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Are ULIPs Taxable Like Mutual Funds? Budget 2021 Update

Hi there

Until last year many people invested in ULIPs (Unit Linked Insurance Plans) to make the most of the tax benefit that one would get from it. They gave you insurance and investment benefits along with no taxation. However, this loophole is now covered in Budget 2021, which has made ULIPs taxable.

However, to bring equality between ULIPs and Mutual Funds, during the Budget 2021, the Finance Minister proposed the changes in the taxation of ULIPs. Let us take a look at the new taxation rules of ULIPs.

 

Taxation of ULIP

There are three aspects of taxation that we have to consider while investing in ULIPs.

1. At the time of Investing
2. When you surrender or ULIPs mature
3. At the time of death

 

1. Tax deduction at the time of Investing

This is still applicable up to INR 1,50,000 per annum towards your premium for ULIPs under section 80C of the Income-tax Act,1961.  You can claim a deduction for the investment made for himself, spouse, or children (dependent or independent) and HUF can claim a deduction for the investment made for any member of HUF.

The deduction under section 80C is restricted to 10% of the sum assured. It means suppose the sum assured is Rs.10 Lakh, then the premium that you pay under the ULIP should be up to the maximum of Rs.1,00,000. If the premium is beyond 10%, then it is not eligible for deduction under Sec.80C. Only INR 1,00,000 will be eligible for deduction.

One more important point to understand here is that, If you stop the premium payment before the expiry of five years or you terminate your participation by notice to that effect, the aggregate of deductions allowed to you in the earlier years shall be considered as your income and will be chargeable to tax in the year in which such termination or cessation occurs as per your income tax slab.

Do remember that you can pay the premium as much as possible. However, the benefit in Sec.80C is limited to Rs.1,50,000 a year and the premium must be 10% of the sum assured.

 

2. Taxation at the time of Maturity 

This is where the budget has made a change

Before the Budget 2021

Any sum received under ULIP including the bonus on such policy was not taxable (exempt) under section Section 10(10D) of the Act. However, if the premium payable for any of the years during the term of the policy exceeds 10% of the actual sum assured, then no exemption is allowed.

After the Budget 2021

Effective from 1st February 2021, no exemption is allowed under Sec.10(10D), if the amount of premium payable for any of the previous year during the term of the policy exceeds Rs. 2,50,000.

However, if the total premium payable during any financial year is less than Rs.2,50,000 (including all the multiple policies), then you still enjoy the tax-free maturity benefits under Sec.10(10D).

The budget 2021 states that any amount allocated by way of bonus on such policy, then, any profits or gains arising from receipt of such amount by such person shall be chargeable to tax under the head “Capital gains” in the previous year in which such amount was received.

The manner in which the income will be taxed is not yet notified.

Under ULIPs you have the option to select if you are investing under the debt funds or the equity funds, now given the taxation of debt and equity is different there was a question on how your gains from ULIPS be taxed. In the Finance Budget 2021, it is proposed to cover ULIPs to which exemption under Section 10(10D) does not apply on account of the applicability of the fourth and fifth proviso thereof. Thus, the high premium ULIPs shall be considered as Equity Oriented Fund even if a portion of the fund is invested in the debt-based scheme.

Thus, the long-term capital gains, in excess of Rs. 1,00,000, shall be taxable at the rate of 10% without indexation under Section 112A. Whereas the entire amount of short-term capital gains shall be taxable at the rate of 15% under Section 111A. The ULIPs shall be considered as a long-term capital asset if they are held for more than 12 months and short-term capital assets if held for 12 months or less.

One more important aspect to consider here is the taxation about the switching. As of now, switching from one fund to the other provided the maturity/redemption of units of ULIPs are exempt under Section 10(10D). However, as per the new proposal, if the premium is more than Rs.2,50,000, then they are not eligible to claim the exemption under Sec.10(10D). In such a situation, we have to wait for clarity about the taxation on switching of the policies whose premium is more than Rs.2,50,000.

 

3. Taxation of ULIPs at death

In the event of the death of the policy-holder, the exemption shall not be denied under Section 10(10D) from either of the policy, that is, excess premium policy (more than 10% of sum assured) or higher premium policy (more than Rs. 2,50,000).

Hence, irrespective of the premium amount, the death benefit is always tax-free in the hands of the nominee.

If you are considering investing in ULIPs now, ensure that you account for taxation of the same going forward.

 

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

 

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

 

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    Insurance / Tax - 02/11/2021
    10

    Leave Travel Concession Cash Voucher - new ways to claim your LTA

    Hello fellow investors,

    It is that time of the year where we all start planning to submit your tax proofs to claim tax deductions. One such claim is the Leave travel allowance. Given that, none of us are really venturing into travel, a new component of leave travel concession - a cash voucher was introduced for salaried individuals.
     
