4 things about Home Loan you might not Know

Can you claim tax deduction for your under-constructed house? Can you claim tax for the home loan taken from your friend and not from Bank ? These are some of the questions which are not generally discussed over and lot of investors have no idea about actual rules. In the video below I will talk about four not so known rules of home loans . Keep reading ! . Readers on email can watch the video on this article.

1. Tax deductions for House under-construction

Can you claim tax benefits for home loan taken for under-construction house ? A lot of investors assume that they can claim tax deductions and without doing much research, they go ahead with the loan. However they should know the fact that claiming tax in case of under-construction house is different. You cannot claim the tax deductions for the principal amount for under-construction house. You need to have possession and certificate of ownership to claim tax under 80C. However Interest part is little different. You can not claim the interest amount, unless you get the possession of house . However you can always claim the deductions later in 5 equal installments for next 5 yrs from the end of financial year of possession.

Example : Suppose Ajay bought a house on loan on 5th June 2010 and he pays total 3 lacs as interest in next 2.5 yrs and gets possession on 7th Nov 2012 . He will be able to claim this 4 lacs Rs in equity installments in the next 5 yrs period , which is 80,000 per year in 2013 – 2017 . However the total limit for exemption will still be 1.5 lacs per year.

2. Selling the House before 5 yrs reverses the tax saved earlier

We think of saving tax, but once the tax is saved for a particular year, it does not mean the story ends here. The tax benefit under sec 80C is allowed for home loans considering the condition that it wont be sold before 5 yrs from the date of purchase. Read some nice tips for house buying from real buyers

If you sell your house before the expiry of 5 yrs, all the money you saved under sec 80C in earlier years will be deemed to be your income in the year of sale and added to your salary. For example, if you bought the flat in Oct 2010 and in next 4 yrs you saved 1 lac in tax under sec 80C, then this 1 lac will become your income in the year of sale and will be taxed . However interest component once saved is saved and it wont be reversed.

The tax benefit under section 80c is allowed subject to the condition that house property should not be sold before a period of 5 years. If you sell the house before the expiry of five years from the end of the financial year in which you obtained the possession, the deduction will be discontinued and the entire tax deduction claimed in earlier years under section 80c – for repayment of principal component of the home loan – will be deemed to be your income (in addition to capital gains) in the year in which you sell the property. However, the housing loan interest deduction claimed under section 24(b) won’t be reversed.

3. Loan taken from Friends and Family is eligible for Deductions (Interest)

Incase you want to take loan from your friends , parents or any other person , you can still claim the interest on the loan under sec 24 , which is upto 1.5 lacs per year . However you can not claim the principal amount under sec 80C, that’s applicable only if you take up the loan from some Bank or financial institution . So you don’t always need to take the loan from Bank. if you can take it from a friend or Family , you can still claim tax deductions on Interest part .

4. 80C is not allowed for loans taken for Extension or Renovation of House

If you take a loan for extension or renovation of your existing house, in that case you can not claim the principal part under sec 80C , but you will be able to claim interest amount under sec 24 , which is 1.5 lacs per annum.

Courtesy: Jagoinvestor.com

Financial freefall: Mistakes newly-weds should avoid

As many a cynic would have you believe, marriage is a zero sum game. You gain some, you lose some. If, however, you’ve been pinned by the crafty glare of Cupid, scuppering your logic, marriage would seem a profitable equation, promising zestful returns. Now take a moment and expunge the extremities; chart the middle course, where realism rules. Marriage is what you make of it. Get your math right and it doubles your dividends, fudge it and you halve them. So with the finances in a marriage.

One of the most critical changes you encounter after tying the unwieldy knot is the financial reality. Single income can convert to double, but so can the debts; buying assets may become easier, but insurance liability could increase; your spending or saving habits could be a disastrous mismatch, but your long-term goals may be the same. In fact, numerous studies have claimed money to be the primary reason for all marital discords. While it’s not easy to find a snug financial match, it’s not impossible to home in on feasible solutions either. These can work for or against you depending on how you deal with them. You not only need to harmonise the different financial ideologies and habits that you bring into a new relationship, but also streamline your individual finances in a way that you can work towards the combined goals.

To help you find a firm foothold in the new financial paradigm, we present a primer that will not only help avert any faux pas but also provide ready resolutions to fiscal irritants that can unravel a stable marriage.

Reveal your cards

Talk. Discuss. Debate. Confer. Communicate. There aren’t enough synonyms in the thesaurus to emphasise the importance of talking about your finances. Preferably even before you get married. So be it your income or expenses, savings or debts, liabilities or assets, proclivities or aversions, habits or cravings, lay them all on the table. List out your outstanding debts like car loans or credit card bills and assets like jewellery, real estate or stock investments. “Talk about your attitude towards money, your values, what you plan to do with it after marriage,” says Kartik Verma, co-founder of iTrust Financial Services.

These inputs will act as building blocks for your new financial equation and make it easier to formulate goals and stick to a plan to achieve these. Mumabi-based Raj and Rahmat Tapal, both 32, know about the importance of talking. They’ve been married for only a month, but have known each other for several years and have discussed their finances in detail. “We talked about our savings and spending and knew that we wanted a house. So we started saving Rs 50,000 each every month to be able to buy it. After marriage, we have increased the inputs to around Rs 1 lakh per month,” says Raj.

