20TH MAY 2016- FINANCIAL UPDATES

[LUGI CHENNAITEAM]

16-May-2016 - Source: The Economic Times

Know the new rules of the Sukanya scheme

There have been some changes in the scheme, but it continues to be among the best debt options. Non-resident Indians can no longer open a Sukanya Samriddhi Yojana (SSY) account.

In fact, if your or your child’s residential status changes to non-resident or she takes up another country’s citizenship during the term of the scheme, no interest shall be paid from the date of citizenship or residential status changes and the account shall be considered closed.

A girl child would be eligible for an SSY account only if she is a resident Indian citizen when the account is opened, and remains so until maturity or closure of account. This new rule was clarified by a notification issued in March by the Finance Ministry.

As per the new rules, a change in residential status has to be reported by the parentguardian within one month. In case the bank or post of fice is not notified and an interest is credited to the account after the change of resident status or citizenship, the earnings will be returned to the government and the balance returned to the SSY account holder.

A new clause has also been added for stricter penalties. Earlier, to regularise a default, where the account holder did not deposit the minimum yearly contribution of `1,000, he was required to pay a penalty of `50 for each year the condition was not met, along with the minimum contribution. Now, if the penalty is not paid, the entire deposit, including deposits made before date of default, will receive interest at post office savings bank account rate--currently 4%. If excess interest has been paid, it will be reversed. However, the long 15year window to pay the penalty and make amends takes the sting out of this new rule.

Further, premature closures on grounds of medical exigencies, ear lier allowed at any time during the term of the scheme, has been restricted. Now, this cannot be done unless the account has been functioning for at least five. If the holder wishes to withdraw before completion of five years, his investment will earn interest at the rate of a post office savings bank account.

The investing term of the SSY scheme has also been increased from 14 to 15 years. Also, now you can e-transfer your contributions.

Despite all these changes, the scheme still earns 8.6% return-higher than old-time favourites such as PPF, FD and recurring deposits. Plus, like PPF, SSY provides a tax benefit under Section 80C. For the conservative investor, with a daughter below 10 years of age, it continues to be the best debt instrument in the market today.

Date: 13-May-2016 Source: Financial Express

How to plan your tax on income from house property

One may either have a tax break or additional tax liability as there are different rules for determining income and claiming deductions from house property.

Income from house property

Taxable value of a self–occupied property is treated as nil under the provisions of the Income Tax Act, 1961. However, if a person owns more than one house property and neither of the properties is let out, one of the properties will be considered as self-occupied and the rest will be regarded as deemed to be let out. When a property is considered to be deemed to be let out, expected rent from such a property is regarded as taxable and needs to be offered to tax.

In the case of properties which are actually let out, the higher of fair rental value or actual rent received is chargeable to tax as taxable value. Deduction for actual municipal taxes paid and standard deduction at 30% of net annual value (i.e. after reducing municipal tax from the annual value) is available in case of deemed to be let-out or actually let-out properties.

Deduction for housing loan interest

A housing loan taken from any financial institution or from any other person can give a buyer a tax break. Interest payable on such housing loans can be claimed as deduction even if such interest is actually not paid during the year. In the case of self-occupied properties, allowable deduction will be restricted to Rs 2 lakh. However, this cap is not applicable to deemed to be let out or actually let out properties. Actual interest can be claimed for these properties.

In the case of a self-occupied property, if acquisition or construction is not completed within a period of five years (under the proposed amendment with effect from April 1, 2016) from the end of the financial year in which loan was obtained, the cap on interest deduction will be restricted to Rs 30,000 instead of Rs 2 lakh.

The aggregate interest payable from the date of obtaining the loan until acquisition or completion of construction of the house property can be claimed in five equal instalments from the year in which construction is completed or the property is acquired. However, this deduction would again be subject to a cap of Rs 2 lakh in case of a self-occupied property.

Deduction for housing loan repayment

The repayment of the principal amount of capital borrowed for the purchase or construction of a house property is allowed as deduction under Section 80C of the Act from the year in which the same is acquired or the construction is completed. Apart from the above, the payment of stamp duty, registration fees paid for the house property is also eligible for deduction under Section 80C.

