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TAX
FRIENDLY
INVESTMENTS 2010
It’s that time of the year when many of us rush to invest in taxfriendly
products that get us the 80C deduction. Unfortunately, most of us get
taken in by noise of products that scream to be bought. We listen to the
noise and forget to hear our own needs. Money Matters analyses the
tax products in the market and help you cut through the clutter to find
the best ELSS, insurance and retirement schemes.
MONEY MATTERS 15
CHAPTER 1: 80C INVESTMENTS MONDAY, JANUARY 18, 2010, DELHI ° WWW.LIVEMINT.COM
Disclaimer: The articles and data in Money Matters aim to help readers with their moneyrelated decisions. Each person will have a unique solution that would fit his personal situation, and we advise you to work with a certified financial planner before you buy a financial product.
MONEY MATTERS 15
CHAPTER 2: ELSS ADVANTAGE TUESDAY, JANUARY 19, 2010, DELHI ° WWW.LIVEMINT.COM
TAX SPECIAL
MONEY GURU
Sixequitylinkedsaving schemes Gautam Nayak
Partner—Contractor, Nayak & Kishnadwala Chartered Accountants
Disclaimer: The articles and data in Money Matters aim to help readers with their moneyrelated decisions. Each person will have a unique solution that would fit his personal situation, and we advise you to work with a certified financial planner before you buy a financial product.
MONEY MATTERS 15
CHAPTER 3: LIFE INSURANCE WEDNESDAY, JANUARY 20, 2010, DELHI ° WWW.LIVEMINT.COM
TAX SPECIAL
MONEY GURU
Why you should not give in to the Veer Sardesai
CEO, Sardesai Finance, & CFP
T his insurance policy will to an end, they both felt they should make tax-saving invest-
give the best returns and, ments under section 80C. “Which insurance should we buy
of course, tax benefit,” is to save tax?” was their first question when they met me.
what most calls selling insur- I knew it was that time of the year when a lot of people get
ance right now will promise. If the tax-saving bimari. “I thought you had already had the re-
it was any other time of the quired insurance,” I said. “Of course, we have enough to pro-
year, you would hang up. But vide for our family in case of our demise,” replied Atul. “We
with the deadline to make tax- just want to save tax,” added Suhrud softly. “What happened
saving investments inching to the policies that you bought over the last seven to eight
closer, you would pause a bit. years?” I asked. “Oh, some are going on, others have lapsed.
Chances are you will succumb. We don’t really need the insurance you know,” said Suhrud.
Premiums that you pay to- I smiled. “You will need to
wards an insurance policy make additional payments to get
qualify for a deduction up to the lapsed policies reinstated. It
Rs1 lakh under section 80C. may not be possible to reinstate
But that’s not the reason why some of these policies and,
you should buy insurance. hence, the invested amount
Here are three questions you would be lost. In case of the cur-
should ask before you suc- rent policies, you are paying for
cumb to such sales pitch. insurance that you do not need.
“Tax planning is not about
Agent spiel: You’ll get insur- saving tax. It does not make
ance, market-linked returns as sense to save Rs30,000 by spending Rs1 lakh on a product
well as tax benefit in this Ulip. that you do not need. That way you would waste Rs70,000.
You need to ask: Do I need in- Insurance is essential for most of us but it has to be pur-
surance at all? ILLUSTRATIONS BY JAYACHANDRAN/MINT chased as a calamity protection. You must identify the appro-
The agent will never tell you accumulated enough assets to to choose an investment ve- premium for a sum assured of priate insurance amount you need and purchase the same.
that you don’t need insurance. provide for your dependants. hicle that helps you reach a Rs2 lakh, you have bought one Tax benefits are just a bonus. Do not mix insurance with tax
But, belive it or not, not every- You should review your in- particular goal most efficiently. of the most expensive insurance planning. You must focus on maximizing your post-tax yield.