Talking not only helps meet your goals, but also irons out misunderstandings and differences. Besides, it keeps both the partners in the loop and in the absence of one spouse, the other is not left in the lurch.

Frame a budget, fix the goals

If, after the revelations and discussions, you have not already set your goals, it would be the next logical step. Frame your short- and long-term goals in accordance with your priorities and earning capacities. So whether you plan to buy furniture, car or a house, establish a time frame. You should also discuss the financial implications of having a child, savings required for his/her education and marriage, vacations and, of course, your retirement. It’s never too early to start planning and saving for such goals because the compounding effect of investments works in your favour.

To ensure the fulfilment of these objectives, it is critical that you make a budget. Start with bigger expenses like loan EMIs, house rent or insurance premiums and go on to smaller ones such as utility, grocery or credit card bills. Then move to discretionary expenses like those on clothes, cosmetics or outings. “A budget, which includes tracking your spending, is the only way to really know where your money is going,” says Kshitij Gupta, a Mumbai-based financial planner. So you could resort to remedial measures like cutting down on dinners or vacations. “We were both spendthrifts,” admits Bangalore-based Amandeep Singh Chawla, 29, who has been married to Divya, 27, for nearly a year. “But once we framed our goals and budget, we realised than an ‘x’ amount of money had to go towards savings. So we cut down our spending,” he adds.

Work out the plan dynamics

This is perhaps the most critical aspect of financial management for newly-weds. The plan is ready. The execution should be easy, right? Wrong. This is a pitfall that brings on most of marital confrontations. Should you merge your finances? Should the debts of both spouses be settled jointly? Who will ensure the budget is on track? “There is no blueprint for the way a couple should handle finances,” says Gupta. “Merging finances is one of the first big decision married couples make—and often the most difficult. For some, it feels natural to merge all assets. They feel that they are taking the marriage seriously. For others, giving up their financial identity makes them nervous,” he adds.

A simple solution is to have both. While you can retain your individual accounts for paying your credit card bills and other personal expenses, you can have a joint account for household payments, including utility or grocery bills. The latter allows flexibility to operate it in each other’s absence. “You could also decide contributions towards different household baskets, depending on the income ratio, and make allocations from separate accounts. This will give room to both for indulging in discrenationary spending and maintaining independence,” says Surya Bhatia, a Delhi-based financial Planner.

Another fragile decision that needs to be made at the start is how to build assets and settle debts. If you build assets jointly, keep in mind that there can be legal problems in case of a split. As for debts, you could do it by pooling in resources and trying to pay off the one with the highest interest, or continue to do it as you were before marriage. “I am paying my EMIs on the car loan, while Divya pays the house rent from her salary as the house has been leased by her company,” says Amandeep. What’s important is that the decision is made by both so that they are comfortable about managing their finances.

Buy more insurance

Before marriage and without dependants, you can make do with small insurance. After being hitched and if you are the sole earning member, you will need to upgrade it; more so when you have kids. “Now you have to cover the risk of dying young and leaving a dependant(s). So a term life insurance is critical,” says Ajay Bagga, GM of wealth management at Duestche Bank. Your cover should be enough to pay your outstanding loans so your spouse isn’t burdened with it. Then there should be enough left for the spouse to live off it. Ideally, you should have at least 10 times your annual income as life cover. Another important cover to consider for upgrading is health and disability insurance. Chances are you are insured by your employer, but it’s advisable to buy a separate policy. “On an average, a combined cover of Rs 5 lakh for a couple should be adequate, especially in a big city,” says Jayant Pai, vice-president of Parag Parikh Financial Advisory Services.

Know about taxation benefits

You can’t be blamed for a mild aversion to the taxman, but after tying the knot, you’ll find a few reasons to toast him. As a married couple, you will be eligible for a higher home loan and both can claim tax deduction on repayment. A joint home loan offers a benefit of Rs 1 lakh each under Section 80C of the Income Tax Act (for repaying the principal) and an additional Rs 1.5 lakh each on the interest repayment under Section 26. This takes your total deduction as a couple up to Rs 5 lakh a year. If you are planning to get married soon, remember that a wedding is one of the few occasions when cash gifts are not taxed, but the recipient will have to prove it was a gift. So be more amenable to cheque or demand draft gifts. You should, however, beware of two words: clubbing provision. The money that a woman receives from her husband and parents-in-law is not taxed, but any income earned from investing this money is clubbed with the income of the giver. Similarly, the income from the money received from the wife will be clubbed with her income.

Take care of documentation

To snuff out irritants if you go in for a name change after marriage, ensure you indulge in the necessary paperwork. One of the most crucial alterations involving name and address would be in your PAN card, besides the passport, KYC, bank account, etc. “It’s also the man’s duty to bring in his wife by appointing her as a nominee in his investments and policies. He should include her as a secondary holder for ease of administration in his absence,” says Kartik Jhaveri, a Mumbai-based financial planner. Adds Gupta: “Go through all your investments, savings accounts, insurance policies and other accounts and review the designations if you want your spouse to own these assets, should something happen to you.”

