Outlook Money - December 2016

Photo Feature pg 28

Predictions 2017 pg 70

December 2016, `50

o u t lo o k m o ne y.c o m

The besT

savers 2016-17

THE RIGHT TIME TO SAVE TAX IS RIGHT NOW.

00

wi

th a

s little as `5

Since you work so hard to earn your money, shouldn’t you be looking for a smart way to save tax? Which leads to one big question.

So what do I do with my money? Consider Equity Linked Savings Schemes (ELSS), as they give you the dual benefit of tax saving along with the potential to earn capital appreciation.

TAX SAVER FUND TAX SAVINGS: Up to Rs 51,912* can be saved in a financial year SHORTEST LOCK IN PERIOD AMONG TAX SAVING INSTRUMENTS: Lock in period of only 3 years GROWTH POTENTIAL: High caliber stocks with the potential to outperform#

To know more, speak to your investment advisor or visit dspblackrock.com/tax THIS OPEN ENDED EQUITY LINKED SAVINGS SCHEME IS SUITABLE FOR INVESTORS WHO ARE SEEKING^ Long-term capital growth with a three-year lock-in Investment in equity and equity-related securities to form a diversified portfolio

RISKOMETER

^Investors should consult their financial advisors if in doubt about whether the product is suitable for them. Investors are advised to consult with their tax advisor before investing. MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

*Assuming Tax rate of 34.61% (comprising of 30% income tax, 12% surcharge, 2% education cess and 1% secondary and higher education cess). The above tax exemption is as per Section 80 C of the Income Tax Act, 1961. The tax benefits are as per the current income tax laws and rules. #As per Scheme Information Document of the Scheme, high caliber stocks mean stocks having both value and growth potential.

Contents December 2016 ■ Volume 15 ■ Issue 12

pg

38

Top Tax savers for 2016-17 Smart strategies for every taxpayer as you enter the new year

Regulars

6 Letter 12 Queries 16 News roll 82 smart Money Cover Design: vinay dominic

Head Office AB-10, S.J. Enclave, New Delhi 110 029; Tel: (011) 33505500, Fax: (011) 26191420 OtHer Offices Bangalore: (080) 45236100, Fax: (080) 45236105; Kolkata: (033) 33545400, Fax: (033) 24650145; Chennai: (044) 42615225, 42615224; Fax: (044) 42615095; Mumbai: (022) 33545000, Fax: (022) 33545100. Printed and published by Vinayak Aggarwal on behalf of Outlook Publishing (India) Pvt. Ltd. Editor: Narayan Krishnamurthy. Printed at Kalajyothi Process Pvt. Ltd., Plot No. W-17 & W-18, MIDC, Taloja - 410208, Navi Mumbai and published from AB-10 Safdarjung Enclave, New Delhi 110029 For Subscription queries, please call: 011-33505562, 33505500 or email: [email protected] Published for the month of December 2016; Release on 1 December, 2016. Total no. of pages 84. Outlook Money does not accept responsibility for any investment decision taken by readers on the basis of information provided herein. The objective is to keep readers better informed and help them decide for themselves.

www.outlookmoney.com December 2016 Outlook Money

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Contents

pg

76

the World of God

This unforgettable journey in the land of spectacular Spiti

24 Investment

51 GI Made Easy

The whole of Varanasi is booming with comprehensive development in all the sectors, making it a new haunt of investors

60 Column

Destination

27 Life Insurance

Dilshad Billimoria stresses on the need of a timely Will to avoid any unfortunate events

Life Insurance Policies have many other important facets, tax benefits being one of them

66 My Plan

wMade Easy

28 Photo Feature

The repercussions of the demonetisation of 500 and 1000 rupee notes

pg

79

Gadgets

This extensive comparison between Pixel XL and iPhone 7 Plus gives us pros and cons of both the products

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Outlook Money December 2016 www.outlookmoney.com

Health insurance comes with tax benefits but that should not be the sole reason to go for it

We list out few simple and easy steps towards achieving your financial goals

68 Book Review

33 MF Made Easy

ELSS and balanced funds: Best of both worlds

Building an Innovative Learning Organization by Russell Sarder; The Simplest Way to Inspire Change by Nick Tasler

34 Fund watch

70 Predictions

SBI Magnum Multiplier Fund’s performance has improved manifolds in the recent years

Numerology Forecast by Farzana Suri for your financial well-being in 2017

Money Talks

Black, white or grey

I Tilted in your favour

We have more faith in information that agrees with what we already know

Narayan Krishnamurthy [email protected]

