How many Funds should you Hold?

Buying too many funds reduces your portfolio an to an index, sacrificing the rewards of active management. Tracking and managing them also becomes difficult. On the other hand, investing in a single fund exposes you to various types of risk. Your fund manager may perform poorly or he might leave. The fund house’s quality may deteriorate. So how many is too many?

How many funds should you hold?

Here is the different types of funds you can invest for your different types of goals

Balanced Funds
  • ICICI Prudential Balanced Fund
  • HDFC balanced fund
Diversified Equity Funds
  • ICICI Prudential Value Discovery Fund (G)
  • UTI MNC Fund
Equity Linked Savings Scheme
  • DSP BlackRock Tax Saver Fund
  • Axis Long Term Equity Fund
Large Cap Funds
  • SBI Bluechip Fund
  • DSP BlackRock Focus 25 Fund
Small & Mid Cap Funds
  • DSP Blackrock Micro Cap Fund
  • Mirae Asset Emerging Bluechip Fund
  • HDFC Mid Cap Opportunities
Indexed Funds
  • Kotak Nifty ETF
  • G S Nifty BeES
Long Term Income Funds
  • ICICI Prudential Long Term Plan
  • HDFC High Interest – Dynamic
Short Term Debt Funds
  • Birla Sun Life Short Term Fun
  • ICICI Prudential Banking & PSU Debt Fund
Liquid Funds
  • ICICI Prudential Liquid Plan
  • Indiabulls Liquid Fund
Ultra Short Term Funds
  • DSP BlackRock Ultra-Short Term Fund
  • ICICI Prudential Ultra Short Term Plan

Computation of Short Term & Long Term Capital Gain

At the time of Sale of an Asset, tax is liable to pay on gains earned on the sale of asset. Such gains could either be short term capital gain or long term capital gain.

Classification of Capital Gain

Short Term Capital Gain (STCG)

Capital asset held less than 36 months shall be deemed as short term capital asset. However, the following asset held less than 12 months shall be treated as short term assets:

  1. Equity or preference shares in a company which are listed in any recognized stock exchange in India.
  2. Other Listed Securities.
  3. Units of UTI.
  4. Units of equity oriented funds.
  5. Zero Coupon Bonds.
  • Long Term Capital Gain (LTCG)
  • Capital asset held more than 36 months or 12 months, as the case may be, is treated as long term capital asset.

Computation of Short Term Capital Gain

Gains on sale of shot term capital asset shall be computed in the following manner:-

Full Value of Consideration                                                              XXX

(Less)  Cost of Acquisition                                                               XXX

(Less)  Cost of Improvement                                                           XXX

Gross STCG                                                                                       XXX

(Less)  Exemption (if any) available u/s 54B/54D/54G/54GA       XXX

Net STCG                                                                                           XXX

Computation of Long Term Capital Gain

Gains on sale of Long Term Capital Asset shall be computed in the following manner:-

Full Value of Consideration                                                              XXX

(Less)  Indexed Cost of Acquisition                                                 XXX

(Less)  Indexed Cost of Improvement                                             XXX

Gross LTCG                                                                                       XXX

(Less)  Exemption (if any) available u/s 54B/54D/54G/54GA       XXX

Net LTCG                                                                                          XXX

Rates of Tax on Capital Gains

Short Term Capital Gains
  1. Short term capital gains shall be included in the gross total income of the taxpayer and will be taxed at the normal rates.
  2. STCGs arising from transfer of equity shares, units of an equity oriented funds or a unit of a business trust which is chargeable to securities transaction tax shall be taxed at 15% under Section 111A.
Long Term Capital Gains
  1. Long term capital gains are subject to tax at 20%
  2. LTCGs from transfer of listed securities, units or zero coupon bonds shall be taxable at lower of the following
    1. 20% after taking benefit of indexation or
    2. 10% without taking benefit of indexation.
  3. Long term capital gains arising from transfer of listed securities, units of equity oriented or a unit of business trust which is chargeable to STT shall be exempt from tax under section 10(38).

