Benefits
Tax exemption is available on contributions made by individuals towards Atal Pension Yojana under Section 80CCD of the Income Tax Act, 1961. Under Section 80CCD (1), the maximum exemption allowed is 10% of the concerned individual’s gross total income up to a limit of Rs. 1,50,000. An additional exemption of Rs. 50,000 for contributions to the Atal Pension Yojana Scheme is allowed under Section 80CCD (1B).
As you would notice, the contribution amount is very low, but you can consider the same while you are investing in NPS for the additional 50,000 tax deduction under section 80CCD(1B).
6. Some things you must know about APY
The Atal Pension Yojana scheme is passed by the Parliament of India in the budget session. The scheme will not be discontinued if there is a change in the Government, and your contribution is safe. Any succeeding Government has the right to only change the name of the pension scheme.
Since you will be making periodic contributions, the amounts will be debited automatically from your account. You need to make sure that you have a sufficient balance in your account before each debit.
You can increase your premium at your will. You just have to visit your bank and talk to your manager and make the necessary changes.
The Indian Government does not permit the opening of multiple accounts for Atal Pension Yojana. Therefore, you are eligible to open only 1 account.
These charges are very minuscule and should not really be considered as a major deciding factor for this investment. We have shared it for your information.
8. Penalty Terms
If you delay the payment of the contribution, then the below-mentioned penalty will be charged:
Rs.1 per month for contributions up to Rs.100 per month.
Rs.2 per month for contributions up to Rs.101 to 500 per month.
Rs.5 per month for contributions between Rs.501 to 1000 per month.
Rs.10 per month for contributions beyond Rs.1001 per month.
If there's a continuous default for 6 months, your pension account will be frozen and if there's a continuous default for 12 months, the account will get closed and whatever balance is left after the above-said deductions will be given to the subscriber.
It is best if you set up an auto-debit from your bank account to avoid these penalty charges.
Wealth Cafe Advice
We understand the pension received each month is a small amount, however, it is a great pension (and the only government security pension scheme) available to Indians. And also, the numbers are based on an average return of 8%. APY is a great investment option for you to start your investing journey and develop the habit of saving for your retirement, especially where your employer has no EPF and other retirement options available. Further, where you and your spouse both apply for it, a fixed pension of INR 10,000 post-retirement is also set so you just have to work towards the balance amount. In conclusion, there are no negatives to these schemes, with very small early contributions, you can get a fixed pension and insurance for your nominee with a government guarantee. We would highly recommend everyone to apply for this scheme and make the most of it.
If you have any concerns with respect to this scheme, you can email us your queries at iplan@wealthcafe.in
You can use the calculator provided by the government to calculate your corpus in comparison to your Invested amount - APY CALCULATOR
You can also check for other benefits provided by the government:
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