It may be noted that the deduction claimed under Section 80C will be reversed and chargeable to tax as deemed income if the house property is transferred within a period of five years from the end of the financial year in which the property is obtained by the buyer. The maximum tax deduction allowed for repayment of a housing loan along with other eligible investment/expenditure under Section 80C is R1.5 lakh.

Taxation of property held jointly

Where the property is jointly held and the loan is serviced by co-owners, each co-owner will be liable to tax in respect of his share of income and can claim the permissible deductions.

Treatment of loss from house property

Loss from house property can be set off against the current year’s income. Any balance loss which is not set off against the current year’s income can be carried forward up to eight years and be set off against income from house property only.

Tax benefit to first home buyers

There is additional interest deduction up to Rs 50,000 for first home buyers, provided the loan is sanctioned during FY17, the buyer does not own any other residential house property on the date of the sanction of the loan, the loan value does not exceed R35 lakh and the property value does not exceed Rs 50 lakh. Further, it is also proposed that such a deduction would be available through the years of repayment of such loan starting from FY17.

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7 deadly mistakes every early investor should avoid in life

 MANISH CHAUHAN  48 COMMENTS

Today I am going to talk about some mistakes which young investors make in their early life. Many experienced investors would be able to relate to it, because often we make these mistakes because there was no one to guide us when we started our journey of wealth creation.

“Young investor” here means any person who has just started their careers. Most of them would be below 30 yrs of age. I will share 7 mistakes in this article. You can consider these 7 points as the words of wisdom from experienced investors.

Mistake #1 – Not Focusing on increasing the income

Nobody became rich by only controlling their expenses!

“Low income” is probably #1 reason, why most of investors are unhappy in their financial lives. Low income means low/no savings, restricted life style and constant worry about future. A small financial mistake can turn very costly if one has small income.

Imagine a guy living in Mumbai & earning just Rs 35,000 a month (or even Rs 80,000 now a days) and have to support a family of 4 people? Can you imagine how “tight” his situation is?

For most of the people, salary increment “happens” naturally and never worked on consciously. Most of the people take whatever comes their way for many years, only to realize that rather they should have come out of their comfort zone and worked “actively” on increasing their income.

They could have relocated to a new place with better opportunities, changes their jobs, asked for a salary raise, or could have worked on an alternative income, but most of the people don’t do that. They just go with the flow thinking – “I will get, what I deserve”

In one of the survey’s I have done recently, I asked participants to choose the top most mistake of their financial life. I gave them 8 different options to choose from and 39% of the people chose – “Never worked on increasing my income seriously”.

As a young investor, the best investment you can make it not some mutual fund, or a policy, but you yourself. Invest in yourself and develop skills which makes you “valuable”. Make yourself so employable that people run after you.

Remember, if you earn a big income, you can still make a lot of mistakes, spend like hell and choose not to control your expenses.

Mistake #2 – Getting into Debt Trap Early in Life

Don’t get me wrong!

I am not against taking debt.

But, a large number of young kids who start their career have bad relationship with money and credit facilities.

They start using credit cards as if it’s a money toy. It all starts with a small outstanding credit card bill, and soon it starts rolling up every month and soon they find themselves paying minimum due amount and finally when things go out of control, they take a personal loan to close off the loan or convert the outstanding amount to EMI’s and starts how their debt trap starts!

Then follows car loan, home loan, another personal loan, another credit card and this way a person gets into deep debt cycle. I am sure if you look back, you will realize that the debt trap started very small.

Let me share some data with you on this. As per this report, personal loans as % of loans stands around 18% as in the year 2016 (Out of every 100 loans, 18 are personal loan).

As a young investor, you can still do mindless spending, but that should happen with cash money and not credit. Because getting into debt is easy, but coming out of it is not that simple. So as a young investor try to take debt only if you don’t have any choice. As far as possible, take responsible credit which helps you in life (education loan or home loan).

Mistake #3 – Not taking risks in start of your career

I am not saying that everyone should go and start taking some risk without planning. All I am trying to convey is that its more easy to take risk when you start your career, rather than middle of your career or when you turn 40, because in your early days you have less responsibility and enough time to fix your mistakes if any.

Think of these options below!