one needs insurance. You surance needs every year to But you need to ensure that policies. If you have Rs20,000 to Look for products that will help achieve this goal. The post-
need insurance to provide for factor in your income and ex- this vehicle is serviced appro- spare, chances are a Rs2 lakh tax return on insurance policies is lower than on pure invest-
your dependants in case of penses. The idea is not to over- priately even after your death. cover is just a fraction of the to- ment products. This is because they carry administration and
your untimely death. If you insure, but to appropriately in- Taking on debt: After your tal insurance you need. So, look mortality charges for the insurance cover they offer you.”
have no dependants, you don’t sure yourself at all times. death, your lenders can lay claim for the cheapest cover. “But I thought one of the biggest advantages of investing in
really need insurance. Also, if Increase in income: Most of on your assets. So, if you have a Money Matters recommends life insurance policies is that the complete maturity amount is
you have enough assets, you us get an annual salary hike. house on loan or have credit that you buy a term plan, the tax-free. Thus, we save tax not only at the time of investing, but
can give insurance a miss. This would mean an upgrade card debts, ensure these are cheapest and the simplest in- also get completely tax-free returns after maturity,” said Atul. I
Says Satish Mehta, managing in lifestyle. Evaluate whether serviced through your policy and surance product. It is a pure said: “It is true, but returns from equity-linked saving schemes
director and CEO, Quantum In- your dependants will be able your assets are left untouched. insurance cover, which has no (ELSS) and Public Provident Fund (PPF) are also tax-free. In
formation Services Pvt. Ltd, a fi- to sustain the same lifestyle on investment component. Under fact, both these have better post-tax returns. This is because
nancial advisory firm: “A person the income from your current Agent spiel: This Ulip has out- this, you pay only for the sum they have much lower charges than an insurance plan. If you are
needs insurance only if he has investments and insurance performed the market. assured. There are no returns looking at retirement planning, ELSS will give you better returns
dependants or liabilities, such as policies till the time they are You need to ask: But is it at the end of the tenure. than an equivalent unit-linked insurance plan (Ulip), though re-
a home loan. Somebody having able to manage on their own. cheap? Shop for the cheapest term turns from both the instruments would be linked to the stock
assets that can take care of the Financial goal: It is essential If you are paying Rs20,000 as plan through insurance portals market’s performance. If you are not keen on undertaking the
expenses, financial goals and lia- such as Policybazaar.com. risk of equities, then invest in PPF which offers assured safety to
bilities need not buy insurance.” While insurers such as ICICI your capital and a guaranteed tax-free return of 8%. On a risk-
If you are young, have just Prudential have their term adjusted basis, returns from both these investments are likely to
started working and have plans online also, Aegon Relig- be better than Ulips or other insurance policies.”
working parents, you don’t are Life Insurance Co. Ltd has Looking convinced, they asked, “So, what should we do?”
need insurance just yet. On the launched iTerm, which is spe- “Atul, you are a salaried employee so your PF contribution
other hand, if your parents are cifically designed for online along with your home loan principal repayment will be in-
retired and do not have suffi- sale only. It is cheaper than cluded under 80C. In addition, any genuine premium will
cient pension income, a non- most term plans. also be included. These amounts themselves will be close to
working wife or children, you Between the simplicity of a Rs1 lakh. Any shortfall could be made up by using an ELSS.
must buy insurance. term plan and the complexity On the other hand, Suhrud, apart from your genuine insur-
of a Ulip, lies a third vari- ance premiums, you can invest up to Rs70,000 in a PPF ac-
Agent spiel: You will get a ety—traditional insurance cum count and the remainder in an ELSS,” I advised.
cover of Rs2 lakh by paying a investment plans. They range Both smiled and left, hopefully cured of the bimari!
premium of Rs20,000. from endowment plans, which Queries and views at feedback@livemint.com
You need to ask: How much in- return the sum assured and the
surance do I need? bonus, if any, to whole-life
Your sum assured or life cov- plans that cover you for life.
er would depend on the premi- These are very expensive prod-
ums you pay. Remember that ucts, but that’s not the only
the sum assured is the amount reason why we don’t recom-
your dependants would get in mend them. In these plans, the
case of your death. Therefore, costs are not mentioned up-
the premiums you pay should front and there is no way to
not depend on how much tax track them. Since these prod-
you need to save but on the ucts invest primarily in debt in-
amount your dependants struments, the returns are in
would need. the range of 3-6%. This means,
You can decide your sum as- that for a 30-year-old opting for
sured on the basis of four pa- Rs10 lakh sum assured over 30
rameters: income, expenses, fi- years, a term plan would cost
nancial goals and liabilities. Rs2,912 against Rs31,368 in a
Says Pranav Mishra, senior traditional endowment plan.
