Investment during Financial year

Hi Everyone,

Financial year 2008-2009 is finally over :sweatdrop: most of us must have compeleted the IT proof submission and IT payment, and looking forward for more investments in the coming year.

Every year I plan to invest a certain amount in LIC and other schemes, so that my tax liability is lesser than last year, however, I could never invest in LIC, though I have several other mutual funds, FDs etc.

I think this is the best time we can think of investing in some monthly schemes for the entire year, this makes it easier for salaried people to take out a less amount of money each month instead of investing in a yearly plan ... bonus bhi kam pad jata hai .. )

While searching a few paged I found that Pension Plans of LIC looks good, I have started thinking about retirement :
there are about 4-5 pension plans in the LIC website alongwith several other schemes like Jeevan Anand, Jeevan Asha, Bima Nivesh, etc

All these schemes have very low investment each year so one can even buy more than one policy (if required).

I have listed a few policies here:
1. Jeevan Saral - If you invest Rs.4704 for 25 years you will get a gauranteed sum of 135,296 with a variable amount which can go upto Rs.210,000.
Age at entry: 35 years
Policy term: 25 years
Mode of premium payment: Yearly
Amount of annual premium: Rs.4704/-

2. Jeevan Shree - This one is also a good scheme but the yearly premium is higher.
Age at entry: 35 years
Policy term: 25 years
Premium Paying Term: 16 years
Sum Assured: Rs. 5,00,000/-
Yearly Premium: Rs. 25,186/

What is your opinion about the idea of investment from the first quarter itself instead of waiting for the 3rd or 4th Qtr?

this is useful
i remember rameshjeee was also telling something like this, repo for you

Repo for you....Great initiative regarding the investment planning...I have currently invested in LIC & in PPF...Will share/post my ideas very soon...

Is is always a good option to spead out the investment schedule throughout the year rather than trying to meet the dead-line in Feb/March. Tax saving investments should ideally be effected in every quarter on proportionate basis so that there is minimum pressure on the monthly cash flow.

Whenever making an investment decision, please remember that each type of instrument has a specific purpose. Each has its own merits and demerits and must be considered carefully before taking the final decision. Here are few of the conventional and also not so conventional options that are generally available for the common people for the purpose of tax saving.

Bank FD (Tax Saver Special FD)
The plain vanila FD with a rider that it can not be encashed before 5 years.
No Risk. Low return. Rate as applicable on the first date remains fixed for entire period. A good choice at times when the Bank rates are on the higher side, as was the case six months back. There is the option to draw interest on quarterly/half-yearly/annual basis or at Maturity.
Interest earnings of every year are taxable.

Post Office NSC
Again a very simple and convenient option. Maturity six years. present rate of interest is 8%. Payable only on maturity. However, loans are available against NSC from banks, if need arises.
Interest accrued every year is taxable. However, the accrued interest is also considered as new investment for tax purposes. so effectively no tax is payable on interest.

PPF
Again a very simple and convenient option. No Risk. Maturity fifteen years. Part witdrawal facility is available after 6 years.
upto 12 Deposits can be made in a year. Minimum deposit Rs.500, maximum deposit Rs.70000. present rate of interest 8%. Interest is credited at the end of every year. This is a very good option for those who want to save for the future without any risk. It is even useful for those who can not make a large payment at any particular time of the year but can pay some money every month.
Interest earned on PPF is tax free.. So for someone in the 30% tax braket, the effective rate of return comes to 11.57% and for someone in the 20% tax braket, the effective interest comes to 10.07% which is much more than what most of the pension plans and mutual funds offer.

Repayment of principal of House Building Loan
This is not a conventional option. But a vary useful and effective one.
The Income Tax Act allows repayment of any principal amount of HBL in the overall limit of 1 Lakh under Section 80C. So if your HBL agreement does not provide for any prepayment penalty, part-prepayment of HBL (say Rs.50000) can effectively reduce the total interest outgo in the loan and also help reduce the loan period. A one time Rs.50000 payment in the 2nd/3rd year for a 25 year loan of Rs.10,00,000 can reduce the repayment period by almost 2 years.

Mutual Funds (not life insurance based)
The tax saving schemes of Mutual Funds are high risk options as the returns are linked to market forces. There is no assured return and in case of a melt down in the financial/stock market, there is a possibility of negative returns also, particularly in the short run.
This option is preferable for those who are willing to take some risk and can afford to lose some money, if needed, in the process. A Mutual Fund becomes a profitable option in the long run, may be in the range of 5-6 years. The mutual fund options are more suited at times when the Stock Markets are down. The markets tend to follow a cycle of 3-4 years of ups and downs. So investment made in the down market may give a negative return in the short term but is sure to give high returns in the longer term.

