Author: Nilesh Harde

Use Liquid Funds to Earn More than Savings Account

Use Liquid Funds to Earn More than Savings Account

Liquid funds belong to the debt category of mutual funds. They invest in very short-term market instruments like treasury bills, government securities and call money. They are getting popular with retail investors as they offer much higher returns than a savings bank account and because you can cash out in a day

1. When should you invest in liquid funds?
Liquid funds are used by investors to park their money for short periods of time typically 1 day to 3 months. For example, if you are saving money for a vacation to be undertaken three months from now, you could park it in a liquid fund. Many equity investors also use liquid funds to stagger their investments into equity mutual funds using the systematic transfer plan (STP), as they believe this method could yield higher returns and help them beat volatility over a period of time.

2. How fast can such funds be redeemed? What return can an investor expect?
Once an investor gives the redemption request before the cut-off time on a business day, the money reaches their bank account the next working day. There is no entry or exit load by fund houses in liquid funds. As per data, the category of liquid funds has given a return of 6.84% over the past year. This is higher than the 3.5-6% offered by banks on their savings account.

3. What is the risk of investing in liquid funds?
Financial planners consider liquid funds to carry lowest risk as well as least volatility in the category of mutual funds. This is because they generally invest in instruments with high credit rating (P1+). The net asset value of these funds sees a change to the extent of interest income accrued, including on weekends.

4. How are liquid funds taxed?
Liquid funds held for more than three years are eligible for long-term capital gains tax with indexation. If you sell before three years, you have to pay tax as per your tax slab. If you opt for the dividend option, the fund will be subject to a dividend-distribution tax of 28.84%.

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Why an MF Investor Should Appoint a Nominee?

Why an MF Investor Should Appoint a Nominee?

Nomination facility is offered for the transfer of mutual fund units in case of the unfortunate demise of the unit holder
What is nomination for mutual fund investors?
Nomination is the process of appointing a person to take care of the assets in the event of the investor’s demise. A nominee can be any person — spouse, child, another family member, friend or any other person you trust. Nomination facility is mandatory for new folios/accounts opened by individuals with single holdings. In case of joint holdings where there are more than one holders, it is not mandatory to have a nominee, but financial planners recommend that new folios should always have a nominee.

What if an investor does not wish to appoint a nominee?
If the investor does not wish to nominate, he must sign and indicate the same by signing on the requisite space.

How does a mutual fund investor make a nomination?
When you invest in a mutual fund, there is a column where you can fill the details of the nominee. Individuals holding accounts either singly or jointly can make nomination. But non-individuals including society, trust, body corporate, karta of Hindu undivided family (HUF), holder of power of attorney cannot nominate . Nomination for joint holders is permitted, but in the event of the death of any of the holders, the benefits will be transmitted to the surviving holder’s name. Only in the case of death of all holders will the benefits be transmitted to the nominee.

How many nominees can an investor appoint?
An investor has an option to register up to three nominees in a mutual fund folio. The investor can also specify the percentage of amount that will go to each nominee in case of his death. If the percentage is not specified, each nominee will be eligible for an equal share.

What are the benefits of appointing a nominee for your MF investments?
When a nomination is registered, it facilitates easy transfer of funds to the nominee(s) in the event of demise of the investor. However, in the absence of nominee, the heirs/claimant will have to produce a number of documents like a will, legal heir certificate, no-objection certificate from other legal heirs etc to get the units transferred in his/her name.

Is it possible to change a nominee once an investment is made?
Yes, the nominee can be changed/added/subtracted any time as per the investors wish.

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Steps to secure your child’s future using mutual fund

Steps to secure your child’s future using mutual fund

When it comes to future of your child, you do not think twice. You will do whatever it takes. You can build it brick by brick and one step at a time without hurting your finances. Mutual Funds are a way to go.

Here are 5 steps to secure your child’s future with mutual funds

1. Set Goals

Know the purpose you wish to save for and invest the money accordingly. It could be an international school admission or a professional degree at a university. Set your sight on a figure that will ensure your child gets the education he or she wants.