• Want to move out of your industry and try something else?
• Want to try a start up?
• Want to try that online business idea?
• Want to change your career path because you don’t feel you belong to current job?
• Want to ask for a salary hike, but too afraid to lose the job

The above 5 things can be tried at any point of career, but practically you have more appetite to try out these things in the start of your life, when you have less responsibilities and enough time in hand to correct the mistake if any.

If you are still confused about this, you should listen to this YouTube video about best practices in Career Risk-Taking. It will help you

Once you have already spent significant number of years in your job, you will get married, have kids, get into the cycle of “life” and it will become very difficult to come out of the comfort zone. I get many mails which starts with “Had I tried it 10 yrs back … ” and I can see how people feel so stuck into their jobs and now they can’t take much risk at this point of life.

Mistake #4 – Buying policies from your relatives/friends

There are millions of investors in India, who have lost a lot of money in bad products which were sold to them by someone close to them. It was often an uncle, aunty, father’s friend, distant relatives or even your siblings at times.

A lot of products are bought in India based on trust and goodwill. Often relatives pressurize you to take a policy.

This is particularly true for Endowments policies, ULIP’s and other insurance products. You will often find someone in your close circle who is an agent and your parents trust them like anything and force you to buy a policy from them.

Years later you realize that you have burnt your fingers and can’t express your dissatisfaction openly. So what is the way out? Either research on things on your own or directly buy form the companies or if you need external help, better hire an advisor or an external agent, but not a relative

Mistake #5 – Investing in a product you don’t understand yourself

On an average, 90% of the investors can’t explain what exactly they have bought. I was once talking to an investor in our workshops (the upcoming one is in Pune on 22nd May, 2016) and the guy said he has few policies. When I asked how many? He had no idea

When I asked what are the names of the policy, he didn’t even know that.

He said that he had bought them few year back for tax saving and does not exactly know what they are !
The problem is that investing in products, which you don’t understand blocks your financial energy. Your money is stuck in a rotten product and takes away a lot of time.

So if you are buying a financial product, please learn how it works and how it’s going to benefit you at the end of the day . Find out everything about return, risk, liquidity and taxation. If possible, better know which financial goal it’s going to fund.

Mistake #6 – Not saving early in life

After spending many years in your job, you will realize as an investor that “I will save when I will have more money” is an illusion.

When you start earning money, your income is less and you are not able to save money at all because you are hardly left with anything at the end of the month.

However note that this is going to be true always. While your income will rise in future, so will your expenses. You will get married, have kids, your lifestyle will improve. You will get a car, buy a house and what not. You will enough feel that you have enough to save.

The graph for expenses is set to rise and this feeling of “I will save in future, when I earn more money” will be intact. This is the reason a lot of investor never save enough money which they deserve.

The graph below shows you if a person starts investing Rs 10,000 a month, they can accumulate around 2.9 crores in 30 yrs. However if they delay it for 5 yrs, and then start the same thing. They will accumulate only 1.6 crore by the same time. That’s a big difference because of the delay.

As a young investor, you need to understand that habit of “saving money” is more important than how much do you save. If you can’t save anything, start with Rs 100 per month.

I know it sounds like a joke. But once you do it for 5-6 months, you at east know that you can save Rs 100.

Then upgrade the number!

Upgrade to Rs 500 or Rs 1000 a month. Continue for another 6 month.

Soon, you will realize that you have reached Rs 5,000 or Rs 10,000 because you are just increasing the number, the “habit” was already in background.

Mistake #7 – They neglect their health

If you do not have good health, it will not matter how much money you have earned, because you won’t be able to enjoy that money at all. It does not make sense to lie down on a bed made of gold in your retirement.

While earning money is important and required, make sure you also pay attention to your physical and mental health. These days, the jobs are too demanding and there are many money matters which will take the peace out of your life. You might get lost in the rat race and forget that you have a body to take care for years.

Only years later you will realize that it would have been better to earn a bit less and have a healthy body, rather than having bad health with money.

The quote from Dalai Lama is worth reading

Learn from others mistake

At this point of time, internet is flooded with the mistakes other investors have done. It’s a wise thing to learn from those mistakes and not repeat them.

A good and healthy start of one’s financial life helps a lot and if you are a starter, I strongly suggest you take a note of the points above and implement them.

