Category: Knowledge and Concepts

Power/Speed Vs Regular Petrol – This is the biggest scam of petrol pumps!

Posted on by Jagoinvestor

When you go for fill up petrol or diesel in your car/bike, you have an option to fill the normal fuel or high-performance fuel often termed as Speed, Power, Xtra mile, Turbojet or Hi-speed etc in the Indian Petrol pumps.

Today, I will share with you a kind of fraud/scam which is going on in petrol pumps on the name of these high-performance fuels and you will also learn if it’s really useful to use this high-cost version of petrol/diesel in your vehicle or not!

high performance vs normal petrol

Because I educate you on the topic, I want to start with the cheating part first, which happens on the petrol pump!. The reason I am calling it a scam is because it is done with the intention of cheating the customer to make higher profits.

Petrol pumps give you “High-performance fuel” without asking you

Some days back I went to a petrol pump to fill petrol in my car. I kept my eyes wide open and made sure that the meter shows ZERO (read about zero meter scam on petrol pumps here), and no distraction is there and no one scams me.

As I was about to leave, I realized that the nozzle used to fill petrol was kept in the section which said “Speed”. When I enquired if they have filled the high-performance fuel in my car, the answer was YES.

When did I ask WHY? , they said that I should have mentioned that I wanted normal petrol.

So now you know the scam here..

Its common sense that by default petrol pumps should be giving us normal petrol and only if the customer wants/agrees, they should fill high performance/cost fuel. But here, they had made the costly fuel as the default choice and without even telling you they fill costly petrol/diesel in your car/bike.

A customer never pays much attention to which fuel was given to them and assumes that its normal/cheapest version of fuel.

There are many other scams which happen at petrol pumps, but I think is a much bigger scam, because this is so subtle, that almost everyone falls for it (without even knowing about it). Just think about it, even if 5% of people are scammed into buying high-performance fuels, it’s millions of litres and millions of extra revenue/profits for petrol pumps/companies.

What is High-performance fuel?

It’s very important to understand what exactly is high-performance petrol or diesel, to understand the whole game.

Branded high-performance fuels like SPEED and POWER are normal petrol with an extra additive/detergents added into it. These additives enhance theoOctane ratings for petrol.

The Octane rating is the petrol’s capacity to burn at higher compression ratios without knocking. Every engine has a unique compression rating and hence based on the compression rating, the manufacturers suggest the exact type of fuel to be used for the car.

99.99% cars/bikes in India have engines which only and only require normal petrol/diesel because its octane value is the same which is required by the engine of these cars.

In fact, you will be surprised to know that car manufacturer such as Maruti, Hyundai, Tata, Toyota, Ford, Skoda, Mercedes, BMW etc. strongly discourage the use of premium fuels in their cars and in fact its also written clearly in the car manual book too. This thread discusses everything about high octane and fuel performance if you want to learn about the topic.

If you also talk to qualified service engineers at the service stations, they also recommend using the normal fuel instead of these high performance versions.

Problems of using high performance fuel in normal car

Can you believe that use of high octane petrol (the costly high performance fuel) actually cause problems in the engine, instead of helping the engine?

If you use petrol which is having a higher octane level than what is recommended, then because of extra additives in the petrol, it is only going to cause unwanted settlement of these additives in the engine – no added benefits in terms of mileage/performance.

If you use petrol having lesser octane than recommended, the petrol will knock and cause damage to engine. Further, the anti-knock sensor will cause the engine to slow-down and the timing of the engine will be wrong causing decreased mileage.

The normal petrol which is available in the market is actually fit for the engines in most of the cars sold in India.

Here is an excerpt from Team-BHP regarding this topic

Some car owners have reported excessive exhaust smoke after using premium diesel. A few others have complained of damage to components in the fuel delivery system, including the fuel injection pump and fuel injectors. Modern common-rail diesel engines operate within fine tolerances.

Your motor was engineered to consume regular diesel only. In the worst case scenario, you might end up with damaged mechanicals due to premium diesel. In the best case, you won’t gain anything. With premium diesel, you have a lot to lose, and nothing to gain.

Video about High-Performance Fuel vs Normal fuel

I want to especially see this video by Mr Amit Khare of fame Ask Carguru Channel, which is an excellent source of all kind of information and knowledge about automobiles in India. A few months back, when I was watching this video, it was new learning for me and I decided that I will write an article about this soon on this blog.

The video is in Hindi and I am a fan of Mr Amit because of his simple language and engaging style of talking. Do listen to the following video for sure.

Why do petrol pumps sell high-performance fuel?

In one word – “High Profits”

Remember, that Petroleum companies and Petrol pumps both are “for-profit” businesses. They are there to make money and they will do all the things which increase their profitability. The petrol and diesel prices are regulated in India and no petroleum companies can decide the price of fuel on its own.

However, they can always decide the price of enhanced fuel because it’s their own formula and they are free to price it. Petrol pumps also get better margins when they sell high-performance fuels.

High-performance fuels can cost anywhere from 3-4% higher than normal fuels. In some cases, very high-performance fuels can be even 20% costly.

At the time of writing this article, the price of petrol/ltr in Mumbai was like this

Normal Petrol: ₹ 84.67

Speed : ₹ 87.48

Speed 97 : ₹ 105.01

Which means that by selling high-performance fuels, the profits which these companies profit margins can literally shoot up by a big percentage. No wonder why they never share the secret.

When should you fill high-performance fuels in your car?

Very simple, if you have a car/bike which has a high-performance high-compression engine such as BMW / AUDI and superbike’s, then you can use those costly fuels and they will actually perform better also, but otherwise you should just stick to normal fuel only.

Do let us know if you liked this article and if it helped you to break your myth about high-performance fuels. Also if you have anything to add into this article, do let us know in the comments section.

Basic Saving Bank Account – No minimum balance required (+ more features)

Posted on by Jagoinvestor

Do you worry about maintaining the minimum balance in your bank account? If that’s the case, then you will be happy to know that now RBI has mandated all the banks to offer something called Basic Saving Bank Deposits Accounts where there is no minimum Monthly Average Balance (MAB) to be maintained.

Let’s know more about the BSBDA account.

5 benefits of Basics savings bank deposit account

You must have heard in the news that a few days back, Banks have collected approx Rs 11,500 cr from customers for not maintaining minimum balance limit. This situation happens with a lot of people. Through this article, we will see how we can prevent ourselves from getting into this situation.

Basic Saving bank deposit account – Meaning

The basic savings bank deposit account (BSBDA) is the zero balance bank accounts. This means you don’t need to maintain any kind of minimum balance limit in this account.

RBI has made it mandatory for all the banks to offer this service to people who are unable to maintain the minimum balance. Criteria to open this account are similar to the eligibility criteria of normal savings bank account. Banks may have their own criteria based on age or income.

However, as per the guidelines of RBI, banks are advised not to impose any criteria of age or income for opening BSBDA.

