From the Budget, infrastructure bonds are also eligible for additional tax exemption upto Rs 20,000 over and above Rs 1 lakh under Section 80C. IFCI Ltd was the first company to issue these infrastructure bonds and they have collected a substantial amount in the last few months. Now, IDFC Ltd has introduced its infrastructure bonds and there are a lot of investors, who are considering these bonds as an option to save additional tax for this year. Rajendran and Prashant have also asked the questions related to Infrastructure bonds some days ago on Jagoinvestor Forum. In this article, I give you brief information on IDFC Infrastructure Bonds.
The maturity period of these bonds is 10 years and the lock-in period is five years. These bonds will be listed on the Bombay Stock Exchange and National Stock Exchange. After completion of five years, you can keep these bonds for additional five years and withdraw money at the time of maturity. In case, if you need to withdraw money before maturity, then you always have an option to sell these bonds on stock exchanges. Thus, these bonds can be traded like stocks on the stock exchanges but only after the lock in period of five years is complete. You would require a demat account and Permanent Account Number (PAN) to invest in these infrastructure bonds. The face value of each bond is Rs 5,000. The minimum application has to be for two bonds and in multiples of one bond thereafter. Hence, the minimum investment required is Rs 10,000. You can invest more than Rs 20,000 in these bonds but the tax-exemption would be only upto Rs 20,000.
Taxation on Infrastructure Bonds
You will get tax exemption benefit up to Rs20,000 when you invest in these bonds. However, the interest gained will be taxable. The interest would be added to your income and taxed at the existing slab rate. this taxation rule will be same even after Direct Taxes Code (DTC) Bill comes into effect. Both, the current Income Tax Law and DTC require you to pay tax on the interest earned.
Infrastructure Bonds in different series
Note that these bonds come in 4 different flavors and they are called as Series 1, 2, 3, 4 . Each of these series is different from each other in some way. There are two main things you should understand , which might be of concern to you.
Interest Cumulative : Series 1 & 3 do not provide cumulative interest. They will pay interest annually. For example, if you invest Rs 10,000, then after completion of 12 months, the interest amount will be paid to you every year and the bonds maturity value would be same as your investment. However, bonds which have cumulative interest will keep accumulating interest. And this interest would be compounded every year. (see CAGR)
Buyback : Series 3 & 4 have buyback option. Buyback option means that you can sell your bond back to issuing company after five years; once the lock in period is complete. In return, you will get back your original invested amount and the interest accumulated for five years. You would notice that interest rates for series 3 & 4 is 7.5%, which is because they have an added advantage of buyback facility. If you don’t want buyback option, you will get 8% interest. People not opting for buy-back options will depend on secondary markets to sell their bonds if they require money urgently before maturity (10 years). Thus, after lock-in period (five years) is complete, they will have to find a buyer in secondary markets else wait till maturity, when they will get the money back from IDFC.
Other features of IDFC Infrastructure Bonds
NRI’s cant invest in these bonds (Only available to Resident Individuals and HUF’s)
The bonds don’t attract any TDS
The bonds are rated LAAA by ICRA, However high rating is not something you should be very excited about. (Link)
The interest accrued on the bonds will be credited to the respective bank registered with the demat account through ECS on the due date for interest payment
Interest on the bonds shall be payable on annual or cumulative basis depending on the series selected by the bond holders
The bonds can be pledged for availing loans after the lock-in period of 5 years
Subscribe to the Bonds in physical form
If you do not have demat account and want to apply for these bonds in physical form , you can still apply for them using these steps (link) , Thanks to Srinidhi for giving this info .
Don’t fill up the demat details in the application form
Compulsorily provide the following three documents with the application form:
Self-attested copy of the PAN card;
Self-attested copy of a cancelled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption, as applicable, should be credited.
Self-attested copy of the proof of residence. Any of the following documents shall be considered as a verifiable proof of residence:
Ration card issued by the Government of India; or
Valid driving license issued by any transport authority of the Republic of India; or
Electricity bill (not older than 3 months); or
Landline telephone bill (not older than 3 months); or
Valid passport issued by the Government of India; or
Voter’s Identity Card issued by the Government of India; or
Passbook or latest bank statement issued by a bank operating in India; or
Leave and license agreement or agreement for sale or rent agreement or flat maintenance bill; or
Letter from a recognized public authority or public servant verifying the identity and residence of the Applicant.
