Home Loan v/s Investment

Q. I have a question regarding Payment of Home Loan vs. Investment. Should a person start a SIP for his retirement or should he plan to prepay his Home Loan first. Say if a person is having a Home loan of 30L and paying EMI of 30K and having a SIP of 10K is good option or having EMI of 40K is a good option, or having a 10K of reoccurring deposit for one year and with this amount prepay his loan after each year.

Thanks

Sachin

 

Ans. -

Dear Sachin, in my view, Increase your EMI to 35K & invest 5K mly through SIPs for your retirement. The extra amount in EMI ‘ll help to close your loan early & the SIPs ‘ll give the power of compounding to your retirement portfolio.

Thanks

Ashal

Liquid Funds

Please pardon my ignorance, but I have a very basic question regarding “Liquid” funds.
I am planning to park my lumpsum money in liquid funds and initiate STP to diversified equity funds of the same fund house.
This was actually discussed in this messageboard about one month back. My question is: do I need to park my money in only those funds which have the word “Liquid” in the name? I know this sounds silly, but just wanted to confirm if the term “Liquid” (when used in a fund name) has some special meaning? e.g. consider the following 2 options where I want to STP to Birla Sunlife Frontline Equity.1. Birla SL Dynamic Bond -RP (G) –> STP to –> Frontline Equity
2. Birla SL Liquid Plus – RP (G) –> STP to –> Frontline Equity

Now, the first option seems to be a better option to me as it has given 11% return in last 1 year. So can I go ahead with this?
Or do I have to choose the 2nd option only because the name suggests it’s a “Liquid” fund?

FYI, exit loads are as below:
Birla SL Dynamic Bond (0.20% if the investment is redeemed within 30 days months from the date of allotment.)
Birla SL Liquid Plus (0.25% for redemption /switch out of units within 1 month from the date of allotment)

Again, that means I cannot start STP from Birla SL Liquid Plus before 1 month, correct me if I am wrong.

Dear, Plz. note -

Birla Dynamic bond fund is a bond fund, that’s why its performance in terms of returns is better than liq. + fund. As it is a bond fund, exit load is there.
Birla SL Liq. + fund don’t have any exit load. I personally check from birla web site for the same. In fact no liq. + fund has exit load.

If u opt Dynamic bond fund for higher returns, even in this case Exit load don’t seems much as u ‘ll transfer 1K per week only. So u ‘ll pay exit load for 4 weeks only. So for a weekly STP of 1K, ur total exit load for 4K Rs. ‘ll be 8 Rs. (0.2% of redeemed amount) only.

One plain advise, to avoid entry load on Target Eq. fund (Birla Frontline in this case), invest under direct mode only.

Regarding the use of word, liquid + , is not at all necessary, some AMCs use other words like Cash plus, Cash management

thanks
Ashal …

ICICI Pru Life’s Online Term Cover – I Protect

Dear friends, Earlier it was Aegon Religare’s I- Term, the lone player in online Term cover Market but now it has a companion from the big daddy of private life insurers in India – ICICI PRU Life. The product is named as I-Protect.

Product at a glance -

Minimum /Maximum Age at entry – 20 / 65 years

Policy Term – 10, 15, 20, 25, 30 years

Maximum age at policy expiry – 75 Years (Age completed Birthday)

Minimum Premium – 2000 Rs. (Excluding Service Tax & Education cess)

Accidental Death Benefit (Available with IProtectOption II only) – Equal to basic sum assured with maximum limit to 50L

Premium Payment term – Regular pay

Mode of Premimum Payment – Yearly only

Tax benefit – Prem. paid is eligible for Tax benefit under Section 80C of Indian Income Tax Act, 1961

Available Options – Option I Basic Life cover, Option II Basic Life Cover With Accident Death Benefit Rider

Death benefit – Option I – Basic Life Cover

Option II – Basic Life Cover + Accident Rider Sum  Assured equal to Basic Sum assured or 50L whichever is lower

Instant Life Cover – Policy ‘ll be issued immediately after realization of the prem. amount by the Ins. Co. for Non Medical Cases.

Maturity Benefit – Being a pure Vanilla Term Cover, there is no maturity benefit.

Offline Purchase – Yes allowed with a slightly higher prem. (To include the commission of Agent/Broker)

My take – I-Protect is a real competitor for Aegon Religare’s I-Term. Actually it’s better than I-Term. How here it goes -

Max. Term – 30Y in I-Protect for 25Y in I- Term

Accident Rider – Yes for I-Protect no for I- Term

Offline Purchase – Yes for I-Protect no for I-Term

Maturity Age – 75Y for I-Protect  where as it’s 65Y for I-Term

The major plus point with I-Protect, ICICI Pru Life has offices, agents, brokers, bankassurance channels in every nook & corner of India, Hence purchasing the cover online of offline is very easy as compare to Aegon Religare’s limited presence.