Features of Basic Savings Bank Deposit Account :

  1. No minimum balance limit.
  2. No limit for a money deposit.
  3. The interest rate is similar to the regular savings account.
  4. Normally there is no upper credit limit (these criteria may vary from bank to bank).
  5. No minimum amount required for opening the account.
  6. ATM cum Debit and passbook facility is provided totally free of cost.
  7. Checkbook facility and online funds transfer facility is available.
  8. No charges are applicable to any kind of transaction (within limit).
  9. The account holder can open FD and RD.

Limitations of Basic Savings bank account

As I said earlier this is a zero balance account with no extra charges, but it has some limitations also :

  • Only 4 withdrawals per month are allowed, including branch cash withdrawal, ATM withdrawal, NEFT, RTGS, online payment, EMI, etc.
  • It depends on banks to either charge additional fees for extra withdrawal transactions or not.
  • Your BSBDA will be converted into a normal savings account automatically if the transactions limit increases.
  • Central KYC (A centralized KYC process to avoid submitting multiple KYC’s) should be done, otherwise, the account will be considered as a BDBDA-small account (explained below).

What is the Basic Savings Bank Deposit-small account?

This is an account that can be opened by a person who is above 18 years of age but does not have any official KYC document (Like Aadhaar Card, PAN or other ID proof and address proof, etc.). For this, a person needs to submit a self-attested photograph and he/she needs to sign the form and also provide thumbprints in the presence of bank officials.

The basic savings account of a person who doesn’t have a CKYC is treated as a basic savings bank deposit small account. Features of this account are as given below :

  • This account is valid only for 12 months. It can be extended for the next 12 months by providing proof of having applied for officially valid documents.
  • The balance should not exceed Rs.50,000 at any point.
  • An aggregate of all credits in a financial year should not exceed Rs.1 Lac.
  • Mobile banking facility may not be available.

Can I convert my existing savings account into a Basic Saving bank account?

There is no provision till date to convert existing savings account into BSBDA. You have to open a new BSBDA and for that, you need to close your existing savings account within 30 days of opening a BSBDA otherwise the bank will automatically close your earlier account after 30 days. A person can have only one BSBDA in a bank

Banks are restricted to offer any value-added services to the BSBDA account holders by charging any extra cost. If any extra service is given, then automatically the account will be converted to a normal saving bank account.

Documents required for opening Basic Savings Bank Deposit Account

Documents required for opening BSBDA are as follows :

  1. Account opening form.
  2. Colored passport-sized photograph.
  3. KYC documents like – ID proof, address proof, PAN, etc.

Difference between a normal savings account and BSBDA

Normal savings account Basic savings account Small savings account
Minimum balance limit 10000 No limit No limit
Penalty if minimum balance is not maintained Applicable Not applicable Not applicable
Withdrawal limit Not applicable Applicable Applicable
Mobile banking facility Available May not be available Not available
Credit limit No limit No limit 50000

Who should open this “Basic Savings Bank Deposit Account”?

Now you must be thinking “What is the use of this account for me? I have my regular account with unlimited transactions then why should I open a basic savings bank deposit account?

Let me tell you, there are lots of people around us who don’t have a bank account because they can’t maintain the minimum balance limit. Like some students, employees who have just entered into their profession, small-scale workers, maid, driver, and so many other people.

There are also some people who have more than one or two bank accounts other than their regular accounts. For these people, the money seems to be stuck in their bank accounts where they have to maintain the minimum balance limit.

Some senior citizens don’t require more bank transactions as they are either dependent on their children financially or they keep cash to avoid visiting banks or ATM’s every time for withdrawals when they need money. For such people, the basic savings bank deposit account is a good option to avoid the penalty and other extra charges for maintaining their bank account.

I hope this information was useful for you. If you have any query then write in the comment section.

What are Shariah compliant mutual funds? – An Ethical investment

Posted on by Jagoinvestor

Have you ever heard about Shariah-compliant mutual funds?

We get a lot of Muslim leads who want to invest in mutual funds and a lot of them mention that they would like to invest in mutual funds which are shariah compliant.

So lets look at the subject!

Shariah investment

Examples of Shariah-based Mutual Funds

Shariah-based mutual funds are just like other mutual funds which are structured according to the shariah rules. The restrictions or prohibitions mentioned above are considered to screen and select the funds and ensure that they are Shariah-compliant.

There are three funds in India which are shariah compliant –

1. Goldman Sachs CNX Nifty Shariah BeES Fund

2. Taurus Ethical Fund

3. Tata Ethical Fund


Let us look at some of the restrictions as per Shariah law.

1. Prohibition of interest

Payment of interest on your investment is considered as unjust or morally unfair. It prohibits the interest paid on all the loans.

Islamic finances rely on sharing the ownership of assets instead of borrowing or lending and thus along with the ownership of the business (buying shares of that business), it tends to share the profit as well as losses of the company also.

2. Restricted businesses

One of the important segments of this investment is that the companies which are involved in the business activities which are prohibited as per the shariah law cannot be part of shariah investment. It includes the businesses of Alcohol, drugs, gambling, and other immoral trades.

3. High risk

The main motive of Islamic investment is to avoid excessive risk because Islam forbids gambling. And this is the reason why derivatives are ruled out of it.

FAQ’s related to Shariah Mutual Funds

Q1. Who can invest in Shariah Mutual funds or Shariah investment?

Though this fund is based on Shariah Islamic law, it is not restricted for any investor. Which means anyone including individuals, NRI’s, HUF, companies or any other institute can invest in Shariah Mutual fund.

Q2. Is there any tax benefit on this investment in Shariah mutual funds?

Till now there is no tax benefit on the investment of Shariah Mutual funds.

Q3. Can an investor from other religion invest in Shariah ethical Fund?

Yes, any investor can invest in Shariah Mutual Funds irrespective of their religion.

Q4. What is the minimum amount for these funds?

You can start this investment with minimum of Rs.500. If you want to start your investments, we can help you. Just share your details with us and our team will call you

So this is all about Shariah investment, I hope you have got answers to all your queries. Still, if you have any doubts please share your query in the comment section.

How your bank calculates Monthly Average Balance ?

Posted on by Jagoinvestor

Do you understand what is the meaning of Minimum Monthly Average Balance in your saving account? When you say “Monthly Average Balance of your saving bank account is Rs.10,000”, what does it mean exactly?

A lot of people feel that their balance in saving bank account should not go below Rs.10,000 on any given day, otherwise, there will be penalty charges and they make sure that they have a buffer of Rs.10,000 in their saving bank account all the time.

This means that their account should always have that much surplus. However, the way the monthly average balance is calculated is different and very simple.

how banks calculate my monthly average balance?

Meaning of Monthly Average Balance?

It simply means that the average of the all the closing day balance in a given month. So given a month, add up all the closing day balance and then divide it by the number of days in the month. If you have to put it as a formula it would be

MAB = (Total of all the EOD closing balance)/(number of days in a month)

Let me show you an example. Let us say the month we are talking about is April. The minimum balance limit in your bank lets say is Rs.5000.