    This leave travel allowance (cash voucher) scheme initially announced for central government employees has now been extended to all other employees with riders to boost consumption during the festive season and also help you get tax deduction. The government has announced that all non-central government employees will be eligible for income tax exemption for the entire leave travel concession amount up to Rs 36,000 per person without producing travel bills. However, such employees will have to spend three times the amount for purchasing goods or services on which GST of 12% or higher is levied, said a press release from the Central Board of Direct Taxes.
     
    Employees will have to make purchases through digital payment mode and submit the invoices to avail of the benefit.
     
    What’s LTC For Private Sector? 
     
    Unlike government employees, their private-sector peers have a part of their salary or cost to the company, structured as leave travel concession. This is done to save tax on the total income of the employee. By showing travel expenses, the employee can avail of the income tax exemption on the travel amount. Those who haven’t availed of this benefit during 2018-21 would be eligible for the tax exemption.
     
    Points to Note:
    • The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the current block (the year 2018-21); 
    •  The employee spends a sum equal to three times the value of the deemed LTC fare on purchase of goods/services which carry a Goods and Services Tax (GST) rate of at least 12% from GST registered vendors/service providers through digital mode; 
    • The expense is made between 12 October 2020 and 31 March 2021; and 
    • The employee obtains the voucher indicating the GST number and the amount of GST paid.  
     
    What Government Is Offering An employee?
     

    An Employee who has not availed LTC during 2018-21 would be eligible to avail of the tax exemption subject to the condition that the person spends three times that amount on goods or services with GST of 12% and above.

     

    Those who spend less than three times the fare amount will get proportionate income tax exemption. For example, if the LTC fare is Rs 20,000, and is claimed for a family of four, then the employee would get Rs 80,000 (20,000 x 4). The amount that the employee will have to spend would be Rs 2,40,000 (Rs 80,000 x 3). However, if the employee ends up spending only Rs 1,80,000, the person would get  tax exemption of Rs 60,000 (75% of 80,000 or 1/3 of 1,80,000).
     
    Thus, this income tax benefit may actually be considered as a discount on expenditure, which the employee has already planned to incur, instead of a reason to incur expenditure. On the other hand, income tax foregone by the Government may be offset by the additional GST revenue on expenditure incurred by the employees.
     
    It is advisable to check with your HR department and your employer to see if the policy is modified to include the leave travel concession component and how you can claim this benefit for yourself. It was initiated to encourage people to shop more and take tax benefits on the same, so don't rush to buy new items but if you are buying anything, ensure you have GST documents of the same to claim tax benefits under LTC.  



    Debt / Equity / Investments / Money tips - 11/27/2020
    17

    Harsh Mehta - 1992 Scam - Our Learnings

    Hello fellow investors

    Ishq hai, toh Risk hai!! Today, I am going to talk about the most acclaimed show of the Indian network currently - Harshad Mehta - 1992 Scam. Don't worry I am not going to give any spoilers. Through this article, it is my attempt to share the learnings about investing that we all can take home and apply.

    Harshad Mehta, a name which is could be new to many young investors but is the reason why my father moved to Bombay and took up finance as his profession. He was the living God for many young investors back in 1992 and he also helped many people make money in the market. However, when the basis of his work and reality came to light, he also became the reason for many people losing their entire life savings. 

     


    Let's check out the learnings you budding investors can take from the show:

    1. The 3 main fundamentals of investing in the stock market are 1. Have common sense 2. Do research on the fundamentals of the company 3. Do not underestimate how behavior and investors' confidence changes the tides of the market.
    2. The entire show in fact focuses on the fact that the blinding trust of people in Harshad made them buy stocks of companies he was buying even where some of the companies had no business or value. Never just invest in tips + articles - Do your own research, it is your money. 
    3. Fear of missing out (FOMO) can lead to higher losses if not managed properly. You need to be able to control your emotions. Buying when the market is going up in the fear of missing out could make you lose more money. Buy when the price is right, not because everyone else is buying.
    4. When you invest on the basis of a tip from anyone you are gambling in the market, playing your chances not really investing any money on fundamentals.
    5. No one is the god of the market, the market waits and listens to nobody, there are many players and forces that make the market move, and having a proper process which guides you when to enter and when to leave will help you manage your risk of investing. One such process is asset allocation. We have written many articles to explain how this process helps you overcome your fear and FOMO and invest as per your risk-taking capacity.
    6. Equity Investing is RISKY and has always been but over time, various financial institutions and SEBI has better control to protect the interest of investors, having said that there have been many crashes after 1992 which are beyond our control (including the one in March 2020). One thing to remember as an investor is a market high in 1992 was 4000 and 2020 was 40,000. After every crash, the market does bounce back, all you have to do is give it time. Hence, the key to success in Equity Investing has always been Long term !!
    7. There will always be another market crash around us waiting to happen, we can never time that or control. As investors what you and I can control is our learnings, investing basis true fundamentals, and building a balanced portfolio that is designed based on goals and asset allocation, phir Harshad Aaye ya corona, Hume Nahi koi Rona Dhona.