2. Save First

Once you know your goals, set aside some money before you spend the rest. It is important to get into a good savings habit every month as this is the stepping stone to your child’s secured future.

3. Start with SIPs

A way to get into a discipline of investing is by using SIPs. Systematic investment plans or SIPs help you in ‘rupee cost averaging’. This means you buy more units when markets fall and lesser units when markets rise. You can start with as little as Rs 500 every month.

4. Use SIP Top Up

As your income grows, you could boost your allocation to SIPs by using the SIP top up. This increases the amount you set aside each month for your child’s future. A timely top up can make a significant difference to the final amount you receive when you need it.

5. Do not stop investing

You must continue with your monthly MF investing habit till you meet your goals. If you stop investing for some reason, figure out a way quickly to replenish the child education kitty. The more you stay away, the more you hurt your prospects of reaching your goals on time.

It makes sense to allocate your SIPs into diversified equity funds. You money grows along with your child. To reap the benefit, you need to give your money that much time.

Using SIP Calculator, To prepare a plan and illustration of your investment. Download Mobile app from

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Systematic Withdrawal Plan (SWP)

Systematic Withdrawal Plan (SWP)

What is Systematic Withdrawal Plan (SWP)?

A Systematic Withdrawal Plan (SWP) is a facility that allows an investor to withdraw money from an existing mutual fund at predetermined intervals. Systematic withdrawal plans are used by investors to create a regular flow of income from their investments. Investors looking for income at periodical intervals usually invest in these funds. Often, a Systematic Withdrawal Plan is used to fund expenses during retirement.

Systematic Withdrawal Plans is of advantage to investors who require liquidity as it allows account holders to access their money exactly when they need it. This makes it easier for the account holders to carry out their financial plans and meet their goals.

How does SWP work?

When you want to sell mutual fund you usually have two options either sell all at once or opt for a Systematic Withdrawal Plan. Systematic Withdrawal Plan, allows you to withdraw a fixed sum of money every month or quarter depending on the option chosen and instructions given by you.

As per your instructions the Mutual fund will redeem an equivalent amount of mutual funds from your account as per the prevailing Net Asset Value (NAV). This process helps investor to get a fixed amount of money every month or quarter.

Let’s understand this process with the help of an example:-

Let’s say you have 5,000 units in a Mutual Fund scheme. You have given instructions to the fund house that you want to withdraw 8,000 every month through SWP. Now let’s assume that on 1 December, the Net Asset Value (NAV) of the scheme is 20.

Equivalent number of MF units = 8,000 / 20 = 400
400 units would be redeemed from your MF holdings, and 8,000 would be given to you.
Your remaining units = 5,000 – 400 = 4600
Now say, on 1 January, the NAV is Rs. 21.
Equivalent number of units = 8,000 / 21 = 380
380 units would be redeemed from your MF holdings, and 8,000 would be given to you.
Your remaining units = 4600 – 380 = 4220

In this way, units from your mutual fund holdings are redeemed in a systematic way to provide you with continuous income.

What are types of SWP’S?

Under SWP, withdrawals can be fixed or variable amounts at regular intervals. These withdrawals can be made on a monthly, quarterly, semi-annual or annual schedule. The holder of the plan may choose withdrawal intervals based on his or her commitments and needs.

SWP is usually available in two options:

Fixed Withdrawal: Under this you specify amount you wish to withdraw from your investment on a monthly/quarterly basis

Appreciation Withdrawal: Under this you can withdraw your appreciated amount on a monthly/quarterly basis

Using SIP Calculator-SWP Calculator, To prepare a plan and illustration of your SWP investment. Download Mobile app from

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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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Systematic Transfer Plan (STP)

Systematic Transfer Plan (STP)

What is Systematic Transfer Plan (STP)?

Systematic Transfer Plan (STP) is a strategy where an investor transfers a fixed amount of money from one category of fund to another, usually from debt funds to equity funds. Investing a lump sum amount in stocks or equity mutual fund could be dicey for the investor as equity markets are volatile and returns in equity mutual fund is linked to the performance of stock market. Systematic Transfer Plan helps to keep a balance of risk and return.

