Author: nilesh.harde

Buying MFs in Child’s Name

Buying MFs in Child’s Name

With the cost of higher education estimated to rise by as much as 10-12% annually, parents are keen to build a corpus for their child’s higher education gradually. Many of them want to do this using mutual funds by contributing in the child’s name.

CAN A MUTUAL FUND INVESTMENT BE MADE IN A CHILD’S NAME?
Yes. Mutual funds accept investments in the name of a minor (below 18 years of age) in any scheme-equity, debt, hybrid, gold/silver, or international funds. However, in such a folio, the child will be the first and sole holder, and no joint holders are allowed. The guardian must be either of the parents (father or mother) or a court-appointed legal guardian. The guardian manages the account until the child reaches the age of majority, after which the child gains control.

HOW DOES THIS WORK? WHAT DOCUMENTATION IS REQUIRED?
For a mutual fund investment in a child’s name, one must submit a valid document as proof of the child’s age and the parents’ relationship with the child. Fund houses accept documents such as a birth certificate or passport copy, which establish both the date of birth of the minor and the guardian’s relationship (natural or legal). These documents need to be provided while making the first investment or opening a folio. In addition, the guardian must be compliant with KYC regulations. Investments can be routed either through the child’s bank account or the parents’ bank account.

WHAT TRANSACTIONS CAN BE DONE IN A CHILD’S MUTUAL FUND ACCOUNT?
All transactions lump sum investments, systematic investment plans (SIPs), systematic transfer plans (STPs), switches – can be done in the child’s account, operated by the guardian. This will continue until the child attains majority.

WHAT HAPPENS WHEN THE CHILD TURNS 18?
When the child turns 18, all existing SIPs/STPs in the folio will be suspended. The folio will be frozen for operation by the guardian from the date the minor attains majority. Once the child turns 18, he or she must independently operate the account. The minor must submit, on attaining majority, an application form along with prescribed documents to change the status of the folio from ‘minor’ to ‘major’. The child who is now a major will need to have a PAN card and need to be KYC compliant.

WHAT ARE THE ADVANTAGES OF INVESTING IN A CHILD’S NAME?
● Investing in the name of a child enhances the discipline of the parent or guardian. It makes them more consistent and also, more on towards achieving the financial goal. Once you are emotionally attached to the investment, withdrawing from the fund will be the last thing on your mind.

● Also, it’s not just parents or guardians. Having a separate investment account in the name of a child makes him/her more aware regarding financial responsibilities. The feeling of owning an investment product from an early age inculcates a saving habit in the child. The child can consider mutual fund investment as his/her piggy bank and save accordingly.

● More importantly, mutual fund investment for the long term will increase the tax efficiency of the taxpayer. Till the time a child is a minor, any capital gains out of the mutual fund investment will be taxed as per the parent’s or guardian’s tax slab. Once the minor turns above 18, the capital gain tax will be in the hands of the child. Moreover, after the age of 18, the child might be in a comparatively lesser income tax bracket than that of a parent or a guardian. Therefore, the tax liability on the minor would be nominal.

WHAT ARE THE DISADVANTAGES OF INVESTING IN A CHILD’S NAME?
● Once the child has turned 18, you will need to change the status of the investment account from minor to major. It is important to do it, otherwise, the account will be restricted from future transactions.

● Also some parents worry that once the child turns 18, he or she will be able to operate the account independently, leading to a loss of parental control over the investments. They fear that at such a young age, seeing a large corpus could tempt the child into misusing it.

Make an informed decision when it comes to your child’s future. Always remember, what works for someone else may not work for you. Hence, invest as per your comfort.

Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.

Flexi Cap Funds

Flexi Cap Funds

WHAT ARE FLEXI-CAP FUNDS?

Flexi-cap funds give fund managers the freedom to invest across the market spectrum—large, mid, or small-cap stocks —without the rigid allocation rules of other categories. The only mandate is that at least 65% of the portfolio must stay in equities and equity related instruments. This flexibility allows the fund manager to chase opportunities wherever they see value, with the liberty to pick a benchmark that best reflects the scheme’s strategy.