vice-president and head (prod- Ulips are relatively more Undergo test at own cost for health policy
uct and sales), ICICI Prudential transparent and offer better re-
Life Insurance Co. Ltd: “As a
thumb rule, take a cover equal
to 12-15 times your annual ex-
turns, but the insurance compo-
nent in these is minimal. Says
Mishra: “On an average, a Ulip
I f your salary (basic plus dear
ness allowance and retaining al
lowance, if any) crosses Rs8.34
much you wish to contribute in
this rock solid investment haven,
your HR will usually deduct 12%
penses or 8-10 times your an- offers 70 times your annual pre- lakh, you needn’t worry about of your salary (basic plus dear
nual income. Those with debts mium as the sum assured. But,
that lastminute scramble to ex ness allowance). This 12% quali
should factor in that too.” most people buy Ulips offering
Your savings can bring down 7-10 times their annual premium haust your section 80C limit that fies for a deduction under section
your insurance liability. Says as the sum assured.” allows deduction from income up 80C up to Rs1 lakh. Once you
Mishra: “A young individual may There has been a marked im- to Rs1 lakh. cross the basic annual income
need a higher cover as com- provement in Ulips recently threshold of Rs8.3 lakh, your EPF
pared with somebody in their with the insurance regulator, Here is why contribution would automatically
late 30s or early 40s, who may the Insurance Regulatory and According to rules, 12% of your become Rs1 lakh every year.
have some savings to provide a Development Authority, cap- basic pay goes towards the Em Since your 80C is taken care of,
cushion to his dependants.” ping their costs. However, Mon- ployees Provident Fund, which is you could look at other taxsav
By that logic, insurance be- ey Matters will wait before it one of the most popular invest ings products such as a health in
comes redundant when you re- recommends Ulips due to trans-
tire. Typically, by then, your parency and portability issues.
ment vehicles under section 80C. surance policy that comes under
earning capacity would be- But if you already have a policy, If you don’t tell your HR how section 80D. DEEPTI BHASKARAN
come zero and you would have keep funding it.
GRAPHIC BY AHMED RAZA KHAN/MINT
Disclaimer: The articles and data in Money Matters aim to help readers with their moneyrelated decisions. Each person will have a unique solution that would fit his personal situation, and we advise you to work with a certified financial planner before you buy a financial product.
MONEY MATTERS 15
CHAPTER 4: NEW PENSION SYSTEM THURSDAY, JANUARY 21, 2010, DELHI ° WWW.LIVEMINT.COM
Disclaimer: The articles and data in Money Matters aim to help readers with their moneyrelated decisions. Each person will have a unique solution that would fit his personal situation, and we advise you to work with a certified financial planner before you buy a financial product.
MONEY MATTERS 15
CHAPTER 5: HEALTH INSURANCE THURSDAY,
FRIDAY,JANUARY
JANUARY21,
22,2010,
2010,DELHI
DELHI °° WWW.LIVEMINT.COM
WWW.LIVEMINT.COM
TAX SPECIAL
MONEY GURU
Let your health insurance battle Amar Pandit
CEO, My Financial Advisor
A cardiac treatment could struments. Because of this blinkered view, many individuals
cost anywhere between end up with lower post-tax income, higher costs and an un-
Rs2 lakh and Rs4 lakh. healthy mix ofi nvestments over the years.
For a cancer treatment, you On the contrary, tax planning must always be seen within
may end up paying Rs10,000 the broader framework offi nancial planning. The actual goal
per week. Treatment for a gas- of tax planning should be to maximize post-tax income, which
tric problem could cost up to typically is a function of higher returns, lower costs and so on.
