Where to Invest

Q1. Will there be any changes to 80C savings in the 2012? And if direct taxes come in to picture will there be any change in the IT exceptions? (i.e. for the year 2011-2012)

DTC comes into effect only from April 1, 2012, therefore applicable for the FY 2012-2013. From last year there are no changes to the tax savings investments. The same set of investments would be available for tax savings as where available in 2010-2011

Q2. I had not filled IT returns for 2008-2009 but my tax was deducted by my previous employer,can I be able to fill it in IT office now and get rebate on it.

By rebate I suppose you mean able to get back the additional tax deducted. Yes, if you file your IT returns the extra tax deducted from you would be paid back by the IT dept along with interest on the same.

Q3. Will there be any changes on the kind of life insurance policies to be considered for tax savings?

I did not quite get your query. I feel life insurance is a requirement that all investors should look at purely from risk protection perspective, tax saving should be considered as a by product.

Q4. What are the investments plans that provide maximum tax benefits; excluding the 80C subjects?

I suppose you mean to ask apart from Sec 80C, where else can you claim tax benefit from. Apart from Sec 80C you can claim tax benefits by investing in infra bonds u/s 80CCF upto an amount of Rs. 20,000 per year.

Q5. Are investments in Infrastructure Bonds beneficial? What kind of returns does it provide over a time period?

Infrastructure Bonds are available as investment opportunity under the Sec 80CCF. They are typically for a period of 5 years and the interest income from these investments is taxable. Yes, they are good from a tax savings perspective. Last year such bonds gave a return ranging from 8-8.35% p.a. You can invest a max of Rs. 20K in such investments; if you belong to the highest tax bracket (i.e. 30%) you straight away save Rs. 6K in taxes. Therefore your actual investment would be only Rs. 14K and you should consider return of 8% on this amount. I think it's a lucrative option that one should take advantage of.

Q6. I have heard that life insurance cover that does not provide 20x(not sure of the number) of the premium will not be considered for tax savings. Is that true?

The minimum cover should be minimum 5X the insurance premium.

Q7. I have invested in Tax Saving MF in last 3 years.. Now I want to invest in Pension Plans this year.. What kind of Pension Plan shall I Buy?

Pension plan investments are basically recommended for creating your retirement corpus. If you are looking from tax saving purpose you can look at pension plans offered by Insurance companies. They come basically under two categories; unit linked pension plans (ULPP) and conventional pension plans. Under ULPP the risk of investment is borne by the investor. Under conventional pension plans, the investment mandate is pre defined by IRDA and may not necessarily suit every individual's need.

Q8. what is the best tax saving instrument that also gives the highest return?

Best tax saving instrument that also gives the highest return would be a pure 100% equity product. One such product is ELSS (Equity linked Savings Scheme) from mutual funds. You can invest any amount in this every year. Under ELSS there is no need to give an annual commitment; investment from one year to another could be different. It comes in with a lock in of 3 years and the dividends and capital gains from such investments are tax free as of today.

When I am saying best product from a highest return perspective, there is not guarantee under such products. This is only assuming that equities are one of the best long term investment products and should possibly give the highest returns.

Q9. I am into Mid 20s (and Single too).. Is it right time to invest into Pension Plans?

Considering you are very young and already planning for your retirement I would recommend you Unit Linked Pension policies, assuming you can take the investment risk. But be aware that pension investments do not provide liquidity. Therefore if you have other short term goals (like higher education, car home loan, etc) I would suggest you first start investing for them and if you still have additional funds, then invest in pension funds.

Q10. Why does one say that ULIPs are not a good mode of insurance and infact expensive?

Your question on ULIP could take hours of discussion and explanation. To put it briefly ULIPs are long term investment products with insurance thrown in alongside. It is a mix of Term Insurance and Mutual Funds. They require active involvement of the policy holder or the advisor. And considering that most people are sold ULIP saying pay for 3 years, it turns out to be expensive.

Q11. What is better investment option for retirement planning.. New Pension Scheme (NPS) or Mutual Funds? Also different tax treatment these 2 will get with DTC in place from 1st Apr 2012?