Till divorce do us part

It might be criminal to think of a split when you are just married, but it’s a possibility one should not negate. “While marriage works on trust, one needs to be prudent while making joint investments to avoid financial implications later,” says Pavan Duggal, a Delhi-based lawyer. You could face problems in claiming your contribution towards joint assets like a house. If the property or asset is mortgaged with the bank, both parties can continue to be co-borrowers and co-applicants and service the EMIs. There would be no change in the borrowers’ liability despite the change in their marriage status.

There could be problems even if it is mutually decided that the property will go to one of the spouses. They will have to first foreclose the loan account. “Even if there is a joint property with a clear title, the situation is tricky because real estate is not as liquid as stocks and cannot be easily sold,” points out Jhaveri.

Besides, what happens if the property is registered in one person’s name but the other has also contributed to it purchase. “In such a situation, the contributor will have to provide evidence of the contribution in the asset. Most of the time people don’t maintain records of such intra-family transactions because they never think about such a situation,” says Osama Suhail, associate partner in law firm Anzlawz.

To bypass legal and tax hassles, it is necessary to open accounts and investments in your own name and make the spouse a nominee or secondary holder. However, if you do make joint investments make sure you collect all receipts for any payment towards these in your name.

Courtesy: ET Wealth.

Details on Section 80D, 80DD and 80DDB

Details of Section 80D

Any amount paid by an Individual or HUF to an Insurance company as Medical Insurance Premium i.e. premium paid in respect of Mediclaim Policy can be claimed as deduction under section 80D.

Note: Life Insurance Premium is NOT covered under this category.

Important points:

1. Premium paid should be in respect of Mediclaim Insurance policy.
2. The deduction is also available when the Taxpayer makes any contribution towards Central Government Health Scheme.
3. Deduction is available only to Individuals and HUF’s (Hindu Undivided Family). Corporates or Partnership firms cannot claim this deduction.
4. Deduction is not allowed when the premium is paid by cash. In other words, the deduction will be allowed when the premium is paid by modes other than cash i.e. cheque or DD.
5. Deduction is allowed in respect of following persons:

Taxpayer	Insured Person
Individual	On the health of taxpayer himself/herself, spouse, parents, dependent children of taxpayer
Hindu Undivided Family (HUF)	On the health of any of the member of the family

Amount exempted under Section 80D

Least of the following is allowed to be deducted from Gross Total Income of the Taxpayer for 80D:

a. Actual Mediclaim Insurance Premium paid

b. Rs. 15,000

In case the Mediclaim Insurance Premium paid is for a Senior Citizen (person above 65 years), least of the following is allowed as deduction :

a. Actual Mediclaim Insurance Premium paid

b. Rs. 20,000

Details on Section 80DD

This is a deduction in respect of maintenance including medical treatment of handicapped dependent that is a person with a disability.

It is available to individuals and HUFs (Hindu Undivided Families).

In the case of an individual the deduction is available to spouse, children, parents brothers or sisters of the individual.

In the case of HUF the deduction is available to any member of the HUF.

The second condition is that the disabled person should be wholly or mainly dependent on the person seeking the deduction for their support and maintenance.

The dependent should have a disability of at least 40%, and for claiming the deduction the assessee has to furnish a copy of certificate issued by the medical authority

There are two ways in which the expenses could have been incurred:

Option 1	Option 2
The taxpayer has incurred an expenditure for the medical treatment, training, nursing and rehabilitation of the dependent	The taxpayer has paid/deposited under any scheme framed in this behalf by the LIC or any other insurer or the administrator or specified company and approved by the Board in this behalf, for the support/maintenance of the dependent

Amount of deduction eligible under Section 80DD:

1. Fixed deduction of Rs 50,000/- is allowed irrespective of amounts incurred in Option 1/2

2. Deduction of Rs. 1,00,000/- is allowed in case where the dependent has the disability of more than 80%

If the dependent predeceases the Individual/HUF, an amount equal to the amount paid shall be deemed to be the income of the individual/HUF and will be chargeable to tax

Details on Section 80DDB

This deduction is in respect of medical treatment of a specified disease or ailment as prescribed by the Board.

80DDB deductions are also available to individuals or HUFs and are available for expenditure incurred in respect of assessee himself or his dependent spouse, children, parents, brothers/sisters.

In order to get 80DDB deduction the assessee has to submit a certificate in the prescribed form from a neurologist, oncologist, urologist, haemotologist, immunologist or such other specialist as prescribed working in a government hospital.

Amount of Deduction under 80DDB:

Actual amount paid or Rs 40,000/-, whichever is lower

In case the amount incurred is in respect of a person who is a Senior citizen then:

Actual amount paid or Rs 60,000/-, whichever is lower.

Courtesy: Onemint.com

Will your Nominee get the money on your death? May be NO!

So we heard from everyone that nominee gets the money from your Insurance policy or Mutual funds or Fixed Deposits, and we happily believed it . Can you afford to beleive that this is WRONG ! .

Did you think that your nominee is the person, who will get all the money legally from your Life Insurance Policy and Mutual funds investments? Ha! That is exactly what you'd think if you aren't aware of the legal aspects. We assume a lot of things which sounds like they're obvious, but are not true from the legal point of view. Today, well concentrate on nominations in financial products, Insurance policy, and when you are dead and gone, all the money goes to person X and he/she becomes the sole owner? You are wrong, dude ! It doesn't work that way. Lets see how it actually does!