In case loss on the sale of an asset, the capital loss can be set-off against other Capital Gains in that year. If the loss cannot be set-off against capital gain in that year, it can be carried forward for next 8 years and set-off in the future years. However, lose can only be carried forward if the return was filed before due date.

Indexed Cost =Actual Cost*Cost Inflation Index of the Year of Sale/Cost Inflation Index of the Year of Purchase.

Post Office Tax Saving Investment Schemes

Post Office Savings Schemes offers

  • Savings Account
  • Recurring Deposit (RD) Account
  • Time Deposit (TD) Account
  • Monthly Income Scheme (MIS) Account
  • Public Provident Fund (PPF) Account
  • National Savings Certificates (NSC)
  • Senior Citizen Savings Scheme (SCSS) Account
  • Kisan Vikas Patra (KVP) and
  • Sukanya Samriddhi Accounts.

Post Office Tax Saving Schemes

Deposits in some post office schemes are eligible for deduction from income under section 80C of Income Tax Act.

5 Years Time Deposits

Investment in post office time deposit for 5 years is eligible for deduction from income under section 80C of IT Act. Minimum amount for open time deposit is ₹200 and in multiple thereof. No maximum limit.

Interest rate for 5 years time deposit is 7.8% from 1.10.2016

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a tax saving investment. PPF was introduced by the Ministry of Finance of India in 1968. Deposits made towards PPF accounts can be claimed as tax deductions and interest earned on those deposits are also tax-free. Withdrawals are exempt from tax. The PPF interest rate is 8% per annum from 01.10.2016.

Minimum annual deposit is ₹500 and maximum annual deposit allowed is ₹1.5 lakhs. Investment up to ₹1 lakh is eligible for deduction under section 80C of IT Act.

Tenure of PPF account is 15 years, account continuance is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.

Loans can be availed against funds held in the PPF account from year 3 to year 6.

National Saving Certificates (NSC)

NSC specially designed for government employees, businessmen and other salaried classes who are income tax assesses. There is no maximum limit for investment in NSC. Investment up to ₹100,000.00 is eligible for deduction under section 80C of Income Tax Act.

The interest rate for NSC VIII Issue is 8%.

Maturity value of a certificate of ₹100.00 purchased on or after 01.10.2016 shall be ₹146.93 after 5 years.

Maturity value of a certificate of ₹100.00 purchased on or after 01.04.2012 shall be ₹147.61 after 5 years.

Certificates can be kept as collateral security to get the loan from banks.

Kisan Vikas Patra (KVP)

Investment under this scheme is eligible for deduction under section 80C of IT Act. Minimum deposit is ₹1000 and no maximum limit. This certificate is available in denomenation of 1000, 5000, 10,000 and 50,000.

Interest rate is 7.7%

Senior Citizen Savings Scheme (SCSS) Account

An individual of the age 60 or more can open this account with post office. Maturity period of this account is 5 years and interest rate is 8.5% from 01.10.2016.

Deposit under this scheme is eligible for deduction under section 80C of the Income Tax Act.

Best Balanced Mutual Funds to Invest in 2017

Balanced mutual funds can be equity oriented or debt oriented hybrid funds.

If the average equity exposure of balanced fund is more than 60% and the remaining 40% is debt products then it is treated as Equity Oriented Balanced Fund. This means major portion of the funds are invested in equity.

If the average debt exposure is around 60% and equity is 40% then these funds are treated as Debt Oriented Balanced Funds.

If you do not wish to take too much risk, but wish to have exposure into equities, balanced funds are a good way forward. These funds are less volatile, and when the markets fall, they are hurt less than others.

Tax Efficiency

Balanced funds are a tax efficient way of having a debt exposure. These funds are treated like equity funds for taxation. Dividends from these funds are tax-free and there is no tax on long-term equity gains.