Rs50,000 or even Rs1 lakh if Most people lower their total taxable income through de-
the situation warrants a sur- ductions. Among the various deductions available, the most
gery. Though mere estima- common is section 80C with a limit of Rs1 lakh. Under this,
tions, these numbers would you can invest in employees provident
not be comforting at all if you fund (EPF), PPF, five-year fixed de-
were to foot the bills. posits, National Savings
A more discomforting fact is Certificate (NSC), life
that the cost of medical treat- insurance premiums,
ments is steadily going up. Says equity-linked saving
Deepak Mendiratta, managing schemes (ELSS), pen-
director, Health and Insurance sion policy premium,
Integrated, a health insurance mutual fund pension
consultancy: “New technologies, plan and Senior Citizens
drug discoveries and limited Savings Scheme. There are two
supply of medical infrastructure other non-financial investment avenues that can be utilized
are pushing up medical costs by under this section—principal amount of home loan and tu-
about 18-22% every year.” A 22% ition fees.
hike is more than the average If you are already contributing towards your EPF, servicing
salary hike or the return on in- home loan equated monthly instalments and paying your chil-
vestment you may get. dren’s tuition fees, you are exhausting part of your Rs1 lakh
But there is a way to battle section 80C limit. Deduct this amount from Rs1 lakh. You only
such costs. Buy health insur- need to invest the difference from a tax-saving perspective.
ance. By paying around However, if you do not have a house or children, you need
Rs3,000 per year, you would to proceed differently. Look at your overall situation.
get a cover of roughly Rs5 lakh. Assess whether you need a house. You will get a deduction
In other words, your insurer on the principal investment as well as the interest component
will pay up to Rs5 lakh for your of the loan. A lot of people are tempted to buy a house just to
medical expenses. save tax. Don’t do that.
You will also get a tax benefit Also, if you have any dependants or liabilities and you are
on the premiums you pay. Un- 25-50 years in age (the accumulation phase), calculate your
der section 80D of the Income- exact need for life insurance. Go for term insurance.
tax Act, your premiums qualify If you want a fixed-return investment, then you should first
for tax deduction up to look at PPF. It’s an excellent investment for anyone in the
Rs15,000. If you are a senior highest tax bracket. The only risk here is interest rates may go
citizen, you can claim up to down. However, considering political compulsions, this is un-
Rs20,000. likely to happen. Although traditional insurance policies, NSC
But tax benefit is not the rea- and 5-year tax-saving fixed deposits also fall into this catego-
son why you should buy health ry, PPF and Senior Citizens Scheme remain the best debt in-
insurance. Says Sumeet Vaid, vestments so far.
managing director and found- On the equity front, the choice is between unit-linked insur-
er, Ffreedom Financial Planner ance plans (Ulips) and ELSS. Skip most Ulips as they are very
Pvt. Ltd: “Health insurance expensive compared with ELSS. You can, however, look at sin-
should be seen as a risk man- gle-premium Ulips. The performance of an ELSS depends en-
agement strategy and not as a tirely on the stock market and there could be periods of nega-
tax planning strategy.” tive returns. When opting for an ELSS, look at consistency
rather than a one-offperformance. Opt for a scheme with a
Plans on offer proven track record in good as well as bad times.
Regular indemnity plans: Of all the choices above, the best ones for you will be a
Your basic health insurance function of your needs, dependants, liabilities, return expecta-
policy is an indemnity cover tions and the risk that you are willing to take.
that reimburses expenses in- Queries and views at feedback@livemint.com
curred during, before and after
hospitalization. Nowadays,
ILLUSTRATION BY JAYACHANDRAN/GRAPHIC BY YOHESH KUMAR/MINT
policies offer the cashless fa-
cility for claims. To avail it, you invest a part of your premium claim. In some policies, if you policy late and your pre-existing
just need to inform the hospi- or return the premium at the are diagnosed with an illness, ailments are not covered, pre- up to Rs15,000 on behalf of
tal, which will take it up with end of the policy tenure. you need to have survived the miums are very high or you may your parents if your parents
your third-party administrator, Most defined benefit policies illness for a month before get- have to settle for a lower insur- are below 65 years of age.
who will settle your claim. are long-term, have a standard ting the benefit. ance cover. In some cases, the This deduction is applicable
The minimum age require- premium for a certain number Says Antony Jacob, CEO, cover may be denied altogether.