Should you Invest ?
Though, it’s mentioned that the interest rate on these bonds are 8% or 7.5%, the interest earned would reduce further to 5.5%-6% range when you count the tax paid on interest. But if you look at it from a different angle, and count your money saved due to the tax-exemption at the time of investing, in that case the return would turn out to be around 9.5%-10%, but do you think it’s the right way of looking at returns?
What do you think about these bonds ? Are you investing or not and why ?
ICICI Prudential has recently launched its online Term Insurance Plan called iProtect . iProtect is extremely affordable online Term Plan whic has some very good features. Last year Aegon Religare launched its online Term Plan iTerm , but it had some limitations like no riders attached and the company didnt had much trust factor . However iProtect comes with some really great features like Accidental rider, Term upto 30 yrs , wide coverage of cities and apart from being completely online, it can also be bought by agents, corporate agents and brokers , So it you are not net savvy or dont like pure online product, you can still buy iProtect Term Insurance through offline means , however the premiums in that case can be higher compared to when you buy online,because of agents commission involved in between.
The best thing I liked about iProtect was the user interface . It was easy to operate , asks less things in the starts and you come to know about your premium just by providing basic information like Age , Term , Sum Insured etc in the start, unlike iTerm from Aegon Religare where you had to provide all the medical details and finally after some hard work it shows you your premium. Personally for me (age 27 , policy for 30 yrs) , the iProtect premium for 1 crore was just Rs 9,400 .The ICICI iProtect comes with two different Plans, one with accidental rider and one without accidental rider
iProtect Option I : In this option there is pure life cover without any rider, you get the sum assured only when you die, else not .
iProtect Option II PLUS : In this option , along with pure life cover , you also have accidental rider , which is equal to the Sum Assured (subject to a maximum of Rs. 50 lacs) will be paid out in the unfortunate event of death of the Life Assured only if due to an accident
The best part of the policy is that your life cover begins immediately once company receives the premium in case of non-medical cases (incase there is no need of medical examination) , However, In cases where medical examination is required, cover will commence from the date of issuance of the policy. Calculate your Insurance cover
Freelook up Period
A period of 15 days is available to the policyholder to review the policy. If the policyholder does not find the policy suitable, the policy document must be returned to the Company for cancellation within 15 days from the date of receipt of the same. On cancellation of the policy during the freelook period, They will return the premium paid subject to the deduction of:
a) Insurance stamp duty paid under the policy,
b) Expenses borne by the Company on medical examination,if any
iProtect Premiums Illustrations
A) The table below provides annual online premium (exclusive of service tax and cesses, as applicable) for various combinations of Age and Sum Assured for a healthy male (non-tobacco user), opting for a policy term of 25 years.
B) The table below provides annual premiums (exclusive of service tax and cesses, as applicable) for various combinations of Age and Sum Assured for a healthy male (non-tobacco user), opting for a policy term of 20 years, where policy is sourced by tied agents, corporate agents, brokers or direct sales.
iProtect vs iTerm Comparision
I Let us look how iProtect fares in comparision to iTerm plan. I found out that iProtect beats iTerm in all the areas.
What is covered under Accidental Death ?
Accidental Death Benefit: This benefit is payable subject to the conditions mentioned below:
1. The death due to accident should not be caused by the following:
a) Attempted suicide or self-inflicted injuries while sane or insane
b) Engaging in aerial flights (including parachuting and skydiving)
c) By the Life Assured committing any breach of law
d) Due to war, whether declared or not or civil commotion;
e) By engaging in hazardous sports or pastimes
2. Death due to accident must be caused by violent, external and visible means.
3. The accident shall result in bodily injury or injuries to the Life Assured independently of any other means. Such injury or injuries shall, within 180 days of the occurrence of the accident, directly and independently of any other means cause the death of the Life Assured. In the event of the death of the Life Assured after 180 days of the occurrence of the accident, the Company shall not be liable to pay this Benefit.
Premium Comparision with other Cheap Insurance Policies
Who Should Buy ?
