Increased Service Tax from 1st June 2015

Increased Service Tax from 1^st June 2015

From starting 1st June 2015, the service tax rate has been increased from 12.36% to 14%. Service tax is levied by the central government on certain services. It is paid by the end user. Eating out, travelling and mobile bill will also get costly now onwards. In financial services mutual fund distribution service has been came under the ambit of this tax this time.

At present we are paying the service tax on our insurance premium and distributor also pay the service tax on received commission by selling the insurance product. In banking space, various fees and charges linked to saving account, term deposit and debit or credit card attract service tax. Bank FD interest does not come under this tax. The interest of home loans and personal loans do not charge service tax but the processing fee and late payment fee attract service tax.

The increased tax will also affect your share trading bill. The brokerage levied on your buying and selling shares are also attract the service tax and from today the new rate would be applied. Mutual fund adviser and distributor will pay now service tax on their commissions received by selling mutual funds. The mutual fund AMC also pay the service tax on management fee.

Service tax on the mutual fund distributor will also impact the business of mutual fund badly and the new IFA get affected by imposing this tax.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Insurance is not good product for investment

“Insurance is not good option for investment”

The headline of this article is very clear and I have mentioned it many times in my past blogs. Now you will question that why I am writing this simple line so many times that insurance is not good option for investment. In spite of writing many times on this subject, I still get the call from investors and friends and they all ask the same question which insurance policy is good for investment.

Increasing competition within insurance companies leads the high advertising and marketing budget. The no. of people is increasing to invest in insurance product inspired by glitzy aid and marketing. The people have been bombarded by the tricky insurance and return pitches at a rate that is much higher than earlier time. Internet, social networking sites are the main weapon to attract the young generation to invest in insurance. The whole focus of most insurance advertisement is on return not on the risk cover.

In today’s uncertain world, to insure yourself is most important thing and it should be done on priority basis. First, find out the right amount of insurance which will fulfill the need of your family in case anything wrong happen with you and go for any term insurance cover. A 35 year old person can get Rs 25 lakh insurance cover by paying only mere approx. Rs 4500 per year.

Actually, there is something deeply wrong in marketing and advised by insurance agent. The agent never suggest about the term insurance to the client as they get less commission on it as premium amount is less in case of client go with term insurance. In fact, term insurance is the best option for risk cover for client. The problem become more deep in that case when you ask about term insurance and they respond that you will get nothing back in term insurance and it has no benefit. After listening this statement from the agent that the term insurance has no benefit, you ask for other product with benefit and from here the miss-selling start.

The agent suggest you product which has more benefit for agent and insurance companies and poor people get trapped in the sweet talk of agent. The reasons why I am saying that insurance product is not good for investment purpose are it is illiquid investment. It means that whenever you need money you should get your money in your hand bit in this case insurance come with 10-20 years plan and your money get stuck for so long times.

Insurance products have lack of transparency in investment compare with mutual fund products. It has also more cost and agent commission when you compare it with mutual fund agents. In general, the agent get commission 15% of the annual premium in the first year and after that the commission get  reduce from 7.5% to 5% per year of the annual premium. Anyone can understand easily, in any investment product if an agent gets such huge commissions so how can such product will deliver the good return for investors. In fact, in 10-20 years poor investor get return on investment below than the bank fix deposit return in majority cases from invest in insurance product. I will again say please do not mix your investment with insurance products.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com