    This was a small email with some very detailed take-aways. Do enjoy the show, there are so many things to learn from it and I could not feel more proud to be a part of the time and space where Indian television is making shows which highlight the importance of financial literacy. The main learning from the entire show is that we must know how to manage our money, we must be financially aware so that no one can take any undue advantage of us and our money.

    On this note of learning and becoming more aware, I want to inform you that we are coming out soon with our new course on money management - Namaste Money only for you - newbie investors. This will be a detailed online course where we will teach you everything from debt and equity to mutual funds to asset allocation. All our days and nights are going into finalizing the content of this course and opening it for registration. You can read all about 1this course here. Don't forget to give us your feedback.

     

    Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



    stock market / Uncategorized - 10/20/2020
    16

    Digital Gold: Have you pocketed everything you need to know?

    Hello fellow investors

    Digital Gold is considered as one of the best and most convenient ways to invest in gold for us gold love-stuck Indians. In the past one year, every other payment app like Paytm, Google Pay and now even Amazon Pay has joined the players who offer Digital Gold. Even many stockbrokers have joined the offering to cater to the Indians' love for Gold.

    The increasing gold prices and higher returns in the past 1 year have only further affirmed this love. Is this digital gold all that glittery for real?  Have you looked at the fees, cost structure, and the regulations behind buying digital gold? Read this article to understand the various nuances of digital gold and things to consider before buying digital gold (only for convenience)


    Digital Gold – Have you pocketed everything you need to know?

    The entire mantra of Digital India has been pushed to gold as well and now an investor can purchase gold using payment apps like Paytm, Phone Pe, Google Pay, Amazon Pay, etc.

    As investors, it is important to be aware of how Digital Gold functions; where is the money eventually going, and how cost-effective this investment is. Here we will break down these concepts for you and help you have a well-informed discussion about digital gold and it will offer you insights if you should go for it or not.



    What is Digital Gold?

    Digital Gold is a way to invest in physical gold ‘digitally’. It is offered by 3 main vendors in India – Augmont Gold; MMTC-PAMP India Pvt. Ltd (a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP) and Digital Gold India Pvt. Ltd with its Safe Gold brand. Various payment apps such as – Paytm (Safe Gold), Google Pay (MMTC-PAMP), Amazon Pay (Safe Gold), and investment platforms such as – Kuvera, Groww, and stockbrokers bring to you this digital gold in partnership with one of the three vendors. There are many new financial service providers who are adding digital gold to their bouquet of services.

    So how does this work? When an investor buys gold via these apps, physical gold equivalent to that amount is kept safely in a vault under the security of the vendors. The investor can then choose to sell the gold at any time using the same app or convert it into gold coins (after reaching a certain limit).

    Digital gold enables an investor to buy, sell, and accumulate pure gold of finesse 99.99 (24K gold) infractions anytime, anywhere. Thus, even with a minuscule monetary investment of INR 1, an investor can buy gold (even if it’s a minuscule quantity of it) at their convenience regardless of the time and place. What’s more, is that one can do so without worrying about the purity of gold.



    Is this product really all gold?

    To dig deeper into the digital gold framework and its working, we checked the buying & selling prices on various apps and compared the same to MCX gold prices.

    MCX Price on 18 September was INR 51,210

    As you can see from the table above, there is a clear difference between the buy and sell price of digital gold. Also, the prices on these apps are much higher than the MCX price for gold.

    The gold price is higher on the platforms as they charge convenience fees, gold handling charges, trustee fees, storage charges which are all included in the gold price but there is no breakup of these charges mentioned anywhere. Additionally, a GST of 3% is also payable on the gold price.

    Meanwhile, the selling price is substantially lower than the buying price and on top of it, some platforms also charge a convenience fee when you sell the gold.

    Making & delivery charges – An investor can take physical delivery of gold in the form of gold coins and jewellery (Paytm has tie-ups with Kalyan Jewellers). While converting to coins, making charges and delivery charges are payable. On the Paytm app, the minimum quantity of 0.5 grams of gold is required to convert to gold coins and the charges vary from 384 for 1 gram gold coin to 944 for 10 gram gold coin (these charges and specifications varies across each app)

    Apart from the additional cost, the risk of investing in digital gold is that there is no regulator for the product. When digital gold is bought, the vendor purchases gold of an equivalent amount in the investor's name. Generally, a trustee is appointed to see if the quantity and purity of gold is maintained in line with the gold purchased by the investor. However, currently, there is no regulator to oversee if the trustee is doing the work properly. This is a point of concern because even the apps which help one to buy digital gold are only a medium to buy it. Ultimately gold is stored with the vendors.

    In light of the lack of regulatory framework coupled with the high cost of digital gold, other investment options of gold such as sovereign gold bonds & Gold ETF appear more viable when investing larger amounts of money and for longer periods.