Now your balance at the start of the month (Apr 1) is Rs.10,000. You withdraw Rs.8000 on 10th Apr and then Deposit Rs.2000 on 20th April. What will be the Monthly average balance for the April month?

monthly average balance

Learning’s & Tips

  • Keeping Rs.10,000 in a bank account for 15 days is same as keeping 5000 for full 1 month (10k * 15 days = 5k * 30 days)

PSU Banks vs Private Banks

A lot of PSU banks like SBI bank, Bank of India, Allahabad bank generally have a lower monthly average balance to be maintained in saving bank account, it’s average limit is up to Rs.5000 non-Maintenance Charges are very low around Rs.40-50 only.

However Private banks like ICICI Banks, HDFC bank, Axis Bank etc have Monthly balance as high as Rs.10,000 and charges a high penalty for not maintaining it , It some times can be as high as Rs.750.

So by now, you must have known how the minimum average balance is calculated? Will this information impact your banking in any way? Will you keep less money in your bank account because you now know that Monthly average balance is calculated in a different way than you thought?.

Let us know if you have any query in the comment section.

Should you invest in Corporate Fixed Deposits? Are they safe?

Posted on by Jagoinvestor

Do you think corporate fixed deposits are as safe as bank Fixed Deposits? Has come agent convinced you that you will get 2-3% higher returns from corporate fixed deposits without any risk?

If that’s the case, you need to be educated a little more about corporate fixed deposits. I will talk about 5 major things every investor should know before they put their hard-earned money in corporate fixed deposits.

What are Corporate Fixed Deposits?

Corporate Fixed Deposits are deposits that are issued by private and public companies, which work very much like bank fixed deposits. There is an interest rate offered and there is a maturity duration for the company deposit. You can either opt for a cumulative option (where your interest is added in deposits) or you can opt for a non-cumulative option, where you are paid the interest after every fixed duration.

A lot of agents get a good commission for selling these corporate fixed deposits to their clients. Nothing bad in that as such, but you need to be clear about some important and critical points related to company fixed deposits.

Let’s start…

Higher the return, higher the chances of Default

In almost all cases, the corporate fixed deposits offer quite higher returns compared to a bank deposit. If bank deposits rates are 7 %, you will see that company deposits floating in markets are providing your returns in the range of 8-14%.

Always ask the basic question – “Why is a company providing higher returns?” 

The logic is very simple, a company needs money for expansion or for some project and to fund that project, they can either take a loan from a bank or raise money from other measures and for that they will have to pay very high interest.

So they float corporate fixed deposits where normal investors like you and me can invest in their deposits and earn higher returns.

But, because you get higher returns, there is also high risk involved in corporate deposits. You never know how the company will do in the next few months or years. You never know how the project of a company turns out and if it’s going to make a profit or loss.

In short, after a few years, when its time for maturity – what will happen if the company’s financial health is not good? Will they repay the money on time? Will they repay the money at all?

In one of the recent examples, a lot of investors had put their money in DSK group fixed deposits

Corporate Fixed Deposits Fraud

A lot of senior citizens are lured into parking their hard-earned money into many shady fixed deposits offered by small or medium-sized company fixed deposits by showing them high returns.

Below is a heart breaking case study of a 78 yr old person who had put all his gratuity and PF money into DSK Kulkarni FD (a very big real estate group in Maharashtra). When his FD maturity came, he was told that he should renew it for another 6 months as its tough to repay right now. The video below is in Marathi, but you will understand some words and will be able to make out what is being said!

So please understand that when you are investing in corporate fixed deposits, there are good chances that if it’s offering very high returns, there is a lot of risks involved in that. You cant get higher return just like that.

Many big companies also offer corporate fixed deposits, but then the interest offered is quite lower and looks reasonable. However the risk is still there unlike a bank FD.

Every company fixed deposits are rated by agencies like ICRA, Crisil, CARE etc and they give a rating to the FD. These ratings are a measure of the company’s ability to pay the interest as well as principal to its investors. A high rating means no or very low probability of default.

CRISIL rating for corporate FD

Corporate FD’s are not regulated by banking rules

Note that unlike bank fixed deposits, corporate fixed deposits are not regulated directly by RBI regulations. All the deposits under corporate deposits are governed by provisions of 73 to 76A of the Companies Act 2013 (erstwhile section 58-A of The Companies Act 1956).

If the company is not paying you on time, you cant do much in that other than following up with the company. However, Fixed Deposits of Corporates are secured borrowing, so in case of winding up of business, secured borrowings are given preference over equity shareholders in terms of repayment.

Some important points related to Corporate Fixed Deposits

  • TDS is deducted @10% if the yearly interest is more than Rs 5,000
  • Premature closure of company FD is not possible for 3-6 months
  • Pre-closure of company FD is not a straight forward process, it’s cumbersome and involves too many documents

Still, want to invest in Corporate Fixed Deposit?

If you still want to go ahead and invest in a company fixed deposits, please take care of the following points.

  • Make sure that the company is paying regular dividends to its share holders
  • The balance sheet of companies is showing profits at least for 3 yrs in a row
  • Make sure its an at least a 5 yr of company
  • Make sure they are offering realistic returns (2-3% more than a bank FD). Do not fall for those companies which are offering very very high returns
  • Make sure these companies are listed on the stock exchange
  • Make sure that they have got a high rating from CRISIL like (AAA or AA or A at least)

Let us know if you liked the article?

Who will be the nominee for your financial products? – Concept of nominee with example

Posted on by Jagoinvestor

Did you think that your nominee is the person, who will get all the money legally from your Life Insurance Policy and Mutual funds investments? Ha! That is exactly what you’d think if you aren’t aware of the legal aspects.

We assume a lot of things which sounds like they’re obvious, but are not true from the legal point of view. Today, we’ll concentrate on nominations in financial products.

Nominee in Insurance , mutual funds

For whom are we earning? For whom are we investing? Who, do we want to leave all our wealth to, in case something happens to us? It might be your children, your spouse, parents, siblings etc., or just a subset of these. You also might want to exclude some people from your list for beneficiaries!.

So you think you will nominate person X in your Insurance policy, and when you are dead and gone, all the money goes to person X and he/she becomes the sole owner? You’re wrong, dude ! It doesn’t work that way.

Let’s see how it actually does!

What is a nominee?

According to law, a nominee is a trustee not the owner of the assets. In other words, he is only a caretaker of your assets. The nominee will only hold your money/asset as a trustee and will be legally bound to transfer it to the legal heirs. For most investments, a legal heir is entitled to the deceased’s assets.

For instance, Section 39 of the Insurance Act says the appointed nominee will be paid, though he may not be the legal heir. The nominee, in turn, is supposed to hold the proceeds in trust and the legal heir can claim the money.

A legal heir will be the one whose is mentioned in the will. However, if a will is not made, then the legal heirs of the assets are decided according to the succession laws, where the structure is predefined on who gets how much. For example, if a man during his lifetime executes a will.

In the will, he mentions his wife and children as legal heirs, then after his death, his wife and children are the legal owners of his assets. It is essential that one needs to execute a will. It is the ultimate source of truth and replaces the succession law. Nominee can also be one of the legal heirs.

