In my opinion we are going to see far-reaching long-term consequences once the SEBI-IRDA issue gets resolved for Financial Planning profession. I base my fact & assumptions that SEBI is on a strong wicket rather than IRDA. However we need to go to the origin of this situation. In this article we will see what exactly is happening at this moment between SEBI and IRDA over ULIP ban and whats its implication on financial planning . Also Read : A short guide to Hire a Good Financial Planner in India
What is SEBI & IRDA issue all about? How it actually originated?
The IRDA was formed before SEBI and with the help of IRDA insurance companies came out with a Jugaadu product called ULIP which is just identical to MF with one minor difference that apx.2-5% of a clients investment goes to provide a life cover and rest is invested in either market, Govt. Securities, corporate debt or Equity, depending on the mandate of that fund. Now the second part is nothing but just like a mutual fund scheme.
Where is the problem now?
There is no problem with it as 90% of insurance premium world over goes to market or securities. However, in India the ULIP products become terrible investment products because if one invests Rs.100 in a ULIP then 20% of your money goes into commissions and approx. 2% into insurance, only 78% of one’s money is invested in market or securities. So to get back to 98 ( 100 –2 ) it would take in normal market conditions at least 2 years in Equity oriented funds and 4 years in debt oriented funds. So all you are doing is just recovering your principal in next 2 to 4 years. Now, the miss-selling by an insurance agent gets hidden in the bull run and because of rampant financial illiteracy even among so called highly qualified professionals & corporate executives leave alone the advisor selling the ULIP, the investor is fooled into putting more money in these bull runs saying that your money will double in “x” years and in the bear runs when the ULIP loose even their principal, the advisor gives them a either long term talk or plays on the investor fear and switches them to another products. Hence, an advisor in India is the a true definition of an “opportunist”. In the bull run he plays on the “greed” of the investor and in the bear run he plays on the “fear” of the investor.
What the above does is that apart from loss to investors it gives an unfair advantage to insurance companies compared to mutual fund houses where commissions are in fraction of your investments. What is the incentive for an advisor or even big distributors like banks & distribution companies to sell MF schemes when they have the option of selling a similar scheme where they gets heavy commissions… as an agent what would you do go for Rs.20/- commission on ULIP or Rs.1 on Mutual Fund Scheme on an investors investment of Rs.100/-.
Now, taking stock of the above problem SEBI has gone for an eagle eye’s view of the whole problem and to create a level playing field among all market participants.After a lot of cajoling & convincing IRDA which failed to budge, SEBI issued the harsh step of issuing an quasi-judicial order restraining Insurance companies from offering ULIP without proper registration with SEBI.
What will happen now?
Though there is likely to be a stay on the SEBI order given the large number of clients who hold ULIP products by the high court. This can be a short-term breather to insurance companies but it is not a long-term solution.
Who is on strong wicket when the issue goes to Court – SEBI or IRDA?
Mr. Bave is a master strategist, he knew that the lobby of insures is very strong and united and it will take him years to bring them to negotiating table. With the powers conferred to him by parliament, he issued a quasi judicial order.
Now, quasi – judicial order is such that even Mr.Bave cannot revoke it. The IRDA may win a temporary relief in this war, but SEBI stands on a strong footings as in the court of law the court will go where investor interests remains. Insurance companies must see the larger picture and rather than worrying about loosing valuations post an unfavorable order, they must prepare them self to change with the times.
What are the implications of the SEBI & IRDA issue for Financial Planning profession?
So lets come back to the question what’s in it for Financial Planning profession ? In my opinion, realizing the investors interest the court will rule in favor of SEBI, post which Insurance companies will have to bring down the commissions to Mutual Fund level on ULIP’s.
Is this is a good news for Financial planners?
Yes, but how many of us are changing as fast as the opportunity provided by structural changes effected by such orders? Time & again it has been proved that great opportunity lies when you have big structural changes in an economy. Every century gives some opportunity during financial turmoil and this time we are in the midst of such an opportunity.
There are many areas which we talk about regarding financial awareness, however there are things which a retail investor is never aware about and that’s “International finance”. It’s equally important to understand what is happening at national and international level which can hugely impact a common man. With financial markets becoming increasingly complacent about the recurrence of a crisis, we believe it is relevant to explain a couple of areas of concern which could trigger the next round of the crisis.
Greece – Europe’s Achilles Heel
Source : DNA
What’s Going on in International markets
In the last few weeks, Greece has taken the centre stage in the financial markets. Within the next two months, Greece has to pay back the maturing bonds [to investors across the world] and finance its budget deficit. The country needs to borrow around $40 billion from the international market. With 10 year Greek Government bond interest rates of around 7% (more than 3% to 4% higher than 10 year U.S. Treasury or German Government Bonds), this has led to fresh worries over a potential default by the Greek government. What has added to the problem over the last two days is a rapid withdrawal of deposits from Greek banks by individuals in the country. Unless, Greece agrees to the terms set forth in the rescue package put together by European Union and IMF [to reduce government spending and increase taxes], it is difficult to get the support of this consortium to raise the $ 40 billion to stave off the crises. As you can see from the graph, Greece’s debt is over 111% of GDP. We believe the situation in Greece is getting grimmer day by day and could be a trigger for a crisis in other European nations – Portugal, Italy, Spain.
Read more on this through the following links :
http://ow.ly/1wR0D (Retry opening this several times , if it does not show you article)
The fiscal stimulus initiated by China last year through bank lending to the tune of $ 1.2 trillion has led to potentially unstable conditions in their economy. According to well-known investor James Chanos with 60 percent of the country’s GDP relying on construction ‘China is on a treadmill to hell’. Marc Faber a long time optimist on China and well-known economist Kenneth Rogoff have also spoken of a China Bubble recently. With the Chinese government trying to enable a slowdown in real estate speculation via a recent tax on sale of homes when they have been owned for less than five years, one cannot rule a rapid decline in prices which would have a negative impact on economic growth.
Any one or combination of the two global factors identified above could trigger a mild to deep correction in the financial markets and slow down the world economy. Due to the strong financial linkages with the U.S. and the rest of the world, India will not be spared.
This is a Guest Column by Partha Iyengar – Founder and C.E.O and Srinivasa Sharan – Adviser, Investment Management – Accretus Solutions
Disclaimer : The article is for information purposes only and should not be construed as any recommendations. Accretus Solutions does not intend to solicit any business. Accretus Solutions do not take any responsibility of the losses that may arise out of actions taken based on the article. This article is not a substitute for developing an investment strategy or plan with a professional adviser. The views expressed in the article are that of the authors only.
