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personal finance Equity: The next big wealth generating tool in India |
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tax advice
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Why do we need term insurance? Vijay Kumar Gupta A term life insurance cover is a small cost that we pay now to secure the future of our loved ones. When we leave behind a life insurance policy, it can take care of a number of costs such as education of children, EMIs and wedding expenses. The life insurance corpus can also be converted into a monthly income so that day-to-day expenses are taken care of. A sudden death is traumatising but any debt that you leave behind will only add to that tremendous burden. But if you have invested in a term life insurance policy, that money can be used to pay off the debt and give much needed financial security to the family members. However, most of us face a fundamental problem when we buy term life insurance. We still see insurance as an investment product and not as a protection cover for our family. When buying insurance, we are more interested in the "returns" and often ignore the larger picture of ensuring adequate coverage for the family when we are no more. Unfortunately, insurance has mostly been sold like just another investment product in the country whereas that is not the main objective of this segment. A term plan is the best form of insurance because it gives a very high cover at a low price. Assuming that you are 35 and buy a 30-year-term insurance cover of Rs 1 crore, your annual premium will work out to Rs 12,800 or just Rs 36 per day! Of course, the premium of a term plan is a fraction of what people pay when they buy an endowment plan, a money-back policy or ULIP with the same coverage. This is possible because there is no investment component in a term plan as the entire premium goes towards covering the risk. But it's still a small cost considering the peace of mind that it brings with it. There can be no bigger regret than not leaving adequate resources for your family when you could have easily done so. There are a few things you must keep in mind when buying a term insurance. Is the cover that you are buying now will be sufficient to keep your family's expenses? It is thus important that you must work out the life cover, keeping all costs in mind before you purchase term insurance. Second, the tenure of the policy is as important as the amount you buy. Don't buy a life cover that ends when you are in your 40s and 50s. Go for a term plan that is customised as per your needs and lasts for a sufficient period of time. For example, if you are buying a term plan at 35, buy one that lasts for at least 35 years so that even if you are gone, the money will ensure that your kids are educated and working by the time it expires. Third, look for a plan that is indexed to inflation because a cover of Rs 50 lakh today will be way lower in its actual worth 15-20 years down the line. So make sure the sum insured under your term plan automatically increases every year in line with inflation. If you haven't bought your term insurance plan yet, do buy it soon to ensure financial security of your loved ones and your own peace of
mind. Things to keep in mind
The author is a chartered accountant and member of the Central Council of ICAI. The views expressed
in this article are his own |
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Equity: The next big wealth generating tool in India Out of these different asset classes, historically equity has performed extremely well. In the past 23 years i.e. since 1981, the 10 years moving average return of Sensex has been 16.04% p.a., whereas gold has given 9.47%, PPF 8.31%, residential real estate (returns calculated from ready reckoner - Colaba region) has given 8.73% (as per our proprietary research). Mainly the stock market is driven through the Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs); but still a lot of retail investors are hesitant and afraid of investing in equity market. This is due to the stock market volatility and human behaviour that cannot see negative returns. Today, we have different kinds of investment instruments for taking equity exposure other than investing directly in equity shares; like equity mutual funds, ETFs (Exchange Traded Funds), ULIPs (Unit-Linked Insurance Plans), NPS (National Pension System), etc. for retail investors. But investors still rely on traditional products like fixed deposits, postal schemes, insurance policies (their so called investment), real estate, and gold etc. These instruments barely earn real returns i.e. their returns are slightly above inflation. Though equity does not fetch you real returns year over year, but over a longer period, say above 7-8 years, it does earn you significantly higher real returns comparatively. As it is said, high returns necessarily entail high risk; and low risk necessarily entails low returns, which is called the risk-reward ratio. Equity investment do fetch you high returns, but it also carries high risk. Also, investing in direct equity requires a bit of research exercise to be done. It is not a magic box, where you put your money and it multiplies over a period. But, you can take exposure to equity by investing in equity-diversified mutual funds systematically via SIPs (Systematic Investment Plans) route, which reduces the timing risk. Markets are optimistic with the new government, which can bring the change in the industry by introducing new regulations for different regulatory bodies and different sectors, for bringing in transparency and protecting investor's interest, if these aspirations are fulfilled, investment in the equity sector would increase. Equity was and will be one of the most wealth generating investment tool. It is also the next big wealth generating opportunity for those who have never invested in equities. Though it's said, "Past performance is not necessarily indicative of future results"; but it is also said, "history repeats itself", and equity has been delivering similar returns what it has given in the
past! Investment opportunities
The author is a research analyst, ApnaPaisa.com. The views expressed in this article are his own |
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No tax on farm income SC Vasudeva I am a family pensioner and a senior citizen and my approximate income for the financial year 2014-15 is given hereunder:
What would be my tax liability? — Sanjay Motwani Your total income for the assessment year 2015-16 works out at Rs 1,75,000. The same is below Rs 2,50,000 being the maximum amount on which no tax is payable by a senior citizen for the said assessment year. Accordingly, no tax is payable by you on such total income. The agricultural income is exempt from tax. However, the same is aggregated for ascertaining the slab rate for taxability. Since the income from pension and interest is below the taxable income, the aggregation of agricultural income for rate purpose is also not required in this case.
— Deepak The children allowance @ Rs 100 per child per month is exempt from tax. Since you do not have any children, you would not be able to claim any deduction and therefore the entire amount of Rs 6,000 received by you for the year would be taxable. I am working in a nationalised bank as an officer. Recently, the bank provided me furniture worth Rs 60,000 + VAT. Whether the furniture provided by employer is taxable or not? If taxable, what formula should I use to add it in my gross income to calculate the same? Is this amount will be fixed for perks? If yes, how much? — RS Gupta According to Rule 3(7)(viii) of the Income-tax Rules 1962, the value of benefit from the use by the employee or any member of his household of any moveable asset other than laptop and computers belonging to the employer or hired by him is to be computed @ 10% per annum of the actual cost of such asset or the amount of rent or charge paid or payable by the employer as reduced by the amount if any, paid or recovered by the employee for such use. In view of the above, 10% of the total cost of the furniture would be the perquisite value of the benefit and added to your salary for the purpose of computing the total income-tax payable by you.
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I am employed in a company which gives me an education allowance @ Rs 500 per month for two children. Is the above amount taxable or exempt from tax in view of the fact that I have no children?