In this post we cover the major Personal Finance news that happened in the week of July 21 – 27, 2014.
The one in quotes are our views!
Plan to Roll 1 Year FMPs to 3 years
Due to the recent change in taxation of FMPs, Mutual Fund Companies are offering investors to roll the 1 Year FMPs to 3 years. The fund houses are sending communication to investors and their consent is necessary for rolling the FMP to 3 years. In case no reply from investor the default option would be to redeem the FMP.
This is a win win situation for both investors and Fund Houses as Investors would get tax efficient returns while fund houses would get assets to manage. But investors should also look into their liquidity situation and check if they do not require this fund for next 2 years. FMPs are closed ended funds and don’t have liquidity on exchanges. So it would be difficult to get this money before it matures in next 2 years!
New Tax Structure on Non-Equity Funds from July 11
There was lot of criticism for retrospective taxation of Non-Equity Funds in Budget 2014. On July 25, the Finance Minister Arun Jaitely has confirmed that the new tax would be applicable only for redemption on or after July 11, 2014
This the least he could do. But he should ideally have used the Grandfather Clause – where in the investments made before July 11, 2014 should have been taxed by older method and the new tax should have been applied to new investments only. This was like a tax trap for investors who invested in non-equity funds!
No Cap on Gold Loan
The RBI (Reserve bank of India) has removed the limit of Rs 1 Lakh Gold Loan against Jewelry. Now banks are free to determine the amount of loan against gold jewelry and ornaments. However the loan can have maximum tenure of 12 months and the value of Loan should not exceed 75% of the value of jewelry.
This is good move by RBI. Also for customers its better to avail Gold Loan than Personal Loan as Gold Loan being secured loan are offered on lower interest rates.
HDFC Securities launches “e-Will”
HDFC Securities has launched “e-Will” writing service for estate and inheritance planning. Any person can register on the HDFC Securities website and prepare his will. You need provide a list of assets and the name of the person whom that would be bequeathed. The will needs to necessarily registered in case the assets is more than Rs 1 crore. The service would cost Rs 4,000.
Estate and Inheritance Planning are important part of a complete financial plan. Writing a Will enables easy transfer of the asset to next generation without much legal hassles. Also this ensures the assets are distributed in the way you always wanted and leaves less acrimony between heirs.
L&T Business Cycles Fund NFO:
L&T Mutual Fund will launch L&T Business Cycles Fund NFO on July 30 and it would remain open till August 13, 2014 for subscription. Its and open ended fund with the objective to generate returns by investing in multiple sectors and stocks of companies at different stages of their business cycles. The minimum investment is Rs 5,000.
I don’t find anything new in the L&T Business Cycles Fund. Essentially all Multi-cap and diversified equity mutual funds invest in companies at different stages of their business cycles and also in multiple sectors! I don’t find any compelling reason to invest in this NFO.
Kotak Assured Income Accelerator Launched
Kotak Life Insurance has launched Kotak Assured Income Accelerator on July 21, 2014. Its an Endowment Life Insurance Plan where the premium paying term varies from 7 to 15 years. After the premium paying term a guaranteed income increasing annually is paid during the payout phase. At maturity the Guarented maturtiy benefit is also payable. The sum assured is 10 times the annual premium and hence qualifies for both 80C benefit and sec 10(10D) – which means no tax on maturity.
This plan is similar to Bajaj Allianz Cash Rich Insurance Plan we had reviewed earlier. As we have stated many times Life Insurance should only be used to cover you life risk and not for investment. I calculated the return on policy for a 35 Year Male paying 60,000 as annual premium. The annual return turns out to be 4.76%. So my recommendation is to stay away from Kotak Assured Income Accelerator. You would be better off by investing in PPF and then may be buying annuity on retirement for regular income.
Future Generali Care Plus Plan Launched
Future Generali India Life Insurance Company Limited has launched the Future Generali Care Plus Plan – a pure Life Insurance Term Plan. There are two options to choose from:
- Classic option provides life insurance cover up to Rs 25 Lakhs while
- Premier Option offer life insurance cover of more than Rs 25 Lakh
As with most insurance providers, Non-smokers get preferential rates!
Term Life Insurance are the best form of Life insurance as they provide high insurance cover for low premium. Before deciding which one to buy you should compare some of the factors like Death Settlement Ratio of the Life Insurance company and the Time it takes to Settle a death Claim!