Best Mutual Funds to invest in 2017

Best ELSS Tax Saving Mutual Funds for 2017 

Balanced funds are suitable for investors with a moderate risk profile and investment horizon of over three years. On the equity side the fund is managed actively based on valuations in the market, as the portfolio is constructed keeping in mind the conservative risk profile of investors. This could also be a product for maiden investors to start off with, owing to lower volatility and tax benefits. Being a product that works across market cycles, and aims to offer the benefits of asset allocation, this product could form part of investors’ core portfolio.

Best Balanced Mutual Funds

Here is the list best balanced mutual funds you can invest in 2017

HDFC Balanced Fund

ICICI Prudential Balanced Fund

DSP BlackRock Balanced Fund

Birla Sun Life Balanced 95 Fund

Franklin India Balanced Fund

L & T India Prudence Fund

Canara Robeco Balance

SBI Magnum Balanced Fund

Tata Balanced Fund

Reliance Regular Savings Fund – Balanced

Best ELSS Tax Saving Mutual Funds to Invest in 2017

Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund, which is qualified for deduction of ₹ 1, 50,000 under section 80C of the Income Tax Act. ELSS tax saving fund has the shortest lock-in period to compare with other investment products like Public Provident Fund (PPF), National Savings Certificate (NSC). Dividend declared in ELSS funds is tax-free and no tax levied on the long-term capital gains.

You can make a lump-sum or one-time investment in an ELSS fund or using the SIP route.

Best Mutual Funds to Invest in 2017

Best Balanced Mutual Funds for 2017

Start a SIP

A Systematic Investment Plan (SIP) can create wealth by investing small sums of money every month over a period of time. The biggest advantage of a SIP is that the investor doesn’t have to time the market. When an investor times the market, he usually misses out on the rally or enters the market at the wrong time, either the valuations have peaked or the markets are on the verge of declining. Investing every month ensures that one is invested during the highs and the lows.

Moreover, SIPs also have the advantage of compounding, one must start investing at an early age as the longer the investment horizon, bigger the benefits. If you start early, equity funds should constitute 80% of your portfolio as this asset class has been found to be the best bet for growing money over the long term. SIPs can be an ideal way to accumulate money for retirement. After retirement, one can withdraw the money through a systematic withdrawal plan.

Equity investment is a higher risk over the short term. However, for investment periods of three to five years or longer, the risk on equity investments is considerably lower. In fact, when you take inflation into account, it is bank FDs and similar deposits that are suboptimal for the retiree because of inflation.

Like all equity investments, the best way of investing in ELSS funds is through monthly SIPs throughout the year. That’s also the way to avoid any last minute rush. At the beginning of every year, estimate the amount you have left over from the R1.5 lakh limit after statutory deductions, divide it by 12 and start an SIP.

Best ELSS Tax Saving Mutual Funds to Invest in 2017

Here is the list of best 10 ELSS tax saving mutual funds you can invest in 2017

Axis Long Term Equity Fund

Reliance Tax Saver

DSP-BlackRock Tax Saver Fund

Tata India Tax Savings Fund

Birla Sun Life Tax Plan

Birla Sun Life Tax Relief 96

Invesco India Tax Plan

IDBI Equity Advantage Fund

Franklin India Taxshield Fund

HDFC Long Term Advantage Fund

10 Things to know before getting a Home Loan

Buying a house, be it an apartment or a villa, is a major financial decision. It’s important to know what’s in store for you before taking out a home loan. Here are 10 things every home loan seeker should know before signing on the dotted here.

  1. Eligibility

Banks will assess your eligibility for the home loan based on your income and capacity to repay the amount.

  1. Type of Home Loans

Banks offer different types of home loans. The three types of home loans include floating rate loans, fixed rate loans and combination loans.

  1. Loan First

Getting your home loan pre-approved helps you set a budget and narrow you search to suitable properties. The bank will have properties approved by them, which will reduce the number of documentation required and give you a better selection of quality properties.

