BackThe glitter of gold is forever
The glitter of gold is forever
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Life Insurance
I am 32 years old and my annual income is Rs3 lakh. I have four dependents. I have Life Insurance Corp. of India (LIC) Jeevan Anand policy of Rs5 lakh for which I pay Rs25,804 as premium annually. I am planning to surrender this policy and opt for term insurance. Which is the cheapest term policy and what will be the right sum assured for me?
—LAXMAN, EMAIL
Jeevan Anand policy of LIC is a combination of endowment assurance and whole-life plans. It provides financial protection against death throughout the lifetime of the policyholder. A lump sum is paid at the end of the selected term if the subscriber is still alive.
This policy may be surrendered after it has been in force for three years or more. The guaranteed surrender value is 30% of the basic premiums paid, excluding the first year’s premium.
Any extra premium(s) paid and premium(s) towards accident benefit are also excluded. If it is financially viable for you to pay future premiums, it is advisable to wait till the completion of the lock-in period so that the policy attains a surrender value and you don’t suffer total loss. Considering your age, income and dependants, you can take an additional life cover by taking a term policy separately.
A pure risk term plan, which does not give any cash value at the end of the term, would be the cheapest plan. You can take this plan from any life insurance company because the premiums are more or less the same. The right sum assured depends on numerous factors such as your total net assets, family’s fixed annual expenditure, the age of dependants and can be calculated only after considering these points.
I have invested Rs1.5 lakh in ICICI Prudential’s Lifetime Super Pension Plan over the last five years. What returns can I expect if I surrender the policy now?
—YOGI, EMAIL
ICICI Prudential’s Life Time Super Pension policy is a regular premium unit-linked pension policy. The returns of a unit-linked investment plan basically depend on the investment option chosen by you and its net asset value (NAV), which is based on the performance of the underlying funds. ICICI’s plan gives you the option to choose between six investment funds—Flexi-Growth, Maximiser, Flexi-Balanced, Balancer, Protector, and Preserver—based on your financial goals and risk profile. It also gives you the option to switch funds four times a year, at no cost.
The value of the policy on any particular day is determined by multiplying the number of units owned by you with the NAV on that day. The NAV is based on the market value of the underlying investments in that fund, be it in equities, company bonds or government securities. The NAV is published daily in financial newspapers and you can check them to find out the current value of your investments.
Tax Queries
I teach at a college and my earning from trading in shares (I have paid security transaction tax on it) is more than Rs3 lakh this year, which is more than my salary. How will my tax be assessed and what will be my total tax outlay?
—ROMAL MALHOTRA
For the purpose of assessment, the income of an individual is divided into five heads. Your taxable income will include your income from salaries, income from capital gains, that is, share trading, and income from other sources, such as bank interest, interest from post office or fixed deposits, if any. For calculation of tax on capital gains, first you will have to segregate your income from share trading into short-term and long-term capital gains (if you held the shares for more than a year before selling, the gain will be termed as long-term gain, or else the gain will be termed short-term). As you have paid securities transaction tax on all shares, long-term gain will be exempt from tax and short-term gain will be taxed on a flat rate of 10%. Your total tax outlay will depend on your total income under all heads and after accounting for the deductions from the gross total income depending on eligibility.
My father’s income is around Rs2 lakh per annum from rentals and around Rs50,000 from bank interests. Does he have to file his return? Is there any way we could be exempted from income tax?
—Rinni Goyal, Hyderabad
Your father’s income falls under two heads—income from house property and income from other sources (bank interest). The rental income is subject to a standard deduction of 30% and, therefore, his taxable income under this head will be only Rs1.4 lakh. As the income from bank interest is fully taxable, your father’s gross total income will work out to be Rs1.9 lakh. If your father is under 65 years of age, then income up to Rs1.1 lakh for 2007-08 is exempt from tax. If your father is more than 65, then income up to Rs1.95 lakh for 2007-08 is exempt from tax.
So, if your father is a senior citizen, he will not be required to pay any tax. Otherwise, he will be liable to pay tax on Rs80,000. In addition, to save tax he can invest Rs80,000 in tax-saving instruments such as bank fixed deposits, mutual funds, public provident fund (PPF), or post office schemes specified under Section 80C of the Income-tax Act, 1961.
I get a pension and am a taxpayer. To reduce my tax liability on the interest from deposit, I am planning to gift some of the money held by me in deposits to my wife. What will be the tax implication?