    On the other hand, digital gold helps us, gold love-struck Indians, to accumulate gold in smaller quantities as investing in large amounts may be out of bounds for a large section of the population. And this can be seen in the high volume of transactions seen by platforms like Paytm in a short span of time.

    If you want to know more about the basics of Digital Gold, do check out our video on the same through the following link:
    https://www.youtube.com/watch?v=kNnyBJw6sm4&t=2s&ab_channel=WealthCafeFinancial

     

    Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



    gold / Investments - 10/14/2020
    5

    Things To Do After You Buy A Health Insurance

    Hi there

    Usually, we have health insurance and discuss how to get health insurance. In this article, we discuss things to do after you buy a health insurance plan.


    1.  Understand claim procedures

    In the case of emergency hospitalization and in the case of planned hospitalization find out the documents and steps necessary to intimate the insurer. Copy this information from the insurer or TPA’s website onto a word processor, print it, and keep it along with the policy document and policy ID card.


    2. Recognise that ‘cashless’ is not a right!

    Health insurance comes with a right to claim reimbursement. However, cashless claims are more of a privilege than a right. It is quite possible that the insurer may either deny cashless or allow it partially and ask the insured to claim the rest of the expenses via reimbursement after the hospitalization is complete.


    3. Prepare for the next premium

    Even if you choose not to increase the cover each year, do not assume the premium will be the same next year. The premium could increase due to other reasons – age of individuals, the risk profile of the entire group covered by the group, underwriting test, and perhaps medical checkups too. Start an online recurring deposit that matures 6-8 weeks before the premium is due.  If you are comfortable, you can choose to put money aside in a liquid fund for your insurance.


    4. Understand the implications of sub-limits

    There is nothing wrong with buying a policy with room-rent sub-limits. The only precaution is to ensure that the room-rent is always lower than that allowed by the sub-limit. This is because every kind of hospital fee (medicines, doctor fees, etc.) is linked to the room rent. So if you choose a room rent higher than that allowed by your policy, you will only be reimbursed (or paid via cashless) a portion of the hospital bill.


    5. Recognize the impact of non-medical expenses

    Hospitalization is not only about paying hospitalization fees! There is a huge list of non-medical expenses that any patient could incur. There are some administrative expenses, household expenses (while you are hospitalized), support staff expenses, and some expenses which get rejected in your insurance. Even if you believe that your health insurance cover is sufficient, these expenses have to be paid. This is where your emergency fund will come in handy. So ensure that you have one in place.


    6. Health Cover for family members

    If you are the earning member it is very crucial to have your own insurance but it is equally important to have health insurance for your family members, as any medical emergency for them would result in a financial setback for you and the entire family.

    If the budget is a constraint you can consider taking up a family floater plan - watch our youtube video on this.
     https://www.youtube.com/watch?v=F0JNvA5a_eQ&ab_channel=WealthCafeFinancial 

    Health Insurance could be considered as one of the trickiest insurances to buy as the health issues are very different for each person and then each insurance company has varied insurance needs. As a practice, do understand the various clauses of your insurance and have an emergency fund in place to be stress-free of any unforeseen health issues.

    Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

    To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

     

     



    Insurance - 10/09/2020
    9

    Indian Stock Market timings

    Indian Stock Market Timings

    Trade in the stock market can only be undertaken during a specific time interval in India. Retail customers have to perform such transactions through a brokerage agency between 9.15 a.m. to 3.30 p.m. on weekdays. Most investors undertake the purchase/sale of securities listed on the major stock exchanges in India – Bombay stock exchange (BSE) and National Stock exchange (NSE). Indian stock market timings are the same for both these major stock exchanges.

     

    Indian stock market timings for trade is divided into three segments:

    Pre-opening Timing

    This session lasts from 9.00 a.m. to 9.15 a.m. Orders to purchase or sell any securities can be placed during this time. It can be further classified into three sessions:

    • 9:00 a.m. – 9.08 a.m.

    During this stock market opening time in India, orders for any transaction can be placed. The order entry is given preference when actual trading begins, as these orders are cleared off in the beginning. Any requests placed during this time can be changed or canceled according to need, which is beneficial to investors, and no orders can be placed after this period of 8 minutes during the pre-opening session.

    • 9:08 a.m. – 9.12 a.m.

    This segment of Indian share market timing is responsible for the price determination of security. Price matching order is done by corresponding demand and supply prices to ensure accurate transactions among investors who want to purchase or sell a security, respectively.  Determination of final prices at which trading will begin during normal Indian stock market timing is done through a multilateral order matching system.

    Price matching order plays a vital role in determining the price at which the security is transacted during a normal session of Indian stock market timing.

    However, the benefits of modification of any order already placed in not available during this session.

     

    • 9:12 a.m. – 9.15 a.m.