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Calculations of House Rent Allowance 

Computation of Income from House Property

  1. Loan Amount

Home loan amounts range from 75-90% of the cost of the property, based on your loan value. The loan amount can be increased by adding a co-applicant.

  1. Cost of Home Loan

Home loan costs include processing fees, interest payments, administrative charges, prepayments penalties etc.

  1. EMI

The repayment installment of the loan includes principal amount and interest on the outstanding amount of the loan

  1. Tenure

Based on customer’s eligibility, home loans can be sanctioned for a maximum tenure of 30 years. Longer the period of the loan, lower the EMIs.

  1. Documentation

Mandatory documents include KYC documents, credit/income documents and property documents.

  1. Insurance

Purchase a loan cover term assurance plan to cover the loan amount.

  1. Default

You are advised to be regular in EMI payments. If more than three installments are missed, the bank can take direct action against the defaulter without court intervention In case of financial issues, inform the bank at the earliest and check the possibility of getting an extension in the repayment tenure

 

Best Mutual Funds to Invest in 2017

Thousands of mutual funds are currently available in the market. Choosing best mutual funds is a challenging task for any investor. A good mutual fund is the one that consistently manages to outperform its category return and its benchmark. Mutual funds are one of the best wealth creation tools for long-term financial goals like retirement planning, kids education, and marriage etc. For medium and small term financial goals, you can rely on balanced and short-term debt funds.

Equity Linked Savings Schemes (ELSS) offer tax benefits for Individual/HUF under Section 80C of Income Tax Act, 1961. An investor can claim up to 1 lakh as a deduction from his gross total income.

How to Pick a Mutual Fund

5 Things You Should Know Before Invest

BEST MUTUAL FUNDS TO INVEST IN 2017 (BY CATEGORY) ARE GIVEN BELOW.

Balanced Funds

  • HDFC Balanced Fund
  • ICICI Prudential Balanced Advantage
  • L&T India Prudence Fund
  • SBI Magnum Balanced Fund
  • Franklin India Balanced Fund

Diversified Equity Funds

  • ICICI Prudential Value Discovery Fund (G)
  • UTI MNC Fund
  • Franklin India Prima Plus Fund (G)
  • L & T India Value Fund (G)
  • Birla Sun Life Advantage Fund

Large Cap Funds

  • SBI Bluechip Fund
  • DSP BlackRock Focus 25 Fund
  • Kotak Select Focus Fund
  • Franklin India Opportunities Fund
  • ICICI Prudential Focused Bluechip

Small & Mid Cap Funds

  • DSP Blackrock Micro Cap Fund
  • Mirae Asset Emerging Bluechip Fund
  • HDFC Mid Cap Opportunities
  • Franklin India Smaller Companies
  • Reliance Small Cap Fund

Equity Linked Savings Scheme (ELSS)

  • Axis Long Term Equity Fund (G)
  • DSP BlackRock Tax Saver Fund
  • Birla Sun Life Tax Plan
  • Reliance tax Saver
  • Tata India Tax Savings Fund

Index Funds

  • Kotak Nifty ETF
  • G S Nifty BeES
  • ICICI Prudential Nifty iWIN ETF
  • IDBI Nifty Index Fund
  • UTI Nifty Index Fund

Long Tern Income Funds

  • ICICI Prudential Long Term Plan
  • HDFC High Interest – Dynamic
  • Birla Sun Life Dynamic Bond Fund
  • IDFC Dynamic Bond – Regular Plan
  • TATA Dynamic Bond – Regular Plan

Short Term Debt Funds

  • Birla Sun Life Short Term Fun
  • ICICI Prudential Banking & PSU Debt Fund
  • UTI Banking and PSU Debt Fund
  • IDFC Super Saver Income Fund – Medium Term
  • L&T Short Term Opportunities Fund