Important

  • Mention the Full Name, Address, age, relationship to yourself of the nominee.
  • Do not write the nomination in favour of “wife” and “children” as a class. Give their specific names and particulars existing at that moment.
  • If the nominee is a minor, appoint a person who is a major as an appointee giving his full name, age, address and relationship to the nominee.

Why is the concept of nominee?

So you might be wondering, if the nominee does not become the sole owner, why does such a concept of “nominee” exist at all? It’s pretty simple. When you die, you want to make sure that the Insurance company, Mutual fund or your shares should at least get out of the companies and go to someone you trust, and who can further help, in process of passing it to your legal heirs.

Otherwise, if a person dies and hasn’t nominated anyone, your legal heirs will have to go through the process of producing all kind of certificates like death certificates, proof of relation etc., not to mention that the whole process is really cumbersome! (For each legal entity! The insurance company, the mutual funds, for the shares, for the real estate..) .

So, to simplify, if a nominee exists, these hassles don’t happen, since the company is bound to transfer all your money or assets to the nominee.The company the goes out of scene & then, it’s between nominee and legal heirs.

Example of Nomination

Ajay was 58 years old who died recently in an accident. As his children were settled, he wanted to make sure that his wife is the sole owner of all the monetary assets. This includes his insurance policy and mutual funds.

So during his lifetime, he nominated his wife as a nominee in his term insurance policy and mutual funds investments. However, after Ajay’s death things didn’t turn up the way he wanted. The reason being Ajay did not leave a will.

Though his wife was the nominee in all his movable assets, as per the law, his wife, along with children, were the legal heirs and all of them had equal right to Ajay’s assets.

One simple step which could have saved the situation was that Ajay should have made a will which clearly stated that only his wife was entitled to get all the money and not his children.

#Nomination in Life Insurance

A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. Nomination in life insurance has one limitation, as insurance policies are bought to secure your financial dependents, your first choice of nominee has to be your family members.

In case you want to nominate a non-family member like a friend or third party, you will have to show/PROVE the insurance company that there is some insurable interest for the person. This happens because of a Clause called PRINCIPAL OF INSURABLE INTEREST in insurance.

Note that provision of nomination in life insurance is related to Section 39 of the Insurance Act. Note that as per LIC website

Nomination is a right conferred on the holder of a Policy of Life Assurance on his own life to appoint a person/s to receive policy moneys in the event of the policy becoming a claim by the assured’s death. The Nominee does not get any other benefit except to receive the policy moneys on the death of the Life Assured. A nomination may be changed or cancelled by the life assured whenever he likes without the consent of the Nominee.

Make sure, you have a nominee for your policy for easy settlement of the claim, if you do not have any nominee mentioned in the policy, it can turn out to be a disaster for your dependents to get a claim.

#Nomination in Mutual funds

In case of mutual funds, you can nominate up to three people, who can be registered at the time of purchasing the units. While filling in the application form, there is a provision to fill in the nomination details. Even a minor can be a nominee, provided the guardian is specified in the nomination form.

You can also change nomination later by filling up a form which is available on the mutual fund company website. Nomination in mutual funds is at folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also.

A non-resident Indian can be a nominee, subject to the exchange control regulations in force from time to time.

Watch this video to know what is nomination in Mutual Funds

#Nomination in Shares

Quiz for you :). Now you know what a nominee means and who actually gets the money. So if there is a husband H, with wife W and nephew N, and he has nominated his nephew N to be the nominee of his shares in demat account, who will have the legal right to own the shares after husband’s death?

If you answer is wife, you are wrong in this case! In case of stocks, it does not work the usual way, if a will does not exist.

In the verdict, Justice Roshan Dalvi struck down a petition filed by Harsha Nitin Kokate, who was seeking permission to sell some shares held by her late husband. The Court noted that as she was not the nominee, she had no ownership rights over the shares.

Ms KokaThe’s lawyer had argued that as she was the heir of her husband who had died intestate (without a will), she should have ownership rights of the shares, and be able to do anything with them as she wished.

In this case:

Ms Kokate’s husband had nominated his nephew in favour of the shares. Justice Dalvi however noted that under the provisions of the Companies Act and the Depositories Act, Acts which govern the transfer of shares, the role of a nominee was different.

“A reading of Section 109(A) of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case.”

Source : Moneylife

It means that if you have not written a will, anyone who has been nominated by you for your shares will be the ultimate owner of those stocks, The succession laws on inheritance will not be applicable but in case, you have made a will, that will be the source of truth.

#Nomination in PPF

If the subscriber dies and there is no nomination at the time of death, the balance in the account, if it is upto one lakh, will be paid by the Accounts Office to the legal heirs of the deceased on receipt of application in Form G supported with necessary documents without the production of succession certificate. If the balance is more than one lakh, the production of Succession certificate will be necessary. (source)

#Nomination in Saving/Current/FD/RD Account in Banks

FD’s also come with nomination facility. While opening a new account, there is a column for nomination in the same form and you should fill it. You can nominate two persons with first and second option. Note that in case you have not done any nomination till now, you should request Form No DA-1 from your Bank which is used to assign a nominee in future. (Examples of ICICI Bank , HDFC Bank) . In the same way to change/cancel the nomination you need to fill up Form no DA-2. Read about Corporate Fixed Deposits

As per a famous case, A Bench of Justices Aftab Alam and R M Lodha in an order said that the money lying deposited in the account of the original depositor should be distributed among the claimants in accordance with the Succession Act of the respective community and the nominee cannot claim any absolute right over it.

Section 45ZA(2)(Banking Regulation Act) merely put the nominee in the shoes of the depositor after his death and clothes him with the exclusive right to receive the money lying in the account.It gives him all the rights of the depositors so far as the depositors’s account is concerned. But it by no stretch of imagination make the nominee the owner of the money lying in the account,” the Bench observed.

Conclusion

Now you know! Taking Personal finance for granted can be fatal 🙂 Just investing knowledge, isn’t enough to have a great financial life. You also need to be well versed with basic legal aspects and make sure you carry out all due arrangement .

Nomination is one important aspect you should seriously consider, when checking for the financial products you have bought or plan to buy in future. Mistakes in Personal Finance

Its important to make sure that your loved one’s do not face legal issues and only say and think lovely thoughts about you when you are not around, rather than crib & grumble 🙂 . Fix your nominee in all the financial products

What are the important elements of setting your financial goals?

Posted on by Jagoinvestor

One of the most important part of financial planning is setting financial goals. The first step involved is to know where you want to go ?

If you have no goals set , then you will be randomly investing and as your goals in life comes along the way, you fulfill them. It can happen many times that you are not prepared and some important goals is near by, however you didn’t give much thought to it from many years or months and at the end you have to take decisions in hurry, which you don’t want to take.

Financial goals

By setting your financial goals in advance you can get a good idea of what lies in future and start preparation for it (Goal of financial planning)

What is goal setting ?