ment for this policy is about of years and are offered mostly Apollo Munich Health Insur- Rahul Aggarwal, CEO, Opti-
over and above the Rs15,000
three months. Insurers, typi- by life insurers. A typical ance Co. Ltd: “Before buying a ma Risk Brokers, says: “A basic Look after parents, get deduction that you are enti-
cally, insure a child as a de- health insurance policy offered policy, one must read the ex- health insurance should be more tax deduction tled to as an individual under
pendant of his parents. This by a life company is a bundled clusions. Go through the wait- bought as early as possible. You section 80D for health insur-
can be done either through an policy that combines the bene- ing period, sub-limits, and ex- can then top it up with benefit The taxman nods his approval ance taken for yourself. So, in
add-on to the parent’s individ- fit of critical illness plan, hos- cluded ailments. Understand policies.” if you look after your parents. all, you can claim up to
ual policy by paying an extra pital cash plans and surgical how the benefits are paid out.” Take benefit policies last: Tax laws reflect a changing Rs30,000.
premium, or by adding the benefits. In some plans, a Most benefit policies can easi- society and this particular de-
child under a family floater death cover is also available. Your strategy ly be given a miss if you are
duction shows recognition of If parents are senior citizens
plan. These policies qualify for tax Keep it simple: Just like life sufficiently insured. If your get health insurance
Family floater plans: Here, deduction both under section covers, keep these policies If your family has a history of the way contemporary Indian
the sum insured is the same for 80D (up to Rs20,000) and un- simple and cheap. Typically, serious ailments or your life- families live. There is a tax for your parents, who are se-
all the members of a family. If der section 80C (up to Rs1 health insurance is meant to style is stressful, you can take a break for extending a health nior citizens, you can claim an
one member makes a claim, the lakh). take care of expenses in case of critical illness plan. But it is no insurance cover to your par- additional deduction of up to
sum insured is reduced for the hospitalization. Buy a basic substitute for health insurance ents even if they are not de- Rs20,000, apart from the
entire family, to that extent. What to consider? health insurance and top it up or life insurance as it is meant pendant on you. Rs15,000 you get on your
Defined benefit plans: There You are spoilt for choice with a floater for your family. to support your loss ofi ncome own cover. So, in total you can
are many hybrid plans on of- with different policies offering Do not rely entirely on the if you are diagnosed with a se- If parents not senior citizens claim up to Rs35,000.
fer. Critical illness plans are different benefits. But buying a group cover offered by your em- rious ailment. Says Vaid: “In- You can claim deduction of
the most popular among these. health insurance policy is not ployer as a job change or retire- surance is meant to cover you If you are a senior citizen
These give you a one-time simple. Here, there are cave- ment could leave you unin- for three losses: income, However if you are a senior
benefit if you suffer from any ats, which could result in seri- sured. And with portability still health and assets. We recom-
specified critical illness such ous financial loss. some time away, you may not be mend our clients to avoid bun-
citizen, which means that you
as a heart attack, cancer, dia- For instance, a critical ill- able to carry over the benefits to dling products.” can claim up to Rs20,000 as
betes, kidney failure, major or- ness plan would give you a any new policy you may buy. You can avoid the hospital deduction on your own policy,
gan transplant or paralysis. hefty lump sum, but only for Buy early: When you are cash plan if you have emergen- and are funding your parents’
Hospital cash policies work pre-defined critical illnesses young, the premiums would be cy funds for six to eight months health plan, then your total
as a buffer and provide you a and that too after a waiting pe- cheaper, you are unlikely to of expenses. deduction shoots up to
pre-defined daily cash benefit, riod. After buying the policy, have any pre-existing diseases This tax season, take a step- Rs40,000. STAFF WRITER
irrespective of hospital costs. you need to wait for about six and your cover would keep in- by-step approach towards
Health-cum-savings plans months before you can make a creasing on its own. Buy the health insurance.
Disclaimer: The articles and data in Money Matters aim to help readers with their money-related decisions. Each person will have a unique solution that would fit his personal situation, and we advise you to work with a certified financial planner before you buy a financial product.