If you dont have Term Insurance : If you havent bought term insurance till now and were still waiting or I must say “delaying” because of your laziness , this is the time to act and finally buy term insurance online .
If you are UnderInsured : You know that you are underinsured , who still not taking the additional cover, now its your time to go and buy additional cover .
If you already have sufficient Cover : Situation changes , and so does in Personal Finance, even if you are adequately insured , It would be a good idea of explore an option of shifting fully or a part of your cover into iProtect term plan , as its a cheap plan .
Open Question, This is a new plan , we are not sure of the customer care support and how well its service is, What do you think about it ?
Comments , Do you like this iProtect Plan ? Please let me know your reasons and what you think about this plan . Are you going to take this policy ?
How important is Retirement ? If you are not asking this question to yourself today, You are bound to pay for this in future. Thinking about retirement in early age is considered Joke in our country, every body is just running around buying cars, home, may be invest in couple of mutual funds without any plan and buy life insurance, but Planning for retirement is still a very untouched activity. With the advent of “Financial Planning” word in our country, Financial Planners are now doing Retirement Planning for clients , however even that Retirement Planning is not proper Retirement Planning is true sense .
Retirement Planning is a much much more complex process than we think and deserves a lot of effort and time if you want to successfully plan for your Retirement years . We are living in a different era, and uncertainity of not reaching our Target in retirement is much more in these times . We need a much well planned approach and systematic planning for every goal of our life and Retirement is a classic case of it.
PV Subramanyam, a CA by Education and a trainer by Profession has written a wonderful book, named “Retire Rich Invest Rs 40 a day” . I bought this book and read it and here are some of my thoughts on the book.
Review of Book
Easy to Understand : The first thing which amazed me about the book was that it was written in very very simple language, It was easy to understand all the chapters of the book. The book starts with a very nice Introduction of why Retirement is more important in these days to plan and how we under estimate our retirement needs. I am reading Subra’s Blog from a long time now and his way of writing is very different than his way of writing on blog . I must say that I consider his book to be very simple than what I had expected 🙂
No Complex Calculations : The book gives all the calculations in a easy to implement “tabular” format and its easy for anyone to actually implement the learning from the book without diving into the complex calculations .
Step by Step Guide for self-planning : The book goes through all the steps of retirement planning in easy way and anyone can easily understand and do their Retirement Planning. It would require dedication to really go through the book and understand the various concepts the author has tried to explain. With some effort and dedicated mind its a great way to plan your own retirement.
Good Examples but lacks Graphs/Charts : The book have good examples in between , which woul be very helpful in understanding the chapters and what they try to convey. But if you are a kind of reader who like to see lots of Images/Charts along with text, the book misses on that part.
Introduction of Investment options : While it might sound that the book is only for readers who already know a lot of stuff , Its not true . In between, there is good insight about various investment products one can invest in and it gives a fair understanding of what should be the action plan after one plans for his/her retirement.\
Book reading Session in Pune
There is a book reading session conducted in Pune on this coming Sunday on 15th Aug and Subra mailed me personally to invite all the readers of this blog who wants to join them . The entry is FREE .
You can meet PV Subramanyam and Deepa Venkatraghavan, Editor Moneycontrol.com there . I would say who ever can go should definately go to the Book reading session and make the most out of it .
I am not an expert on any topic by any means and this review should be taken as my views on the book only. Overall The book is very good and is recommended to all. While the book targets people at any stage of life , Its must have for people who are in early stage of their life.