For whom are we earning? For whom are we investing? Who, do we want to leave all our wealth to, in case something happens to us? It might be your children, your spouse, parents, siblings etc., or just a subset of these. You also might want to exclude some people from your list fo beneficiaries!. So you think you will nominate person X in your

What is a nominee ?

According to law, a nominee is a trustee not the owner of the assets. In other words, he is only a caretaker of your assets. The nominee will only hold your money/asset as a trustee and will be legally bound to transfer it to the legal heirs. For most investments, a legal heir is entitled to the deceasedâ€^(TM)s assets. For instance, Section 39 of the Insurance Act says the appointed nominee will be paid, though he may not be the legal heir. The nominee, in turn, is supposed to hold the proceeds in trust and the legal heir can claim the money. A legal heir will be the one whose is mentioned in the will. However, if a will is not made, then the legal heirs of the assets are decided according to the succession laws, where the structure is predefined on who gets how much. For example, if a man during his lifetime executes a will. In the will, he mentions his wife and children as legal heirs, then after his death, his wife and children are the legal owners of his assets. It is essential that one needs to execute a will. It is the ultimate source of truth and replaces the succession law. Nominee can also be one of the legal heirs.Important

• Mention the Full Name, Address, age, relationship to yourself of the nominee.
• Do not write the nomination in favour of "wife" and "children" as a class. Give their specific names and particulars existing at that moment.
• If the nominee is a minor, appoint a person who is a major as an appointee giving his full name, age, address and relationship to the nominee.

Why is the concept of nominee ?

So you might be wondering, if the nominee does not become the sole owner, why does such a concept of "nominee" exist at all? Itâ€^(TM)s pretty simple. When you die, you want to make sure that the Insurance company, Mutual fund or your shares should at least get out of the companies and go to someone you trust, and who can further help, in process of passing it to your legal heirs. Otherwise, if a person dies and hasnâ€^(TM)t nominated anyone, your legal heirs will have to go through the process of producing all kind of certificates like death certificates, proof of relation etc., not to mention that the whole process is really cumbersome! (For each legal entity! The insurance company, the mutual funds, for the shares, for the real estate..) . So, to simplify, if a nominee exists, these hassles don't happen, since the company is bound to transfer all your money or assets to the nominee.The company the goes out of scene & then, itâ€^(TM)s between nominee and legal heirs.

Example of Nomination

Ajay was 58 years old who died recently in an accident. As his children were settled, he wanted to make sure that his wife is the sole owner of all the monetary assets. This includes his insurance policy and mutual funds. So during his lifetime, he nominated his wife as a nominee in his term insurance policy and mutual funds investments. However, after Ajayâ€^(TM)s death things didnâ€^(TM)t turn up the way he wanted. The reason being Ajay did not leave a will. Though his wife was the nominee in all his movable assets, as per the law, his wife, along with children, were the legal heirs and all of them had equal right to Ajayâ€^(TM)s assets. One simple step which could have saved the situation was that Ajay should have made a will which clearly stated that only his wife was entitled to get all the money and not his children.

Nomination in Life Insurance

A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. Nomination in life insurance has one limitation, as insurance policies are bought to secure your financial dependents, your first choice of nominee has to be your family members. In case you want to nominate a non-family member like a friend or third party, you will have to show/PROVE the insurance company that there is some insurable interest for the person. This happens because of a Clause called PRINCIPAL OF INSURABLE INTEREST in insurance. Note that provision of nomination in life insurance is related to Section 39 of the Insurance Act. Note that as per LIC website

Nomination is a right conferred on the holder of a Policy of Life Assurance on his own life to appoint a person/s to receive policy moneys in the event of the policy becoming a claim by the assuredâ€^(TM)s death. The Nominee does not get any other benefit except to receive the policy moneys on the death of the Life Assured. A nomination may be changed or cancelled by the life assured whenever he likes without the consent of the Nominee.

Make sure, you have a nominee for your policy for easy settlement of the claim, if you do not have any nominee mentioned in the policy, it can turn out to be a disaster for your dependents to get a claim.

Nomination in Mutual funds

In case of mutual funds, you can nominate up to three people, who can be registered at the time of purchasing the units. While filling in the application form, there is a provision to fill in the nomination details. Even a minor can be a nominee, provided the guardian is specified in the nomination form. You can also change nomination later by filling up a form which is available on the mutual fund company website. Nomination in mutual funds is at folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also. A non-resident Indian can be a nominee, subject to the exchange control regulations in force from time to time.

Nomination in Shares

Quiz for you :). Now you know what a nominee means and who actually gets the money. So if there is a husband H, with wife W and nephew N, and he has nominated his nephew N to be the nominee of his shares in demat account, who will have the legal right to own the shares after husbandâ€^(TM)s death? If you answer is wife, you are wrong in this case! In case of stocks, it does not work the usual way, if a will does not exist.