Good you brought out the question on NPS. NPS is considered to be one of the cheapest available retirement products in the world. Though currently under NPS you can invest only upto 50% in equities. Even if your financial status allows you more risk, you can't have more equities in NPS. I think you should have a mix of NPS and MF for your retirement corpus.

Q12. In the present Life insurance schemes, can we consider Life insurance's as an investment?

You should first protect yourself from all types of risk (life, health & critical illness) after you have provided this as a foundation for yourself you should look at investments. After having done that i would build corpus for house, car. Though retirement should be a priority but do not put too much money here to begin with.

To clarify my point further, I would say that take life insurance as a saving product only for goals that you want to save for at the same time protect. To give you an example you have two goals of education for your kids and pension for yourself. The kids education goal is something that you want to fulfill even if you are not around therefore protect it, but the retirement savings do not require any protection if you die early.

Q13. To save tax I have invested in LIC Jevan Saral. Do you think this is a wise move?

Jeevan Saral is a life insurance cum savings policy. I would not be able to tell you if it's a wise move or not unless I know more about u. If you are looking for pure risk cover; term insurance is a better option.

Q14. Once the DTC is applicable, is it true that returns from PPF become taxable?

As of now DTC draft that is available does not talk about taxing PPF.

Q15. What is the best way to invest for maximum benefit with least risk?

I think less risk and more income is a misnomer. People have to take risk to get better returns, at the same time higher risk always does not mean higher return.

Q16. What about sips? What would be a better option in terms of less risk and more income LIC/SIP/MF?

SIPs (Systematic investment plans) are a great way to build a corpus. It allows investors a disciplined way of investing into different schemes of MF.

Q17. Is there a guaranteed return from ELSS?

A No ELSS do not provide guaranteed returns. Infact no mutual funds can give guaranteed returns, they are not allowed to launch guaranteed products by SEBI after the debacle of US 64.

Q18. Can you suggest few investment plans excluding the PPF, and NSC schemes?

Apart from PPF and NSC. You can invest in the following - ELSS, Insurance, Fixed Deposits under Sec 80C and Under Sec 8OCCF you can invest in Infra bonds upto Rs. 20K.

Q19. Will NPS be tax treated EEE in new DTC

NPS tax query, still awaits clarification from the Govt.

Q20. While investing in ELSS, do you recommend Dividend option or Growth option, what are the Pros / cons of both?

For ELSS people who want cash flow should opt for dividend pay-out option. Who do not want cash flows and a possible opportunity of higher growth should opt for Growth. Do keep in mind never to invest in dividend reinvestment option under ELSS.

Q21. For a salary of Rs 5 lac, on an estimation basis, can you tell me how much can i invest in tax saving schemes.

You can invest max Rs. 1 .2L in tax saving schemes. (incl Sec 80C Rs. 1L and SEC 8OCCF Rs. 20K ).

Q22. Should we go for second property as investments or on money market instruments?

Property and money market investments are two totally different set of investments. Before you make any investments, you should try and look at the following features risk, expected return, liquidity, taxability and your time horizon. Once you have answered these questions, you will be able to find the right investment for yourself.

Q23. Does returns from PPF (interest component) becomes taxable, once the Direct Tax Code is effective?

As clarified earlier as of now the DTC does not talk of taxing interest income from PPF.

Q24. Where do I invest to save on Income Tax for a smaller period with maximum benefits?

Tax product with shortest lock in is ELSS and could also give higher returns. Though they are 100% equity products and should be done only if you are a long term investor.

Q25. A friend of mine knows an agency who pays 10% monthly interest on the principal amount invested. Min principal is 10K and the max is just anything. Eg: principal 50K you earn 5K every month. What are the things that we need to consider when investing in a company like this?

I would basically avoid such investment. It's unlikely that they come under supervision of any regulatory authority and may carry very high risk for your invested principal.

Q26. Would Investment on housing loan be considered for tax exemption after DTC effectiveness

Tax benefits from housing loan would continue under DTC.