Jagoinvestor is one of the simplest blogs that you can find to kick start your investing.There is such a nice variety of posts that all individuals can get benefits from it.Manish Chauhan the blogger behind it seems to spend a lot of time making his blog perfect for his readers.It is no surprise that his blog is so popular.It is a constant reference for all financial basics, explained in a very light manner.Whether you are a blogger, an investor,analyst or just someone passing by it is definitely worth spending some time here. — Sumayya Shaikh
Jagoinvestor is a great blog on investing. It is extremely rich in content, some of the posts are written extensively. The interesting part of this blog is most of the queries are answered from different posts present here itself. And by the way he’s a great cook…so you can expect a treat J — Charu Gupta
Jagoinvestor blog is an excellent one stop destination for understanding basics on a variety of topics in money management and stock markets.The content is presented in a way that is easy to grasp avoiding the complex lingo that usually scares away readers.This helps in a big way to get those crucial money matters fixed in one’s life without becoming too dependent on other advisors. — Saif Shakeel
This is one of the best blogs i have come across which explains the nuances of financial planning and investing in a way which everyone can understand.Especially the articles on financial planning, compounding power of money and endowment plans are real eye openers. This blog really help me avoid many pitfalls and I have educated my friends also.In a nutshell ,it is a one stop blog for anyone who wants to reap good harvest for their hard earned money. Keep going Manish !! — Swathi Kota
This is a great website ! Thanks for all the information. This website has provided a wealth of information for me and i really appreciate it and look forward to learning more. Now i know no agents can fool me anymore. Thanks Manish for the great job. — Anu Lopez , Dubai
Discover tips on saving money, investing smartly, managing your finances and getting the most for your hard earned money from the Smart Investor blog by Manish Chauhan. This would be the one website I would suggest to anyone who is new to investing or just starting up. — Skandhakumar
It is a must read for the people who want to plan their personal finances using a range products available in market.You would be wrong if you think it is a stock market blog .The title ‘Smart investor’ perfectly suits this blog — Sandip Naidu
I just happened to see Manish’s blog few months ago accidentally while reading other links in famous TA analyst. Manish brings out very simple but important issues on personal finance, stock market, insurance, interest rates etc. I am an Accounts Manager by profession but i never looked in to these aspects in my personal financial planning. After following his blog regularly i could review my financial planning and advise my peers. I appreciate Manish’s efforts — Venkateswara Ravi Prasad
We will discuss about LIC’s Jeevan Tarang Policy today, One of the readers asked me my review about Jeevan Tarang in “Ask a Question” Section.
I thought it would be a good idea to discuss it with every one here. So lets see Whats the policy and lets evaluate and answer the question “Is Jeevan Tarang worth consideration or Not”? Also see How can we beat this Policy by huge margin.
Jeevan Tarang Policy Highlights
Jeevan Tarang is a Whole Life Plan from LIC, Whole life plan means that you are insured for whole life (max age 100) The plan offers three Accumulation periods – 10, 15 and 20 years. A proposer may choose any of them. This is the Tenure by when your Policy Matures.
Whenever you die, you will ge the Sum assured and then the Policy Expires. This policy will expire if you are at age 100.
If you Die before the Maturity, you will get the Sum Assured + All the Bonus Accumulated till date.
The yearly Premimum will depends on two things, your Tenure and your Age. It can range from 11% (Policy for 10 yrs), 7-8% (Policy for 15 yrs) or 5-5.5% (policy for 20 yrs).
For exact numbers see here. The percentages are with respect to your Sum Assured, 5.5% premium means 5.5% of your Sum assured. so Rs 10,00,000 of Sum assured means 55,000 of Premium each Year .
Incase you surviuve till your Policy Tenure, then at the end of your Tenure, you will get Bonus accumulated (not the Sum assured) and an annuity of exact 5.5% each year after the Policy Matures. One will get 5.5% of the Sum Assured each year till his death or upto age 100 whichever is earliar.
If you can not pay the Premiums and want to stop the policy (only after 3 yrs), you have two choices, either make it a Paidup policy or take back the Surrender Value. This is explained in detail later, so move on.
These are the main basic and approximate points of the Policy, for exact detials see the policy page at LIC website.
Let us now see an example with different Scenario. This will help you understand it better. Read Important of Life Insurance
Now let take Scenario’s
Ajay’s age is 30 and he takes Jeevan Tarang Policy for a tenure for 15 yrs with Sum Assured of Rs.10,00,000 (10 Lacs). His Yearly Premiums will be 71.40 for every 1000 sum assured, which is 7.14%. Which comes to 71,400 per year.
If Ajay dies before 15 yrs
In this case he will get Sum Assured + Bonus Accumulated till date. The Bonus amount is not fixed and we can not tell how much it will be now , But on LIC webpage its mentioned in range of Rs 20-88 .
Lets take a good figure of Rs 30 . In that case Per year it would be 30,000 more . So If he dies in 8th year , it would be 10 lacs (Sum Assured) + 2.4 lacs (bonus for 8 yrs) = 12.4 Lacs and the policy Expires .