Goal setting is a process of defining your goals in Life. There are many important and intuitive characteristics of any goal, which makes it SMART . Lets see what those 5 important element of goal setting is .

Specific : Your goals should be specific and not a very general one, It should contain detailed information and should not leave a room for further questions.5 “I want to buy a house” is a very general goal , however “I want to buy a 3 BHK Flat in Karvenagar area in Pune costing around 35 lacs within next 5 yrs” is a more specific goal which gives a clear picture to you . Look at returns from Real Estate in India

Measurable :  Your goals should be measurable in terms of “How many” or “How much”. It should not happen that you have a rough idea of the goal. Many people I talk with; say “I want to buy a big house”. It’s a great thing to dream for a big house, but at some point in life you will actually decide the actual size and how many rooms and what will be the area.

Not having a clear view means no idea of how much it will cost and then you can’t save for it properly. “I want to buy a 4 BHK house in 5 yrs” will mean you can exactly find out how much you need to save per month so that you can achieve the goal with higher accuracy, you should be able to track your goal.

That means goal being measurable .

goal setting in financial planning

Achievable : This mainly means that your goals should be achievable given your current situation. When financial planners start working with some client, one of the major issues is targeting unrealistic goals in life. Just because you are hiring a financial planner does not mean that he is a magician and will somehow create a strategy for you .

If you are saving Rs 20,000/ month , dont target “3 BHK House in 5 years without loan” as one of the goal because it’s not possible given your current situation. If you put a lot of unattainable goals, the first thing is you will not be able to define how you can achieve them in the first hand.

Relevent : What will happen, if you always wanted to become IAS officer, whereas your goal is “To crack CAT exam” ?

If this happens , you will start with some enthusiasm in start but at some point, it would be tough to sustain the enthusiasm and energy, because that’s not you really wish to and even if you some day achieve that goal which you planned, it would not make sense because it’s not aligned with your life objectives.

This is very much true for financial goals also. You have to make sure your goals are very much what you wish in life .

Lets see some of my personal goals in life .

a) As I like to travel a lot so I would like to generate enough money in next 15-20 yrs , so that I can travel to different countries every 6 months .

b) I would like to build a Farm Land by year 2035, where I can personally do “Vegetable Agriculture”. (I personally have experience of growing things like corn, potato, tomato, carrots, radish, peanuts, cabbage, cauliflower, chana, almost all green vegetables, pulses, peas , onion , garlic) . Yes I have done it in UP at my hometown as a hobby. Do you know hybrid tomato seeds can cost upto Rs 75,000/KG 🙂 so we bought 1 gm 😉 .

c) I would not like to save much for my child marriage, as I would like to encourage them for love marriage and settle things with a simple ceremony , that’s all . I dont believe in lavish marriges anyways .

d) I have no long-term goals of buying house, I would rather like to live in rent for long and build a corpus in pure equity + debt . If things changes and one day I feel real estate is something which should really be part of my portfolio, I will change my mind .

vegSeriously, do you want to buy that 55 lacs flat which is ‘almost’ out of city and commands a rental yield of not even 3% ? Do you ?

Timely : Imagine your goal is like “I would like to buy car of 5 lacs”, Fine ! . Now what do you do ? Do you save 5,000  per month or 20,000 and for how long , It’s important to set a time line so that you have a clear idea of how much does it take to achieve some goal. You can calculate the investment needed for that (See how to calculate) .

Example of Goal setting

Very simple way of doing this is to categorize your goals in Short Term , Mid Term and Long Term and each of them will have “High Priority” and “Low Priority” . This way you have a clear idea of what is important and first preference in all the time frame , For example .

  • “I want to buy a Car worth 6 lacs in next 5 yrs, which can accommodate around 5-6 people” can be a High priority , Mid Term goal , where as
  • “I would like to take a 2 weeks vacation in Kerela with my family worth 50k , can be a Low priority, Mid term goal .

Let us see the full example of Goal settings

 

 

 High Priority

 

 Low Priority

 
Short Term (<3

yrs)

 
  • Sister Marriage contribution: 3 lacs in 2012
  • Buy a Car in 2013 : Rs 3.5 lacs
Mid Term (3-6

yrs)

 
  • Initial Child Expenses : Rs 2 lacs in 2015
  • Abroad vacation with spouse : 5 lacs in 2016
  • Invest in a unique startup idea in year 2016 : Rs 2 lacs
Long Term (7+

yrs)

 
  • Child Higher Education : 40 lacs in 2035
  • 60% down payment money for a house : Rs 45 lacs in 2025
  • Retirement Corpus : 5 crores in 2035
  • House in a small town : Rs 15 lacs in 2025
  • Passive monthly income of Rs 50,000 per month starting in year 2030

You might want to look at subra’s post on Financial Resolution , it gives a good idea of how you should start and stick to financial goals .

Importance of Goal Setting with an Example

Even though it looks nonsense,  you need to understand its importance and its impact. Financial Planning is all about achieving goals in the best possible manner by considering your current situation. If you do not have a goal set with some target amount and target date, then you don’t have a clear idea of reaching there.

Imagine a goal of “Child Education” which costs Rs 10 lacs in today’s value. If your target date is after 25 yrs, then considering a 10% education inflation (historically it stands at 10%), the target amount will be 1.08 crores { 10 X (1 + 10% ) ^ 25 }. Now lets take 3 scenarios with return assumption of 12% per annum .

1) You plan for it and start saving for next 25 yrs

In this case , you will have to save Rs 5,710 per month for next 25 yrs . So you can start an SIP today and consistently start investing for this goal . If you get 12% over long-term , and you do not deviate from your goal and consistently invest with discipline , you can reach the target .

2) You plan for it and save more in the starting years

In this case , lets assume you can save more money in the starting 10 yrs and then do leave your money to grow for next 15 yrs , then you just need to save 7,800 per month for next 10 yrs and then leave the money to grow for next 15 yrs .

3) You do not plan for it and start saving at later point

Incase you do not plan for it and lose the starting years of your earning life and once your child is 9-10 yrs old (suppose you lose 10 yrs) and then you start thinking about the higher education , then to meet the same goal you need to save 21,500 per month for next 15 yrs .

Learning

The most important learning we should take from this article is that planning for a goal gives a direction and enables us to start thinking in that direction. We spread out the effort of achieving that goal in different stages, rather than struggling at the end when that goal is near .

Comments , share your thoughts on setting financial goals , what are the problems in real life which does not encourage us for setting the goals in this manner , Is it realistic ?

Things that you should know before hiring a financial planner

Posted on by Jagoinvestor

As a concept ‘financial planner’ has been in existence over several decades in the western world and in modern times, this role has turned into a well understood and highly regulated profession.

In the developed markets Financial planners would be similar to the family GP (general practitioner or family doctor) advising their clients on money matters ranging from buying into real estate to making of wills and estate planning.

5 reasons why you should hire a financial planner

In India though the concept, as it is understood in the west, is yet to arrive; we always did plan our finances well. This was, however, done by a variety of means. For instance, we took advice of friends and family members before finalizing the property deal; we asked colleagues for a reference to persons who could provide us the financial product that we wanted to invest in.