Ultra Short Term Funds

  • DSP BlackRock Ultra-Short Term Fund
  • ICICI Prudential Ultra Short Term Plan
  • SBI Ultra Short Term Bond
  • Religare  Invesco Credit Opportunities Fund
  • Birla Sun Life Savings Fund

Credit Opportunities Funds

  • Kotak Medium Term Fund
  • Reliance Corporate Bond Fund
  • Birla Sun Life Corporate Bond Fund
  • UTI Income Opportunities Fund
  • DSP BlackRock Income Opportunities Fund

How to Pick a Mutual Fund

Many investors try to pick the mutual fund based solely on the fund’s past performance. However, the advertised stellar performance is not a guarantee of future success, especially when it comes to relatively new or small funds. When you pick a mutual fund you should consider following factors.

Age and Size of the Mutual Fund

Before considering to invest in a particular fund, read the prospectus to see since when it has been operating and what is the assets size is. Often while funds are still small just a few successful stocks can have a great impact on their performance and lead to excellent short-term performance records. However, as funds grow such great results are more difficult to sustain. Since a larger number of stocks are owned by the fund and they cannot influence the fund’s performance.

Fund’s Risks

You should be well aware of the risks the fund takes to achieve its results. Higher rates of return are usually associated with higher risks, which may be beyond your comfort level or inconsistent with your financial goals. Always take into account your risk tolerance and long-term investment strategies when picking the right mutual fund.

Fund’s Volatility

Typically, higher volatility means higher investment risk. Therefore, if you are looking for a shorter-term investment you should avoid funds with a volatile history since you will not have much time to overcome eventual declines in the stock market.

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Funs’s Fees, Sales Charges, and Expenses

When you invest in a mutual fund you will be charged various fees and expenses. A low-cost fund may perform worse than a high-cost fund and still generate the same returns for you. Take time to calculate how the costs of different mutual funds will affect your returns since even small differences in the fees and expenses may lead to large differences in the returns.

Taxes that are due when you receive a distribution

Generally, you will owe taxes when you receive a capital gains distribution from a fund. Your tax bill will be affected even if the return has been negative since you invested in the fund so you should preliminarily find out when your fund will make its distributions and assess the right time to invest in it.

Recent Changes in the Fund’s Operations

If the fund has recently changed its investment strategy or its investment adviser, its performance may change too. Therefore, always inform yourself about any recent changes in the fund’s operations before considering investing in it. As you can see, other factors besides the fund’s past performance should be taken into account when deciding which mutual fund to pick. To get the most out of your money, whether you are interested in mutual funds, stocks,ETFs or options, you need two main things – the knowledge and the right trading platform.

Form 15G and Form 15H to Save TDS on Interest Income

Form 15G and Form 15H are self-declaration forms required to be furnished by the assessee to the bank. Bank will deduct TDS when the interest income is more than ₹10,000.00 in a year. You can submit Form 15G or Form 15G to avoid TDS on interest if you fulfil some conditions.

The TDS rate for interest income is 10%. If you do not furnish PAN details, the TDS rate will be higher @20%.

Form 15G is for assessee other than senior citizen while form 15H is for senior citizens

Form 15G

These forms are valid for one financial year. therefore do check whether you satisfy the conditions for filling them each year and submit them at the start of each financial year.

Conditions you must fulfil to submit Form 15G:

  • You are an Individual or HUF
  • You must be a resident Indian
  • You should be less than 60 years old
  • The total interest income for the year is less than the minimum exemption limit of that year, which is Rs 2,50,000 for a financial year.

Conditions you must fulfil to submit Form 15H:

  • You are an individual
  • You must be a Resident Indian
  • You are 60 years old or will be 60 years old during the year for which you are submitting the form
  • Tax calculated on your Total Income is nil

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Submit Form 15G and Form 15H

The Ministry of Finance has amended the income tax rules for the submission of Form 15G and 15H on 29th September 2015 through a notification. These rules have been referred to as Income Tax (14th Amendment) Rules, 2015 and are applicable from 1st October 2015. These rules allow the taxpayer to submit the forms in any of the following modes.