In the verdict, Justice Roshan Dalvi struck down a petition filed by Harsha Nitin Kokate, who was seeking permission to sell some shares held by her late husband. The Court noted that as she was not the nominee, she had no ownership rights over the shares. Ms KokaTheâ€^(TM)s lawyer had argued that as she was the heir of her husband who had died intestate (without a will), she should have ownership rights of the shares, and be able to do anything with them as she wished. In this case, Ms Kokateâ€^(TM)s husband had nominated his nephew in favour of the shares. Justice Dalvi however noted that under the provisions of the Companies Act and the Depositories Act, Acts which govern the transfer of shares, the role of a nominee was different.

A reading of Section 109(A) of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case.â€

Source : Moneylife

It means that if you have not written a will, anyone who has been nominated by you for your shares will be the ultimate owner of those stocks, The succession laws on inheritance will not be applicable but in case, you have made a will, that will be the source of truth.

Nomination in PPF

Let me give you some shock first. If you have Rs 10 lakh in your public provident fund (PPF) account and you have not nominated anyone for your PPF account, your legal heirs will get maximum of Rs1 lakh only! Yes, itâ€^(TM)s so important to have a nominee, now you get it :). You can nominate one or more persons as nominee in PPF. Form F can be used to change or cancel a nomination for PPF. Also note that you cannot nominate anyone if you open an account for a minor.

Nomination in Saving/Current/FD/RD Account in Banks

FD's also come with nomination facility. While opening a new account, there is a column for nomination in the same form and you should fill it. You can nominate two persons with first and second option. Note that in case you have not done any nomination till now, you should request Form No DA-1 from your Bank which is used to assign a nominee in future. (Examples of ICICI Bank , HDFC Bank , Canara Bank) . In the same way to change/cancel the nomination you need to fill up Form no DA-2. Read about Corporate Fixed Deposits As per a famous case, A Bench of Justices Aftab Alam and R M Lodha in an order said that the money lying deposited in the account of the original depositor should be distributed among the claimants in accordance with the Succession Act of the respective community and the nominee cannot claim any absolute right over it.

Section 45ZA(2)(Banking Regulation Act) merely put the nominee in the shoes of the depositor after his death and clothes him with the exclusive right to receive the money lying in the account.It gives him all the rights of the depositors so far as the depositors's account is concerned. But it by no stretch of imagination make the nominee the owner of the money lying in the account," the Bench observed.

Conclusion

Now you know! Taking Personal finance for granted can be fatal :) Just investing knowledge, isnâ€^(TM)t enough to have a great financial life. You also need to be well versed with basic legal aspects and make sure you carry out all due arrangement . Nomination is one important aspect you should seriously consider, when checking for the financial products you have bought or plan to buy in future. Mistakes in Personal Finance Its important to make sure that your loved one's do not face legal issues and only say and think lovely thoughts about you when you are not around, rather than crib & grumble :)

Courtesy: Jagoinvestor.com

Avoid these 9 common mistakes in your Financial Life

We all are trying to make our Financial life better and better day by day and we are ready to do what ever it takes to improve it ! . However more than what you should do, you have to concentrate on what all to avoid ! . So Here I list 9 mistakes which if you avoid can substanially improve financial life

Mistake #1 : Spending more than you should

Sometimes, people spend impulsively, on things which they do not really need. Just because, your plastic card is in your wallet and you "might" need it in future makes you believe that you need to get it right now. A brand new camera, with a 100 megapixel sensor and a 2000 x zoom is available at an EMI of just 1999 per month -- and suddenly you're interested in Photography! An EMI of 2500 a month, for that magical million colour, anorexic Flat Screen TV creates a magical belief in you that your normal TV at home is now really blurry these days (not to mention really fat!) Is there a need, to splurge on Movies and eat out, every weekend?

A regular meal at home, with a movie on tv is also a good weekend, at times. With many people, savings occur, only if they are left with any money at the end of the month. This needs to change - start saving first, then spend on what's necessary and then spend on your desires - last. Financial planning does not mean compromising your dreams or what you love to splurge on; it's all about knowing what you need and what you don't, & knowing it well! .

Mistake #2 : No Financial Education to Spouse and Kids

Most people are more comfortable talking about SEX rather than FINANCE to kids (just kidding.) They dont feel the need to tell their children that they have bought life insurance for them (the kids) should they be hit by a bus tomorrow (the parents, not the kids :) ). Once children reach an age of maturity like 16 or 17; when they can understand things & reason well and can take on responsibilities to some extent... Please start telling them about money and finances. Once you are gone, you can't even regret. Kids should know what your work is & how much you earn. They should be clear on how you are saving money to fund their education, bike , trips etc. Once they know about life t it, chances are they will be a lot more supportive, would be realistic in their demands & stay well within their limits. Kids don't know sometimes, how much pain you take in earning money.

Most of the times, kids know your salary and your designation at company and assume the family to be a "higher middle class" one. Once you tell them about Home loan EMI, Car Loan, other liabilities, Retirement Savings, Education Expenses, Marriage expenses and the medical emergencies for which you are saving, they will have a better idea about the current situation and they will act responsibly. Parents feel a little uncomfortable, telling their kids these things, as they feel children are still young and such information will create unneccessary psychological pressure and they would not talk about their demands and be unhappy. Parents feel that children should start learning about finance and applying that knowledge, once they are in a job and start earning. I say, if your finances and spending habits are messed up today, a big reason could be that, your parents never talked about finance with you openly. The same applies to spouses. Imagine, if you had all the knowledge and best practices you have learned on this blog, 10 years ago; or when you started earning? The situation would have been very different today, wouldn't it? Dont let this happen to your kids: Teach them!