Please share your views on the points above. Were they helpful to you as a new investor?

List of Different Asset Classes for Investing

 MANISH CHAUHAN  77 COMMENTS

Below is the list of different Asset classes one can consider for investing in Indian markets. For building asuccessful balanced portfolio one has to understand different asset classes and as per their risk appetite, one has to build his/her portfolio so that it’s optimal from his risk return point of view. In this post you will look at different asset classes and their sub categories with the risk potential. This is not an exhaustive list of categories, however it covers most of them. See the Chart Below

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Readers who are reading it in Email can see the chart here or visit blog article

Points to Remember

• The above chart does not contain exhaustive list of products and asset classes. See What is Asset Allocation
• REIT and REMF are yet to come to India, they are not there in market yet
• Mutual funds classification is not complete. There are different ways to classify mutual funds, the one I have shown is one of the way. Here is the list if good Equity Funds and Debt oriented Mutual funds
• Date: 17-May-2016 -- Source: Financial Express
  
  
  The benefits of investing in life insurance for women
  
  
  Most women believe in saving for a rainy day, yet the probability of a single woman purchasing life insurance for herself is almost negligible. However, we are seeing a change in the way women are opting for non-traditional saving methods over fixed deposits and recurring deposits. They are now moving towards financial liberation by exploring insurance and other financial instruments as a savings mechanism to augment their notion and habit of long-term savings.
  
  
  Need for life insurance
  
  
  Peace of mind: Besides financially securing the future of the family, the right life insurance policy serves as a safety net for children, parents who need caretaking, or siblings with special needs, or other dependents.
  
  
  Cost effective: Buying a policy early on will lock in coverage while one is still in good health and qualify for the best rates. It’s a safety net against eventualities of death, permanent disability, financial emergency, or sudden loss of income. It helps build a corpus for a child’s education, marriage, retirement. Women can also avail of preferential rates for some specific products.
  
  
  Long-term wealth creation: You can invest in life insurance policies that will mature around the time to help you fulfil your specific goals. Investment-oriented policies offer benefits of protection, savings, good returns and tax benefits. However, these need to be viewed as bonus rather than primary consideration.
  
  
  Retirement: Savings are difficult in retirement as you transition from one phase of life to next. Aging comes with mounting medical expenses. Also, thanks to medical and lifestyle innovations, it comes with a life span expansion where the period between 60-90 years makes for better health, productivity, and revitalised energy. In these terms, the retirement phase can mean both. For aging and illness, a corpus for medical expenses. For renewed penchant, a corpus to aid international travel and fuel other hobbies, activities, and passions.
  
  
  Legacy: In case of an eventuality, when you are not around to take care of your family, they will be grateful that you provided the best you could for them. If there’s a cause that you’re passionate about or you’ve got someone you’d like to take care of financially (even if they’re not dependent on you now), purchasing a life insurance policy helps.
  
  
  Who needs it?
  
  
  Single women: Often, women with no dependents think that it’s pointless to buy life insurance. What is disregarded is that life insurance can provide funds to pay off certain loans, debts, mortgage and taxes, which might otherwise become a liability for family members. A young, healthy, single woman can purchase life insurance at reduced premiums. The older one gets, the higher the premiums will be.
  
  
  Working women: A working woman’s income can have a significant impact on the quality of her family”s lifestyle. In the eventuality of death, life insurance protects her family by providing proceeds to meet everyday expenses, handle contingencies and cater to essential overheads.
  
  
  Single mothers: Whether widowed, divorced, or a single mother, she is responsible for the child’s support. Life insurance offers a steady income to cover existing and future expenses of the child, in case of the mother’s demise.
  
  
  Factoring in age, debt, whether or not one has children, the number of children and their age, overall health and the amount of money the family will need to survive — select a policy that meets one’s specific needs. Depending on the investment, objectives and risk appetite, one could select from traditional products, unit-linked insurance products or term plans.
  
  
  It’s advisable to re-evaluate policy requirements with each life change. Life insurance is an attractive tool that helps address major expenditure during your lifetime. You can be assured your dreams for your family’s financial security and stability stay on course in case of any eventuality.
  
  
  The writer is MD, Kotak Mahindra Old Mutual Life Insurance

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