Life Insurance
One thing that should always be kept in mind is that the basic purpose of a life insurance policy is to provide Risk Cover. i.e. to cover the risk of the happening of an undesirable event.
Contrary to the popular tendency, Life insurance should never be used as an investment option. An investment oriented life policy is like a multipurpose Dam project that has the twin objective of irrigation and flood control. For the purpose irrigation it ought to be kept always full, whereas for the purpose of flood control it ought to be kept always empty. The conflict of interest results in it being always half-full which neither supports irrigation properly nor helps in effective flood control.
For the purpose of effective risk cover, the premium needs to be kept at the minimum with no return on survival. On the other hand, investment objective demands that maximum return is generated with no spillage to any other avenue.
Now that there is no guaranteed return in investment type life plans, the only gainer in any investment linked Life plan is the Company who makes a killing in the name of Administrative charges.
A Life policy should always be taken in the form of Pure Term Life policy (with possibly a permanenet disability rider) that asks for the minimum premium and gurantees maiximum payment in the even of the happening of the unfortunate event of death or disability of the insured that would help secure the life of the persons dependent on the insured. a person of 30 years of age can take a Rs.10 lakh pure term cover for as low as Rs.2200 per year. The balance amount so saved by not opting for a investment linked life policy and be effectively invested in other pure investment options that give a much higher return.

Pension Plan
There was a time (about 8-9 years back) when pension plans offered guaranteed returns. That is no longer available. However, there are still certain benefits attached to it. Given that a pension plan is a very long term investment, it is always advisable not to go for one offered by a company in the pvt. sector which may not be in existance 20 years from now.
While chosing a plan, due care should be taken as to the conditions relating to payment of pension in the evnt of death/permanent diablility of the insured.

Mediclaim Policy
Very few of us have any mediclaim policy. While most are covered by the company, presently in most cases, the cover does not extend to the parents. So, when the need arises, most of use are left high and dry.
What very few people realise is that the Income Tax benefits of Mediclaim are under Section 80D and are over and above the 1 lakh benefit available under Sec 80C. Presently, the insurance premium paid on senior citizens are additionally allowed over and above the normal maximum limit available for self, spouse and children.

Check out more: Investment Tips

Nice one Ruchika Definately repo for you but i guess my age won't allow me to take any of the plans you quoted

@ panchabhut... Nice info bro..s to This seem be my kind of stuff.. Rep++.

@RameshJee..As always, Nice compilation Rep++

Originally Posted by gothic_coder

Nice one Ruchika Definately repo for you but i guess my age won't allow me to take any of the plans you quoted

@ panchabhut... Nice info bro..s to This seem be my kind of stuff.. Rep++.

@RameshJee..As always, Nice compilation Rep++

Thanks for repo ... even my age doesn't allow me to take the Pension Plans but just mentioned it because thought they would be useful to others

Sunny, panchabhutt and RameshJee - Thanks for Repo!

Originally Posted by Ruchika Akhtar

Thanks for repo ... even my age doesn't allow me to take the Pension Plans but just mentioned it because thought they would be useful to others

Absolutely

Nice info Ruchika and panchabhut. Thanks. Repo given to both of you.

Its only being 3 years that I have started earning much to get me covered under the Radar, and for both the passed years I planned to Invest monthly but never happened. But this time I have promised myself to invest regularly for the coming financial year.

thanks manish ... today is repos day for me :clap::clap:

well, panchabhut i have read the information you provided above and understand that u hv knowledge about the investments ... can u suggest a few good LIC policies that have good gauranteed returns

^^^
Unfortunately, presently no insurance linked investment plan gives guaranteed return. All returns are "projected" only.
If u want guaranteed returns its better to go for pure financial instruments (FD/Bonds/NSC etc)

Originally Posted by panchabhut

PPF
Again a very simple and convenient option. No Risk. Maturity fifteen years. Part witdrawal facility is available after 6 years.
upto 12 Deposits can be made in a year. Minimum deposit Rs.500, maximum deposit Rs.70000. present rate of interest 8%. Interest is credited at the end of every year. This is a very good option for those who want to save for the future without any risk. It is even useful for those who can not make a large payment at any particular time of the year but can pay some money every month.

Last year, i get one opened for myself, but managed to contribute only 1400 in the whole year This year i'll try to contribute more

Originally Posted by Manish

but managed to contribute only 1400 in the whole year

Atleast you did something

Currently 35 % of my annual income goes in to saving instruments...This is going for past 3 years...

I'll try to start saving from this year

Originally Posted by Rameshjeee

Currently 35 % of my annual income goes in to saving instruments...This is going for past 3 years...