There was a time, when mutual fund investing was limited to calling an agent and investing through him. He filled a form for you, and only bothered you for signatures; This was called as “convenient service.”. Things have changed now though. With entry loads abolished by SEBI and with so many technological advances, we have different ways of investing in mutual funds .This article explains the different ways of investing in mutual funds: through agents, AMC’s, demat, and web portals. Lets take a look-see…
Different ways of Investing in Mutual Funds
Through an Agent
This is the oldest and one of the most convenient ways of investing in mutual funds. You just call an agent and tell him you want to buy mutual funds. He comes right to your door, & fills in the various forms. All you need to do, is sign the forms. Since the abolition of entry loads, you now have to compensate the agent for his services, and pay him commission on the amount invested. Agents can charge anywhere from 1-2% of the amount to be invested. Make sure you don’t pay him more than 1%, which is a good enough amount of brokerage, for expediting the process (filling in forms, carrying them to the Mutual Fund offices, having them processed et al.) If he gives you sound advice on what mutual funds would suit you, and would help you achieve your financial goals, you could then, compensate him more. That makes sense. Be cautious though! Check the details of the form and what is filled. Ideally, you should fill the form.
You should go with this way of investing only if you want convenience and comfort takes more precedence. Click on this AMFI Agent Search Link to search for mutual funds agents in your city. You can submit the search with different parameters and get a list of all the agents with their name, address & phone numbers. There are many agents who are linked with many companies (like NJInvest or Prudent Advisory) who provide login facility, where you can login and see your mutual funds Performance anytime . Read : How many Mutual Funds you should have ?
Direct Investing through an AMC
You can now invest directly through an AMC (simply put – the Mutual Fund companies themselves.) There are many mutual funds who provide online facilities for investing. To do so though, you need to have a folio number, which you get only after investing in a particular mutual fund, which means that you have to go physically to the AMC office to invest for the first time. Next time onwards, you can invest in that mutual fund, online through their website. Using this method, makes sure that your entire amount, e.g. Rs 100/- gets invested and there are no charges here. The only hiccup, is the manual work involved at the start of the process; you have to take the pain of personally going to the office and then filling in the form. Sometimes, it’s a bit of a headache. If you want to invest in funds from four different AMC’s, then you have to go to all of them.
It would make sense to use this method, if the amount of investment is going to be large-ish and your tenure is long-term. In that case, using this way, will save you lot of money in commissions. Just imagine that if you invest 10,000 per month in mutual funds, then with a 1% commission structure, you save Rs 100 per month, which is Rs 3,600 for a 3 yr period. So 3,600 is what you lose when you go with an agent who charges a 1% commission . Note, that you do not require demat account for this .
This is one of the most convenient methods of investing in mutual funds. If you have a demat account, you can browse through all the mutual funds on the site, and just with a few clicks of a mouse, you can invest in a fund of your choice. But then again, you have to pay commission here, since banks are also agents. Some charge a flat fee and some charge on percentage basis. For eg., ICICI Bank charges Rs 30 or 1.5% per SIP, whichever is lower and HDFC charges Rs 100 per quarter irrespective of the amount invested. The biggest advantage of buying and selling through a demat account, is that you control everything from one place. Some of the players in online mutual funds selling are :
5 paisa
Geojit Securities
HDFC Securities
ICICI Direct
India Bulls
InvestSmart Online
Investmentz.com
Kotak Street
Motilal Oswal
Sharekhan
Investing through CAMS or Karvy
CAMS is the transaction processing company which services almost all the mutual funds in India. They process all the buying and sending the report etc to end customer . You can also invest directly through CAMS . All you have to do is Download the mutual fund form from the AMC website. Take a print out and fill the form . Then submit to your nearest CAMS or Karvy Investor centre along with copy of PAN card, SIP form(if needed) and cheque . For now , there is no way of investing online with them .
Here is the list of CAMS offices in different cities and Below is list of different AMC forms which you can download .
ABN AMRO Mutual Fund
AIG Global Investment Group Mutual Fund
Baroda Pioneer Mutual Fund
Benchmark Mutual Fund
Bharti AXA Mutual Fund Birla Sun Life Mutual Fund
Canara Robeco Mutual Fund DBS Chola Mutual Fund
DWS Mutual Fund
DSP Merrill Lynch Mutual Fund
Edelweiss Mutual Fund
Escorts Mutual Fund
Fidelity Mutual Fund
Franklin Templeton Mutual Fund HDFC Mutual Fund HSBC Mutual Fund
ICICI Prudential Mutual Fund
IDFC Mutual Fund
ING Mutual Fund
JM Financial Mutual Fund
JPMorgan Mutual Fund
Kotak Mahindra Mutual Fund LIC Mutual Fund
Lotus India Mutual Fund
Mirae Asset Mutual Fund
Morgan Stanley Mutual Fund
PRINCIPAL Mutual Fund Quantum Mutual Fund
Reliance Mutual Fund
SBI Mutual Fund
Sundaram BNP Paribas Mutual Fund Tata Mutual Fund Taurus Mutual Fund
UTI Mutual Fund
Break Down of How investors invest in Mutual funds [POLL RESULTS]
Here is a poll results
Note : This Poll is from the users of this blog only , so this result should not be generalised for whole country , Its just for the net savvy community.
Conclusion
Before choosing the way you want to invest in mutual funds , you should consider cost and convenience . If you are investing for long-term , you should definitely go through a way where there are less commissions or no commissions. Only exception can be through an advisor who gives you very sound advice and you are confident that paying him a commission would help you get a better knowledge and returns .
Comments please , how do you invest ? What are your experiences and learnings ? Is there any other way ? Any tips from your side ?
There was a time, when mutual fund investing was limited to calling an agent and investing through him. Things have changed now. With entry loads abolished by IRDA (please provide link or full-form) and with so many technological advances, we have different ways of investing in mutual funds.
Today we will talk about Company Fixed Deposits. There are many investors who are very much impressed by the Corporate fixed deposits and feel like they are as good as Bank Fixed deposits, but one has to understand that if company deposits offer higher interest rates, It is bound to be more riskier than normal Fixed Deposits offered by Banks. Most of the investors think that Company fixed deposits are safe just because the company which is offering these Deposits are very famous one’s and very big in Size. But that is not true ! . How to Find cheapest Fixed Deposit in India
What are Corporate Fixed Deposits
Corporate fixed deposits are normal fixed deposits offered by Companies. The interest rates offered are generally higher than Bank interest rates and can be in range from 9%-16% . Higher the interest rates offered higher are the risks involved. Why do companies have these deposits? when companies have cash crunch and require money, they can offer deposits at attractive rate of interest to common public, one of the reasons for this can be that they do not want to raise the additional capital by issuing shares. Corporate Deposits are governed as per Section 58A of Companies Act, however these are “unsecured” loans (we will talk about it) .
Risks with Company Fixed Deposits
There are two main risks associated with Company Deposits , they are :
A) Default Risk : These Company deposits carry a risk called Default Risk, which means, at maturity they might not be able to return your maturity amount and default in the payment. It can happen that company is out of cash at that time or does not have sufficient money in their hand to pay back , this can happen for many reasons like their business might not be going good that time or because of recession .
