STARTING INSURANCE PLANNING EARLY

Insurance should be a part of the Portfolio. Starting to plan for Insurance at the early stage is always better. Delay in Insurance planning leads to expensive premium. The premium that is age specific will vary and go high as we grow older.

There is a huge need of Insurance cover at younger age also. The individual has to cover himself as he has responsibility towards his family and society.

At the earliest first take a Term Cover and then move into ULIP’s, Pension or Endowment plans etc.

The duration of the plan i.e.) Term also matters in term of building corpus. Longer the Term, more the benefit. Power of compounding will work better in longer term. Instead of starting late its better to start early.

Treat Insurance as an expense which mandatorily or compulsorily to be taken.

Manual Switch gives the Best of Averaging the Price

Though market has fallen steeply it is dangerous to invest fully or in one shot into Equity Mutual funds. Steadily increase exposure to Equity Mutual funds by way of Switching from Debt to Equity at different price levels.

Initially investors has to invest in a Debt fund and then transfer amount to designated Equity scheme whenever they see a fall in the price. Investors should note that all valid transfer requisitions from one scheme to other would be treated as Switch out / redemption and switch in / subscription transactions at the applicable NAVs of the two schemes will be reflected in the number of units allotted. Investors have to also look into eligibility of the schemes which will allow them to Switch from Debt to Equity. Please read the offer document of the transferee scheme carefully before investing.

By doing a manual switch when there is a fall in the price will give more advantage in averaging the price than the Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) or Switch Plans. Manual Switch will allow investors to have control over the entry price in Equity schemes and as such will give the best of averaging the price.

In the current market condition it is better to rebalance the allocation systematically in favour of Equity. Investing in Debt and switching slowly to Equity will give best of times of both Debt & Equity.

 

SHOULD YOU SHIFT YOUR HOME LOAN?

India’s largest Public sector Bank State Bank of India (SBI) cut the interest rates on new home loans to 8 %. LIC Housing Finance followed suit with a rate of 8.75 %.

For people who are waiting to take the Home loan this is a great deal to grab as other banks are offering in double digits. To be believed, Public sector banks may join this rally but not Private Banks.

If you are a new borrower it is better to choose this scheme as you will save money for a year due to lower interest rates. Even after the expiry of the first year, you can continue your loan with the bank since the rates prevailing then will be close to what other banks will be offering.

If you already have a loan with another bank, you can think of switching the same as you will save the difference in interest rates. If the current rate on your loan is 13 %, by switching you will be saving a considerable amount - a difference of 5 % this year. In case of foreclosure charge, it is better of to shift because the saving by interest rate will more than make up for the penalty.

Latest Home loan rates offered by leading banks:  http://in.reuters.com/money/personalFinance/calculator?calculator=homeLoans

 

 

Tax Rebates under Indian Income Tax Act - Assessment Year 2009-10

Specified Investment Schemes u/s 80C

• Life insurance premium payments
• Contributions to Employees Provident Fund/GPF
• Public Provident Fund (maximum Rs 70,000 in a year)
• National Saving Certificates. (NSC)
• Unit Linked Insurance Plan (ULIP)
• Repayment of Housing Loan (Principal)
• Equity Linked Savings Scheme (ELSS)
• Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).
• Infrastructure Bonds issued by Institutions/ Banks.
• Interest accrued in respect of NSC VIII issue.

Deduction under section 80 CCC (1): This section allows a deduction of premium paid towards approved pension funds. Max.1Lakh.

Deduction under section 80D: Under This section, a deduction up to Rs 15,000 (Rs. 20,000 in case of senior citizens) is allowed in respect of premium paid towards health insurance policy, like "Mediclaim". Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children.

Deduction under section 80DD: Any expenditure for Medical, Nursing & Rehabilitation incurred on dependant suffering from permanent disability including blindness, mental retardation, autism, cerebral palsy or multiple disabilities. Rs.50, 000 with an additional Rs.25, 000 if the disability is severe exceeding 80%.

