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Old 10th October 2012, 13:46   #301
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Default Re: Income Tax savings, Investments and Insurance

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Originally Posted by huntrz View Post

PPF: PPF(and NSC) is one of the worst instruments for any purpose. More complicated an instrument is more is the distance one needs to maintain. For example PPF account is full of clauses an rules and has a lockin of 15 years, difficult to transfer(why is it required to transfer in first place), cannot be operated from other branches etc etc.
I would say, the only limitation with PPF is that the ceiling is fixed to 1 lac per person (and minor is clubbed as well.) You overrun that limit in the first half of the year itself.
Thankfully, I can save another 1 lac on my (non-working) wife's name and another 1 lac on my (non-working) mother's name, without the tax man asking them: "Where did you get the money from?". This is because all the interest that they earn is non-taxable. So IT department does not really bother to look into those transactions. (at least in theory).


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Originally Posted by lapsi View Post

Now most banks have core banking. You can go to any branch and make a deposit in your account from anywhere in India.
In fact if your PPF account is with SBI/ ICICI, you can do deposit money to your PPF account online through netbanking facility of your bank (e.g. HDFC). No need to visit the branch.

If your account is with post office, then first transfer to SBI or ICICI.

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So tell me which instrument, other than PPF, gives you 8.6% Tax-Free annually compounded interest and I will advise that instrument.
Absolutely the best option is PPF .


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I am aware of that but my response was to the point that the FDs are insured upto a sum of Rs. 1 lakh.
This is where I lost you. That deposit insurance limit is the same for nationalized bank as well, isn't it?
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Old 10th October 2012, 13:54   #302
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Default Re: Income Tax savings, Investments and Insurance

Quite frankly, I do not have much optimism about the Equity world till after the next elections. We will muddle along. Also, with PC sending the new DTC back to the drawing board may be ELSS will survive at least another year.
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Old 10th October 2012, 14:57   #303
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Default Re: Income Tax savings, Investments and Insurance

Any thoughts in this plan? Planning to invest but, not sure as of now as iam a poor financial planner

HDFC Crest Investment Plan.

I am taking a hypothical amount to explain the plan

Investment : Rs.1,00,000/Annum for 5 years. Rs.1,00,000 converted to

NAV : Rs.10 (10,000 units)

Maturity Date : 10 Years

If you continue till 10 years, minimum guaranteed return is Rs.15 (Rs.7,50,000) if the market is doing bad.

However, if market is doing good and Nav value after 10 years is Rs.25 then you get 12,50,000

Navs are tracked daily ONLY for first 7 years and the BEST of the Nav from Day 1 to Last day of year 7 will be given at end of 10 years

You can exit even after 5 years but, you get just the money you invested back.

How does this plan sound? Planning to invest a decent sum per annum.

Thoughts please?
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Old 10th October 2012, 15:41   #304
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Default Re: Income Tax savings, Investments and Insurance

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Originally Posted by mobike008 View Post
Any thoughts in this plan? Planning to invest but, not sure as of now as iam a poor financial planner

HDFC Crest Investment Plan.

I am taking a hypothical amount to explain the plan

Investment : Rs.1,00,000/Annum for 5 years. Rs.1,00,000 converted to

NAV : Rs.10 (10,000 units)

Maturity Date : 10 Years

If you continue till 10 years, minimum guaranteed return is Rs.15 (Rs.7,50,000) if the market is doing bad.

However, if market is doing good and Nav value after 10 years is Rs.25 then you get 12,50,000

Navs are tracked daily ONLY for first 7 years and the BEST of the Nav from Day 1 to Last day of year 7 will be given at end of 10 years
What they are guaranteeing you is a 5% compounded annually return. This is neglible.

If you depost 1,00,000 per year for 5 years in a FD compounded annually at a conservative 8%, then after 10 years, you would get 9.5 Lakhs.

(8% is conservative today - you have debt funds with very little risk which give you 9% or so)

So basically, the guarantee amount is OK but not great (but no one will give you better guarantees). Even considering 8% inflation per year, you may end up losing 2 Lakhs at the end of 10 years (i.e. on a value of money basis)

I have given you the calculations, but I cannot make the decision for you.
You need to find out how they invest the money. If for giving the guarantee, they are stuffing a lot of your money into debt funds, fds, money market and only investing only a small part of it in equity, then you can do it yourself.

i.e. every year, put 80,000 in debt funds & 20,000 in equity funds.

So basically, my advice is to figure out how good the product is without considering the guarantee part & then only think about the guarantee.

Also consider tax treatment. What will be tax on your profits.