If Ajay survives the Policy and does not die at all
In this case, Ajay will pay his premium upto 15 yrs and then in 15th yr, he will get back the Bonus accumulated (not sum assured), so may be it would be 4.5-5 lacs assuming Rs 30 as Bonus for every 1000 SA. Also he will get 55,000 per year(remeber 5.5% of Sum Assured) as annuity till he dies or upto age 100 .
He will also get Loyality additions , this will again be a very small amount just like Bonus , but this is not assured at all. Read this for same concept : Term Insurance with Return of Premium
If Ajay survives the Policy and Dies Later.
Its almost the same case as above, in this, Ajay will get Bonus at the end of 15 yrs and then He will start recieving 55,000 ever year. And suppose he dies before age 100, he will receive the Sum Assured of Rs.10 lacs and thats it .. The game is over and then LIC doesnt recognise him there after.
Ajay is not able to pay premiums because of some problem and wants to stop.
This is possible only after 3 yrs of taking the Policy, If he wants to stop it before 3 yrs, then sorry buddy, just forget your Money and go home cry. If its after 3 yrs, then He has two choices
Make the Policy Paid up : In this case, you stop the Premium payments and you will get your Premiums and Bonus Accumulated will date at the end of the Maturity. You Sum assured will also reduce in Proportion to Premiums Paid, so if you stop the policy in 6th year, your Sum assured will reduce from 10 lacs to 4 lacs (40%), as you have paid the premium only for 40% of the tenure (15 yrs), thats 6 yrs.
Take your Money Back : After 3 yrs of completion, the Policy acquires a Surrender value, generally its the Net Present Value of money in todays term what you are going to get at the end. See this post on Net Asset Value. So if you are going to get 5 lacs at the end of 15 yrs and todays worth of that money is 2 lacs, you will get 2 lacs today.
Watch this video to know about other features of this policy:
What is the Return of Jeevan Tarang Policy overall ?
Even if you receive all the annuity upto your age of 100 , the CAGR return for this policy using IRR Analysis comes to mere 4.72% .
I have taken the above example and assumed 5 lacs of Bonus and no loyality additions , even if we consider 7-8 lacs of Bonus and Some loyality additions, the CAGR return Does not cross 6% CAGR .
Why this Policy excites people and general people get fooled?
These kind of Endowment policies make sure that you concentrate too much on numbers and it traps your mindset in the present moment , One who is able to forsee beyond “now” can understand the real value of these Policies .
We concentrate on numbers, If we get something for a long time and we pay for less time, it appeals to us, and hence this policy takes care of that very beautifully, You pay for 10, 15 or 20 yrs and you get back till you are Age 100, Sounds great !!0
Psychologically our mind is programmed by nature to think about the best case for ourself, but how many of us will survive upto 100 yrs to get annuity back, The average person thinks emotionally , Insurance Companies work on Data, Statistics, probability Theory and complex calculations, which tell them that average person will die at 60-70, and only 1-2 will survive till 100 years of their age.
Most of the people see Numbers and Present, The policy will demonstrate how much You will get at the end of the Maturity but it never tells you how much will it be worth then and how much will it help you in your Financial goals. We never think that Rs.100 today can buy much more than Rs.100 after 15 or 30 yrs.
We know this somewhere inside us, but out mind just doesn’t feel everytime the same way, that’s the reason you need to calculate things by hand, on paper or computer and do some small analysis like I did on this article. Then you get the clarity
Trust and Blind Faith, We trust companies because they have been in existence from long time and our parents were made to believe that these are the best friends in our life, they will protect our Future. Love and “Taking Endowment Policies” in India has similarity.
I grew up hearing Love is Blind and experienced it too, and I feel that its same with Taking Endowment Polices. People just take it blindly, some new Policy comes up and bang !! It has to be great, no matter what, because it comes from the GOD company !!
Why age 100? How many people are going to live upto age 100 , why putting that number at 100, why not increase it to 500, even though life expectancy is just 60-70. Not more than 1-2 in 100 live upto 100.