    This time acts as a transition period between preopening and normal Indian share market timing. No additional orders for transactions can be placed during this time. Also, existing bets already placed from 9.08 a.m. – 9.12 a.m. cannot be revoked as well.

    Normal Session 

    This is the primary Indian share market timing lasting from 9.15 a.m. to 3.30 p.m. Any transactions made during this time follow a bilateral order matching system, wherein price determination is done through demand and supply forces. The bilateral order matching system is volatile, thereby inducing several market fluctuations which are ultimately reflected in security prices. To control this volatility, the multi-order system was formulated for the pre-opening session and was incorporated in Indian stock market timings.

    Post-closing Session 

    Stock market closing time in India is marked at 3.30 p.m. No exchange takes place after this period. However, the determination of closing price is done during this time, which has a significant effect on the following day’s opening security price.

    Stock market closing time in India can be divided into two sessions –

    • 3:00 p.m. – 3.40 p.m.

    The closing price is calculated using a weighted average of prices at securities trading from 3 p.m. – 3.30 p.m. in a stock exchange. For determining the closing prices of benchmark and sector indices such as Nifty, Sensex, S&P Auto, etc. weighted average prices of listed securities are considered.

    • 3:40 p.m. – 4 p.m.

    This period is post stock market closing time when bids for the following day’s trade can be placed. Bids placed during this time are confirmed, provided adequate buyers and sellers are present in the market. These transactions are completed at a stipulated price, irrespective of changes in opening market price.

    Thus, capital gains can be realized if the opening price exceeds the closing price by an investor who has already placed their bids. In case closing price exceeds opening share price, bids can be canceled during the narrow window of 9.00 a.m. – 9.08 a.m.

    The overall stock market operating time in India can be demonstrated by the following table:

    S. No.  Name Time 
    1. Pre-opening session 9.00 a.m. – 9.15 a.m.
    2. Normal session 9.15 a.m. – 3.30 p.m.
    3. Closing session 3.30 p.m. – 4.00 p.m.

    Aftermarket Orders

    Post this time frame. No transactions can take place. However, investors can place aftermarket orders, for securities of chosen companies, which would be allocated at opening market price the following day.

    ‘Muhurat’ Trading 

    Indian stock market is generally closed for any transactions on Diwali, as it is a religious festival celebrated all across the country. However, a one-hour trading session is conducted from 5.30 p.m. to 6.40 pm as it is considered to be auspicious.

     



    Equity / Insurance / Investments / stock market - 09/24/2020
    Income tax Feature Image

    Income-Tax Relief For Home Buyers

    Hello fellow investors
     
    As a part of various relief measures taken by the Government in response to the economic slowdown post-COVID-19, the Finance Minister (FM) has announced a very attractive income tax relief for home buyers (new residential properties of value up to Rs 2 crore). Here is what you need to know.  
     
    Income Tax relief for home buyers 

    In case the declared purchase consideration of the land/building is less than the stamp value (circle rate) by up to 20%, there will be no additional tax outgo for both the seller and the purchaser for the period 12th November 2020 to 30th June 2021. Earlier, the acceptable difference was 5% which was to be enhanced to 10% with effect from 01 st April 2021.

    This move will also help developers in selling off their unsold inventory at up to 20% below the circle rate and the buyers in getting cheaper homes without any additional tax burden on either party. Let’s look at the relevant provisions of the Income Tax Act to understand the applicable tax relief.

    Section 43CA of the Income-tax Act - for the seller

    This section provided for deeming of the stamp duty value (circle rate) as sale consideration for the transfer of real estate inventory in the case the circle rate exceeded the declared consideration. The circle rate is the minimum rate per unit area fixed by the state governments for the sale of land or property and is
    aimed at reducing stamp duty evasion by declaring lower sale values in the sale-purchase deeds.

    Thus, even if the real estate was sold at a price below the circle rate, the circle rate was considered as the sale value for the calculation of the business profits of the seller. For example, if a house is sold by a developer for Rs 80 lakh but its value as per the circle rate is Rs 96 lakh, the developer is supposed to take Rs 96 lakh as the sale value for
    calculating his profit.

    Through Finance Act 2018, a difference of 5% between the two rates was declared to be acceptable. This was increased to 10% through Finance Act 2020. Now, the FM has raised this acceptable difference to 20%. Thus, in the above case, the difference is exactly 20% as seen below and the developer can consider Rs 80 lakh for calculating his profits from the sale. 

    Section 56(2)(x) of the Income-tax Act for the buyer

    This section is applicable to the buyer and provides for stamp duty value to be deemed as purchase consideration even if the purchase was made at a lower price. As per the above example, the buyer is deemed to have received Rs 16 lakh (the difference between the stamp value and the sale consideration) and was supposed to declare this amount as ‘Income from other sources and pay tax on the same. Now, he will not have to pay any tax if the difference is up to 20% as is the case in the above example.