HOW ARE FLEXI-CAP FUNDS DIFFERENT FROM OTHER EQUITY CATEGORIES, INCLUDING MULTI-CAP FUNDS?
Unlike large-, mid- and small-cap funds that are bound by strict allocation rules, flexi-cap funds give managers the leeway to invest across the entire market without restrictions. Multi-cap funds may look similar, but they too have a fixed mandate: they must allocate at least 25% each to large, mid and small caps. Large-cap funds must invest at least 80% in the top 100 companies by market value, while mid-cap funds are required to put 65% into firms ranked 101–250 and small-cap funds 65% into those ranked 251 and below. In comparison, flexi-cap funds face no such constraints, allowing managers to move across large-caps, mid-caps and small-caps depending on the market conditions. This flexibility is what has made them popular among investors.

WHO SHOULD INVEST IN FLEXI-CAP FUNDS?
Flexi-cap funds are suited for long-term equity investors or first-timers with a moderate risk appetite who want exposure to Indian equities without the hassle of picking individual stocks. They work well as a core portfolio holding for those seeking just one diversified fund where the manager decides the mix across large-, mid- and small-caps to balance risk and volatility. Investors planning to build wealth steadily through systematic investment plans (SIPs) can also consider this category.

Know the Risks Of Investing in Gilt Mutual Funds

Know the Risks Of Investing in Gilt Mutual Funds

WHAT ARE GILT FUNDS?
Gilt funds are debt mutual funds that invest mainly in government bonds. Since these bonds are backed by the government, they are very low-risk, making gilt funds a safer option for conservative investors. The portfolio of these schemes is a mix of government securities with different maturities.

HOW DO GILT MUTUAL FUNDS WORK?
To meet its borrowing needs, the central and state governments raise money by issuing government securities (G-Secs) through the Reserve Bank of India (RBI). Gilt mutual funds invest in these G-Secs. The government pays interest during the tenure of the security, and when it matures, the fund receives the principal back.

WHO SHOULD INVEST IN GILT FUNDS?
Aggressive fixed-income investors who believe interest rates have peaked and may fall over the next 9-12 months can consider accumulating gilt funds in their portfolio. A decline in interest rates typically pushes up the NAV of long-duration gilt funds, leading to capital appreciation.

HOW DO THESE FUNDS MAKE GAINS FOR INVESTORS?
Gilt funds earn returns in two ways. First, they receive interest income from the government on the securities they hold. Second, gilt funds can make capital gains by actively buying and selling government securities. Since bond prices and interest rates move in opposite directions, funds benefit when interest rates fall. That’s when bond prices move up, resulting in capital gains.

WHAT ARE THE RISKS?
When interest rates go up, bond prices fall, which can lower returns or even cause losses if the fund sells the securities before maturity. An yields on the 10-year benchmark government bond moved up from 6.3% to 6.6%. This resulted in a fall in prices of government bonds, resulting in mark-to-market losses in gilt funds. There are, however, no default risks in gilt funds because of the sovereign guarantee.

HOW ARE GILT FUNDS TAXED?
Gilt funds are treated like other debt mutual funds for tax purposes. If you choose the growth option, tax is levied only when you redeem your investment. For investments made on or after April 1, 2023, any gains are added to your income and taxed as per your applicable income tax slab.

Should I take Return of Premium option in Term Insurance?

Should I take Return of Premium option in Term Insurance?

Comparison of Term Insurance Options for a 35-Year-Old Person

OptionAnnual Premium (₹)Maturity Value (₹)Extra Investment Opportunity (₹)Potential Additional Wealth (₹)
1. Pure Term Insurance19,930029,211
2. Term Insurance with Return of Premium (TROP)49,14114,74,23000
3. Term Insurance + Investing Difference at 8%19,930 + 29,21114,74,230 + 35,73,845+20,99,615
4. Term Insurance + Investing Difference at 12%19,930 + 29,21114,74,230 + 78,95,517+64,21,287

Advantages & Comparison

1. Pure Term Insurance (Option 1)

  • Lower Premium: ₹19,930 per year, ensuring affordability.
  • Higher Coverage for Less: The primary objective of term insurance is protection. This option provides a ₹1 crore life cover at the lowest cost.
  • No Maturity Benefit: If the insured survives the term, there is no return of premiums.

