Banks Role in Insurance Distribution Business

Banks role in Insurance Distribution Business

As the financial year 2013-14 is approaching towards its end. People are rushing for tax saving investment options and for tax saving insurance product is very popular among the investors. However, in my personal opinion it becomes very toxic product if you mix your insurance need and investment. Insurance mainly sell by individual agents, brokers, direct selling and banks.  

Banks are the main contributor in the sells figures of private insurance companies products. In India, people have immense faith on banks. They still prefer bank FD even the net inflation adjusted post tax return is very poor. Due to this blind faith on banks, common investors become a victim of mis-selling of these products. I met a lot of cases almost in every investor meet of mis-selling by the banks. The complaints of mis-selling by banks are increasing. Due to this mis-selling complaints, bank regulator RBI has proposed the new guidelines for selling of insurance products. The main RBI proposal as given below:

• ·         A bank’s NPA should be less than 3%
• ·         It should have made profits for last 3 consecutive years
• ·         A bank’s net worth should be at least Rs 500 crore

The government is also planning to mandate multi insurance companies sales for bank. At present banks are selling only one company’s products. The insurance regulator IRDA has also capped a bank’s sale of joint venture partner’s products at 25% of the overall.

In fact the aim of insurance sales by bank is to increase the reach among the maximum people as banks have wider branch network across the country. The above mentioned proposal by RBI, IRDA and govt are not fully implement. We hope that after implementing these guidelines mis-selling would be stop to some extent. However, insurer would not allow implement these guidelines in very smooth manner.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com 

Cost of delay investment decision

Cost of delay investment

Have you think ever what cost you pay for your delay decision for investment? I know many youngsters and people between 25 to 30 age group who has just star the job but clueless for the investment. They are too confused where they should invest. The worst fact majority of them are not serious for investment. They find it boring when you discuss with them about saving and investment.

They often ignore the most powerful concept the time-value of money about wealth building. In my opinion, everyone needs to understand this powerful concept. The famous physics scientist Albert Einstein had admitted that the most powerful force in the universe is power of compounding interest. According to this concept that even a small amount and insignificant amount of the money actually grow to an amount if left it to be invested for a long period.

My friends, believe me you pay a huge cost for delay decision for investment. Let me take an example for better understanding.

Example of delay investment decision:

Mr A is planning to accumulate wealth for retirement. His retirement age is 60 and currently he is 30 year old. He has decided to invest some money on monthly basis in an equity mutual fund till his retirement and expect return 15%.

• If he start invest at present Rs 5,000 every month and invest till his retirement he will accumulate huge corpus of 2.82 crore approx.

• If he delays the decision of investment 10 year means he start investing at age of 40 year and even if he invest Rs 10,000 every month till retirement. The accumulated corpus would be 1.33 crore approx at the time of retirement.

• And now the worst case if he start invest at the age of 50 means he delays the investment decision 20 year and invest every month Rs 30,000 till his retirement but accumulate only just Rs 79 lakh approx.

You can easily see in above example that even if you increase your investment amount but if you delay in investment, you pay huge price for delay or in other words you will accumulate less amount even after investment of large amount.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

RBI's Third Quarter Monetary Policy

RBI’s Monetary Policy

Yesterday’s RBI’s monetary policy has surprised almost economic experts and advisers as majority of them had not anticipated the increase in interest rate. In its third-quarter review of monetary policy RBI has hiked the repo rate to 8.0% . CRR has remain unchanged. RBI has emphasised on bringing down CPI (Consumer Price Index) inflation to 8% and further bringing down to 6% in next 24 months.

It clearly indicate that the future move of interest rate depend on CPI mainly. I expect CPI inflation would be around 8.5% during 2014-15. However, in December headline CPI came down due to falling vegetable prices but core CPI inflation was still high at 8%. WPI (Wholesale Price Index) had also picked up in December 2013.

Difference between Headline CPI and Core CPI:

Very often we read and listen about headline CPI and core CPI but many people do not understand it. Core CPI index mainly consist with housing, clothing, bedding, footwear & miscellaneous items but it does not include food and fuel item. In the other side headline CPI includes food and fuel item also.