     

    In summary, this announcement by the FM comes as a major relief to real estate developers who were struggling to offload their inventory due to lower demand in the market. The benefit is applicable, however, only for the primary sale of residential properties and not for commercial and secondary sales.



    Income Tax / Insurance / Investments / Making Money / Money tips / Real Estate / Tax - 09/20/2020
    4

    'Investing' in Real Estate?

    Hello fellow investors!

    Roti - Kapda - Makaan has been the three needs of us Indians and we strive to make that makaan a reality. Once the makaan works as a shelter it becomes our personal asset. When you go for the second or the third property for investment reasons then you should consider the following points before proceeding.

    Yes, the returns are good in real estate. We have always stated that investments are not all about returns, it is about building your portfolio to become financially free. So instead of just comparing past returns of both asset classes and claiming equity is better than real estate or vice versa, we would like to consider other important aspects.


    1. Real Estate will skew your Asset Allocation

    Investing is all about the right asset allocation. Investing a major portion of your investments in real-estate could skew your allocation in that direction for a very long time.

    Once the Real estate is added to your investments, your allocation is considered with 4 assets, Real Estate, Gold, Equity & Debt. Once you choose to buy real estate, it may take a few years for other asset classes to occupy a significant portion of your portfolio. Hence, you should check and consider the reasons for investing in Real-estate.

    2. It is hard to assign “present value” and calculate ‘growth’

    Most people talk about how much their property is worth without actually speaking to potential buyers. It is only when you do so, you realize what is the real selling price of it. People would rather wait and enjoy lower returns than sell their properties at a price lower than what they want/wish to receive.

    There is no designated market price. He who haggles the best wins here. Because of the lack of such a standard price, it makes real estate risky as most times people are stuck with a price they have in their mind without actually checking it for real.

    3. It is not liquid enough that you can sell whenever you want.

    I am sure you have heard of this, you cannot sell a bathroom to meet a financial emergency unlike Equity, mutual funds, and some debt options which can typically be traded in small amounts and on any business day.

    You need to have other liquid assets (i.e. have a balance allocation) to take care of your financial needs.

    4. TAX cost, buying another property.

    The tax on capital gains from real estate in a way encourages you to go ahead to buy another property. As per the law, if you want to avoid capital gains tax on real estate you should necessarily reinvest the same in another property or in section 54EC bonds (with low returns) for 3 years to ensure the capital gains are tax-free.

    5. Difficult to sell emotionally

    Many people post-retirement do not have enough fixed income and other liquid investments to manage their every day cashflows. They are still not able to liquidate their properties for cash and use it for a more relaxed late age. They have an emotional attachment towards it and then it gets rationally difficult to decide to sell.

    6. Risk of renting out

    No guarantee of regular income. One may need to constantly look for tenants. Issues with paying property and water tax, and the legal hassles associated with tenants not moving out!

    We do not intend to discourage you from purchasing houses for the purpose of investments but it is about becoming aware of what are the issues you can face when you do so. Before taking the decisions about investing in real estate, do calculate your returns, the money you would make from the investments in real - estate, and know your numbers. A close analysis for real-estate purchases should be done in a similar way as you would do for any other asset.

    Analyze your risk-taking capacity and your goals before you make the final decision.

    Happy Investing!

    Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



    Investments / Real Estate - 08/28/2020
    11

    Health Insurance: Single Plan or a Family Floater Plan?

    Hello fellow investors

    With COVID-19, the one thing that everyone has realized is Health insurance is a must! We all need adequate Health Insurance cover and at a good price. Because whether to have Health Insurance or not is no longer a point of discussion. In fact, now we want to ensure that everyone in the family also has Health Insurance.

    We have been asked many questions about whether you should opt for a stand-alone health plan or a family health plan; and whether to opt for a top-up plan afterwards. We are going to break down these concepts for you.

     

     

    How much Insurance should you have?

    Before getting into the discussion of what type of plan, it is important that you know how much insurance is enough for you. Ideally, if you live in a tier 2/3 city you must have a cover of at least 5 lakhs and if you are in a metro/tier 1 city you must have a cover of at least 10 lakhs. These are indicative numbers based on the cost of health incurred in different places and you can always take a higher cover.

     


    What is an Individual Health Insurance policy?

    In the case of individual cover, the policy provides specific health cover for each member covered in the policy. You can decide to have a higher cover for the working member and a smaller cover for the children. Each family member will have a dedicated sum assured under the policy.

    For example, you can buy an Individual Health policy that gives a cover of INR 10 lakhs each to yourself and your spouse and INR 6 lakh for your elder kid aged 15 and INR 3 lakhs for your younger kid aged 10. The cover amount is specific to each person and not shared among the different members.


    What is a family floater plan?

    In the case of a family floater policy, all family members are covered in a single policy. Unlike individual policies where there is a dedicated sum assured, here there is a single “floater” sum assured which is shared between all members of the family. 

