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Rebalance portfolio in line with risk profile

Rebalance portfolio in line with risk profile
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First Published: Sun, Jun 22 2008. 10 51 PM IST

Updated: Sun, Jun 22 2008. 10 51 PM IST
MUTUAL FUNDS
Shall I continue with Franklin India Taxshield (D), Reliance Tax Saver (G) and HDFC TaxSaver (G)?
-AYESHA DAWSON
Franklin India Taxshield follows a conservative investment strategy and is suitable if you are willing to settle for lower returns for the comfort of a large-cap focused portfolio that negotiates downturns well. HDFC TaxSaver has shown good long-term performance though its performance in the last year-and-a-half has been much below expectations. Investments that you have already made will be locked in. But you should probably consider waiting for the fund to get its act together before you commit more funds, which will be locked in, too. Reliance Tax Saver in another fund that has not performed well and you should not invest further.
I am two years away from retirement and wish to switch over slowly from direct equity and diversified mutual funds to balanced and debt funds. I wish to know the following: Is long-term capital gain from equity-oriented mutual funds (65% in shares) tax-free? Does any dividend distribution tax (DDT) have to be paid by the MF or me? What are the similar tax provisions for debt funds and monthly income plans (MIPs)?
—RAHUL KRISHNA AGARWAL
Any long-term capital gains made on investments in equity-oriented mutual funds are exempt from tax. Equity funds do not pay dividend distribution tax (DDT) and any dividends received by you from equity funds are also exempt from tax. Dividends from debt funds and MIPs are similarly exempt from tax in the hands of the investor.
However, the fund pays DDT of 12.5% (plus surcharge and education cess). The short-term capital gains from these funds will be taxed at the marginal rate of taxation applicable to the investor while long-term capital gain is taxed at 10% (20% if the gains are indexed).
My wife and I want to restructure our mutual fund portfolio. We are not dependent on the income/appreciation of mutual funds, which we have held for the last two and a half years to four years. Can you suggest how we can realign our current joint MF portfolios with a two-three year horizon for optimum returns?
—AJIT SHIRODKAR
It is important for you to rebalance your portfolio periodically so that the allocation of assets between debt and equity is in line with your risk profile. It will also enable you to realize the profits that your investments have made. Your allocation to equity should be predominantly in large-cap and diversified equity funds.
Has the Securities and Exchange Board of India allowed Morgan Stanley Growth Funds to convert itself into an open-ended fund? I want to redeem some units.
—AISWARYA PUNNATH
The fund house has applied for conversion of the Morgan Stanley Growth Fund into an open-ended fund. Once the regulatory aspects of this are taken care of, units of the scheme can be redeemed from the fund house at the current applicable NAV. Till then, the units will continue to be traded on the stock exchange.
LIFE INSURANCE
My grandfather named his lawyer as the nominee in his policy. After my grandfather’s death, will the claim amount go to him? Is he entitled to retain the proceeds?
—RAJAT BANSAL
It is not necessary for the nominee to be the legal heir of the life assured. The nomination only indicates the person who is authorized to receive the claim amount, on the payment of which the insurer gets a valid discharge of its liability under the policy. The insurer cannot deny the amount to be paid to the nominee. The legal heirs can, however, claim the amount in accordance with the law of succession governing them. Therefore, although the nominee will be entitled to receive the proceeds of the policy, he will hold it in trust for the legal heirs.
How much premium will I get back if I return the policy within the free look period?
—PRAHALAD
You will get back the full amount of premium, without any deductions or perhaps a small deduction as per company rules, if you cancel the policy during the free look period. This period is a fortnight’s time given to a new policyholder to examine the contract he has signed. If he wishes, he can rescind the contract and the insurance company shall refund the amount paid. In India, Insurance Regulatory and Development Authority (Irda) has made it mandatory for all insurers to grant 15 days’ free look period. The free look period starts from the day you receive the policy papers.
The insurance company must be informed of the cancellation of policy within this period.
I have a unit-linked insurance plan (Ulip) with a lock-in period of three years. I have paid the premium for two years and the third one is due in September. After that I want to surrender the policy. Will the maturity amount at three years be taxable? If I stop paying the premium after three years but surrender after five years, what will the tax implications be?
—B.K. JINDAL
In order to get the benefit of tax deduction under section 80C, you must hold a Ulip for at least five years. If you surrender the policy after three years, no deduction will be allowed in respect of the premium paid in the year of termination, and the deductions allowed in the past will be added to your income of the year in which the Ulip is terminated. So, surrendering the policy after five years is a better option.
CAR INSURANCE
My car had a breakdown on a highway and I had to spend more than Rs2,000 to take it to a mechanic. Can I claim it from my insurance company?
—POOJA
It appears in your case that the breakdown was the result of normal wear and tear; the towing charges of this do not qualify for indemnification under the motor insurance policy. Only if the vehicle is disabled as the result of an accident, which is covered under the policy, are towing charges payable. A comprehensive car policy also provides for the payment of a reasonable cost for protecting the car in the event of an accident, removing it to the nearest repair shop and also the cost of redelivery to the insured. The liability of the insurers for all the above costs put together is limited to Rs2,500 in respect of any one accident in such a case.
MEDICLAIM
I am 34 years old, married, and have an 18-month-old son. I have no medical problems so far. My dependent parents are aged 65 and 62. Please suggest a medical cover that covers all five of us. What would be the premium?
—KARTIK A
You can go for a family package mediclaim policy. In this policy, you can opt for separate sum insured for each family member. Normally, these policies provide a 10% discount on the individual premium. Alternatively, you can take a family floater mediclaim policy for yourself, your wife and son. In the case of a family floater cover, the opted sum insured is available to all members of the family. However, this is subject to the overall limit of the sum insured. The age of your dependent parents is above 60 and most insurance companies may not cover them in family floater schemes.
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First Published: Sun, Jun 22 2008. 10 51 PM IST