Mistake #3 : Imbalanced Asset Allocation

A lot of people have a tendency to start working and then never look at, or review their finances. Tax Planning is nothing more, than a "signature" on some form for them. Initiatives from their side are limited to just calling an "agent" and nothing more. When they finally look back at their finances, they find that they have 40 Lacs in FD's and 25 lacs lying in Bank. This happens a lot with NRI's working outside the country. These are 35 yrs old who have 90% in debt or Cash, and 3-4 mutual funds and shares bought in recent years just for "trying". This category misses a huge amount of returns which they could have made with just 4-5 hours of planning or hiring a proper investment consultant.

On the other hand, there are investors who have no PPF, no FD, no Debt Funds, no bonds; they just do share trading, buy direct stocks, invest in just Mutual funds (pure equity). Their imbalanced Asset allocation is responsible for the huge ups and downs their portfolio takes. One year the worth of their portfolio will be 10 lacs, the next year it will be 7, then suddenly it will be 14 lacs the next year. The numbers dance with huge fluctuations, but at the end of let's say, a decade, they look back & find they are nowhere better than their "High debt Instrument" kind of Investor brothers .

Mistake #4 : Buying products from Close One's

Will you sell a junk product to yourself if there's a 35% commission and it will be a burden to you all your life ? I don't think so, but if you had to sell it to your friend, colleague, brother-in-law, sister-in-law, father's friend etc, you'd consider it, wouldn't you? That's what happens in real life too. Most times, the "Best plan" comes from one of your relatives or some one known. STOP IT PLEASE! .

A simple NO might hurt your relations with said person, but it will save you, your hard-earned money, rather than waste it on idiotic products, which you'll regret for life :) It's just common sense that there are better advisors and consultants than your relatives or a close ones, unless they themselves are known and respected in the field (of finance). Read : "Papa Kehte Hain" problem in Personal Finance Most of the readers here, have shared their bitter personal experiences, where they bought products because it came from their relatives, Uncle's et al. This happens a lot with young guys yet to start working, and their fathers have bought policies for them and then delegated the premium paying responsibility to them once they start earning, it's a real "burden of legacy" .

Mistake #5 : Unrealistic returns

Risk free returns, in our country are amongst the highest in the world. In countries like US, the interest rates are 1-2%. Equity markets in our country continue to provide 12-15% annual returns (Find Why) . But how much do investors expect from equity these days? A lot! No one is ready to settle below 20-25%? 12% is abusive to them, & makes them feel like they are cheated. A reader told me that he earned 100% this year from equity (2009) and he will be happy with even 25% next time! LOL! This happens when you look at short-term returns.

Investors who started in 2004 started thinking that they are all "Warren Buffet" and can leave their jobs in some years! Whereas all investors who started in 2007 end or 2008 start compare equity with their mother-in-laws, they just can't stand it. Think long-term, and timing will just not matter much. For retirement and child education, which is 15-20+ years away, just start a SIP in an Index fund and then go into a COMA, come back once in a while and just review it every 6 months to a year. That's all.

Mistake #6 : Feeling special when it comes to Life or Health Insurance

I'm not sure why, but some people feel that they are god gifted. They feel good health is a good excuse to skip Health Insurance and just because they don't drive carelessly, it makes them "Accident proof". They don't realise that most people die in accidents not because they don't drive well; it's because the other person does not. Probability of dying is almost the same for everyone, but everyone feels that they have better chances, of not being part of an accident or an attack. Be realistic; especially in bigger cities the chances of accident is higher than smaller cities. Most and more casualties happen in bigger cities. Take adequate Life and Health cover.

Mistake #7 : Excessive Leverage and careless spending

In recent times, we spend like there's no tomorrow. Easy available credit for home loan & the tax breaks available on them, EMIs available as an option for buying almost anything these days; all these easy means for laying hands on money has suddenly changed the way we see "Acquiring Assets" and "Spending". Unlike our parents and grandparents, we are spending money, which we haven't even earned. We buy houses, cars, vacations etc., and then pay the cost for the rest of our working lives. In some cases, it might make sense, but a large section of society just lives beyond their means (See this eye-opener from Subrmoney) .

Research shows, that we feel less guilty when we pay with our credit cards rather than cash. When we use cards, we don't see money going out; there's just a consolidated bill at the end. Nothing can be done (or undone) then, you just pay it. Imagine you are paying cash every time you are buying something you really do not need. We buy unwanted clothes, & unnecessary gadgets we can do without. How many of us claim, sometimes that we just can't survive without a certain device, or feel that we can't enjoy our life without certain doodads? Didn't our parents and the old generation live without them or with limited quantities ? Why have we all suddenly shifted to plasma TV rather than the old TV we have used in our childhood? Of course, technological changes should happen and we should always move forward, but buying a Plasma TV just because it looks cool in your drawing-room, does not make sense at all; that too, if you haven't yet planned for your retirement or taken care of all the important goals in life. If it's really your need , then go ahead , I would encourage , but most of the time people buy it out of comparison with friends and relatives. Once your other priorities have been achieved , you can go for it, But not at the cost of something more important .