In my view, if you are planning to purchase your first Term cover or want to increase one, go for this one.

For More info about the product click here.

Thanks

Ashal

How to clear name in CIBIL Report?

Hi,
My name is Ritesh kumar and I requested for my CIBIL repot which I get and I found a “Written OFF” from Standard Charted Bank Credit Card for the amount of Rs 994/-.
From 2005 to 2006 I was using a SCB Manhattan Credit card then I stop using the Card around 2006 last Q, but I continually receiving statement from the bank and every time there are some charge add and till Feb. 2006 the amount where gone up to 3000/- then I write a mail to SCB customer care and get all the settlement (I have a mail from the bank). But my card was not officially close, but also, I never use that card again.
So can you please advice me what should I do now, I wanted to remove “Written OFF” from the CIBIL for me.
Please help
Thanks

Ritesh Kumar

Dear Ritesh, You have following options.

1. Based upon your settlement of dues done in 2006, write to your Credit Card provider (SCB) & ask to remove your name for Written off from Cibil Report.

2. Wait for the 1 above to happen for at least 1 month or so. If nothing is happening, contact Banking Ombudsman in your area. Click here for more details on Banking ombudsman.

3. Based upon your settlement of dues done in 2006, you may apply for loan (CAR, Home or Personal). With your application attach the copy of settlement documents.

Thanks

Ashal

Life Cover may got cheaper

Dear Friends, Please check the link below.

http://www.business-standard.com/india/news/life-cover-may-get-cheaper/404663/http://www.business-standard.com/india/news/life-cover-may-get-cheaper/404663/

Thanks

Ashal

Income Tax saving – Infrastructure Bonds

CBDT has notified New infrastructure Bonds u/s 80CCF.An Individual or HUF can invest in these new infrastructure Bonds upto Rs 20000/- in a Financial years.Main features of this new section and new notification is given below

1. New section can be availed by individual or HUF only.
2. 20000/- rs can be invested in a Financial year to avail deduction under section 80CCF
3. 20000/- Limit is in addition to 100000/- Limit of setion 80C,80CCC,80CCD
4. Tenure of the Bonds will be 10 Years.
5. However Lock in period is 5 years ,after 5 years investor can withdraw money from the bonds
6. After lock in period ,Investor can take loan against these Bonds
7. Issuer of the Bonds is LIC,IFCI,IDFC and other NBFC classified as infrastructure company.
8. Permanent account Number is must to apply these bonds.
9. Yield of the bond – The yield of the bond shall not exceed the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond.

Section 80CCF of the Income-tax Act, 1961 – Deduction – In respect of subscription to long-term infrastructure bonds – Notified long-term infrastructure bond

Notification No. 48/2010[F.No.149/84/2010-SO(TPL)], dated 9-7-2010

In exercise of the powers conferred by section 80CCF of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies bonds, subject to the following conditions, as long-term infrastructure bonds for the purposes of the said section namely :-

(a) Name of the bond – The name of the bond shall be “Long-term Infrastructure Bond”.
(b) Issuer of the bond – The bond shall be issued by :-
(i) Industrial Finance Corporation of India;
(ii) Life Insurance Corporation of India;
(iii) Infrastructure Development Finance Company Limited;
(iv) a Non-Banking Finance Company classified as an Infrastructure Finance Company by the Reserve Bank of India;

(c) Limit on issuance – (i) The bond will be issued during financial year 2010-11;

(ii) the volume of issuance during the financial year shall be restricted to twenty-five per cent of the incremental infrastructure investments made by the issuer during the financial year 2009-10;

(iii) ‘Investment’ for the purposes of this limit include loans, bonds, other forms of debt, quasi-equity, preference equity and equity.

(d) Tenure of the bond. – (i) A minimum period of ten years:


(ii) the minimum lock-in period for an investor shall be five years:

(iii) after the lock in, the investor may exit either through the secondary market or through a buyback facility, specified by the issuer in the issue document at the time of issue;

(iv) the bond shall also be allowed as pledge or lien or hypothecation for obtaining loans from Scheduled Commercial Banks, after the said lock-in period;

(e) Permanent Account Number (PAN) to be furnished – It shall be mandatory for the subscribers to furnish there PAN to the issuer;

(f) Yield of the bond – The yield of the bond shall not exceed the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond;

(g) End-use of proceeds and reporting or monitoring mechanism – (i) The proceeds shall be utilizes towards ‘ infrastructure lending’ as defined by the Reserve Bank of India in the Guidelines : issued by it ;

(ii) the end-use shall be duly reported in the Annual Reports and other reports submitted by the issuer to the Regulatory Authority concerned, and specifically certified by the Statutory Auditor of the issuer;

(iii) the issuer shall also file these along with term sheets to the Infrastructure Division, Department of Economic Affairs, Ministry of Finance within three months from the end of financial year.