  • Paper Form
  • Electronically after duly verifying through an electronic process in accordance with the procedures, formats, and specified standards.

Start Your Tax Planning Early

Tax Planning

We often make the mistake of investing at the last hour when our company asks for proof. Don’t delay it, start tax planning now. Early tax planning will also ensure that you fully acknowledge and understand your financial situation, which can help you plan for the future in more ways than just tax preparation.

Start in April

Why should you wait for the end of the year to invest in tax saving investments? April is the best time to start investments. Delayed tax planning could make you invest a large sum in March. You might end up not investing in financial instruments as per your goals. So don’t leave your tax planning for the last minute.

Understand Tax Changes & Deductions

By April, the Union Budget would have been announced. This means you have a good idea about any tax changes, exceptions and deductions etc in the new financial year.

Estimate Your Taxes

You also know about your salary hikes and tentative incomes by the start of your financial year. This is enough to calculate your tax payments too.

Tax Planning

Spread Out Investments

Section 80C offers taxpayers a ceiling of ₹1.5 lakh for claiming tax benefits. This number – ₹1.5 lakh is important and tells you how much money you can save depending on your tax bracket. It is your starting point and you must work backwards by selecting from the options 80C offers you like tax-saving mutual funds (ELSS), EPF, PPF, among others.

If you invest at the end of the year, you will have to shell out ₹1.5 lakh or more in a single lump sum payment. By planning earlier, you can avoid this

Systematic Investment Plan (SIP)

Equity Linked Savings Schemes (ELSS) are special Mutual Funds for saving tax. You can start SIP in ELSS right in April. This spreads out your investments. By investing every month, you can also benefit from the volatility in the stock markets. You can lower your average cost of investment by investing every month.

Higher Returns

By lowering your average cost of investment, you can increase your overall returns in the long run. This way, your tax-related investments can help create more wealth.

Best 5 Tax Saving Investments

Tax Saving Investments

Investments in tax saving investments can claim deductions under section 80C of income Tax Act 1961. The maximum deduction is allowable under this section is ₹150,000.00. If you are investing in following investments, you can claim deductions from your gross total income.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a tax saving investment. PPF was introduced by the Ministry of Finance of India in 1968. Deposits made towards PPF accounts can be claimed as tax deductions and interest earned on those deposits are also tax-free. Withdrawals are exempt from tax. The PPF interest rate for the financial year 2016-17 is 8.1%.

PPF accounts can be opened at any nationalised banks, or post offices. PPF accounts can be opened at the specific private bank as well. The minimum amount required to open a PPF account is ₹100.00. Minimum annual deposit is ₹500.00 and maximum annual deposit allowed is ₹150,000.00. Investment up to ₹100,000.00 qualifies for deduction under section 80C of IT Act.

Tenure of PPF account is 15 years, account continuance is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.

Loans can be availed against funds held in the PPF account from year 3 to year 6.

Equity Linked Savings Scheme (ELSS)

ELSS– Equity Linked Savings Scheme is one of the best tax saving investments available in the market. ELSS is a diversified equity mutual fund which has the majority of the corpus invested in equities. This type of mutual fund has a lock-in period of 3 years. This means if you start a Systematic Investment Plan (SIP) in an ELSS, then each of your investments will be locked in for three years from the respective investment date.

Compared to other tax saving instruments like bank fixed deposits, Public Provident Fund (PPF) and National Savings Certificate (NSC); the lock-in period of Equity Savings Scheme is much lower. While ELSS investment is locked for 3 years, PPF is locked for 15 years, NSC is locked in 5 years and bank fixed deposits eligible for tax deduction are locked in for 5 years. As ELSS is an investment in equity markets and investing in this for a long-term can give better returns compared to other asset classes over the long term.