I've heard horror stories of people who have bought homes and are crying today. Their home prices are moving up, but the quality of life has drastically decreased. They suffer horrible amounts of stress because now, even small things in life which gave them happiness, look unaffordable... all because that 2 BHK Flat's EMI has to go through next month (A close look at Real Estate Returns in India). No quality trips & vacations, heavy stress because of insecurities of jobs. Imagine a double income family with income of more than Rs 1 lac, who belongs to top 1 percentile of the highest earners in the country, but not leading a happy life because of excessive debt they have taken on all the loans and not enjoying little things in life because of these issues . Whats the point of earning so well then ? Don't try to be over ambitious at the cost of your current lifestyle and happiness! If you can't manage your life successfully and happily, then the car, and the house, and all that financial planning is just a waste. (Read What is the goal of Financial Planning)

Mistake #8 : Short vision

Close your eyes and try to imagine your retirement, child education & marriage related expenses, and health care costs after 30 years. Can you predict your grocery bills after retirement? Living in present is great, but planning your future is critical now. Let us do a small exercise to show you what your dietary (food & eating) expenses at home after retirement will be. Consider a 30 years old couple today... How much do they need to eat a decent breakfast, lunch and dinner at home? Even if you consider a meal at Rs 25, that's Rs 150 for 3 meals/2 person a day, thats Rs 4,500 per month. I guess that's what the grocery bill of most married couples in their 30's would look like (I am unmarried, as yet). Now, Rs 4,500 per month today, means 25,000 per month after 30 yrs, which is 3 lacs per year just for groceries.

Forget inflation for now, if you live for 30 yrs after retirement (worst case), that's 30 years X 3 lacs = 90 lacs just for your breakfast, lunch and dinner and this, doesn't even consider inflation. Some people think they would need 1 crore for their retirement , LOL !! . You will require at least 10-15 crores, start working on it NOW !! . Pray to God, you don't live longer than that, else it would be really painful!

Mistake #9 : Not ready to pay for Advice

This is in our culture & our genes, it seems. The very idea of paying for advice is anathema to us. We rely on "free" advice most of the time. If we can get the top 10 mutual funds from valueresearchonline.com, then why pay someone for advice? When we know term insurance is best, and we have a good formula to calculate life insurance requirement, then why do we need a financial planner to tell us how much Insurance we need? If we have so many personal finance websites and magazines then why do we need financial planner, we can do it all by ourselves? We are a DYI (do it yourself) country! . I get many questions over email and comments, Imagine me asking for money for giving personalised advice, How many people will consider paying or will even accept that its fine ?

We must understand, however, that there are situations where you just can't match professionals in some areas. The other thing is some advice can be general. For example "top 10 mutual funds" might not work for you, & might not be suitable for your situation. A different set of mutual funds might work in your case and to analyse your situation, an investment consultant can be helpful. You have to take a call on whether its worth doing it all yourself or pay the fees & have a pro handle it. Take large real estate transactions for example; I am amazed to see many people mailing me questions on complicated real estate deals, they are doing themselves, which actually might need a CA attention or professional advice to deal with. But why pay the CA that extra 10k or 15k he will ask for? They then, make mistakes and in long run lose a big amount of money just because of ignorance and not having optimized the whole deal.

The above article is posted by Manish@Jagoinvestor.com

Choose Best Term Insurance Policy for your Family

Are you searching for the best Term Insurance policy which will take care you your children and spouse and overall family incase you are not around tommorrow ? This article will give you some direction on that and help you choose the Term plan for yourself ! .

LIC Term Insurance or Pvt Life Insurance Term Plan ? Which is the best term insurance in India ? Which Insurance company has the best claim settlement Ratio? Online term Insurance or Offline Term Insurance ? These are some of the questions which comes in the mind of every Term Insurance buyer! . So are you looking for Term Insurance comparison at one place ? Do you have all the sufficient information to decide which is the Best Term Plan you can buy?

Today I will show you all the data like riders, maximum/minimum tenure, max age till when term plan covers a person and data on the premium, Claim settlement Ratio at one place! . There are many term insurance plans in India, but all of them have different premiums and features which confuses a prospective customer to choose the best term plan for him. If you any question about Term plan you can look at these 9 most asked questions about Term Insurance

Looking at above comparison chart you would have got a fair idea about the online term plans also, which have recently made its entry in India.

Note : The premiums displayed are indicative and should not be considered as final

premiums as they are taken from online insurance comparision sites. Its only for

illustration purpose and very much correct as on Dec 2010 . They might change in

future, please check the premiums on the respective websites.

Brief overview of Riders

AD (Accidental Death) : The policy pays you additional sum assured in case the death happens due to an accident . Note that even if you don't take this rider, the sum assured is always paid on death, whether accidental or not !.

CI (Critical Illness) : This rider gives you a lump sum amount if you are diagnosed with an illness which is mentioned in the policy . Generally all the major illnesses are covered in Critical Illness cover.

DR (Accidental Disability Rider) : This rider covers you for disability and pays you Sum assured in 10 installments per year incase you becomes temporary or permanent disabled person.

WP (Waiver of Premium) : This rider makes sure that incase you are not able to pay future premium due to disability or income loss, the future premiums are waived off , but your policy is still in force like always !