6

t’s been a few weeks since the demonetisation happened and inconvenience set in. Yet, chances of finding more people favouring the move, irrespective of its final outcome, are plenty. Never mind the inconvenience or the `10,861 crore printing cost that one will incur to maintain currency flow immediately. Freedom of speech, a constitutional right and by extension of the same, having a view on anything and everything is a national pastime. So, in the absence of any data which can clearly indicate the benefit of the move, every person has formed an opinion on the demonetisation move without understanding the implications. The rhetoric among those for the move being that it is good for the nation and for the future generations, based on the same bias that they carry. One must read Richard Thaler’s recent book, ‘Misbehaving: The Making of Behavioral Economics’, a book that has some very interesting examples of how the majority carry a strong acceptance of their beliefs due to confirmation bias. Confirmation bias is the tendency that influences all of us to put more faith in information that agrees with what we already believe, and discount opinions and data that disagree with our beliefs. Thaler’s book is about how people have a tendency to search for confirming rather disconfirming evidence owing to the confirmation bias that they have. Laced with several examples from everyday life, the book can provide a fair degree of amusement. As someone who meets and interacts with several people who like everyone else grapple with day-to-day life and finances, I am amazed at the

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confidence with which several wellread people will argue why their fixed deposit is the best because it guarantees returns compared to market-linked products that are risky because of no guarantees. Confirmation bias explains in part why it’s nearly impossible to present enough factual evidence to convince a staunch guaranteed return favouring person that their choice has serious financial flaws. Data, information and how it is communicated play a big role in the success of public policy and actions taken by governments. The GST (goods and service tax) stood for a one nation, one tax. However, that is not so, yet people who will be impacted by paying this tax on almost everything that they consume—goods and services, will end up paying tax at differential rates, including cess on certain items like aerated drinks and jewellery. The government has taken several measures to end black money, and its efforts are commendable and the thought is something that everyone agrees with. There’s a lesson here for all of us—to avoid making bad decisions about investments or any other aspect of life, we must do two things: be aware of the danger of confirmation bias, and acknowledge that our judgment can be clouded by it. Second, aggressively seek out and understand information that disagrees with our existing belief. The second step may involve talking to people who don’t share our opinion, and listening to their reasoning rather than arguing our own point.

Talk Back

Cover Story Your story was well distributed into sections which did justice to every aspect of insurance that one faces. I did not realise the options that exist to increase the scope of life insurance. I had taken an accident death rider with a life policy four years ago but did not realise its benefits then, which I was able to appreciate now. Although I do feel that there was no need for me to go with that rider and instead I could have taken waiver of premium as I think it is more useful. We all learn from mistakes but Outlook Money covers aspects of finances which ensure that we need not ourselves make mistakes and learn and could take a leaf from the mistakes committed by others or get ideas from what others have done smartly. Rajesh Trikha, Chandigarh

EdItor

Narayan Krishnamurthy ASSIStANt EdItorS

Anagh Pal, Vivek Malik, Preeti Kulkarni SENIor SuB-EdItor

Sabari Saran

SENIor CorrESPoNdENt

Himali Patel

CorrESPoNdENtS

Anjali Adlakha, Khushboo Rajput, Shipra Sharma, Sai Akhilesh trAINEES

Devanjana Nag, Taenaz Shakir Art

Praveen Kumar. G (Senior Designer) Vinay Dominic (Designer) Girish Chand (Operator) Anil Ahuja (Consultant) PhotogrAPhy

Gireesh. GV (Picture Editor), Soumik Kar, R.A. Chandroo (Photographers) tECh tEAM

Raman Awasthi, Suraj Wadhwa

Business Office ExECutIvE dIrECtor

Indranil Roy

ASSoCIAtE PuBlIShEr

Johnson D’silva

First step of a long journey Systematic investments of SIPs have been in vogue for some time, but I did not realise there are so many intricacies to SIPs. Of immense use was the point to keep in mind when investing through SIPs. Overall I liked the approach of explaining a concept clearly, which I did not think had so much to it than the discipline and regularity of putting money into investments.

Y.V.S. Rao, Hyderabad

Manchester of India I am a resident of Baroda and have been considering investing in a property in Ahmedabad, especially because of the development in the city, which will bring in more people from other places to live. The proximity to GIFT city is an added advantage, which I think will also herald the entry of highend real estate construction and consumption. Of course Baroda

is cheaper in comparison to Ahmedabad but it has its own limitations in terms of uptake of new projects. I made preliminary enquiries about the Godrej Garden city project and feel it is a promising venture. Thanks for carrying such an informative article, which will help people like me to explore real estate investing options.

Suresh Rasiklal Shah, Baroda

New look: Fund Watch The new design of your Fund Watch section is very appealing. Of particular interest is the graph which gives a very tempting picture of the performance of the fund when investing by way of SIPs. The accompanying page with the fund manager’s interview adds to the flavour where the specifics of what went into the superior performance of the fund are laid, reassuring readers like me.

Pandian Govindaraj, Bengaluru

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Prashant Kapoor (New Initiatives), Meenakshi Akash (Events)

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Letters must be addressed to: The Editor, Outlook Money, AB-5, 3rd floor, Safdarjung Enclave, New Delhi 110029, or [email protected]. Please mention your full name and residential address.

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Outlook Money December 2016 www.outlookmoney.com

CoMPANy SECrEtAry & lAW oFFICEr

Ankit Mangal

Talk Back Sound bet The role of a fund manager is challenging and it was very interesting to note how Roshi Jain manages this fund. For a long time I thought fund management was science as the stated objective and rules are pretty much stated upfront; but while analysing the performance of a fund, I started valuing the role of the fund manager much more. It is more like the captain of a ship, who knows when to step in and when to let the crew manage the show. After all, when a fund fares poorly, it is the fund manager who is in the firing line. You should explore the different approaches taken by fund managers to investing and educate your readers on how despite the variations, the outcomes could be same—profits and growth.