MUMBAI, MAY 19: The beleaguered CRB Capital Markets has failed to submit its plan for settlement of Rs 180-crore liabilities to fixed-deposit holders. Reserve Bank of India (RBI) is now free to move court seeking the winding up of the non-banking finance company (NBFC).
Prudential Capital Markets Ltd., based in Calcutta was one of the biggest and successful NBFCs. But their reputation came under a lot of flak the moment they began to default in the payment of interests and the matured amounts. When flustered investors started queuing up to withdraw funds invested in Prudential, the company managed to stave
them off by stating that it would repay 40% of the funds within a year and the remainder a year later. In some cases the cheques were issued but if they thought they were lucky, they were in for a shock for their cheques bounced.
B) Unsecured Deposits : Bank Deposits are secured by RBI up to 1 lacs rupees per branch, which means that if bank does not return you the money or goes bankrupt, RBI will pay you up to 1 lacs of deposits. There is no such Insurance on Company Deposits, hence they are totally unsecured . Link
Update from Rakesh : We have very bad experience with Midwest Iron & Steel company. My parents had invested in this company in mid 90’s and the company was defaulted in 1997. SEBI had included it in its list of vanishing companies. Its been over 13 years we have still not received any money nor do we know any status of it. I had written to SEBI but not update yet.
Caution Points
Premature Exit from Company FD’s are not that simple like Bank FD’s. You might have to run from one place to another and send loads of letters and some times even give reasons for Premature Withdrawals .
One such investor, Vidyadhar Radhakrishna Lad, a senior citizen and shareholder of the company, had subscribed for the fixed deposit scheme of Jaiprakash Associates by investing Rs 1 lakh. Despite writing to the company and running from pillar to post for two months, Mr Lad has still not received his fixed deposit receipt (FDR). Link
Make sure you also consider the credit ratings given by CRISIL and ICRA for that FD . (Understand CRISIL Ratings and ICRA Ratings)
Refer to the article below to read about Panjon Pharma Fraud in Fixed Deposits (Credit : Hemant Beniwal)
Should you invest in Corporate Fixed Deposits
There is nothing good or bad , some companies which offer Fixed Deposits are very established and are highly reputed, however you can’t take it at face value and ignore the risks involved. If you want to park money for short-term and are comfortable with the risks which come with corporate fixed deposits, these Corporate fixed deposits can be a good products for you. The point here is awareness. It’s not recommended that you put a big sum in same company. If you want to invest 2 lacs in company fixed deposits, then better invest 1 lacs in 2 different company, that would diversify your risk to some extent. Also if you are investing for some very important goal, then better settle with Bank Fixed Deposits and not Corporate deposits, it’s better to settle with 2-3% less returns then take unneccessary risk . Here are some words of caution while choosing Company deposits .
Which Company Fixed Deposits you should avoid
Companies which offer interest higher than 15%.
Companies which are not paying regular dividends to the shareholder
Companies whose Balance Sheet shows losses
Companies which are below investment grade (A or under) rating.
Pvt limited Companies and Partnership firms as its very difficult to judge their performance.
There was a survey conducted on blog, which tried to capture what readers feel about JagoInvestor and what are their suggestions/expectations from Blog in Future. Please have a look and share your views. Thanks for every one who took the survey. I personally called random 5 people over phone who took the survey and had a talk in detail about what are their suggestions and what would they like to see here . Note ; I am changing the blog layout/design in 1 week time , please share your suggestions in comments sections .
Do you read comments ? There is huge amount of discussion doing on in comments section, however many readers do not find time or interest to dig into the comments and follow the discussions, I would say comments have more knowledge than the article itself , as there are personal experiences and knowledge from many different readers, there is a threaded discussion on some topic in comments, which are more lively and engaging. So if you are just reading articles and not comments, you are missing a lot of things . So I went through some articles comment one by one and consolidated some learning and facts for my readers 🙂 .
RBI has changed the way of interest calculation on your saving account now, earlier the interest was paid on the minimum balance in your account between the 10th of the month and the end of the month. Now the interest is paid on daily basis , Read More
As per research Women are better investors than men, This is because of many factors like women risk adjusted returns are generally higher than Men , women tend to hold investments in stock market for longer then men . Read in detail Here and Here
In Public Banks the cashier or officers can tell you things like “ULIP’s are for young people , PPF is for old people” , and hence try to influence your decision-making. Once they find out that you are an NRI or from upper middle class, they can start pestering you too much because of the sales pressure or the attractive commission’s attached to it .
Why the Guaranteed NAV Plans stress over number 7 ? Anoop asked me this question and my views were that the stock markets in India has been running in a 8 yrs cycle from last some decades, so after this recent crash, another big crash is expected to be after 7-8 yrs now. So they want to make sure they are giving investors “highest NAV in 7 yrs” which will be the maximum point in coming 10-11 yrs assuming markets do crash after 7-8 yr and then stay below that point for another 2-3 years . 8 Year cycle Trend : Sensex is following an eight year cycle trend. The break of the channel lines in 1992 saw the index correcting over 53%. After eight years in 2000, the index once again fell into the grip of bearish cycle and corrected over 57%. In 2008, the faced the similar fate. Breaking the long term rising channel, the index once again echoed the similar trend and has shed more than 63.7% of its weights from the top : LINK
If you sit back and think for just a moment, you’ll realise that there is reasonable outward evidence that the Unit Trust’s history could repeat itself with LIC. It’s true that there’s a lot that is different about the regulatory framework and the nature of LIC’s liabilities. However, the core reasons that led to UTI’s collapse also exist for the LIC today: there is an unapologetic tendency to use the LIC as a bottomless pit of money of which there wasn’t enough accountability. The blatant use of this money to bailout the public sector IPOs is only the most recent and the most visible example-given the lack of public information, it’s not possible to make any assumptions that everything else must be OK with LIC’s investments-just as it wasn’t with the Unit Trust. – Views of Dhirendra Kumar of Valueresearchonline at “LIC can be the new Unit Trust of India?” .
The way KYC is done in banks is different from Mutual Funds. Banks KYC is to be done at time of A/c opening only. They just take your documents and the concerned form is attached with A/c opening form. Since you are signing A/c opening form you don’t need to sign KYC form seperately. Thats the reason banks only take your documents for the proof. Even later also you need to give only the proof. – Thanks to Jitendra Solanki for answer .