We also were chased by individuals who would specialize in selling a particular product (Common mistakes in Personal Finance). It could have been insurance, tax planning products, loans etc. In most events there was significant mis-match between what we wanted and what we got. The products would service most but not all requirements of the problem we had.

This has been changing over the past 5-7 years with the emergence of financial planners. These individuals/firms approach in dealing with client’s financial problems is more integrated than what most of the firms offer in India today.

Financial planning firms in India now help you address whatever your financial need, just like their western counterparts. Below are 5 main reasons why should hire a financial planner:\

Read : A short guide to Hire a Good Financial Planner in India

You can also watch this video to know the Financial services by Jagoinvestor.

1. Service

This is the most fundamental part of any financial planner. Since when you hire a planner and he charges you fees, individuals can expect a very high level of personalized service from the firm/planner.

This serves several purposes. It frees a significant amount of time that you invest in doing research for investment/ financial products. This in-turn helps you choose the right financial product/service.

2. Accountability

By far this is the most important reason to hire a financial planner. Over the past few years, there have been a plethora of financial products that got manufactured and a significant of those that got invested into were sold by individual/firms who were and are not held accountable for promise and performance.

There has been a wide gap between these and it continues to be easy to get away after completing the transaction without any recourse to the agent/intermediary for non-performance. ‘Caveat-emptor’ or buyer beware is applied on majority of financial products.

A financial planner and his engagement is a multi-year one and rest assured that chances are that more often than not you can demand an answer and check back on promise and performance of the financial product sold.

In fact, the planner of today in India is the one that keeps clients updated on what has been the periodic performance of his/her investments.

3. Knowledge

There has been a sea change in the financial landscape in India over the past 10 years. Financial products that got manufactured in India have increased in complexity and oft border on the esoteric fringe.

A planner endures that he is updated on the latest happenings around him and is expected to do two things – guard his client into signing on against anything which is not in his/her interest and select products which though not understood well but suit and serve the purpose and his financial goals.

Both of these activities require a deep understanding of the markets and products per se. In addition, global certifications such as the CFPCM (Certified Financial Planner) provide the added comfort that the individual has done enough homework before he takes fiduciary responsibility of your funds.

4. Ethics

This is easy to understand and preach but difficult to find and practice. Here is where the difference can be stark and contrasted. Financial planners who have demonstrated business ethics and integrity will remain a standout.

Because of the esoteric nature of quality involved in testing the planner whether he is ethical or not, the test can be done by simply asking questions such as – What process does he follow in taking and dealing in funds? What is the quality of people he employs at this firm? How long has he been in the business? How has he grown the business? – references, ads etc.

Answers to questions such as these will provide you with a fair degree of things such as Ethics, honesty et el.

5. Goal orientation

Not the least of them and equally important is the ability of the current planner to being goal oriented and inculcating a habit of financial discipline into the client’s psyche. The benefits of this get blurred in the overall scheme of things due to the nature of the long length towards the realization of them.

Things like children’s education, marriage or spending for one’s 25th marriage anniversary are events stretched far out in the future and hence not planned for. The planner’s ability to set aside or build funds for these events and the benefit of those would dawn upon when the events arrive over the short horizon.

This is a guest article written by Vinayak Kanvinde , Vinayak is a CFP and Head of Research at International Money Matters Pvt Ltd

NRI investment in mutual funds – A complete and detailed guide

Posted on by Jagoinvestor

Most of the NRI’s who are new to mutual funds have this confusion if they can invest in mutual funds in India or not?

In this article, I will share with you all the rules, restrictions and some of the important points that NRI investors should know before investing in Mutual funds.

Can NRI invest in mutual funds in India?

The simple answer is YES. NRI’s can invest in mutual funds in India.

In the case of NRIs, no special approvals are to be taken from SEBI or RBI, however the documentation can be little more and in case of US and Canadian NRI’s, there are some limitations in terms of which AMC’s they can invest in.

So let’s look at the basics first.

NRE or NRO accounts should be used

An NRI can invest in mutual funds only from an NRE or NRO bank account. The Non-Resident External Rupee (NRE) account is a rupee account from which money can be sent back to the country of your residence and the Non-Resident Ordinary Rupee (NRO) account is a non-repatriable rupee account.

Here is a detailed 30 min video explaining NRE/NRO accounts along with various other basics for NRI’s

Which means that if you are living in particular country and you want to invest in Indian mutual funds, but later in future, you want to redeem back the money and use it back in your country, then its better to invest by NRE account as its repatriable, otherwise NRO account can be used.

Procedure for Investing

For an NRI the procedure of applying in a mutual fund is similar to the one followed by residents.

Step #1 – KYC (Know your client)

This is one-time documentation required to invest in mutual funds and its a requirement set by SEBI. For doing your KYC, the following documents are required.

  1. Copy of Passport is compulsory
  2. Copy of Overseas Address Proof (in English)
  3. Copy of Indian PAN card
  4. Two passport size photos
  5. The fully Filled KYC form

You can complete your KYC either by taking support from a mutual fund distributor or directly submitting the filled KYC form at CAMS or KARVY Offices in your city by personally visiting them.

Important Points:

  1. Incase of POI, the POI card is also required in documentation
  2. In case your overseas address is not in English, you need to get it translated by a translator in your city and get their stamp
  3. In case you do not want to travel to India just for making investments, you can always give POA (Power of attorney) to someone trusted who can do the process for you. In our case, a lot of NRI readers of jagoinvestor, courier us their documents and we help them in doing their KYC and starting their investments.

Once your KYC form along with required documents is submitted to the registrars(CAMS, Karvy, Sundaram, etc.) It will take 4 to 5 days in registration. Once it is registered you can start investing into mutual funds. You will get the alert about the registration via mail or SMS. However, if you want you can check the status of your KYC by entering your PAN in either of the links below:

https://kra.ndml.in/
https://camskra.com/
https://www.karvykra.com
https://www.cvlkra.com/
https://www.nsekra.com/

You can also refer to these links for downloading the KYC application form.

FATCA

There is something called FATCA, which is also added in KYC documentation these days and it’s done for all investors. However, its mainly required for US and Canada investors. One has to provide information like country of tax residence, tax identification number from that country, country of birth, country of citizenship, etc.

Once the FATCA is submitted, NRI can start investing in mutual funds.

NRI’s from the US and Canada

Now, since the last few years – most fund houses in India don’t allow NRIs from the US and Canada to invest with them due to cumbersome compliance requirements under FATCA or Foreign Account Tax Compliance Act. When FATCA came into place, fund houses stopped taking investments from the USA and Canada because of the complexity associated with the compliance. However now, following fund houses accept NRI investments from US and Canada

  • Birla Sun Life Mutual Fund
  • SBI Mutual Fund
  • UTI Mutual Fund
  • ICICI Prudential Mutual Fund
  • DHFL Pramerica Mutual Fund
  • L&T Mutual Fund
  • PPFAS Mutual Fund
  • Sundaram Mutual Fund

Some of these fund houses have certain conditions on which they allow investors based in the USA and Canada to put money in their schemes. For example, ICICI Prudential AMC, Birla Sun Life Mutual Fund and SBI Mutual Fund allow investments only through the offline transaction with an additional declaration signed by the client. Similarly, L&T Mutual Fund doesn’t allow US and Canada based clients to invest in close-ended funds.