Annuity Payment options against Pension Policy

Please guide me as to how to decide about selection of proper option from the following options offered by Pension Plan :

1. annuity as long as one annuitant lives

2. annuity guaranteed for 5, 10, 15 or 20 years and life thereafter

3. annuity with return of purchase price to nominee

4. annuity payable for life increasing at a simple rate of x%

-Vinayak Bapat

Dear Vinayak, each of the option listed by you has it’s own pros & cons.

1. Annuity for life – In this case the annuity amount is highest but the annuity stops the moment, annuitant dies. In this option, If there is a surviving spouse, S/he ‘ll not get any more annuity from the annuity provider. This Option is beneficial to the persons, where no spouse is there to survive or extra provisions are already there for spouse.

2. Annuity Gtd. for a certain period – In this option, the Annuity is provided for a certain period no matter, annuitant is alive or not during the full period. In case of premature death of annuitant, this option ‘ll provide annuity till the gtd. period is over. If the annuitant survives the gtd. period, the annuity ‘ll continue till the death of annuitant & ‘ll stop after her/his demise. This option is beneficial again for persons, where there is a surviving spouse & there is a history of early death in the family.

3. Annuity increasing with a simple rate of 3% – This type of annuity ‘ll provide a small cushion towards inflation in the later part of life. The amount of annuity is lower here than the prev. 2 discussed. Here again the annuity stops after the death of primary annuitant.

4. Annuity with return of purchase price – Under this type, annuity is paid first to annuitant till life than to spouse till life & after that the purchase price is returned to the nominees of the annuitant. The payment in this type of annuity is lowest. This is suitable to the persons who wants to leave a fortune for their heirs after their demise.

Thanks

Ashal

Set off of LTCL from Shares against LTCG of Debt Funds

Six Tata Steel preference shares (FV Rs 100 each x 6 = Rs 600) were converted into one equity shares on 01 Sep 2009 by Tata Steel @ Rs. 417.10 (Equity Share closing price on 01 Sep 2009). Earlier the preference shares were alloted on 22 Jan 2008. Thus there is long term capital loss of Rs. Rs 600 – 417.10 = 182.90. Since this was done off market, no STT was paid.

Is it right to consider this loss for offsetting against LT gain from Debt Mutual Funds ( where no STT was paid)?

- Vinayak Bapat

Dear Vinayak, As per the given info, you can set off your LTCL from conversion of Pref. shares against LTCG from Debt fund.

Thanks

Ashal

To ‘DEFAULT’ or ‘NOT TO DEFAULT’

Dear friends, here is an interesting article on the subject of  Govt. debt. Although it’s not directly related to us, as the subject matter is the US Govt. but in a sense it’s applicable to any govt. in the world.

So read & enjoy.

http://johntreed.com/default.html

Thanks

Ashal

Should I redeem my MFs before DTC

Sir,
In DTC,LTCG is likely to be taxable,may be @5% or 10%.I have investments in funds like R.Growth,H Top200,D Top100etc for last, say about five years.Should I redeem & then reinvest to avoid tax.Should I switch from R.Growth to RSF Equity?Kindly reply in detail.Thanks,urs sincerely

Lcbansal

Dear Dr. Lal, First of all. Plz. note these are mere proposals not the act as of now for DTC. The final picture may be different from what we are seeing today.

Regarding your query for redemption – Sample this -

Say you have total basic investment of 5L Rs. as on date where the with profit value is say 8L Rs. It means 3L Rs. is your profit. Now if you redeem these 8L Rs. in full & reinvest the same in same funds. your holding period ‘ll be counted from the reinvestment date. So in case in future, just after implementation of DTC, you require money due to any reason, the gains if any ‘ll be STCG & these STCG ‘ll be taxable at your marginal slab rate. Now If we consider that you are going to hold these units for a long term & ‘ll redeem after 4-5 more years in DTC, the LTCG ‘ll be discounted based upon your holding period. In the example given in the new proposals, it seems, higher the holding period, higher ‘ll be the discount for calculation of LTCG.

Now interestingly If you don’t take any action, the holding period is already eligible for LTCG & as the period is already more than 5Y (by the time, DTC is implemented), the resultant Tax liability ‘ll be very low. As now after 8-10 years (5Y current holding + 3-5 year more in DTC), your total holding period ‘ll invite a high %age discount & thus lower tax outgo.

One more Question I want to ask – Due to these DTC proposals, ‘ll you stop investing from now onwards? In any case, the future is EET.

Your query is similar to public behavior – Fill the fuel tank of vehicle just b4 the hike in fuel prices. “ll this tank fill last for life long? NO. In any case we ‘ll continue to use now so called high priced fuel. Same is here in your query.

Plz. don’t worry for now & future. Keep Investing. Yes redemption due to under performance should always be done.

Bye Bye & happy investing.

Thanks

Ashal