A horrible Credit Card Experience from Brij Mohan
My Experience with HDFC CC is very terrible, I paid all my dues before I left for UK, and this was a free CC, after one year when my CC expired, they sent me a new CC and made some charges of around 300-400 rs (approx). Since I was not in India so I was not able to receive the Credit Card, I sent them a mail first few mails I did not get proper reply as I was referring to my old credit card number. I also tried to call on ISD rates to HDFC call center they said we can’t help you as you do not have valid Credit Card. When after around 2 years I returned I found my bill is blown up to 6000. I tried to convince them, at last they told that they have their office in Bangalore too you can go and settle there, as they have added my name in defaulters database also. I went there and literally they were blackmailing that if you don’t pay all the amount they will not remove my name from the defaulters database, and finally I paid whatever the amount they said. I thought it’s all over. Finally last year when I tried to apply for car loan, it was rejected by ICICI Bank and few other bank, fortunately it was approved by Axis bank. But still just to check I applied for ICICI Bank CC, and CitiBank credit card they rejected my application without mentioning any reason. I am feeling like I am a terrorist or they have banned me in this country for my life time, even though I paid off all the dues(which was all illegal). Just last week only i came to know about CBIL properly, so I have sent a snail mail to them for my credit record. Just to check my credit record. but still I don’t know what will be the Next surprise. I will only tell if you are using CC use it very carefully and never take anything lightly, even if it is a single paisa, just clarify this and clear it off and make sure it is really done. In short I feel using a Credit Card is like walking on the Sword or Fire. It’s very dangerous thing.
Difference between Auto-Debt and ECS : ECS is a facility to credit/debit funds between banks using clearing house. However Auto-debit is the facility within bank.
Tip from Partha Iyenger : If you want to complain about some products, the customer care is generally not helpful and they do not care, However the CEO’s and MD’s of the company are helpful and are very sensitive to customer feedback, they are generally responsive. The problem lies in contacting them, so here is a Tip : If you have a complaint against dell computers. First find who is the CEO of the company , for example its Michael Dell , now simple write to [email protected] , [email protected], [email protected], [email protected]and [email protected]. One of them will work. Please use cc while addressing to the CEO, the person you are addressing will get jitters and before he can act, he will get a call from the ceo’s office to sort it out asap. This trick can work most of the times .
Again an info from Partha Iyenger : Many people know that our credit cards and other credit history is stored and tracked by CIBIL, but do you know now even your other utilities bills get tracked and reported to industry associations and in turn to cibil ? for eg, if you don’t pay your mobile bills by moving to other city, you can be easily tracked or for that matter if you do not pay electricity bills of reliance, your phone connection would get cut and your rating system would go for a toss, its all happening In india now , but you don’t know 🙂 . That means when you apply for your home loan or car loan or personal loan, you would be disqualified. so every one, please pay check your bills, resolve any payments with the bank or respective firms (file complaints with the ceo, don’t ever talk to call centres. It doesn’t work ) and clear it . Read A close look at Real Estate Returns in India
Personal Debt to GDP ratio has tripled in 5 years in India. Personal debt includes – credit card, personal loan, auto loan, home loan and consumer durable loans. To be precise, India’s personal debt to gdp ratio has moved from 5% to 15% and micro finance institutions adding to this kitty in a ferocious pace, of course its nothing compared to america’s 120% ! but we could get there in the next 10-15 years, if we don’t watch ourselves. The onus is on us to be prudent in our spending. Today, most youngsters swipe the cards through emi schemes to buy consumer durable and electronic goods as if there is no tomorrow. Our older generation saved first and then bought it, today we don’t wait, we want everything now. The credit cards is a great tool for instant gratification rather than saving and buying it.
We feel ECS is very convenient and safe, while that is true, but anything which is good can turn out to be very bad also. Read a horrible experience on How a customer faced Experience like Hell with Kotal and ICICI for stopping his ECS facility . Here is another article on ECS from PV Subramanyam , a must read .
Jitendra Solanki shares a shocking story on how you can become an LIC Agent. “Around three years back I went to an LIC DO to talk to him for an agency.After submitting the required fees i was given a question paper and the answers of the same and was told to just ratto the answers and start generating business.Is this how an agency of LIC is given? ”
Conclusion
All this wealth of knowledge is present in Comments section and different readers provide these information when there is discussion , so please ask questions, those questions will lead to discussions and in turn it will lead to more information from other readers who have faced an issue or have some experience .
Comments , Let me know how you liked this “Learning from Comments” section ? Is it a good idea ? What are your experiences with comments overall ?
Imagine a scenario when you want to invest a big lump sum amount in stock market ? As markets are volatile and can go up or down very soon , there is always risk of loosing a big chunk of your investment (Learn about Stock Markets) . Take a case where you want to invest 10 lacs in Equity Mutual funds and suddenly market crashes for next 2 months, In this case a big chunk of your investment will be lost, on the other hand if market moves up pretty fast, you can make a good profit. Here you have to decide your main focus. If it’s minimizing risk and getting good decent returns in long-term, You should use something called Systematic Transfer Plan (STP) .
What is STP (Systematic Transfer Plan)
You should first understand SIP . SIP is way of investing in Mutual funds monthly, where a fixed amount of money goes from your Bank Account to Mutual funds, so if you do a SIP of 1,000 for 1 yr, it means that every month on a fixed date (chosen by you) 1,000 will be invested in a Fixed Mutual fund you choose. Lets understand STP now, In STP we invest a lump sum amount in some Mutual Fund and then a fixed sum is transferred from that mutual fund to another mutual fund .
For Example : If you have Rs 6 lacs lump sum to invest and you want to invest in HDFC Top 200 , The steps you will have to follow are :
Choose a good Debt fund or Floating Rate Mutual Fund from HDFC , which allows STP to HDFC Top 200 .
Invest all the money in the Debt Fund .
Now you can start a 10k/20k/30k per month STP from HDFC Debt fund to HDFC Top 200 .
Why and When to use STP
When will it work : STP will make sense from DEBT -> EQUITY when markets are mayvery volatile and you dont want to take risk with your money in a short span of time, If you invest through STP in markets and markets fall or have lots of volatile moves, then this situation will be better than the one time investment option. This is still better than putting money in Bank and doing a SIP, because at least you money is earning some returns on debt part in STP .
When will it not work : Incase markets are already at the end of a Bear market and markets can starts it upmove anytime, in that case STP will not deliver the best returns like SIP, one time investment is a good choice in that case. But then you never know that when will markets start go up. Given that a retail investor does not have all the tools and time to research the markets, it’s not advisable to invest lump sum in any case. It’s better to get 4-5% less returns than to see a huge downside of your money in short time, Smart investors think about returns, Smartest one’s take care of risk first .
SIP : The way SIP works that your money is in your Bank Account and every month a fixed sum is taken away from your Bank and invested in a Mutual fund .
STP : The way STP works is, all your money is actually invested in a Mutual funds itself (probably Debt) and units are sold every month and its invested in another Mutual fund (probably Equity) or vice versa .
SWP : However If you redeem your units in mutual funds every month and get it deposited in your Bank accounts , it’s called SWP (systematic Withdrawal Plan) , which is recommended to liquidate your mutual funds corpus after you see a good bull market to protect your investment .