In case of Ajay, if his monthly expeses is 30,000 (considering married, even though I doubt he will ever get any one), after the accumulation period of 15 yrs, he will start receiving yearly pension of 55,000 per year, read it again, 55,000 per year, but now after 15 yrs, even with 6% of inflation his monthly expenses has gone upto 72,000 . And his policy pays him 55,000 which cannot even take care of his 1 month of expenses . Now i can see him pulling all his hairs .
If he is dead at age 70 , His family would get back the Sum assured of 10 lacs and at that time , it can only pay for his family’s 3-4 months of expenses and his Funeral cost , thats it .. Aha .. atleast something , so one this is confirmed , There will be no financial burden , pun intended .
This is the question which we should always ask in every situation of our life, not just Financial planning. Lets take care of Ajay’s situation in Jagoinvestor’s way and plan him something better than Jeevan Tarang.
With Rs.71,600 per year to pay for 15 yrs, lets see what can we do.
First thing First, Lets cover his Family first from the Mis-happenings of life an secure his dependents, Lets take a Term Insurance of 50 lacs for maximum tenure of 30 yrs, Premium would be close to 13k or 14k approx, lets assume 14k. So out of 71,600, 14k is gone and we are left with 57,600.
Now lets put 21,600 each year in PPF for 15 yrs. We are now left with 36,000 to invest, we will start Rs.3,000 SIP per month (Rs 1000 each in 3 different Equity funds) for 15 yrs . See list of some good Equity Mutual funds for 2009 .
PPF will accumulate to 6.3 lacs in 15 yrs and Mutual funds will accumulate to 15 lacs in 15 yrs assuming a pessimistic return of just 12% (Historical return has been more than 17% and last 5 yrs return are more than 25%). Lets assume just 12% and not 18-20% even though its possible because our aim is to do better than Jeevan Tarang and achieve our goals and not compete with some one.
So total amount will be around 21.3 lacs at the end of 15 yrs. Now lets visit and see our Scenario’s again and hows does it compare now.
If Ajay dies before 15 yrs :
Gets 50 lacs from Term Insurance and also the money from PPF and mutual funds, which will be more than 50 lacs 🙂 . We beat Jeevan Tarang by huge margin in this case.
If Ajay survives and Does not Die at all :
In this case he already has 21.3 lacs accumulated and now he can use this amount to buy an Annuity which will pay him more than 1.6 lacs Per year, much more than what he was getting in LIC policy.
As a toppings, he also has a 50 lac cover for another 15 years. We can generate 3 times more annuity than Jeevan Astha here, again beat by huge margin.
If Ajay survives the Policy and Dies Later :
In this case if he dies in next 15 yrs , his family would get 50 lacs from Insurance (10 lacs in LIC), apart from this he will have his 21.3 lacs growing every year.
If he dies after 15 more year, There will be no Insurance money, but his money would have grown a lot by now .. If he dies after 15 yrs (total 30 yrs from starting), his money would have grown to 1.17 crores assuming 12% return per year (no annuity every year). and if he dies after 25 years (total 40 yrs from starting , means at age 70), his money would have grown to 6 crores.
Now incase you don’t want to faint, don’t ask me how much would have he had if he lived till age 100 and left his money to grow, Its 13 crores 🙂 . I have not assumed any annual annuity here, we can do that but the result would remain almost same. We beat Jeevan Tarang by hugest margin in this case. See how we can create Wealth using Equity in Long term.
Ajay is not able to pay premiums because of some problem and wants to stop.
His money will still be in PPF and Mutual funds and keep growing, there is no liquiditity issue with Mutual funds, he can withdraw from mutual funds anytime, even from PPF he can withdraw partially.
If he has limited money, he can at least pay his Insurance premiums and still get covered for 50 lacs, no big deal there. In every aspect it beats Jeevan Tarang
Note : For doing better than Jeevan tarang we have invested in Mutual funds which are risky instruments , but anyways we are not in great position with Jeevan Tarang .. so taking risk is worth it . If one is too concerned about risk , then even plain PPF will be better .
Conclusion :
Think Logical , Think mathematical , Think smartly and at last THINK !! .
Note : The figures have not considered the rebate provided by LIC, and hence the actual figures can deviate a bit from the actual numbers used here, but it wont be significant and the review still holds . ahh .. tired now !!