Along with inflation there is some weakness in currency front so it is another important factor for RBI for further monetary policy. There are still downside risk of rupee against dollar exist.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Common error during tax planning

Avoid common error while Tax Planning

Between January to March the people keep busy and rush to find the tax saving instrument. I am also getting more queries about tax saving in these days. I have observed that many small and basic things about investment investor ignore in hurry for tax saving as dead line approached. So I have decided those common errors which happen very frequently by the investors. Many of these, you may be already know but here I am mentioning again.

Try to find out actual return: There are many products in the market which are offering same return and another offer more or less return. For meaningful comparison among any investment products, try to find whether the return on product is taxable, whether investment amount tax free or not. For example, the interest on PPF is tax free but interest earned on NSC (National Saving Certificate) is taxable. So there are need to compare the post tax return to find out which tax saving instrument more appropriate.

Investment Limit: Before any investment check the investment limit eligible for tax deduction. If you invest more than 1 lakh under section 80C then you will get only tax benefit of Rs 1 lakh. Before any investment to save tax under section 80C please check your other expenses which comes under section 80C like, provident fund, school fee of children, housing loan principal repayment, life insurance premium etc.

Check the eligibility of the product: It is very important that the instrument in which you are going to invest whether come under tax saving category or not. All life insurance products, mutual funds and 5 year bank fix deposits are not eligible for tax deduction. So it is very important to make sure to check the eligibility of the product before invest for tax saving.

The best way to avoid above mentioned error to make your tax plan in well advance at the start of financial year. Keep in mind the real rate of return, tax eligibility and limit of investment before make your investment decision.

My best wish to all of you for good financial health and physical health on the eve of 26^th January Republic Day of India. For more detail and any other query related investment, you can contact me through my email.

How-to-pick-a-tax-saving-fund

How to pick a Tax saving fund (ELSS)

http://www.morningstar.in/posts/21311/how-to-pick-a-tax-saving-fund.aspx

The deadline is fast approaching. If you, as a taxpayer, have still not done your tax planning, you really don't have much time left. But be of good cheer. We shall be carrying a series of articles to help you make up your mind.

Right now, we will specifically look at equity linked savings schemes, or ELSS, which are diversified equity funds that offer a tax benefit under Section 80C. It is also the only tax-saving instrument that offers the lowest lock-in period of just 3 years.

As with any fund investment, when narrowing down on a pick, an error investors are prone to make is opting for the most recent chart topper. Despite the bold disclaimers about past performance not necessarily being sustained in the future, investors have a hard time resisting that lure. And when that is employed as a sole parameter, it’s not uncommon for disillusionment to set in rapidly.

A very in-your-face example would be Taurus Tax Shield. In 2007, it was the best performer in its category with a return of 112%, way ahead of the average 57%. Investors who went for it simply because of the great performance in 2007 would have been a disappointed lot. Barring 2009, the fund has underperformed the category average every other year. But had they done their homework, they would have seen that the fund was the worst performer in its category in 2006.

When looking at past performance, pay a lot of attention to consistency. Don’t get swayed by a sporadic burst in numbers. For instance, HSBC Tax Saver put its best foot forward in 2012. But a look at the performance prior to that year is far from impressive. Ditto with its 2013 returns. On the other hand, Axis Long Term Equity has been fairly consistent. It has been the best performer in its category in 2010, 2011 and 2013. Even when it missed this coveted spot in 2012, its performance was better than that of the category average.

Here are a few tax-saving funds, or equity linked saving schemes, that Morningstar analysts have looked at.

Franklin India Taxshield

This one boasts of a Gold rating. Fund manager Anand Radhakrishnan adopts a bottom-up investment style with a bias for large-cap stocks. His contrarian bent results in the portfolio standing out when compared to that of the typical peer. Click here for a detailed analysis.

HDFC TaxSaver

Vinay Kulkarni aims to derisk the portfolio by investing in uncorrelated sectors of the economy. Though the fund plies a multi-cap approach, he pays more attention to smaller caps than the typical category peer. His holdings tend to remain fairly consistent over long time periods, which is borne out by the fund's low turnover ratio. Our analyst has given this fund a Silver rating. Click here for a detailed analysis.