4 advantages of STP
STP has 4 advantages and works in 4 ways for you . They are :
Works as SIP : You can invest in a Debt funds and from there you can start a STP to an Equity Fund , so it works like a systematic Investment Plan (SIP) .
Works as SWP : So STP can also work like SWP, because with some funds you can do transfer from Equity funds to Debt Funds, so when markets look risky to you, you can start a STP from Equity -> Debt funds, which will act like SWP .
Liquidity : Generally one does STP from Debt -> Equity funds, so your money is invested in Debt fund. This means you can sell it anytime if you want. Hence it works like a Emergency Fund also. Incase you need money urgently, it can act like a liquid asset (at least for the time being in the start when you have more money in Debt fund)
Growth in Money : Not to forget that your money is invested in Debt funds, so your money is also growing at debt returns , at least the part which is lying in the debt funds .
Some Helpful Tips
Invest in ELSS , If you want to invest in ELSS schemes and have lump sum money , better put it in a debt funds and do a STP .
Rebalance your portfolio, Use STP as a tool to rebalance your asset allocation, when your equity part goes up , start STP from Equity-Debt for 6 months or 1 yr, and bump up your debt part and if your Debt part goes up, do Debt -> Equity STP . Power of Asset Allocation and Portfolio Rebalancing
Take advantage of market condition , If markets have gone too high now and every other person on the road is talking about Stock and stock markets are more famous than “Saas Bahu” Serials, immediately start your STP from Equity to Debt (literally Rush) . On the other hand when markets are deep down and “Why don’t you buy stocks” is feels abusive and everyone face looks like some body has died at home when you mentions stock markets, know that it’s a time to start a STP from your Debt – > Equity (Literally rush again) . You don’t need to see any indicators to predict the markets, the two real life scenarios I have described here are enough, try to remember markets around 2007 End(bull market) and Jan 2009 (markets lowest point) . STP can be used as switching mechanism in ULIP , though it’s very restrictive and with less choices .
Using STP when an important goal is near, If you are saving for some important goal like Child Education , Buying Home or Retirement and your goal is approaching near by , don’t wait till target date , you don’t want to see your Money dip by 40-50% within 6 months or so if markets suddenly crash , start moving your money out of equity and transfer it to Debt now through STP .
Two types of STP
There are two types of STP plans , Fixed and Capital Appreciation. In Fixed Plan means a fixed sum will be transfered to the target mutual funds , on the other hand in Capital Appreciation , only the amount of capital which is appreciated gets transferred , that was the original lumpsum amount invested in the start is protected . Capital Appreciation choice is only with Growth Plan and not dividend plan . Here is the list of all the STP Plans as of now .
Typically, a minimum of six such transfers are to be agreed on by investors in STP , just like SIP
Generally most of the mutual funds allow Debt -> Equity STP and not reverse , Only handful of Mutual Funds like Kotak allows it .
STP is a facility for convenience , when the transfer happens from one mutual funds to another its still considered as selling of mutual funds and then buying another one , so tax rules applies in the same way .
Most of the funds allow only Monthly and Quarterly STP , some allow weekly and fortnightly also .
There can be some minimum amount requirement for starting an STP like say at least 1,00,000 needs to be invested in Debt funds to start a STP to Equity . Some restriction like this will be there .
There can be additional Switching Charges for availing STP facility
Entry load and Entry load may still apply while buying and selling of mutual funds through STP.
Securities Transaction Tax @ 0.25% will be deducted on equity oriented funds at the time of redemption or switch to another scheme in STP .
Today, we’ll talk about Women’s involvement in Personal finance, especially in the Indian context. How many of us remember when our ladies at home took any decisions regarding banking, Insurance or Investments?
Their role has been always limited to household work and as caretakers of our homes & hearths, for decades and centuries now. Even in today’s world, when women are at par or even above par with men in all areas, they fall behind in this one.
Decisions (as far as finances go) are primarily made by men, & not women in general. In this article, we’ll see why it’s important for women, to know about Personal finance .
Women not accepting their Responsibility in Personal Finance
One of the big problems, with women, is that they do not treat Personal Finance as something that’s important for them. For ages, they have not participated in Personal finance, regarding it as the man’s domain, just as they felt cooking was theirs.
Obviously, this isn’t true now, in this day & age. Cooking is as much a guy’s activity as Personal Finance ought to be a woman’s. Women, in general, don’t show real eagerness for these activities, for some reasons like
Women treating their earning as time pass activity : The biggest reason for this, is that, since the dawn of time, Man has been the main provider and the primary bread-winner of the Family .
He was responsible for earning and managing money and taking care of financial goals, Women, on the other hand, were mainly responsible for raising children and taking care of household activities and to a big extent, maintaining relationships outside the house and in the community.
Many women in spite of being qualified enough, and having skills to earn money, view their earning as secondary compared to men. They “feel” that they are not at the same level, even though its not true; most of this is psychological.
Everyone handling her money but her: From centuries women’s financial decisions were taken care of, by their fathers, then their husbands and then their sons. They never got involved & were never encouraged to do so, because they were not considered smart enough!
Men have always shown dominance over women in this space. One reason, which could be responsible for this, is that women, hardly ever ventured outside house for these activities and never got time enough from their household chores.
Current Situation Women Knowledge in Personal Finance [ Statistics ]
Why It can be trouble for Women to not Know Personal Finance
Sudden responsibility
A lot of women never learn about Banking , Insurance, Investments , how to grow money well and related topics throughout their lives .
They are smart, have a good job, high earning , but they never learn about Money and some day when sadly, things go wrong eg., they lose their husband because of accident or some other reason; apart from emotional pain, there comes bigger pains in life , i.e. taking care of your children and overall finances, that day she has no idea on how to invest money for making sure of child education , her retirement , her Insurance etc .
She suddenly finds herself in very tough situation and will have to rely on others, (relatives , friends etc.) This is not a good situation. Girls! Ladies! please learn about money, even if you don’t like it… Learn a bit, at least up to a level, where you can take charge of things and no one is able to take advantage of your situation .
More Divorce rates
Gone are the days in India when Women would keep compromising in a relationship! Women these days, are independent, and have a say in every decision. Because of this, they have more flexibility to move out of a marriage, if things don’t work out. Divorce rates are on rise in cities from last decade.
Women who get divorces, have to, at some point in life, look after themselves and take charge of their finances. So learning about money is important from start.
Women live longer so need a better Retirement Planning
Think Long Term! What does’t seem to be important today, might be very important tomorrow. Women worldwide, have a higher life expectancy than men, and hence have to live more than their male counterparts .
Women generally rely on their children, but they should be better planned and hence learn about things .
“On average, Women live 4-5 years longer than their husbands and over three-quarters of all women are widowed at an average age of 56. Women comprise a horrifying 87% of the impoverished elderly”.
Some Psychological Myths Women Face
Somebody will manage my money for me : Yes, but only up to a certain age… If there is no well-wisher, don’t rely on relatives or friends! When it comes to money, no one is truly yours, and even if they are, you better learn things and manage things on your own. It’s not that tough!