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Originally Posted by mobike008 View Post
You can exit even after 5 years but, you get just the money you invested back.
At 8% interest, you are essentially losing 1.3 lakhs if you withdraw after 5 years after investing 1 lakh each year.
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Old 10th October 2012, 15:49   #305
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Default Re: Income Tax savings, Investments and Insurance

Quote:
Originally Posted by mobike008 View Post
Any thoughts in this plan? Planning to invest but, not sure as of now as iam a poor financial planner

HDFC Crest Investment Plan.

I am taking a hypothical amount to explain the plan

Investment : Rs.1,00,000/Annum for 5 years. Rs.1,00,000 converted to

NAV : Rs.10 (10,000 units)

Maturity Date : 10 Years

If you continue till 10 years, minimum guaranteed return is Rs.15 (Rs.7,50,000) if the market is doing bad.

However, if market is doing good and Nav value after 10 years is Rs.25 then you get 12,50,000

Navs are tracked daily ONLY for first 7 years and the BEST of the Nav from Day 1 to Last day of year 7 will be given at end of 10 years

You can exit even after 5 years but, you get just the money you invested back.

How does this plan sound? Planning to invest a decent sum per annum.

Thoughts please?
If you contribute 1lac per year to your PPF account for the first 5 years and Rs500 from the 6th to the 10th year, these are the returns:

Year Closing Balance
1 108600
2 226540
3 354622
4 493719
5 644779
6 700773
7 761583
8 827622
9 899341
10 977227


Also these returns are Tax free, while I am not sure about the returns from the HDFC plan.

Assumptions: the 8.6% Interest rate is maintained and the money is accumulating in your account. Won't be accessible for another 5 years since minimum period is 15 years, however you can take a loan against the balance after a period of 3 years.

Last edited by Lalvaz : 10th October 2012 at 15:52.
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Old 10th October 2012, 16:05   #306
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Default Re: Income Tax savings, Investments and Insurance

Another excellent savings instrument is VPF ( voluntary PF ) . The interest on it is tax free.

There's of course a lock in period and so forth and withdrawal may take time.
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Old 10th October 2012, 16:27   #307
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Default Re: Income Tax savings, Investments and Insurance

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Originally Posted by carboy View Post
What they are guaranteeing you is a 5% compounded annually return. This is neglible.

If you depost 1,00,000 per year for 5 years in a FD compounded annually at a conservative 8%, then after 10 years, you would get 9.5 Lakhs.
Thanks. Thats an eye opener. Yeah,the returns didnt seem lucrative to me as well. Hence, the doubt. Now its pretty clear that what they are offering via. this plan is no different than a savings bank plan

What they told me is it will be invested in debt, equity funds etc. Didnt enquire %. But, even if they tell me, whats the guarantee of what they say is true?

He did mention the returns are completely exempted from tax.

Quote:
Originally Posted by Lalvaz View Post
If you contribute 1lac per year to your PPF account for the first 5 years and Rs500 from the 6th to the 10th year, these are the returns:
Thanks PPF indeed looks good But, the downside is 15 years lock in period. I know taking a loan against it is possible but, somehow in my books, that kind of spoils the equation and hard to track what are the actual returns in the long term.

Btw, whats the procedure for opening a PPF saving account?
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Old 10th October 2012, 16:37   #308
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Default Re: Income Tax savings, Investments and Insurance

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Originally Posted by mobike008 View Post
What they told me is it will be invested in debt, equity funds etc. Didnt enquire %. But, even if they tell me, whats the guarantee of what they say is true?
Check the prospectus if any upper/lower limits are mentioned.

Quote:
Originally Posted by mobike008 View Post
He did mention the returns are completely exempted from tax.
Probably long term capital gains then.

Quote:
Originally Posted by mobike008 View Post
Thanks PPF indeed looks good But, the downside is 15 years lock in period. I know taking a loan against it is possible but, somehow in my books, that kind of spoils the equation and hard to track what are the actual returns in the long term.

Btw, whats the procedure for opening a PPF saving account?
Go to a Post Office or any nationalised bank and open it. I have one at SBI for many many years. But I opened one for my wife at IOB recently & it didn't take any more time than opening a savings account.

There are few things about PPF
1) Only product in India which has tax free interest
2) Maximum deposit per year - 1 Lakh
3) You need to not be working to open a PPF account. So you can open one in spouses name even if she isn't working.

My personal opinion is anything you invest in debt, the first preference should be PPF if liquidity isn't that important.

Last edited by carboy : 10th October 2012 at 16:41.
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Old 10th October 2012, 17:11   #309
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Default Re: Income Tax savings, Investments and Insurance

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Originally Posted by mobike008 View Post
Thanks. Thats an eye opener. Yeah,the returns didnt seem lucrative to me as well. Hence, the doubt. Now its pretty clear that what they are offering via. this plan is no different than a savings bank plan

What they told me is it will be invested in debt, equity funds etc. Didnt enquire %. But, even if they tell me, whats the guarantee of what they say is true?