    For example, if the family in the above example takes a family floater policy with a sum assured of INR 10 lakhs, all the four members of the family share the INR 10 lakhs sum assured. That means the insurer’s maximum liability towards the entire family for a particular year (irrespective of which individual gets hospitalized) stands at INR 10  lakhs.

    Under the family floater policy, medical reimbursements can be availed by any or all of the members subject to the total sum Insured.

    Let us compare the prices of family floater and individual policies to understand better:

    Case 1 - A couple

    Family floater plan premiums are determined based on the age of the older person. Given that this is a relatively younger couple, their premiums are not very different.

    Case 2 - Parents with 2 children


    In case 2, for older parents, there is a significantly higher premium being paid for a family floater plan. In case there is a predetermined illness that would further push the premium for the entire family. However, the 20 lakhs cover under the floater plan would be available to each family member thus increasing the cover amount at a higher premium.

    However, where you have a cash crunch, you can go for a floater plan of 5 lakhs wherein the cover of 5 lakhs is available for all members with a reset clause for a cheaper price. You save around 10 K per annum in the premium costs where you go for a floater plan of 5 lakhs for the family. 

    The reset clause: Family floater plans come with a reset clause that allows for a 100% reset of the sum insured once in a policy year. This option automatically comes into operation when the sum insured (including the accrued additional sum insured, if any) is already used by one insured person and hence is insufficient for the other. The reset of the policy happens only for an unrelated illness.

    For example: In the case above if the husband is sick for malaria and makes a claim of 3 lakhs in a year and later wife gets admitted for a different health issue like blood pressure and has a hospital bill of 4 lakhs. The floater plan will cover it as it would have reset the sum assured. But if the wife is admitted for malaria itself and the bill is of 4 lakhs, only 2 lakhs (to the tune of the original sum assured of 5 lakhs less 3 lakhs claimed by husband) will be payable by the insurance company.

    A Family floater policy is value for money and comes a bit cheaper compared to individual policies and that’s a plus, especially for young families who are tight on budget for their insurance spending. 
     
    No claim bonus: If you do not make any claims under the policy any year, a percentage of your sum insured, say 10%, is added each year to your sum assured. So if in 2019, I do not make any claims under my policy which has a sum assured of INR 5 lakhs, in 2020 when I renew it, my sum assured is increased to INR 5.5 lakhs without any increase in my premium amount. The negative of a family floater plan is that in case of a claim by even one member under a family floater, the entire No Claim Bonus (NCB) is nullified for the year under the policy whereas the same is not true for individual policies.


    Top-Up Plan

    A top-up plan is a regular health insurance policy that covers hospitalization costs but only after a threshold limit, known as a deductible, is crossed. A deductible is that portion of the claim amount that is not covered by the insurer and has to be paid by the policyholder before the benefits of the top-up policy can kick in.

    A top-up plan, therefore, is a cost-effective way to increase your health insurance. You can take a base policy and a top-up over above that policy. This way you can use your base health insurance policy to make a claim up till the deductible amount and use your top-up plan for any payments over that.

    Where you want to increase the sum assured of your policy, you can do that only when the policy is due. Top up gives you the option to increase the sum assured at a minimal cost during the year. Hence, Top-up helps you to increase the base sum assured amount for your insurance needs.

    What should you do?

    The health insurance that you would take would depend upon the age of the oldest member in your family, the number of members, and the premium you are comfortable paying for the same. It would be interesting to check various options and choose which one best suits your needs and pockets.

    It is advisable to have separate health insurance for older people or those who are susceptible to illness/hospitalization. By doing that, you are protecting the no-claim bonus clause of the policy and also not paying a higher premium for other insurance.

    Hope this helps you understand your insurance needs better.

    Happy Investing!

    Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

     

    To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

     

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      Insurance / Money tips - 08/12/2020
      10

      Ways to Invest in Gold

      Hello fellow investors,

      We Indians love our gold.

      And it also works as a good financial backing. In fact, it is the fallback asset in India to tide over financial emergencies. In the calendar year 2020, gold has given an exceptional return of over 41%, the highest returns generated in the last decade. While that is attractive, gold has given an average return of 9% per annum for the last 30 years. 

      Gold is on everyone's mind so we thought let us highlight the ways in which you can invest in gold. Though in no way are we recommending you go and buy it without checking if it fits in your portfolio. 

      Gold can be owned as physical gold and as paper gold.

      You can buy it physically in the form of jewelry, coins, and gold bars. Gold can be owned digitally through Gold ETF, Gold Mutual Funds, Sovereign Gold Bonds (SGBs), and as Digital Gold through wallets. We have discussed each of them in detail here.

      Physical Gold

      1. Buying Jewelry: For buying jewelry you reach out to your neighborhood jeweler or your family jeweler uncle or can buy it online today. Such jewelry generally forms a part of your personal assets against your investment assets.