Q27. I'm planning to get one life insurance policy for my wife, kindly advice which one is best

Is you wife an earning member in the family? What is the basic intention with which you plan to buy a insurance in her name?

Q28. In your opinion, a mix of SIPs, MF, Insurance a good mix for a tax and savings plan?

Yes the mix is good, but depends on what proportion and your specific situation and requirements.

Q29. As salaried personnel, is there a way I can invest in bank FDs without attracting any further tax? either in my name or my kids' names?

You cannot invest in FDs without attracting tax. Even if you invest in your kids name, who are minors their income would get clubbed with the higher earning parent.

Q30. Which one is the best medical insurance plan?

The best product for anyone depends on their specific requirements, affordability and sum assured required. Now a days you get medical insurance upto Rs. 50 lakhs.

Q31. What savings scheme would you suggest? i have some MF, some policies, and we are paying home loan towards 2 houses but there is only that much we can save on tax, what can we do for savings?

lf you are primarily looking from investment perspective. U should first get yourself to answer these queries, the return u require, risk u are willing to take, investment horizon, liquidity. Tax is unavoidable but some smart planning can help.

Q32. With a combination all possible investments HRA, Medical reimbursements isn't the maximum tax saving limit still 1 Lakh + 20000 for infrastructure bonds?

Tax saving investments under sec 80C and sec 8OCCF are over and above your HRA, medical and other such benefits.

Q33. How reliable are the private insurance providers for purchasing health and life insurance? Meaning, what is the risk of them going bankrupt and leaving their policy holders high and dry? which are some of the better private insurance out there?

IRDA provides specific guidelines to all insurance companies with regard to capital requirements and chances of companies going bust are fairly limited and very very rare. It would be as people put a black swan event. Though I would advise people to split their insurance purchases. Check IRDA's website for the names of pvt insurance companies. You have quite a few big names in pvt life insurance. HDFC, Bajaj, Kotak, Birla etc.

Q34. Is investing in real estate a good option or invest in Mutual funds/Shares a good option.

All types of investments need to be there in your portfolio. No one can say with certainty which asset class is going to be better in any giver period of time, therefore to derisk your portfolio, by having a diversified portfolio. At the same time I would not recommend investment in real estate beyond 50% of your networth. Though specific situations need to be understood and taken into account.

Q35. Have you heard of ICICI Pinnacle fund? How good or bad is that..it has a lock in of 5 years and at maturity they claim to be able to give the highest NAV of the past 7 years

I have heard of ICICI Pinnacle. Its a ULIP policy, I am personally not in favour of such products. But to answer your query would like to understand your requirements better.

Q36. What is the cap on medical insurance when done outside the employer and the limit for parents/in laws in medical insurance?

Medical insurance premium benefit of upto Rs. 15K is available under Sec 80D. If you have a dependent parents who are senior citizen you can claim additional benefit of Rs. 20K.

Q37. Do we need to opt for any further medical insurance so that we get coverage even after our retirement? Which is the best medical insurance in the market?

I would definitely suggest everyone to have their own personal medical Insurance apart from the one provided by your co. This would be helpful not only during retirement, but in case you change jobs, or start something on your own.

Q38. I would like to understand how to claim interest amount of housing loan.

Tax benefit from a housing loan interest for a self occupied property is available upto Rs.1,500000.00 under Sec 24.

Q39. Hi, could you please let me know how much one could save by investing in infrastructure bonds and any special care to take before investing in these bonds?

You can invest upto Rs. 20K in infra bonds. Look at the credit rating of the bond you investing in, currently no infra bonds are available for investment.

Q40. What are your views towards infrastructure bonds...is it really worth to invest and block 20k there to save tax?

Depending on your tax bracket and other investment options that you have you should choose whether to invest in infra bonds or no. Someone who is only in 10% tax bracket, can look at other options.

Q41. Which is a better option Rent a house or Buy a house if a person is in 20% tax bracket?

Tax bracket does not determine whether you should buy a house or rent a house. Rather your savings, ability to invest for long term etc would determine whether you should buy a house or no.

end faq


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