National Saving Certificates (NSC)

NSC specially designed for government employees, businessmen and other salaried classes who are income tax assesses. NSC are issued by the post office and can be taken from any branch of the Indian postal service. There is no maximum limit for investment in NSC. Investment up to ₹100,000.00 qualifies for deduction under section 80C of IT Act.

The interest rate for NSC VIII Issue is 8%.

Maturity value of a certificate of ₹100.00 purchased on or after 01.10.2016 shall be ₹146.93 after 5 years.

Maturity value of a certificate of ₹100.00 purchased on or after 01.04.2012 shall be ₹147.61 after 5 years.

Certificates can be kept as collateral security to get the loan from banks.

5 Years Fixed Deposits 

You can claim deductions under section 80C of IT Act 1961 by investing in fixed deposits up to ₹150,000.00. Lock-in period for such deposits is 5 years. The interest earned from such deposits are taxable. Premature withdrawal is not available.  Deposits can be opened both singly and jointly. In the case of a joint account, the tax benefit will be availed by the first holder of the deposit as per the section 80C of the Income Tax Act, 1961. The interest rate for fixed deposits is very from bank to bank.

Nation Pension Scheme (NPS)

The National Pension Scheme (NPS) was introduced by Government of India on 1st January 2004 with the objective of providing retirement income to all the citizens.

Finance Minister Arun Jaitley in Budget 2015-16 introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. NPS is a voluntary pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority.

Deduction 80D: Tax Benefits on Health Insurance

Health insurance policy not only gives insurance cover to a taxpayer but also provides certain tax benefits. Health insurance or Medi-claim policy is a must for all because should you fall sick or meet with an accident, your medical bills could wipe out your savings.

The premium paid towards medical insurance is tax deductible under section 80D of the Income Tax Act 1961.

As per section 80D, an individual or an HUF can claim deduction in respect of the following payments:

  • Medical insurance premium paid by the assessee, being an individual/HUF by any mode other than cash.
  • Any contribution made by the assessee, being individual to Central Government Health Scheme or such other Scheme as may be notified by the Central Government.
  • The sum paid by the assessee, being individual on account of preventive health check-up. Medical expenditure incurred by the assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person.

An Individual can claim tax deductions in respect of medical insurance policy taken:-

  • in his own name, or
  • in the name his/her spouse,
  • his/her parents and
  • his/her dependent children.

In a case of HUF, the policy can be taken on the health of any member of such HUF.

Deduction on account of medical expenditure shall be allowed only when it is incurred on the health of the aforementioned persons who are very senior citizens.

Very senior citizen’ means an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.

Tax Deduction of Health Insurance Premium

Health Insurance premium paid for self, spouse or dependent children is tax deductible up to ₹25,000.00. If any one of the persons specified is a senior citizen and health insurance premium is paid for such senior citizen then the deduction amount is ₹30,000.00. Health insurance premium paid for parents is deductible up to ₹25,000.00. If parents are senior citizens, the maximum allowable deduction is ₹30,000.00. Below table shows tax deductions applicable to health insurance.

Health Insurance

 Preventive Health Checkup

The total amount of deduction for the expenditure incurred on preventive health checkup of the assessee, his family and parents could not exceed ₹5,000.00. Remember, this is not over and above the individual limits as explained above.

5 Things You Should Know About Investment

In this article, I have listed 5 things you should know about investment. This will help you to evaluate and compare various investment instruments are available in the market.

Return on Investment

A good rate of return on an investment is the first and foremost condition for effective investment. The rate of return is the ratio of a sum of annual income and price appreciation to purchase price of the asset or investment.

The rate of Return = Annual income + (Ending price – Beginning price)/ Beginning price.

Illustration

Suppose a person has invested in equity share of a company X at the price of ₹ 100.00. During the year, company X pays a dividend to its shareholders of ₹ 10.00 and price of the share at the end of the year is ₹ 115.00.