Claim settlement Ratio of Insurance Companies

While deciding on a term plan, the biggest point which a person concentrates is the Claim settlement ratio (read this comment) . So here is the list of all the Insurance companies in India with the claim settlement ratio . The data are from the recent IRDA report for 2009-2010. One important detail you should note down is that 8 out of 23 life Insurance companies have reported profits , which are LIC, ICICI Prudential, Kotak Mahindra, SBI, MetLife, Bajaj Allianz, Sahara India and Aegon Religare . If you do not beleive in Term Plans then you should read this article .

Online Term Insurance vs Offline Term Insurance

With online term plans coming in market, two things has happened. First, Customers have really got excited seeing very low premiums which insure them at throw away prices, however low premiums does not appear on the top wish list of customers and what everyone needs is very high claim settlement ratio and excellent customer service. This is where online term plans have disappointed customers, there has been huge disappointment from ICICI iProtect and Aegon Religare iTerm Plan in terms of customer service. There have been cases where customers bought the online term plan and after that, they had horrifying experiences starting from increase of premium once they bought it, No-response from the company for long duration and Long & frustrating delays in medical tests. This is what pisses off customers most and they get a feel that If situation is bad at the time of buying the policy, then what will be the response when their families for claim settlement .

Another important point which comes to a persons mind is Are private Insurance companies safe ? and what is the claim settlement ratio of the company. From last year IRDA report, we came to know that Aegon Religare did not settle even a single claim out of total 7-8 claims they got . However, this years IRDA report (2009-2010) shows that its better at 48% settlement ratio for Aegon Religare, but Life Insurance is not a maths exam where 90-91% marks will make people happy. We all need 100% or 99% at least !. Because most of the companies are very new, the trust factor is missing from public. Note that not everyone who bought online term plans had bad experience, there are many buyers who got very good response and good customer service, but it was a smaller section . So if you a kind of buyer who understand Insurance very well and how things work in this area and you also have trust in online term plans then you can go for online plans. But if you are not comfortable with it, then you should try the old way of buying insurance through an agent.

However it would cost more than online term insurance, which many are comfortable with! . If you concentrate on the claim settlement and trust factor then the only option is LIC Term Insurance (Jeevan Amulya). However if you are fine with the pvt Insurance, but still want the best features, I personally see Kotak-preffered Plan as a good option. The premium for Kotak-Preffered is the lowest in the offline term plans and this plan has good riders along with other good options. Term Plan from LIC is obviously the best option if you do not believe in the pvt companies and insist on high claim ratio, but premium for LIC term plan is too high . So I think you can consider a mix of the LIC term insurance and any one from Pvt insurer.

Special Features in Some Term Insurance Policies

There are some term plans with very different set of features. Lets have a look at some of the those. These features can help you further in your decision.

Courtesy: Manish Chauhan @ Jagoinvestor.com

Know about Direct Tax Code

THE CHANGE
The new Direct Taxes Code and the Goods and Services Tax, both of which are set to transform the direct and indirect tax structure.

THE INTENT
Both the reforms are aimed at improving compliance by simplifying the tax structure and lowering the tax rate. While the DTC seeks to remove the anomalies in the way we save tax, the GST intends to do away with the cascading impact of taxes on goods and services.

THE IMPACT
While the intent behind the DTC is laudable, the government seems to have lost the plot. There is a chasm between what the DTC was originally meant to be and what was eventually tabled in Parliament. The maze of exemptions will continue. The tax slabs are much lower than promised and the enhanced savings limit of Rs 3 lakh is a sham.

"(The intent) was to improve the efficiency of our tax system by eliminating distortions in the structure, introducing moderate levels of taxation and expanding the tax base." PRANAB MUKHERJEE Finance Minister

Even so, the DTC proposes to remove some of the problems that plague the existing income-tax rules. One of the most important changes relates to life insurance and will push people to buy policies for the right reasons. Most customers buy life insurance to save tax, not to cover themselves against risk. But the DTC says that tax benefits will be available only if an insurance policy offers a life cover of at least 20 times the annual premium.

The DTC has also harmonised the tax rates for various asset classes. While equities will continue to be pampered with exemption on long-term capital gains, the distinction between short- and long-term capital gains from other assets will be eliminated. This will remove the discrimination between asset classes.

Home owners too stand to benefit from the new tax regime. The DTC proposes to remove the presumptive tax on notional rental income from a vacant house. This should be a relief for those who own two or more residential properties but haven't rented them out.

Use of Saral II (ITR-1) Form The taxpayer can now use the two-page Saral II or ITR-1, instead of the 8-page ITR-2, even if his income includes rent from a house or tax-free capital gains.

They will no longer have to pay tax on income they haven't earned.

If the DTC proposes to cut your tax liability, the GST could bring down prices. Right now, service providers, manufacturers, dealers and retailers pay taxes levied by the Centre and state governments at every stage of the supply chain. This cascading effect of taxes pushes up the costs of products and services, which the consumer has to bear.

Under the GST regime, businesses will be allowed to set off the taxes they have paid on inputs. This refund will lower production costs and will, hopefully, result in lower prices. The deadline for rolling out these tax reforms has been extended. The GST will be effective from April 2011, while the DTC will be from April 2012.

Courtesy: Business Today