I don’t know enough to do this myself : This is patently false! If you can be an Engineer, Doctor, House Manager, then you can definitely understand and learn anything you set your mind to! There might be some topics which might scare you away, but there are always blogs like this and people like me to help you with doubts.
I will make too many mistakes : So what? Everybody does! We make mistakes to learn in life. I would encourage you to make mistakes and learn from them, because, “Making mistakes is a privilege unsuccessful people don’t get in their life” . Computers can never become more intelligent then human beings , because computers never make mistakes, only humans do .
I don’t have money to invest : There can be two things here… One is that you might not be saving enough. Do review your income and expenses, and find out where can you save without compromising your lifestyle. Try to live with 90% of your salary .The second point is that you have little money which is ok! Doing investments, does not mean you have to invest lots of money; every body starts small, & slowly we progress! So what, if it’s only Rs 500? Make a start, at least! Develop self-discipline and start learning things. Tomorrow, when you have more money, you will already be way ahead of the curve .
I don’t have time to plan my money : This could be due to lack of interest. Review your monthly schedule and manage your time well. Even if you take out, couple of hours each month, to learn about money, its enough. Once you start learning things, you will enjoy it. If you make yourself believe that you don’t have time today, then you will never have it ever 😉
Women’s Personal Financial Dreams
For time immemorial, women have been dependent on their father or husband for money and to fulfill their dreams. If they want to go for some trip or buy some jewelry or anything else, for that matter, they have to ask (or demand) their husband for money.
Many times women have their own dreams, which they want to fulfill on their own, but they cannot . Women are good savers, but never good investors like men (even men are not for that matter.) Women diligently save money at home, but do not make best use of those savings.
That money is mostly lying idle, in the bank or at home. By learning about investments and how to invest well, women can grow their money and reach their goals. There is no need to always rely on men for everything.
I know many women readers on this blog who are excellent thinkers; they ask questions, get involved in discussions and given a chance, they’d give serious competition to their male counterparts in financial planning!
They have learned lot and can beat many women outside this space on Personal finance. Credit goes to their willingness to learn, and the time they take out in order to learn things . Here is a excellent Short Video from Manish Thakor , Personal Finance Expert for Women .
Even though its made for American Audience , everything applies to India Women .
Extra Benefits for Women
There are many Women only benefits like :
Generally Lower Education loan by 0.5-1% for Women
Premium for Insurance Policies is lower compared to Men : Compare at Apnainsurance .com
Lower Stamp Duty for Real Estate Registration in Some States
Role of Women in Personal Finance at Home
There are many men who do not involve ladies at home in the decisions regarding Insurance, investments , retirement planning, banking , budgeting etc , and it’s not a right. Women have better understanding most of the times, about the future goals of the family, especially child education related expenses.
We men, sometimes can not understand, long-term expenses like how our expenses will be at retirement and what kind of situation we would be living in. However smart we feel we are, there are many things that women outsmart us at. We should involve them in every decision we want to take in our life.
So next time when you think about insurance, talk to her about her needs after you are gone. Don’t shy away, feeling that this is taboo in this country. You have to plan things well and understand her needs.
Also while planning for retirement, take her advice and her views on what your standard of living would look like at retirement, what are your (and hers) post retirement plans are. She will give you many suggestions and it will help in planning.
Women are the queens of Budgeting and they are the real help in making the budget and what is needed and what is not . So you can’t do without her. They also save lot of money compared to men. When we men, go out to buy vegetables and if the Vendor tells us Rs 20/KG price, we buy it!
Whereas women, tend to bargain and bring the same stuff at a much lower cost. So whatever we bring for Rs 100 , the same thing Women bring at Rs 90 or Rs 85 .
Respect and Confidence
We men, have to make sure that we encourage our Wife / Mother / Sister / Daughter to learn about money. If they understand money well, your children will also learn about money from early life!
Just imagine how many mistakes you’ve made financially… Your children, will at least not make stupid mistakes, (hopefully) you have been doing all these years before learning better. An educated Woman means an educated Family. We have to make them confident that they can learn things very well, and involve them.
When you learn about something on this blog or anyplace else, try to teach them those lessons. Ask them questions, and see if they can answer them, and if they fail, then guide them gently.
I see a day, when one of the major reasons India will outpace other countries in, is financial literacy among women of this country. Also if women learn about money they can share the financial work of men and also do it themselves. We have to respect our ladies in this field .
There are many great women personalities, like Suze OrmanandMonika Halan Personal Finance Space and each of our ladies can get there to that place, at least up to that level.
So if you are a Man and a true Jago Reader, make sure your Wife / Sister / Female friends / Girl Friend read this article and get motivated to learn about Personal finance. If you are a Woman, make sure more and more women friends of yours get to read this article .
Comments , Please suggest other tips to help Women increase their Financial Literacy levels , Any good links , websites for them ?
Now a days, we are seeing a new “Innovative” product in the market. They’re called Highest NAV Guaranteed Plans .These products have come in, after the recent crash in the market, and companies are taking advantage of the fact that Investors are looking for some kind of a safe investment equity product. Hence, they’ve launched these Highest NAV Return ULIP’s which confuse investors and make them (the investors :)), believe that they are going to get the highest return from the Stock market in long run – generally the tenure is 7 yrs, for these plans .
In this article, we look at how Highest NAV Guarantee ULIP’s work, and you will understand, how any Guarantee product can be created by simple methods . The simple catch, here is that these schemes, are structured in such a manner, that the collected funds can be invested either in equities, debt instruments or in money-market instruments in proportions varying from zero to 100%
How Highest NAV Guarantee Policy Works ?
These plans use strategies like Dynamic Hedging and CPPI (Constant proportion portfolio insurance), which are advanced strategies used in Derivatives world. But, let me explain a simplified version of the whole process.
Supposing a policy starts today and is guaranteed to give highest NAV in next 7 yrs and we can control how money moves to debt and equity, its pretty simple.
In the beginning, let’s assume a NAV of Rs 10, and the Asset allocation is 100% in equity and 0% in debt . Now suppose, the market moves up and NAV goes upto Rs 15 by the end of the first year, at this point, try to understand what Insurance company has to provide – they have to make sure, that they provide at least Rs 15 as the return after 6 yrs . Now in order to achieve this, all they have to do is keep X amount in debt instruments which will mature in next 6 years and provide Rs 15 at the end of 6 yrs, so assuming the debt return at 7%, they need to put around Rs 10 in Bonds , so that the maturity of the bond is Rs 15 at the end of 6 yrs .
=> 10 * (1.07)^6
=> 15.007
They can now invest the rest Rs 5 in Equity as Rs 10 is allocated to Debt . So, now they’ve made sure that whatever happens to the market, they get Rs 15 for sure at the end of 6 yrs. Now, there are two possibilities
Case 1 : Market Goes down : If market goes down, the NAV will go down correspondingly, but as per the strategy, the maturity value will be at least Rs 15.
