e-Nagar

Last year I had written an article on how a large of insurance industry (atleast the kickbacks) were supported by Money Laundering. enagar.com/2009/04/15/money-laundering-and-insurance-selling/ I had also hypothesed that the high commission of the tune of 30% of first year premium was unsustainable and would collapse soon. If you search in the archives of e-nagar, you would find atleast 5-6 articles describing how ULIP is everything but an insurance plan and the only person who benefits from them is the agent who sells the plan.

Today there are 2 term insurance plans that are available online. They require minimal/zero documentation. Since they eliminate the commission agent, you can get a 30 year term insurance cover of 10 million INR (1 cr.) for less than 10,000/- a year.

These are:

1. i-protect by ICICI Prudential
2. i-term by Religare-Aegon

To set the perspective right, a 5 million INR (50Lakh) term insurance cover for 30 years via an agent would cost me:

1. 15,000/- p.a. from LIC Amulya Jeevan
2. 11,000/- p.a. from ICICI- Pure Protect Elite
3. 11,912/- from Aviva Life Shield Plus.

So a saving of almost 50%.

Note: The above rates are for a 28 years old average Indian male. Please consult your financial advisor before investing.

On top of the 1Lakh limit of 80c, Indian citizens can get an additional tax exemption of 20k if they invest in infrastructure bonds. Usually most public issue of infrastructure bonds provides abysmally low interest rates. However IFCI has come up with a private investment issue (which is open till 31st Aug ’10) http://www.ifciltd.com/Portals/0/IFCI%20Infra%20Bond%20Series%20I_IM_web.pdf

It has 4 different schemes with 5 year lock in and provides 7.85% to 7.95% p.a. interest for 10 years.

Note: Even though IFCI is a PSU, not so long ago it was on the verge of bankruptcy.

Most companies assume that you would be employed for the full financial year when you file the income tax returns. However often because of higher education (MBA), marriage or due to foreign opportunities the Income tax computation goes haw-wire. What makes things worse is that getting a refund is practically impossible and takes several years. So here are few tips to help you.

1. Be proactive: One of the primary reasons why Income Tax deducted by the employer is high is because the person had not communicated his/her intentions to the accounts department well in advance.
2. Collect all bills. Certain expenses like communications and medical reimbursements, LTA, company expense account etc which were incurred are tax deductable only if the employer’s form 16 reflects it. So don’t be lazy in submitting these bills.
3. India is in a progressive taxation environment. As a result as the income rises, so does the taxation rate. As a result if you are employed for only 6 months, don’t be surprised if your IT goes down by not 50% but 60-70%. This is the major source of IT arrears. There are 2 ways around it.
1. Inform your company well in advance that you would be terminating your employment in the mid year.
2. Reduce your IT projection so that the income tax gets revised downwards. This can be done by claiming for all the tax reliefs possible, even if it is fictitious. You can file that you intend to take a home loan (50,000/- tax relief) or donate money in one of the tax exempt funds. This will reduce your tax liabilities and IT arrears.

PS: Please consult your tax consultant.

If you own a residential/commercial property that has no debt on it and earns a steady rental income then read ahead.

Current Indian income tax rules promote tax savvy individuals to take on bank loans. However most individuals are in so much hurry to pre-pay their mortgages that they miss out on this opportunity.

Firstly government allows individuals to get tax rebate on 1.5 half lakh rupees of interest expense on home loan. So that is a cool saving of 50,000/- per annum in tax.

Secondly as per the current income tax laws, an individual has to pay income tax on the rental income. 15% of the income can be offset as maintenance. However if one takes a small loan against that property, then its interest expense can be deducted from the rental income and save tax.

One can get home loan for 8.25% p.a. and save tax using the above mentioned procedure, then effective interest rate would be 5.45% p.a. (tax rate of 33%). One can use this loan to clear the higher interest rate debt or reinvesting the money received in tax (and risk) free securities that earn a higher return one can save tax.

E.g.: post office PPF generates 8% per annum tax free returns.

PS: I am not an authorized tax consultant. So please check with your financial/tax planner before taking out such a loan.

1. Quantify their clients’ risk tolerances and return needs by taking into account his liquidity, income, time horizon, expectations
2. do an optimal asset allocation and choose strategy that meets the clients needs
3. diversify the portfolio to eliminate the unsystematic risk
4. Monitor the changing market scenario, expectations, client needs etc and rebalance accordingly
5. lower the transaction cost by minimizing the taxes, trading turnover, and liquidity costs.

Have you chosen the right manager?