Deduction under section 80DDB: Actual expenditure incurred on Medical treatment of Self or dependant or a member of HUF suffering from terminal diseases like Cancer, AIDS, Renal failure etc upto Rs.40000 & Rs.60000 for senior citizens.

Deduction under section 80E: Interest on loan taken from Financial/Charitable Institutions for Self/Spouse/Children for pursuing Higher Education (for a max. period of 7 yrs)

Deduction under section 80G: Donations made to National Defence Fund, Prime Minister’s Relief Fund, approved Funds of reputed Educational Institutions, National Trust for Welfare of persons with Autism, Cerebral Palsy etc.

Deduction under section 80G: Deduction in respect of rents paid.

Deduction under section 24(b): Under this section, Interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs.1, 50,000 with some conditions to be fulfilled.

DUE DATES FOR FILING RETURN OF INCOME: All Individuals/HUF/Firms deriving Income from Salary, House Property, Capital Gains, Business or Other Sources and not covered under section 44AB are required to file the Return of Income by 31st July. All Tax Audit Cases covered under section 44AB, Company returns are required to file the Return of Income by 31st October.

IIFCL Plans bond issue

IIFCL would issue bonds worth 2 billion rupees on 10th or 11th of this month. It is eyeing raising subordinated debt to fund new projects, its chairman S.S.Kohli said in a conferance call with investors.

They would also raise subordinated debt with a maturity of 12 years to 15 years with 2-5 years moratorium and could be raised both locally and overseas.

"Quantum initially could be 1,000 crore (10 billion rupees). It could be raised further, depending on requirements," Kohli said.
Source: "Reuters India"

Monetary Stimulus

Indian Central Bank slashed its two key short-term interest rates by 100 basis points each on Friday and the government unveiled a fiscal package to stimulate the economy that has been slowing faster than expected. The government said it would ease foreign borrowing rules for firms in the infrastructure and real estate sectors, and raised the foreign investment limit in corporate bonds to $15 billion. The central bank also announced a cut in its cash reserve ratio, the proportion of deposits banks must keep with the Central Bank, by 50 basis points to 5.0% with effect from Jan.17

Key Points are :

- Repo rate is the rate was cut to 5.5% from 6.5%.

- Reverse repo rate was cut to 4.0% from 5.0% .

- Both reductions are effective immediately.

- The cash reserve ratio was cut by 50 basis points to 5.0% with effect from Jan-17.

- External commercial borrowing rules eased.

- Raised foreign investment limits in corporate bonds to $15 billion from $6 billion.

- Withdraws customs duty exemption on zinc, Ferro alloys .

Views:

Some more tinkering in the repo rate is possible going forward and further reverse repo rate cut is a possibility unless global economic outlook worsens further in the months ahead. Existing Investors can wait till Jan 2009 since more events to come up to give direction to the interest rate market. Fresh investments in bond funds suggested for those who have 6-12 months time horizon and as part of asset allocation theory, suggest you to look at short term income funds also.

Why Income Funds & Gilt Funds @ this point of time

The spread between Corporate Bonds and G-Secs has widened over the last two quarters, and expect the spread to come down due to improved liquidity conditions.There may be fluctuations in the shorter term but over the long term of around 18-24 months, expect downward interest rate movements to give better returns.

Income Funds: Income funds have a mixed portfolio of G-Secs & Corporate Bonds. They have a higher portfolio maturity profile than liquid or short-term funds. They generally have an exit load if redeemed before a specified period.
Suitability:
• It is suitable for investors with an investment horizon of 18 months & above.
• These funds aim to generate regular income with some capital appreciation also.
• The higher maturity profile make these funds more volatile in the shorter term due to interest movements.

Gilt Funds: only invests in Govt. Securities of various maturities. The aim of these funds is to generate credit risk free return. These are most volatile funds in the debt category as G-Secs are the most actively traded securities.
Suitability:
• It is suitable for investors with long-term investment horizon of over 18months.
• In a falling interest rate scenario they generally have a higher return potential than in a rising interest rate market.

Investing in a combination of Income funds and Gilt (Long Term) Funds would be a better option at this point of time to take advantage of this scenario.