      As an investment, there are some concerns with gold jewelry like safety, purity, and its high cost (such as making charges). Jewelry making charges range from 6% to 10% of the cost of the gold and are a cost for you the day you purchase jewelry and hence not a preferred mode of investment.

      To ensure its authenticity, you must check The Bureau of Indian Standards (BIS) hallmark, the Jewelers' identification mark, and the purity of gold stamp on the jewelry that you are buying to ensure its authenticity.

      2. Gold Savings Scheme - Given the high prices of gold, (₹ 55,000  per 10 grams for 24kt purity gold as of 5 August 2020), many jewelers run gold savings schemes to make it easy for buyers to buy gold by paying in installments. 

      A typical gold scheme allows you to deposit a fixed amount every month for the chosen tenure. When the term ends, you can buy gold (from the same jeweler) at a value that is equivalent to the total money deposited, including a bonus amount added by the jeweler to incentivize the depositor.  In most cases, the jeweler adds a month's installment for every 11 installments deposited or may offer a gift item.

      Please note that this scheme is useful only when you want to buy gold jewelry from the jeweler (say Tanishq or Kalya Jewelers or your local jeweler) whom you are depositing the installment each month. Don't forget that jewelry making charges would still be payable by you when you buy the jewelry.

      3. Gold Coins: If still want to own physical gold and do not want to lose out on the making charges, then Gold Coins is a good option. You can buy them from jewelers, banks, non-banking finance companies, and even some e-commerce websites.

      The government has launched ingeniously minted coins that will have the National Emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other. The coins are available in denominations of 5 and 10 grams while the bars are for 20 grams. 

      Paper Gold or Gold Securities

      Physical gold has its advantages and most of us own gold like that. However, PAPER GOLD is the new seamless way of investing in gold. It is effortless to buy and does not carry the security risk and purity risk of physical gold. Let's look at options to invest in Paper Gold. 

      1. Gold Exchange Traded Fund (ETF) - Gold ETF is the most cost-effective way of owning gold. The Gold ETF can be purchased via the stock exchange (NSE or BSE) which has gold as the underlying asset. Transparency in pricing is another advantage.

      To Invest in ETFs you need to have a Trading and a Demat account which is the same one used for owning stocks.

       When choosing an ETF, compare the Fund Management charges and the Tracking Error of the ETF with other ETFs and choose the one with the lowest Fund Management charges (expenses for managing the ETF for you) and lowest Tracking error (deviation from gold prices). This ensures you get the return on your gold investment with the least deviation from the actual gold prices.

      2. Gold Mutual Funds: If you don't have a Trading and Demat account, you can invest in Gold Mutual Funds which in turn invest the Gold ETFs discussed above. Just like Gold ETFs, choose the Gold Mutual Fund with the lowest Fund Management Expenses and Tracking Error.

      While Gold Mutual Funds allow you to own gold without having a trading and demat account, you land up paying Fund Management charges twice, to the Mutual Fund as well as to the Gold ETF.

      3. Digital Gold: You can buy gold online via mobile wallets such as Paytm, PhonePe, Google Pay and under the Gold Rush Plan of Stock Holding Corporation of India. All these gold buying options are offered either in association with MMTC-PAMP or SafeGold or both. 

      This is a good option to invest in gold in smaller quantities of as little as INR 1 grams of gold. However, you can keep the gold with them for 5 years, after that you must either sell the gold or convert it into gold coins. To know more about digital gold, read here.

      Be sure you understand the charges associated with liquidating the amount you accumulate when investing in gold via this option.

      3. Sovereign Gold Bond -  If you don't mind a lock-in of 8 years for your investment, the best way to invest in gold is via the Sovereign Gold Bonds (SGBs) issued by the Government of India.  

      The returns on gold via this mode are tax-free investments as no tax is levied on capital gains on the maturity of these Bonds. Further, you also earn a simple interest of 2.5% per annum on the gold bonds in addition to the increase in gold prices. If you are looking to invest your money in Gold for value appreciation and bringing a balance to your portfolio then SGB's are a good investment option. You can read more about it here.

      SGBs are not available 'on-tap basis'. Instead, the government intermittently opens a window for the fresh sale of SGBs to investors. This could typically happen every 2-3 months and the window remains open for about a week. If you are looking to purchase SGBs anytime in between, you can buy them from the secondary market as the SGBs are listed on the Stock Exchange.   

      You have quite a few options to buy Gold. Now, which option should you opt for would depend upon the need of buying gold? If you want to buy gold to wear as a jewelry or gift for wedding functions then physical gold is the way to go for. However, if you are looking to invest in Gold then depending on the time period you have in hand - for short term needs (like 3 - 4 years), you can invest in Gold ETFs or Gold Mutual Funds, for long term needs (of 5 to 8 years), you can opt for SGBs.

      Avoid going overboard with gold investments given the good returns of the recent past and stick to your Asset allocation.

      Happy Investing!

      Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



      gold / Money tips - 08/06/2020

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