DSP BlackRock Tax Saver

The fund’s sector weights can deviate by a maximum of 15% (absolute) as compared with the benchmark CNX 500’s weights, with no particular bias to any market cap. To prevent concentration risk in a particular sector or market cap, Apoorva Shah ensures that individual stocks usually account for less than 5% of the fund’s assets, and the top 10 stocks account for roughly 35%, compared with 50% for a typical peer. The fund currently holds a Bronze rating. Click here for a detailed analysis.

The following 3 funds currently hold a Neutral rating.

ICICI Prudential Tax Plan

Chintan Haria is valuation conscious and uses a combination of top-down and bottom-up approaches to create a multi-cap portfolio. He maintains a fairly diversified portfolio and aggressively trades in the large-cap space. Click here for a detailed analysis.

Reliance Tax Saver

Ashwani Kumar typically scouts for companies with strong growth prospects that he believes are trading at a discount to their intrinsic value. He takes sizeable positions in smaller caps in the quest to deliver superior returns. Our analyst is of the view that the combination of substantial small/mid-cap exposure and big stock/sector bets make the fund an apt supporting player in a tax-saving portfolio. Click here for  a detailed analysis.

SBI Magnum Taxgain Scheme 93

Until 2011, manager Jayesh Shroff freely took active positions versus the benchmark index S&P BSE 100 as per his convictions. Since 2011, Shroff has been plying a benchmark-aligned growth-oriented approach in place of the erstwhile benchmark-agnostic process. As per the new strategy, the portfolio’s sector weights are loosely aligned with those of the benchmark. He focusses on growth stocks and largely follows a buy-and-hold approach. Click here for a detailed analysis.

Public Provident Fund : The best Tax Saving option in debt category

PPF: The Best option in Debt segment

First of all, Happy Makar Sankrant to all of my readers. As you know tax planning season already begun and the investor are busy to find the best tax saving instrument. When we talk about investment, it can be divided in two broad category: 1. Equity segment 2. Debt segment. Both categories have their own different characteristics. PPF (Public Provident Fund) is the best option available in the debt segment. Here we are going to discuss in details about this category:

Public Provident Fund (PPF) :

All Indian residents are eligible for PPF scheme. NRI are not eligible for this scheme. It can be opened with the name of minor by the legal guardian. However, each person allowed have only one PPF account. If person become NRI after opening the PPF, in that case subscription would be continue till maturity.

A minimum yearly deposit of Rs 500 needed to open and maintain the account. You cannot deposit more than 12 times in a financial year but you can invest more than 1 times in a particular month. If you deposit before 5th of any month then only you will get the interest for that month. The maximum limit of deposit is Rs 1 lakh in a particular financial year. Online NEFT transfer facility is also available in these days in many banks.

The govt of India decide every year the return rate of the PPF. The rate of interest for current FY year 2013-14 is 8.7%. The minimum tenure of the PPF investment is 15 years. You can extend it in 5 years with or without contribution after 15 year. You can also withdraw up to 60% amount at the time of completion of 15 years.

Loan and withdrawal facility are also available in PPF account also. The rate of interest charged on loan 2% more than the prevailing on interest rate on PPF after 1st December, 2011.  If you have taken loan before 1st Dec 2011 then you have to pay interest on loan only 1% more than prevailing PPF rate. Pre mature withdrawal allowed from the end of the sixth financial year from when the PPF commenced. The maximum amount can be withdraw is equal to 50% of the amount in the account at the end of the 4th year preceding the year in which the amount is withdrawal or the end of the preceding year whichever is lower.

If PPF account holder does not deposit Rs 500 during entire financial year, the PPF account would be deactivated. To activate the account you have to pay Rs 50 penalty and minimum Rs 500 for each inactive year. Nominee facility is also available and you can appoint more than 1 nominee and can allocate the particular percentage to each nominee.