That mean's if you are earning 25k/month, you have saved more than 3 lacs:surrender:

Thats a great achievment, your wife must be very happy

thats really great Jee...

here is what i did,

when i started studying MBBS ie 6yrs ago i had saved some money around 35k from my pocket money from around 10 yrs... and borrowed 15 k from my bro and invested that in a Mobile shop... i started it with partnership and today its returning me 10k/month...! for the first 3 yrs i didnt take out any return from it.. now i got more than what i invested....

great work kiran and Ramesh ...:clap:

i will also try to improve the investments this year .. i think i will go for one LIC policy and a few FDs

Thanks ruchika... yes LIC seems to be a good area you can invest in as there is very risk involved in it

Hey guys, today i found that i missed on some advance tax for 2008-09 and could not locate any information on change in deadline for advance tax.
i want to pay this balance income tax online however, don't know if they will accept it now .. or i'll have to pay the panelty as well

can the IT (income tax) guys have any update on this .....

As far as investment options are concerned I think Online ULIP Bajaj Allianz iGain is the best ULIp available in the market. There are options in payment procedures available like monthly, quarterly basis, after every 6 months or yearly. It is only availbel Online There are no intermediaries.

Positive aspects

1. Effectively zero(or negetive) allocation charges.
They charge 5% in year 1 if premium is between 5K-25K & 2% if premium is 25K-200K & zero above that. It is only possible because there is no agent in between you & company. Even you get 102% allocation for your premium in year 11-20 so if you calculate on excel sheet, you find that more then first year allocation charge (with interest) is returned to you in year 11-20. (condition is that you pay till year 20) so I can say that policy has zero allocation charge.

2. Unlimited topup is allowed.

Unlimited topup is allowed at zero topup charge but you will have to pay for additional top up cover .(dont mind paying for any insurance cover if you are underinsured)

3. Unlimited switches are allowed.

You can even Calculate you Gains over a period of 20 years on igain website

I will advise everyone to stay away from ULIPs. ULIPs have very high administrative fees, especially in the first three years. For investing to save on Income tax, I will recommend the following in the order:

1. Invest in a 80G Mediclaim policy. Invest at least that much so that the premium comes to 15K minimum (per year). Even if you have company provided insurance and medical facility, invest in this policy. The earlier (or younger you are) the better. Mediclaim will cover you when you retire and have no more benefits. Make this the number one commitment.. Mediclaim comes under section 80G and a rebate of Rs. 15000 is available to you. This is apart from and over the section 80C benefits.
   
2. Under section 80C, you can invest Rs. 1,00,000/-. Some part of the 1 lakh is already consumed if you are covered under company PF scheme. So deduct the contribution you make toward PF and rest of it invest as follows.
   
3. If you have a housing loan, the principal amount contribution in the EMI is covered in 80C.
   
4. The next best option is PPF. PPF provides for 8% tax free interest. PPF is locked to an extent but is possible the best debt-based investment. You can contribute a maximum of 70K towards PPF.
   
5. After PPF, consider LIC.
   
6. After everything else, if you are still left over, then think of NSC and likewise schemes.
   
7. Bank FDs are the next best.
   
8. Stay away from ULIP.

Absolutely.

ULIP is the WORST form of investment possible. As per IRDA norms, presently no ULIP has a guaranteed return and all so called calculations are based on presumptive return forcasts only. The only people that benefit from ULIP is the insurance Co.

Instead of ULIP, it is better to have a pure term Life Insurance policy and invest the balance amount in any proper investment, even mutual funds, if you are willing to take the risk.

Mediclaim can be taken for self/spouse, children and parents. Premium upto 15,000 for self/spouse, children and (w.e.f. 1.4.2008) additional premium upto 15,000 (exclusively) for mediclaim premium of parents who are senior citizens (65+) are allowed as deductions (not rebate) from Gross Income under the Income Tax Act. Thus the maximum possible deduction benefit of Mediclaim policy under Sec 80D (not 80G) is Rs.30,000. So if one is in the 30% tax bracket then the maximum possible tax benefit would be 30.9% of Rs.30,000 i.e. Rs.9,270

In addition to going for a Mediclaim policy at an young age, one must also go in for a pure term Life Insurance policy of 20-25 Lakhs with a term covering upto the age of 65. If started at the age of 25, the annul premium for a Rs.25 Lakh term cover would be around Rs.5000 (i.e. less than 500 per month) and would be adequate to take care of your dependents or future dependents, if something happens to you till the age of 65. Based on Inflation Index, supplementary term cover can also be taken at future dates to augment the total risk cover.

Please also read post #4 for further details on other forms of investment available.