Rate of Return = 10+ (115-100)/100 =0.25 or 25%

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Risk

The degree of risk varies across investment types, all investments bear the risk. So it is important to determine how much risk is involved in an investment. The average performance of an investment normally provides a good indicator. Past performance is merely a guide to future performance, not a guarantee. Investors should consider whether they could manage the safety risk associated with investments financially and psychologically.

Liquidity

Liquidity means marketability of an investment. An investment instrument is considered to be highly marketable when:

  • It can transact quickly.
  • The transaction cost is low.
  • The price change between 2 transactions is negligible.

Equity shares of large, well-established companies can be easily liquidated in the stock market. While shares of small and unknown companies have low liquidity.

To determine the liquidity of other financial instruments like provident fund (a noun – marketable instrument). We would consider other factors like, can we make a substantial withdrawal without much penalty, or can we take a loan against the accumulated balance at an interest rate not much higher than our earning rate of interest on the provident fund account.

Tax Benefits

Some of our investments would provide us with tax benefits while other would not. This would also be kept in mind when choosing the asset. Tax benefit is mainly of 3 types

Initial Tax Benefits – This is the tax gain at the time of making the investments, like Equity Linked Savings Scheme.

Continuing Tax Benefit – This is the tax benefit gained in the period return from the asset, such as dividends.

Terminal Tax Benefit – This is the tax relief the investor gains when he liquidates the investments. For example, a withdrawal from provident fund account is not taxable.

Convenience 

Convenience means ease of investment. The degree of convenience would vary from one asset to other. For example, it is easy to invest in equity shares compared to real estate because real estate involves a lot of documentation and legal requirements.

ELSS – Save Tax & Earn Higher Return

ELSS – Equity Linked Savings Scheme is a diversified equity mutual fund which has a majority of the corpus invested in equities. This type of mutual fund has a lock-in period of 3 years. This means if you start a Systematic Investment Plan (SIP) in an ELSS, then each of your investments will be locked in for three years from the respective investment date.

Like other mutual funds, Equity Linked Savings Scheme has both growth and dividend options. In growth option, investors get a lump sum on the expiry. On the other hand, investors get a regular dividend income in dividend option.

The investor can claim up to ₹1 lakh as a deduction from his gross taxable income under section 80C of the Income Tax Act. ELSS fall under the exempt – exempt – exempt (EEE) category. That means investments get tax deduction under section 80C. The capital gains generated by the fund are exempt from tax. Finally, withdrawals are also tax-free.

ELSS

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The primary purpose of Equity Linked Saving Scheme investment should be to achieve a future financial goal or to create long-term wealth for distant goals like retirement planning etc. and tax saving in the year of investment should be an incidental benefit or a secondary objective. This mutual fund is preferred to open-ended Equity Schemes because of two reasons, namely tax saving and discipline of holding for a longer period.

Advantages of ELSS over other tax Saving Instruments

Compared to other tax saving instruments like bank fixed deposits, Public Provident Fund (PPF) and National Savings Certificate (NSC); the lock-in period of Equity Savings Scheme is much lower. While ELSS investment is locked for 3 years, PPF is locked for 15 years, NSC is locked in 5 years and bank fixed deposits eligible for tax deduction are locked in for 5 years. As ELSS is an investment in equity markets and investing in this for a long-term can give better returns compared to other asset classes over a long-term.

Best ELSS Funds

Following are the best ELSS funds:-

  • Axis Long Term Equity Funds.
  • Birla Sun Life Tax Relief 96.
  • Birla Sun Life Tax Plan.
  • Reliance Tax Saver.
  • Religare Invesco Tax Plan.
  • BNP Paribas Long Term Equity Fund.
  • Franklin India Taxshield Fund.
  • ICICI Prudential Long Term Equity (Tax Saving).
  • DSP BlackRock Tax Saver Fund.
  • IDFC Tax Advantage (ELSS) Fund.