BENEFITS OF STP

1. Consistent return – Money invested in debt fund earns interest till the time it is transferred to equity fund. The returns in debt fund are higher than returns from savings bank account and assure relatively better performance

2. Averaging of cost – STP has some integral features of systematic investment plan (SIP). Similar to SIP every month an amount is invested in an equity fund. One of the differences between STP and SIP is the source of investment. In case of the STP, money is being transferred from a debt fund and in case of SIP, from investor’s bank account. Since it is similar to SIP, STP helps in averaging out the cost of investors by purchasing fewer units at a higher NAV and more at a lower price

3. Rebalancing portfolio – An investor’s portfolio should be balanced between equity and debt. STP helps in rebalancing the portfolio by reallocating investments from debt to equity or vice versa. If investment in debt increases money can be reallocated to equity funds through systematic transfer plan and if investment in equity goes up money can be switched from equity to debt fund

How does STP work?

Say if a person wants to invest 2,40,000 amount in an equity fund through STP, he will have to first select a debt fund which allows STP to invest in that particular equity fund. After selecting the debt fund invest all the money that is 2,40,000 in the debt fund. Now you have to decide an amount which will be transferred from debt fund to equity fund and the frequency (i.e he may choose 5000 amount to be transferred in 36 installments on a monthly basis).

Every month on the fixed date amount 5000 will be transferred from the debt fund to the desired equity fund.

What are types of STP’S?

Fixed STP – In this type of Systematic Transfer Plan the transferable amount will be fixed and predetermined by the investor at the time of investment

Capital Appreciation – The capital appreciated gets transferred to the target fund and the capital part remains safe

Flexi STP – Under Flexi STP investor have a choice to transfer variable amount. The fixed amount will be the minimum amount and the variable amount depends upon the volatility in the market. If the NAV of the target fund falls investment can be increased to take benefit of falling prices and if the market moves up the minimum amount of transfer is invested to take advantage of increasing prices. Transfer facility is available on a daily, weekly monthly and quarterly interval

Using SIP Calculator-STP Calculator, To prepare a plan and illustration of your STP investment. Download Mobile app from

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Updating a minor’s PAN card once they become adults

Updating a minor’s PAN card once they become adults

A PAN card issued in the name of a minor does not contain the minor’s photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature.

Application

The applicant is required to fill up the ‘Request for New PAN Card Or/ And Changes Or Correction in PAN Data’ form.The form can be filled up online by accessing NSDL’s Tax Information Network website and clicking on the online PAN application tab.

Information

The applicant must mention the existing PAN number in the application and check the ‘photo mismatch’ and ‘signature mismatch’ boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs.

Documents

Identity and address proof in the form of a copy of the applicant’s Aadhaar card, passport, voter ID or bank account statement should also be enclosed with the application form.

Fee

A fee of Rs 107 needs to be paid either through online banking or by credit/debit card. Alternatively, a demand draft of Rs 107 drawn in favour of NSDL-PAN must be enclosed with the application.

Process

Once the online form has been submitted, the applicant will receive an acknowledgement number. The completed application must be dispatched to the nearest NSDL or UTISL-approved centre.

Points to note

  • The applicant can find out the status of his application by quoting the acknowledgment number. https://tin.tin.nsdl.com/pantan/StatusTrack.html
  • If necessary, the applicant can also make other changes to the PAN data (address or name correction, etc.) at the same time, by submitting the relevant documents.
  • The applicant should ensure that the proof of address, identity, etc. enclosed with the application is valid.
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Marginal Cost of Funds based Lending Rate (MCLR)

Marginal Cost of Funds based Lending Rate (MCLR)

  1. Marginal Cost of Funds based Lending Rate (MCLR) is the new RBI guideline for commercial banks to set lending rates. It has replaced the base rate system.
  2. Marginal cost of funds is a key component in calculating MCLR. Changes in key rates like repo rate, which alter marginal cost of funds,will impact MCLR.
  3. MCLR is a tenure-based benchmark, not a single rate. Banks have to publish at least five MCLR rates across the overnight, one-month, three-month, six-month and one-year tenures.
  4. The final lending rates offered by the banks is arrived at by adding the ‘spread’ to the MCLR rate.
  5. All floating rate loans are linked to MCLR.
  6. Existing borrowers with loans linked to base rate can continue with them till maturity or switch to the MCLR system. However, once a borrower opts for MCLR, they can’t switch back.
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Common Account Number (CAN) for mutual funds