Case 2 : Market Goes up again : If market goes up at this point and the NAV rises above 15, for example say to Rs. 18, now again they will pull out money from Equity and allocate such an amount to debt, that the maturity at the end of total 7 yrs would be Rs 18 and so on…
Note :
These highest guaranteed schemes do not provide wide range of product categories, such as equity-oriented growth funds, balance funds and debt funds.
Guarantee on highest NAV is available only if you survive the term. If you die during the term, your nominees will get the prevailing value of the fund. This is inferior to even a regular debt product because of the high cost structure involved.
Following is a pictorial description of how the Guaranteed NAV plan works with assumption of a 7 year tenure.
How Investors get Confused
You have to read in between the lines; Investors need to understand that these schemes guarantee the “Highest NAV”, READ AGAIN! , it’s Highest NAV and not “Highest Returns” . Normal Investors don’t give much thought before buying these products and normally assume that the returns will be linked to the Equity Markets .
So, what are the return expectations of these funds? We know, that long-term equity returns, are normally in the 12-15% range while, debt returns turn out to be 6-7%. So, considering the fact, that these products will shift most of their money to debt, by the end of the tenure , we can expect the returns to be in range of 9-10%. We do get some equity upside in these products, but that will be limited. After a point, this product will turn into a debt oriented fund with a major portion in debt . Also if you factor in costs, like premium allocation charges , fund management charges and other yearly charges, the returns will not be what you actually expect.
You will be amazed to know, that the returns expected from these schemes, may be lower than the returns offered by equity-oriented Ulips. The reason being, that the basic objective of protecting the previous high NAV of the fund, may constrain the fund manager’s ability to take risks while allocating funds. So if the market has fallen down, the fund manager can’t take the risk of shifting the money from Debt to Equity to gain from the potential upsides in future , because they have to provide the “Guarantee.”
Current Products in Market with Highest NAV Guarantee
ICICI’s Pinnacle
Birla Sun Life Platinum Plus-III
Bajaj Allianz Max Gain
SBI Life Smart Ulip
Tata AIG Apex Invest Assure
LIC Wealth Plus
Reliance Highest NAV Guarantee Plan.
AEGON Religare Wealth Protect Plan
Controlling your emotions with these products
Let’s talk about mistakes from the investors point of view. We, as investors, don’t think with inquisitive, susceptive minds. Getting good returns from stock markets is anyways a tough thing in itself. So when these companies come up with plans like these, which say “highest NAV in 7 yrs”, we have to ask, “How is this possible?” . Dont say it’s not possible at all, just ask how? How do they achieve it? Stop seeing dreams of getting high returns without looking at the risk involved, and try to find out – what is the strategy they’re using , Is there something in between the lines ?
We all want to get great returns, but we have to shed this belief that, companies come up with plans specially for us. All the companies out there exist to earn money, and their motive behind every product is to make money, & generate profits for their companies, so that they keep their shareholders happy. So next time a product like this comes up , you have to control your emotions before getting in and first investigate. The worst part of this whole business, (of guaranteed highest NAV products) is the timing and how it gives naive investors, high illusions about the product. Products like these, take major advantage of psychology of the ordinary saver. Many Investors in smaller towns have broken their Fixed Deposits and taken some loan to invest in products like these, especially SBI Life Smart Ulip and LIC Wealth Plus because of the trust factor with LIC and SBI . See How Agents are Misselling LIC Wealth Plus
Why you should be “Pissed off” At these Insurance Companies
Do you Know that, The Securities & Exchange Board of India (SEBI) , the stock market and mutual fund regulator, does not allow mutual funds to guarantee returns. Therefore Mutual funds can not provide guaranteed products which are related to stock markets, but IRDA can approve things like these and all these insurance companies come under the ambit of Insurance Regulatory and Development Authority of India (IRDA). So any Insurance Company can come up with a new Plan , link it with market and start providing “Guaranteed products” . You have to understand that “equity markets” and “guarantees” are a very risky idea together , so please stay away.
Do you observe when do all these “Innovative” products come up in Market ? The answer is around end of the year, which is a premier Tax Investment time (Jan , Feb , Mar) . Is innovation in Finance space limited to End of the year ? Why dont these products come through out the year? Why ? The answer is simple , if it comes after anytime other than last 4-5 months of the Financial Year (ie Dec , Jan , Feb , Mar) , no body will bother to invest in these, because no body is bothered to “invest” at all . Companies very well understand investors psychology and their helpless ness at the end of the year because they have to provide investment proofs for Tax exemption as soon as possible . This is not just limited to these products , its true for NFO’s , IPO’s in booming markets , More Sales calls at the end of the year, and other new products .
The so-called “Guarantee” is a marketing gimmick and is implicitly a result of the way the investment is structured . what it means is that the strategy they use itself is such that it will provide you the highest NAV , even we can create our own Plan and do what they are doing . But they make sure that Investors feel like they have done years of research and came up with these amazing plans .
You have to understand that there is nothing “Innovative” in this product , the fact that 7 companies have come up with the same product proves that its not “innovation” because Innovation is unique . Aegon Religare has gone ahead in this stupidity and introduced their Guaranteed Plan which guaranteed 80% of the Highest NAV , Looks like they think that it makes them look different from others .
Who should Invest in These Products ?
If you are looking for modest returns, like 8-10%, you can invest in these policies. The return of these policies may be high in the beginning, if market does well; but when market starts performing badly, the returns can take a hit and then be in a tight range. Your NAV will be protected for sure, but the returns wont be, since over time the CAGR return will go down. Remember, if your NAV is 10 today and you highest NAV is 20, for a 2 year period, the return is a good enough 41%, but by the 4th year it’s just 18.9% and by the end of 7th year it’s a measly 10.4%. So what you really need, is protection of returns, not the NAV which is just a fixed number.
With the tax-planning season about to end, most individuals are rushing around to make investments to minimise their tax liability.
And although, the last date for filing income tax returns is just a few months away (July 31), some of us are still unaware about the procedure and guidelines. Have a look at recent changes in the Income tax slab and how it affects the common man.
Q. I have a Permanent Account Number (PAN). Do I still need to file my tax returns?
A. Just having a PAN number does not mean that you have to compulsorily file your tax return. As per the Income Tax Act (1961), you are required to file a “Return of Income”, if your taxable income exceeds Rs 1.60 lakh for the financial year 2009-10 (Rs1.90 lakh in case of women and Rs2.40 lakh in case of senior citizens).
However, you need to have a PAN in order to file income tax returns. Read more
Q. What are the benefits of filing income tax returns (ITR)?
A. Filing ITR is really beneficial for an individual. Apart from the legal obligation, it is mostly required for purposes like:
Availing any kind of loan, like home, personal or education.