2. Term Insurance with Return of Premium (TROP) (Option 2)

  • Guaranteed Maturity Benefit: If the policyholder survives, they get ₹14,74,230 back.
  • Higher Premium: ₹49,141 per year, which is 2.47x the cost of pure term insurance.
  • Lower Return on Investment: The effective return on premium (₹14,74,230) is very low compared to what the additional premium could earn elsewhere.

3. Term Insurance + Investing the Difference at 8% (Option 3)

  • Same Life Cover as Option 1: ₹1 crore coverage.
  • Wealth Generation: If the additional ₹29,211 is invested at 8% annually, it can generate ₹35,73,845 in 30 years.
  • Better Returns than TROP: Compared to the TROP’s maturity amount, this generates an additional ₹20,99,615.

4. Term Insurance + Investing the Difference at 12% (Option 4)

  • Highest Wealth Growth: Investing the difference at 12% results in ₹78,95,517 in 30 years.
  • Maximum Additional Wealth: Compared to TROP, this option generates ₹64,21,287 extra.
  • Flexibility: Unlike TROP, investments can be liquid, allowing withdrawals when needed.

Final Conclusion: Which is the Best?

  • TROP (Option 2) is a poor choice because the returns are significantly lower than what can be achieved by investing the difference separately.
  • Pure Term Insurance + Investing the Difference (Option 3 or 4) is superior, especially if one can achieve returns of 8% or 12%.
  • Higher returns mean massive wealth creation: With 12% returns, you can generate over ₹64 lakhs more than the TROP option.

Thus, Option 4 (Pure Term Insurance + Investing Difference at 12%) is the best strategy for maximizing financial benefits.

Budget 2025 Highlights

Budget 2025 Highlights

  1. No income tax on annual income of up to Rs 12 lakh in new tax regime
    Zero to Rs 4,00,000- No Tax
    Rs 4,00,000 to Rs 8,00,000—5%
    Rs 8,00,0001 to Rs 12,00,000—10%
    Rs 12,00,001 to 16 lakh rupees—15%
    Rs 16,00,001 to 20 lakh rupees—20%
    Rs 20,00,001 to 24 lakh rupees– 25%
    Above 24 lakh—30%
    • A tax payer in the new regime with an income of 12 lakh will get a benefit of 80,000 in tax (which is 100% of tax payable as per existing rates).
    • A person having income of 18 lakh will get a benefit of 70,000 in tax (30% of tax payable as per existing rates).
    • A person with an income of 25 lakh gets a benefit of 1,10,000 (25% of his tax payable as per existing rates).
  2. TDS limit for senior citizen on interest hiked from present Rs 50,000 to Rs 1,00,000
  3. TDS exemption limit for rent payment hiked – annual limit of Rs 2.40 lakh is increased to Rs 6 lakh

Home loan closure checklist

Home loan closure checklist

1) Refer to the ‘list of documents to submit’ when making the application for a loan, and make sure that all the original documents are recovered.

2) Ensure that the documents are complete and received in good condition, in the presense of a bank official, before signing the acknowledgement.

3) Take an NOC from the lender, specifying the address of the property against which loan was taken, name of the borrower and the loan account number.

4) Request the lender to inform CIBIL regarding the closure of the loan account. The process should take about 30 days from date of loan closure.

5) Ensure that any lien is removed after the closure of the loan. An existing lien will create problems during the sale of the property.

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Home loan balance transfer

Home loan balance transfer

The interest rate of an existing home loan and the flexibility the financing institution offers determines whether one continues with the same loan or thinks of a switch. For a lower interest rate and/or other advantages, customers can transfer the outstanding balance to another financial institution or bank. The new finance company pays the old lender the outstanding principal due on the loan.

Who is eligible?

A borrower who has a paid at least 12 EMIs and has a decent credit rating is most likely to get balance transfer offers from other housing finance lenders. The lending institution may also prescribe minimum loan amount eligible for balance transfer.

Application

A new housing loan application must be made to the new lending institution. Some housing finance companies offer online application facilities to complete this process.