Annual contribution qualify for tax exemption under section 80C with maximum limit of Rs 1 Lakh including all instruments available under this section. The interest earned on contribution and withdrawal are also exempt from tax. It is the safest option for conservative investors who do not want take risk. For your information we are providing the interest rate offer by the PPF over the time:

• 01/04/1986  to 14/01/2000    :   12%
• 15/01/2000  to  28/02/2001   :   11%
• 01/03/2001  to  28/02/2002   :   10.5 % 
• 01/03/2002  to  28/02/2003   :   9% 
• 01/03/2003  to  30/11/2011   :   8%
• 01/12/2011  to  31/03/2012   :   8.6%
• 01/04/2012  to  31/03/2013   :   8.8%
• 01/04/2013  to   onwards        :   8.7%

Once again my best wish to all of you for good financial health and physical health on the eve of Makar Sankranti. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Some Tax Saving Instruments

Some Tax Saving Options under section 80C & 80D

The tax season has already begun. With the new year many people has started to make the tax plan and want the optimal use of available tax option for tax saving. As per my personal view, tax planning should be start more early after the beginning of financial year. At the last moment, we often make wrong decision in hurry of tax saving. Here we are going to explore the suitable options under most popular income tax section 80(C) and section 80(D).

Section 80C allows tax exemption to everyone irrespective of under any income group on certain spending and investment. It means if you invest or spend in products under section 80C your income reduce upto Rs 1 lakh and you have not to pay any tax on this Rs. 1Lakh. If you are in 10%, 20% or 30% tax bracket you clearly save Rs 10,000 , Rs. 20,000 and 30,000 respectively.

If you are conservative investor then debt instruments are suitable for you and if you are moderate or aggressive investor then you should invest in equity category products. First, we are going to discuss some equity option available for tax saving and decent return.

Equity instrument for Tax saving

Equity Linked Saving Scheme (ELSS): It is diversified equity mutual fund which invest majority of corpus in equities across all type of companies like bluechip and value stocks. It is the only more popular instrument which is available for tax saving in equity category. It has 3 year locked in period which means the amount you have invested in these types of schemes cannot be withdraw before 3 year completion.

The return from ELSS is total tax free in the hand of investors. ELSS category has generated 22% CAGR average return over last 10 years.

It is good for those who have vision for long term corpus building and tax savings. By investing in ELSS schemes you can save tax and get the benefit of equity market both.

Debt Instruments for Tax saving

Debt instrument promise the fix return but of course the return is often less compare with equity return in long term. There are many options available in this category.

Public Provident Fund (PPF): It is the best instrument available in debt category. The return on this instrument announced every year. For FY 2013-14 the return is 8.70%. It has lock in period of 15 years and the return is total tax free so it is safe instrument for higher tax bracket investor.

National Saving Certificate (NSC): It is available for 5 year and 10 year period. The return for 5 year NSC is 8.60% compounded half yearly and for 10 year NSC the return is 8.80% compounded half yearly. The tax is applicable on return as per your tax slab. It is also the safe option for conservative investors who do not fall in any tax slab.

5 year bank fix deposit: At present banks are offering 9% compounded quarterly. The return is taxable here also as per your tax slab. It is also for the suited those who are not in any tax bracket. It also offer safe and fix return.

Life Insurance Premium: In this category ULIP and endowment policy often recommended by agents or advisor as it offer lucrative commissions to the agents. The main difference between ULIP and endowment policy is that in endowment policy investment decision taken by the company which often invest in debt product and in ULIP the investment decision taken by investor himself. These types of plans offer insurance and investment both. Historical returns of endowment policies are between merely 5% to 6%. ULIP comes with high inbuilt cost which makes it less attractive than other investment instruments.

Mediclaim Policies Premium:  Apart from above mentioned you can claim some tax exemption for your medical insurance policy cover under section 80D. It allows deduction up to Rs 15,000 for premium paid to purchase health insurance cover for yourself, wife and children. You can also claim more Rs 20,000 apart from this Rs 15,000 if you purchase medical cover for your dependent parents

In today’s life in view of increasing medical cost day by day, I personally advise to all of you to cover yourself and your parents with medical cover. It would be very useful for your medical emergency and tax saving.

Once again my best wish to all of you for good financial health and physical health on the eve one year 2014. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com