—C. RAMMAIYAH, EMAIL
You cannot save income tax by transferring your income to your wife even by way of a gift because such transfers of deposit attracts the provisions of Section 64 of the Income-tax Act, which deals with the clubbing of income. As you are the absolute owner of the interest-bearing deposits, in your name, as on date, by implication of Section 64, if you transfer the deposits in the name of your wife without adequate consideration, the income from such deposits will still be considered as yours and taxed accordingly. However, if you gift the deposits to any of your adult children, the income subsequent to the date of the gift from such deposits will be taxed in their hands.
A company in which I hold shares has made an open offer to acquire 20% of the share capital. If I accept the open offer, will I be subject to capital gains tax because the sale is not through a recognized stock exchange?
—A. MODI, EMAIL
Capital gains tax is applicable on the sale or transfer of a capital asset. Shares and securities are also capital assets. Therefore, if the sale price of your shares works out to be more than the cost of shares, you will be subjected to capital gains tax.
If you have been holding the shares for more than a year, the capital gain will be long-term capital gain (LTCG) for the purpose of taxation. Otherwise, it will be termed as short-term capital gain (STCG).
If the transaction is through a recognized stock exchange by paying the securities transaction tax (STT), LTCG is exempt from tax and short-term gain is taxed at a concessional rate of 10%.
However, since your transaction is likely to take place outside the exchange, you will be liable to pay a flat 20% tax on the LTCG (sale price minus adjusted cost of purchase after applying the Reserve Bank of India cost index). For STCG, your tax liability will be at the normal applicable rate in your case.
Mutual Fund
Is it advisable to invest in a gold scheme in instalments? Is this the right time to invest in such schemes?
—RAJU YADAV
Although equity markets have risen to 20,000 levels, a correction is long overdue. Because of the weakening dollar and with the US central bank, the Federal Reserve, expected to lower its benchmark interest rate, global demand for gold has risen considerably. Diversifying your portfolio into gold makes sense. Allocate around 5% of your assets in gold exchange-traded funds (ETFs).
There are two reasons why there’s no pressing need to invest in gold ETFs through a systematic investment plan (SIP) as against a one-time investment. First, gold as an asset does not experience high bouts of volatility like stocks markets because it is accepted everywhere and has no diminishing value. SIP helps you ride the volatility by enabling you to buy more units when prices are low, and less when prices are high, so that your cost price per unit gets averaged out.
Second, ETFs do not facilitate SIP because they are listed in equity markets unlike typical mutual fund (MF) schemes, wherein you can give a standing instruction to the MF to debit a certain amount every month from your bank account. For an SIP for your ETF, you need to get in touch with your broker and give him instructions about your investment every month.
Please name a few equity diversified schemes that have systematic investment plans (SIPs) without entry and exit loads if units are held for more than three years.
—SATYANARAYANA, EMAIL
Most of the well-performing diversified equity schemes these days impose an entry load on SIP investments and no exit load if withdrawn after more than two years. We suggest that you ignore the load structure while planning your investments because load structures are pretty much uniform across the board. You should pay more attention to the pedigree of the scheme and the mutual fund, if you are looking for an equity fund with active fund management. You might end up saving on the 2.25% entry load, but may have to sacrifice way more than that in terms of returns if you are stuck with a dud that does not charge loads.
I have invested Rs10,000 each in Tata Indo Global, Reliance Diversified Power and UTI Energy for a period of one year. Is my choice right? If not, what should I do?
—SWARNANATHAN, EMAIL
Stay invested in Reliance Diversified Power Fund. The fund has a good track record and is poised to do well, given the prospects of the Indian power sector coupled with the mutual fund’s track record in equities. UTI Energy invests in energy sector companies such as power generation and equipment manufacturers, in addition to petroleum companies. The fund has had moderate success and has given 27.4% returns over the past three years. Moreover, with the recent change in its objective, UTI Energy Fund will now encompass companies that Reliance Diversified Power Fund will invest in and, therefore, result in a partial, if not full, duplication of schemes.
Tata Indo Global Infrastructure Fund (Tigif) is a closed-end thematic equity fund, which would invest at least 65% in Indian infrastructure companies and the rest in foreign infrastructure companies. Keeping aside performance prospects, we have a problem here. Despite the mutual fund (MF) having a successful infrastructure fund in its stable, it launched Tigif that, to the extent of 65% of its corpus, will target the same set of companies as its earlier infrastructure fund.
MFs and agents are the only ones to benefit from such unnecessary duplication because the former’s asset base goes up and the latter earns good commission. Unfortunately, since Tigif is a closed end fund, you will end up paying the exit charge if you exit before three years, so stay invested.
Please send your questions and comments to moneymatters@livemint.com
The The views expressed on this page are not the newspaper’s opinion and are provided for information purposes only by Outlook Money. Readers are requested to do their own research. Neither Mint nor Outlook Money will be responsible for any actions and outcomes based on information provided here.
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