So, if you are the US or Canada NRI then look after the procedure and norms of Mutual funds in regards to NRIs of US/Canada before investing. We help a lot of our US and Canada clients to invest in mutual funds by making sure that their portfolio is designed well out of these limited sets of AMC which allows investments.

What if I was investing in mutual funds and moved to the USA, now I am an US NRI??

In this case, if the AMC you were investing with, continues to accept US NRIs then you just need to update the documents and have your FATCA verified, else you can just keep your investments as it is.

How do redemptions work for NRI?

When an NRI investor redeems the money from the mutual funds, the amount is credited back to your bank account after deduction of the applicable taxes in the form of TDS. Below are the taxation rules

NRI Taxation rules

NRI investors often fear that they will have to pay double tax when they invest in India. Well, this will not be the case, if India has signed the Double Taxation Avoidance Treaty (DTAA) with the respective country. For instance, India has signed this treaty with the US. Hence, you can claim tax relief in the US, if you have already paid taxes in India.

So if you have already paid X amount in India as tax, and If your taxation in the current country is Y, then you just need to pay Y-X tax in your country, provided the double taxation avoidance treaty is signed (in most cases its there for sure). Some documentation will be required for this benefit.

Equity and Debt taxation

The gains from equity mutual funds (funds where the composition of equity and equity-related instruments in the portfolio is 65% and above) are taxable based on the holding period. Short term capital gains (holding period 12 months or less than 12 months) attract tax at the rate of 15%. However, Long Term Capital Gains (holding period more than 12 months), in excess of Rs 1 Lakh, are taxable at the rate of 10%.

In case of debt funds (Hybrid funds with less than 65% equity exposure, Gold funds etc all are Non-Equity funds) Short Term Capital Gains (holding period less than 3 years) are taxable at the rate of 30%. Holding the fund for more than three years will result in a 20% tax on the gains with indexation benefit. LTCG on non-listed funds will be taxed at 10% without indexation.

Below given table shows the rate of TDS for NRI redemption on the basis of different holding periods and the type of funds.

Tax rate for TDS on NRI Mutual fund redemption 

If you are an NRI and you wish to start investing in Mutual funds, you can contact our team here.

If you are looking for Financial Planning, then visit our NRI Financial Planning page here

We have more than 100+ NRI clients across the globe who are doing their wealth creation using our help. We will help you in all the process and investing process.

We hope this article cleared the confusion about rules, regulations and taxation part of NRI investing.

15 Best Tax Saving Options under Section 80C

Posted on by Jagoinvestor

What so ever we earn, even then if our income is taxable we don’t want to pay tax on that income. We have a soft corner for our income. In this way, we tend to avoid paying taxes. We must remember that paying taxes on time signifies that you are a good citizen of your country.

As we all know the Government of India knows that we work so hard to earn this income. So in order to save more money from being taxed, the Income-tax Act 1961 section 80C allows a certain deduction to lower tax liability against taxable income.

tax benefits of 80c

Who all can claim deductions under section 80C?

An individual and HUF (Hindu undivided family) can claim all deductions under section 80C.

Most of the people are concerned about taxes, especially newly joined employees. Everyone wants to know about the deductions under various sections so that they can invest their hard earned money and save tax. To help you understand more, I have listed down what all tax savings investments come under section 80C of Income Tax Act 1961.

Tax saving investments U/S 80C

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Options #1 – Equity Linked Savings Scheme (ELSS) Options #2 – 5 yr Tax Saving Fixed Deposits
Options #3 – Public Provident Fund(PPF) Options #4 – Sukanya Samriddhi Yojana
Options #5 – Life Insurance Premium Options #6 – National Savings Certificate(NSC)
Options #7 – Infrastructure Bonds Options #8 – Tuition Fees
Options #9 – Senior Citizen Saving Schemes(SCSS) Options #10 – Home Loan Payment
Options #11 – Registration expenses of House and Stamp duty Options #12 – Post Office Time Deposits
Options #13 – Unit Linked Insurance Plan(ULIPs) Options #14 – National Pension System(NPS)
Options #15 – Employees Provident Fund(EPF)

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If you are in a rush and you want to cover all the points. So, we have attached a crisp video for you below.

Options #1 – Equity Linked Savings Scheme (ELSS)

ELSSs are equity mutual fund schemes that invest in stocks. They have a mandatory lock-in period of three years. They are riskier than other options like Public Provident Fund, National Saving Certificate, etc. However, they also have the potential to offer superior returns. ELSS category has offered an average return of 18.45 percent in the last five years. Investments in ELSSs qualify for tax deduction under Section 80C of the Income Tax Act. The maximum tax deduction allowed under Section 80C is Rs 1.5 lakh.

Options #2 – 5 yr Tax Saving Fixed Deposits

Tax saving fixed deposit (FD) is a type of fixed deposit, which comes under section 80C of the Indian Income Tax Act, 1961. This kind of deposit is offered for a lock-in period of 5 years. The maximum deduction an investor can claim through it is Rs 1.5 lakh. FD gives us 100% security of capital + guaranteed return on invested amount.

The rate of interest offered by banks ranges from 7 to 9% (may vary from banks to banks). The deduction is available to individuals, members of the Hindu undivided family (HUF), senior citizens and NRIs. As it is a lock-in fund, premature withdrawal is not allowed. This deposit account can be opened as single or joint holding mode. However, in case of a joint account, the tax benefit will be availed by the first holder of the deposit.

Options #3 – Public Provident Fund(PPF)

PPF is a long-term investment option of 15 years by the Government of India with an attractive interest rate of 8%(with returns fully exempted from Tax). One can invest minimum Rs. 500 to a maximum of Rs. 1,50,000 in one financial year. Deposits can be done in a maximum of 12 transactions only. One can also enjoy loans, withdrawals, and extension of the account. Loans can be taken against the Public Provident Fund between 3rd to the 6th financial year. A partial withdrawal facility can be taken from the 7th financial year onwards. The account can be extended for a period of 5 years after maturity but in a block-in mode.

Options #4 – Sukanya Samriddhi Yojana

This scheme is one of the most popular schemes by the Government of India. The aim of this scheme is to give a better future to the girl child in terms of education and marriage expenses. This scheme was launched in 2015 as a part of the Beti Bachao and Beti Padhao campaign. Parents or guardians can open the account anytime in the name of a girl child between the birth of a girl child till she attains the age of 10 years.

Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years. The interest rate on Sukanya Samriddhi Yojana is 8.1%. The investment amount is limited to a maximum of Rs.1,50,000 in a financial year. Investment, withdrawals & maturity amount are tax-free. The maturity of this account is after 21 years.