Visa and immigration processing
Income proof / net worth certification
Refund claims (in case of excess taxes paid)
Applying for a higher insurance cover
and ultimately, “Peace of mind!”
Q. How does one plan for better investments under section 80C ?
A. Section 80C is the most important provision under the Income Tax Act (1961). Making use of the available tax deductions can go a long way in helping individuals accumulate wealth.
Benefits of tax planning (for FY 2008-09)
Income (Rs)
Tax Rate (%)
Maximum tax savings
after 80C deductions (Rs)
Savings invested
@ 8% pa for 20 years (Rs)
Savings invested
@ 15% pa for 20 years (Rs)Upto Rs 1.50 lakh
Nil ———Rs 1.50 lakh to Rs 3 lakh101030048008168575Rs 3 lakh to Rs 5 lakh202060096016337151Rs 5 lakh and above 3030900144024505726
The amount saved in turns can be invested in various, in order to gain maximum benefits. Prime examples:
Case in point: Consider an individual, in the highest tax bracket, with a gross total income of Rs 6 lakh. If he chooses to ignore the tax sops available under Section 80 C, his tax liability will amount to Rs 87,550 (for AY 2009-10).
Conversely, if he chooses to make eligible investments/contributions of Rs 1, 00,000 under Section 80 C, his tax liability will be Rs56,650 i.e. a saving of Rs 30,900.
Look before you leap – Tips for better and effective planning of your investments:
Every tax saving investment scheme has inherent advantages and disadvantages; & each individual has to decide his investment strategy based on:
Lock-in period and safety of the investment
Return, before Tax / Return, Post Tax / Tax Free returns
Whether interest will be treated as fresh investment under Income Tax Act
Avoid waiting to invest a lump sum, at the last minute, as most of the times we tend to run short of money, resulting in a loss of tax benefit, besides the savings and long-term capital appreciation.
Watch this video to learn everything about Income tax return:
Q. Since tax is already deducted from the salary well in advance as a TDS, then why does one need to file Income Tax Return?
A. Although tax has been deducted and there is no further liability to pay tax, an employee has to compulsorily file his/her income tax return if he/she exceeds the maximum amount, not chargeable to tax.
It is, in essence, a declaration to the income tax department that you have derived only income from salary and not any other source (if you do have income from other sources, then the same needs to be incorporated).
Note. Many a times, employees do not include the interest that they receive on their savings bank account. The entire interest earned on the savings bank account is taxable.
Q. Can you please explain the complete procedure to file ITR?
Step 1: Gather all the necessary documents.
These are:
1. Form No. 16: This is issued by the employer, stating your income from salary, and tax deducted by your employer from salary income.
2. Form No. 16A: This is received from all the payers, who have deducted tax, while making payment to you, during the year. For e.g. banks and companies.
Summary of all bank accounts operated during the year: This summary will give an idea about all the interest income earned during the year.
Details of property owned during the year: If you have bought some property during the year and put it on rent, then you will need details of rent received and receipts of municipal tax paid during the year.
In addition to this, if you have bought such property through a loan, do carry the loan details and a copy of certificate of interest paid during the year.
Sale & purchase bill/documents/contract note in respect of shares transactions during the year: You will also need purchase documents corresponding to the sales made during the year. In case of a large number of transactions, it is advisable that you prepare a statement of sale and corresponding purchase of these investments and arrive at the amount of profit or loss, before actually calculating your taxable income.
Details of tax payments made during the year: This is required only if you have made advance tax or self assessment payment during the year.
Step 2: Select the proper income tax return form i.e. ITR, which is based on the nature of income earned.
FOR INDIVIDUALS: Form No. Applicability
ITR 1 Meant for Individuals, who have
a) Income from salary
b) Interest income
c) Family pension
ITR 2 Individuals/HUF not having any income on account of business or profession
ITR 4 Individuals/HUF having income from a proprietary business or profession
Step 3: To file your tax returns:
You can file your returns either Manuallyor Electronically.
Electronically: The Income Tax Department has introduced a convenient way to file these returns online. The process of electronically filing your Income tax returns, through the Internet, is known as e-filing of returns. This is a really convenient facility, since it saves you the hassle of traveling all the way to the IT office.
This facility is available round the clock and returns could be filed from any place in the world. It also eliminates reduces ‘friction’ between the assessee and tax officials.
Manually: For manual/physical filing, the individual takes a print out of the respective ITR form , from the income tax site, along with the acknowledgment form, and after duly filling it, files it with the respective income tax office. Forms are available free of cost too
Q. What are the documents required, which has to be attached with returns of income?
A. Under the new procedure, be it is electronic or physical filing, individuals do not have to attach any documents or enclosures with the return of income. However, one should preserve the supporting documents as they can be called for, at a later stage by an income tax officer to check the accuracy of the claims made.
Some of the documents are:
Detailed calculation of taxable income and amount of tax payable/refundable
Form No. 16/16A (original)
Counterfoil of all the tax payments made during the year
Copy of documents, concerning sale of investments and properties
The Copy of bank statements
Copy of proof for all the deductions and exemptions claimed in the return of income
In case of a refund, the bank account details needs to be filled in accurately. In case the refund is opted to be received via ECS direct into the bank account, adequate care should be taken to correctly fill in the MICR code.
PRECAUTIONS THAT ONE NEEDS TO TAKE
Filing returns at the eleventh hour often lead to a lot of inconvenience. Also Filing online, very close to the last day, is risky, as the peak load on the servers of the e-filing website during the last few days may make the whole online filing quite frustrating, causing needless delay.
Filing return after the due date, may lead to empty the pockets of the taxpayer who have incurred losses; which he wants to carry-forward to future years. Under the tax laws, some losses are not allowed to be carried forward for being set-off against future income, unless the return has been filed by the due date, even though all the taxes have been pre-paid.
Similarly, if a paper return is filed, the acknowledgement slip should be preserved carefully.
SOME TIPS TO AVOID LAST MINUTE RUSH
Step 1: Select and get the appropriate forms from the Income Tax site or offices
Step 2: If a professional is handling your taxes, meet him and make an appointment early before your accountant’s schedule gets completely booked. If you’re preparing your own taxes, set a day aside on your calendar for preparing taxes.
Step 3: Review your tax documentation before submission
Step 4: You can file your returns offline or online. However, before doing so, check whether you still have a tax liability. If you are still to pay taxes, do so through Internet banking or through cash/cheque at any bank along with Form 280. In both cases, you have to furnish challan details in the income tax return (ITR) form.
Step5: Prepare your taxes. Now that you have all of the necessary forms and documentation, you can prepare your taxes without waiting for the last minute.
A little extra care, planning & precaution on the part of taxpayers can help them avoid committing mistakes, while filing the tax return and keep away, unwelcome visits from the taxman.
It was a guest post by Rishabh Parakh, who is the director of Money Plant Consulting
Source : DNA
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