Common Account Number (CAN) for mutual funds

The Mutual Fund Utility (MFU) provides a common platform for investors to transact across different mutual funds using a common account number (CAN). The investor is allotted a CAN as a single reference for all investments. The investor gets the benefit of a single view of all MF investments, single payment for multiple transactions, centralized complaint redressal and single point communication in case of changes in details.

Form

In order to get a CAN allotted, an investor needs to submit a duly filled CAN Registration Form at any of the nearest points of service (POS) of MF Utilities India Pvt Ltd (MFUI) or a distributor signed-up with the MFUI or a participating AMC branch. CAN forms can also be downloaded from the MFU website.

Documents

Following documents needed with the application form:
1. PAN proof
2. Proof of KYC,
3. Proof of Date of Birth
4. Proof of Bank Account for bank mandates registered under the CAN
5. Proof of depository account
6. Proof of guardian relationship (in case of minor applicants)

Existing investments

The existing investments of investors are not migrated by MFU. However, upon creation of a CAN, MFU will map the existing folios of the investor/s across mutual funds to the CAN, based on the PAN, holding pattern and other parameters.

Modes of holding

In case of joint holdings, a separate CAN is created for different combinations of investor holdings. CAN is provided for a combination comprising different number of investors 1, 2 or 3, order of holding, mode of holding (single, joint, anyone or survivor)and tax status.

Points to note

KYC compliance is compulsory for CAN creation.

Using SIP Calculator, To prepare a plan and illustration of your investment.
Download Mobile app from

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Tax Benefits of Health Insurance and medical expenses

Tax Benefits of Health Insurance and medical expenses

As a first step in your financial plan, you must ensure that you have adequate health insurance for self and family members. Buying health insurance will serve the purpose of protecting financial instability and give access to quality health care.

Premium paid for health insurance also enjoys certain tax benefits in income tax act 1961 that you must know to reduce your tax liability.

Section 80D – Income tax benefit on health insurance

While calculating your taxable income for a financial year, premium paid during that year for the health insurance policy can be claimed as tax deduction under section 80D of income tax act 1961.

Please remember that tax benefit available under section 80D is over and above the limit of Rs 1, 50,000 as specified under section 80C.

In order to claim tax deduction under section 80D, you need to pay the premium either through a cheque or credit card as cash payment does not qualify for tax deduction under this section.

Under section 80D, you can avail tax deduction up to Rs 25,000. If its for a senior citizen then tax deduction will be up to Rs 50,000 (FY 18-19).

Section 80DD – Tax deduction on health insurance premium paid for handicapped relative

Under section 80DD, you can avail tax benefits if premium paid for health insurance is for a handicapped dependent relative.

Deduction can be claimed up to Rs 75,000 if the handicapped dependent’s disability is between 40% and 80%. In case of more than 80% disability, tax deduction limit is Rs 1,25,000.

Section 80DDB – Tax benefit for medical treatment of a relative suffering disease

Medical expenses incurred by you on the treatment of your relative suffering from a specified diseases like AIDS, Parkinson’s, chronic renal failure, malignant cancers, thalassemia, haematological disorders, dementia and other specified neurological diseases can claim tax deduction of Rs 40,000 under section 80DDB.

For a senior citizen and very senior citizen, tax deduction limit is Rs 1,00,000 (FY 18-19).

Section 80U – Tax Deduction for Self Suffering from disability

If you are suffering from any disability then tax deduction can be claimed under section 80U of income tax act 1961. If your disability is not less than 40% then tax deduction of Rs 75,000 can be claimed. If disability is 80% or above then you can claim a higher deduction of Rs 1,25,000.

Using Income Tax Calculator, To calculate and Optimize you tax outgo. Download Mobile app from

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