Documents

Documents such as photograph, bank statements, photocopies of identity and address proof, income documents need to be provided. In addition, the following documents will be required:

  •  A letter on the letterhead of the existing lending institution stating the list of property documents held by them.
  • Latest outstanding balance letter from the lending institution.
  • Photocopy of property documents.

Foreclosure of existing loan

Foreclosure formalities need to be carried out for the existing loan. The new lending institution may make a payment of the outstanding principal amount in order to release the original documents from the previous lending institution.

New loan agreement

A new loan agreement is entered between the new housing finance institution and the borrower.

Points to note

  • Consider costs involved before taking the decision to do a balance transfer.
  • As per RBI norms, no foreclosure charges shall be levied on floating interest rate loan to individuals by the earlier housing finance institution.
Joint Home Loan – Tax benefits and other advantages

Joint Home Loan – Tax benefits and other advantages

Purchasing a house is a major financial decision. It requires large investment due to high property rates across leading cities in India. Higher property rates would mean higher loans but sometimes, single income is not enough to make one eligible for a higher amount that one requires. Under such conditions, a joint home loan is a suitable option which helps you to get higher credit/loan. In simple terms, it just means 2 applicants applying for a home loan to purchase a house. With additional income of the co- applicant being considered for eligibility, the affordability towards availing a home loan shoots up

Most lenders consider the following parties as eligible co-applicant of a joint home loan:

What parties can be co-applicant?

  • Married couples
  • Father and son (son being the primary owner in case of multiple heirs)
  • Father and unmarried daughter (daughter being the primary owner of the property)
  • Mother and unmarried daughter
  • Brothers (in case of co-owned property)

What parties cannot be co-applicants?

Sisters, brother-sister, cousins, friends and unmarried partners may not be considered as eligible co-applicants.

What are the main benefits of a Joint home loan?

  • Ability to get higher loan: A joint home loan – sanctioned on the basis of the combined earning capacity of the co-applicant – lets you borrow a significantly higher amount. You can thus purchase that larger or a more expensive house that you longed for, by taking a joint home loan.
  • Higher tax saving (on combined basis)All the co-owners can avail tax benefits on a joint home loan. Each co-owner, who is also a co-applicant, can claim the following benefits:

Tax ceiling

  • Exemption of up to Rs.1.5 lakh on repayment of principal amount of home loan (Section 80C of the Income Tax Act) for each co-applicant
  • Exemption of up to Rs.2 lakh on interest paid on home loan (Section 24 of the Income Tax Act) for each co-applicant

Explaining the tax benefit with an example

The tax benefits are computed on the basis of the proportion of home loan taken by the co-applicants. For example, if there are two co-applicants who have taken a joint home loan of Rs.20 lakh (where the first applicant is sanctioned Rs.12 lakh based on his borrowing ability and the second applicant is sanctioned the balance Rs.8 lakh), the proportion of borrowing is 60% (first applicant) and 40% (second applicant). In this case, 60% of the loan repayment and interest paid is considered as the tax benefit available for the first applicant, while the balance 40% is the tax benefit available for the second applicant.

By taking a joint home loan, the co-applicants can claim higher tax benefits than the benefits that can be taken by a single applicant. Here is an example to explain this:

Individual vs Joint home loan – Tax benefit scenario

Type of Home LoanAnnual Interest PaymentMaximum Tax Benefit (under Section 24 of the Income Tax Act)
Home Loan taken by individual applicantRs.4.0 lakhRs.1.5 lakh
Joint Home Loan taken by two co-applicants (in equal proportion)Rs.4.0 lakhRs.1.5 lakh each or Rs.3 lakh on combined basis

As seen above, in case of joint borrowing, higher tax savings are possible. To avail the tax benefits, you need to furnish a home sharing agreement indicating the ownership proportion on a stamp paper.

Important things to consider before you take a joint home loan:

  • The co-applicant may not be the co-owners of the property; however, most lenders insist that all the co-owners should be the co-applicant of a joint home loan.
  • All co-applicant are jointly and severally liable to repay the loan. Default in payment by one applicant may adversely affect the credit score of all the applicant.
  • It is advisable for co-applicant to take separate life insurance to reduce the financial burden in case of death of any applicant.