Options #5 – Life Insurance Premium

The life insurance premium is a payment made to secure our life. It is paid in the name of the taxpayer or the taxpayer’s wife and children. It is an eligible tax-saving payment under Section 80C. The deduction is valid only if the premium is less than 10% of the sum assured. One can get deductions up to 1.5lakhs a year.

Options #6 – National Savings Certificate(NSC)

NSC is a savings bond that encourages subscribers (mainly small to mid-income investors) to invest while saving on income tax. This investment is mainly a savings scheme for resident individuals only. Hence, Hindu Undivided Family (HUF), Trusts and NRIs cannot invest in this scheme. Indian individuals can buy it from the nearest post office in an individuals name (for a minor) or with another adult( as a joint account). This investment comes with 2 fixed maturity periods – 5 years and 10 years.

The minimum investment amount is Rs 100 with no maximum limit. Investments of up to Rs 1.5 lakhs in this scheme are allowed as a deduction under Section 80C of the Income Tax Act. The interest rate is fixed which 7.6% to 8.5% annually is currently. Many investors take loans on this certificate from the banks. The NSC can be transferred from one individual to another if the certificate holder intends to transfer.

National Saving Certificate

Options #7 – Infrastructure Bonds

A bond is an instrument to borrow money. Basically, they are borrowings that are to be invested in government-funded infrastructure projects within a country. They are issued by governments or government authorized Infrastructure companies or Non- Banking Financial Companies. Infrastructure bonds are not available all the time.

Whenever the government needs some money then they issue these bonds to raise money from the common people. An Indian resident(not minor) and HUF can invest in this bond with a maturity period of 10-15 years with an option of buy-back after a lock-in of 5 years.

These bonds are listed on Bombay Stock Exchange(BSE) and National Stock Exchange(NSE).Investments up to Rs. 20000 are eligible for income tax deduction under Section 80CCF of the Income Tax Act(this is over 1.5 lakhs of deduction available under section 80C).

Options #8 – Tuition Fees

Under section 80C, the government of India allows tax exemption on the tuition fees paid by the individual for their children. To be more precise the deduction is available only on the tuition fees part of the total fees paid. Other components of fees such as development fees, transport fees are not eligible for deduction u/s 80C. The deduction can be claimed for only 2 children.

For e.g, If a person has 4 children and father is the only earning member in the family whose income is taxable then he can claim an exemption for only 2 children and not 4 children. But if both the parents are working and both of there income is taxable then they both can claim and get an exemption for all the 4 children. Adopted Children’s school fees are also eligible for deduction.

Options #9 – Senior Citizen Saving Schemes(SCSS)

SCSS is a savings scheme for a senior citizen who falls under the age group of 60 years and above. Those senior citizens who are at the age of 55 years or more but less than 60 years (who have retired on superannuation or under VRS) can also avail of this scheme, within one month of receipt of retirement benefits and the amount should not exceed the number of retirement benefits.

The senior citizen can visit the nearest post office to avail of this scheme. A joint account can be opened with a spouse or husband only( with the first depositor as the investor). The account can be transferred from one post office to another.

There can be only one deposit in the account in multiple of INR.1000/- maximum not exceeding Rs 15 lakh. The current interest rate is 8.7% per annum. Maturity period is for 5 years. After maturity, the account can be extended for three years more (by giving an application in the prescribed format).

In such cases, the account can be closed at any time after the expiry of one year of extension without any deduction. TDS is deducted at source on interest if the interest amount is more than INR 10,000/- p.a. Nomination facility is available at the time of opening the account and also after opening the account.

Options #10 – Home Loan Payment

One can claim deductions on principal repayment for the home loan. The exemption is available up to Rs. 1,50,000 within the overall limit of section 80C.
Conditions for claiming the deduction are as follows-

  • The home loan must be for the purchase or construction of a new house property.
  • The property must not be sold in five years from the time one takes possession

Options #11 – Registration expenses of House and Stamp duty

Registration expenses of house and Stamp Duty charges and other expenses related directly to the transfer of house are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs. 1.5 lakhs. One should claim these expenses in the same year one makes the payment on them.

Options #12 – Post Office Time Deposits

The post office time deposit is a post office scheme. An individual and minor(for 10 years and above) can open an account here. Minor after attaining majority has to apply for conversion of the account in his/her name. A joint account can be opened by two adults. A single account can be transferred into joint and vice-versa. Nomination facility is available at the time of opening and also after the opening of an account.

The account can be transferred from one post office to another. The Interest is payable annually but calculated quarterly. One can make a minimum investment of Rs 200 with no maximum limit. The investment under 5 Years Time Deposit qualifies for the benefit of Section 80C of the Income Tax Act, 1961.
The interest rates increase year after year –

  • 1 year A/c is 6.9%
  • 2 year A/c is 7%
  • 3 year A/c is 7.2%
  • 4 year A/c is 7.8% (interest rates as on 01.10.2018)

Options #13 – Unit Linked Insurance Plan(ULIPs)

ULIPs stands for Unit-Linked Insurance Plans. It is a combination of insurance and investment. Here policyholder pays a premium monthly or annually. In this plan, a small amount of the premium goes to secure life insurance and rest of the money is invested just like a mutual fund does. ULIP offers investors to invest in equity and debt. Life insurance ULIP must be kept in force for 2 years to claim deduction u/s 80C.

Options #14 – National Pension System(NPS)

The NPS is a pension scheme by the Indian Government which allows the unorganized sector and working professionals to have a pension after retirement. This can be opened by any Indian citizen aged between 18 and 60. No limit on maximum contribution.

The interest rate varies between 12% – 14%. Partly withdrawals are allowed only after 15 years but under special conditions. Investments of up to Rs. 50,000 can be used to avail tax deductions under Section 80CCD. This limit of 80CCD is deductible over and above the maximum limit of section 80C (Rs.1.5lacs).

Options #15 – Employees Provident Fund(EPF)

EPF is a retirement scheme which is available to all salaried employees. 12% of basic salary + DA, is deducted by an employer and deposited in the EPF or other recognized provident funds. Any employee with a basic salary of 15000 per month can open the EPF account.

The interest rate payable is 8.55%. The basic requirement of this scheme is that both the employer and employee will have to contribute a minimum of 12% basic pay+D.A. The entire PF balance with interest is tax-free if it is withdrawn after 5 years of continuous service.

Case Study – Radha recently started working in an organization. She wanted to have a better life after retirement. So she decided to save more for her future and requested her employer to deduct more 8% from her basic pay in terms of EPF. So all together Radha invested 20 % of her basic pay every month for her better and secure future in EPF. This phenomena of voluntarily investing more in EPF is called VPF (Voluntary Provident Fund).

CONCLUSION :

So, by now you all have come to know the various options to save your hard-earned money from getting taxed. Rather than just sticking to one option, don’t you think you should invest a little-little in few options so that you can get good interest rates and lump sum amount after maturity.

Please let us know your views about this article. If you have any doubts or query, leave in the comment section.