He did mention the returns are completely exempted from tax.
I had looked at this plan a few months ago and it looked quite complicated.
Plus there are various charges that you need to pay: FMC, PAC, MC, etc.

Overall, the returns looked blurry to me and I skipped.

+ Point:
The entire sum is exempt under Sec. 10(10D), so that is not a problem.
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Old 10th October 2012, 17:11   #310
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Default Re: Income Tax savings, Investments and Insurance

Thanks for the wonderful insights.

Any advice where to invest a chunk of cash? I am not comfortable with mutual funds at all.

Cash isnt that big that I can buy an apartment so what's the next best?

I was thinking of a bank FD with 10.25% ( In a senior citizen's name, my mom actually) annual returns and interest of which is again deposited in an RD.

Is that a good one? Also, how will the tax deduction in above work? The banks deduct the tax automatically ( whats the frequency of TDS?)

@SUN : Yeah, i forgot about the charges. In 5 years, they charge only 15% ( something like 4%, 4% for first 2 years, 2.5%, 2.5% for 3th and 4th year and 2% for 5th year)...Not sure about the exact % though...its actually not bad compared to how ULIP sucked me out prior to 2010 act....

Last edited by mobike008 : 10th October 2012 at 17:16.
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Old 10th October 2012, 18:51   #311
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Default Re: Income Tax savings, Investments and Insurance

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Originally Posted by mobike008 View Post
Thanks for the wonderful insights.

Any advice where to invest a chunk of cash? I am not comfortable with mutual funds at all.
Neither em I, I had a few but now sold em all. If you anticipate the market going up Index ETF's are a decent option.
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Old 10th October 2012, 19:34   #312
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Default Re: Income Tax savings, Investments and Insurance

Quote:
Originally Posted by S_U_N View Post
I had looked at this plan a few months ago and it looked quite complicated.
Plus there are various charges that you need to pay: FMC, PAC, MC, etc.

Overall, the returns looked blurry to me and I skipped.

+ Point:
The entire sum is exempt under Sec. 10(10D), so that is not a problem.
+point of Sec 10(10D) - this section is for providing exemption to sums received under life insurance schemes.

My advice - do not mix your insurance requirement with Investment. Always draw a line between these requirements.

As i have observed - all such schemes are failures.

Simple - do not thing about this.
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Old 10th October 2012, 20:04   #313
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Originally Posted by mobike008 View Post
Any advice where to invest a chunk of cash? I am not comfortable with mutual funds at all.
It depends a lot on the fact that for what goal do you want to invest" Is the goal short term or long term? If it is a short term goal & liquidity is important then FD's are the ideal bet, if it for long term then I would still suggest Mutual Funds. You will have to choose the right MF for achieving the expected target.

To utilize the spare cash, you can think of investing in a plot rather than an apartment, again the research needs to be done about the location of plot to get the maximum returns.

I utilize any spare cash with me to clear my housing loan.
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Old 11th October 2012, 09:38   #314
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Originally Posted by ghodlur View Post
If it for long term then I would still suggest Mutual Funds. You will have to choose the right MF for achieving the expected target.
I think you meant a Diversified Equity Fund. To be sure you should have a horizon of about 10 or more years.

Last edited by khan_sultan : 11th October 2012 at 11:22. Reason: fixed quotes
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Old 11th October 2012, 11:15   #315
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Originally Posted by ghodlur View Post
It depends a lot on the fact that for what goal do you want to invest" Is the goal short term or long term? If it is a short term goal & liquidity is important then FD's are the ideal bet, if it for long term then I would still suggest Mutual Funds. You will have to choose the right MF for achieving the expected target.
10 years according to me is long term for a lock-in as you never know when you may need the money. I find 5 year a decent period to plonk the money and see if it gives back decent returns.

How about buying gold biscuits at current price which i think is hovering around the 30K mark for 10gms. Any indication it will grow in 5 years when I can sell it for a neat profit?

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Originally Posted by ghodlur View Post
To utilize the spare cash, you can think of investing in a plot rather than an apartment, again the research needs to be done about the location of plot to get the maximum returns.
I have already started exploring the plot angle and identified one too. Chasing the owner who is hard to get down for a face to face meeting. Not sure if he is avoiding or genuienly busy.

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Originally Posted by ghodlur View Post
I utilize any spare cash with me to clear my housing loan.
My home loan is miniscule (15 lakhs) taken 6 years ago at 7.5% fixed rate. I get more interest from normal bank deposit. So no plan to clear my HL

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Originally Posted by sgiitk View Post
I think you meant a Diversified Equity Fund. To be sure you should have a horizon of about 10 or more years.
Oh, shucks! So to see good results you say 10 years is minimum in mutual funds?
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