Radheshyam Mishra, Noida

My plan I am a regular reader of this section and I have always found the advice useful. I am impressed by Uday Dhoot’s candid advice to Amitesh, informing him to focus on the present and not be too intimidated with some goals that are far way. I read this section in your magazine regularly as it always manages to strike a chord with some instance or the other that I face. Recently I was in doubt about planning for a second house 15 years from now, when I will be closer to 50, which I have deferred after reading this plan as I feel it is a goal which has a long way to go. It will be in the interest of readers like me if you take up cases that cover different facets of one’s finances at different stages in life to create a storehouse of ideas to deal with different financial situations in life.

Sandeep Shekhar, Jaipur

What a delight The travel section in your magazine is commendable for the details and easy language that provides the traveller’s experience in a manner

10

that I have started to plan some of my vacations based on your coverage. I had been to Bhutan six months ago and really loved the experience of not having prior bookings, which actually left my wife worried, but we managed to have a wonderful experience. Keep the good work with some breathtaking pictures and destinations to keep travel bugs like me supplied with a long list of destinations to plan for the future.

Piali Gupta, New delhi

Build a healthy foundation The table on healthcare menu was very informative and useful. I was not aware that there is so much to choose from in case of health insurance. The snapshot view to health insurance made the story very interesting, without getting overly technical. I would have liked to come across some costs on premiums, but I guess that will vary from individual to individual and can be checked from the several price comparison sites. You should consider a feature to navigate the plethora of comparison sites and how one should traverse through it to find what suits one than be pushed to select what may work well for the seller.

Outlook Money December 2016 www.outlookmoney.com

Anurag Suden, gurgaon

Eye opener So true when you mention about spending lakhs to do up one’s house, but we ignore to get it insured for contingencies. I had family and friends who lost their life’s possessions in the Chennai floods last year. They were well to do, but the financial impact they faced has left them scarred. Thankfully, one of them had insured his flat and was able to pick the threads, especially with the gadgets and furniture in his house, besides the civil works he had to undertake. There is an urgent need to educate and spread awareness of the lesser known insurance policies, which are actually very important in one’s life.

Rupa Saxena, Allahabad

Financial cusion Financial cushion is something that we all need, but many a times forget till we make a crash landing. Many of us consider life insurance only as a tax saver and not a life saver. It will be very much in our interests to improve our knowledge of insurance and use it to serve our best interests than wither away the financial cushion that it can act as. Please do more such hard-hitting stories as these open our otherwise shut eyes.

Ravi Trivedi, lucknow

Queries interest applicable for that fractional period. In this case, practices vary in terms of what rate will apply on the deposit. Your penalty is not explicit, but only implicit to the extent of the interest that you have not earned. SureSh Gopi, Trivandrum

i am building my dream home and was wondering if i should buy a house insurance for it at this time?

Deepak krishnan, Chennai

What is the difference between regular and direct plans of mutual funds? When it comes to investment objective, fund managers, portfolios and approach to investing—there is no difference between the regular and direct plan of a mutual fund scheme. In case of a direct plan, charges like annual expenses are lower because it does not pay the distributor a fee or commission. This is because in case of direct plan, you invest the money ‘directly’ with the fund house, without going through a broker or agent. Thus, the direct plans of equity funds can be cheaper by as much as 1 per cent in their annual expense ratios. This makes them suitable for investors who can manage their investments on their own. However, if you are new to mutual fund investing, it may not be a bad idea to take the services of a distributor and therefore, invest in regular plans. Over time, as you gain more knowledge and feel confident about managing your investments independently, you may consider switching to the more economical direct plans.

Yes, you should buy a construction all risk (CAR) policy for an underconstruction house. As the name suggests, it is a comprehensive policy to cover several risks that can cause material damage to your house. A CAR policy has specified exclusions such as wilful damage, design defects and faulty material. Other than the specified exclusions, all risks that can lead to physical damage are covered. These include: fire, flood, earthquake, burglary and malicious damage by third party. Further, the policy has a provision to cover property damage or bodily injury to a third party due to an accident in the insured’s premises. SarveSh Kumar, Chennai

meenal Dubey, e-mail

is accessing banking details through the mobile safe? Given the technological advances, it is possible to safely access bank accounts through the mobile and internet. However, it is of utmost importance that the user is aware of the proper procedures for safe operations. The risks do not come from the systems themselves, but mostly from the user exposing the accounts to risks. Passwords must be tough to guess, changed frequently, and system log in and log out processes must always be completed. The PINs must be not disclosed to outsiders. Following security procedures as prescribed by the banks is adequate to use these technologies without fear.

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SiDDharTha ShrivaSTava, lucknow

What kind of penalty will i have to pay for premature withdrawal from my bank FD in case of an emergency? The policy can vary across banks. Essentially there are two choices. One, you can keep the deposit intact and take a loan against the deposit to meet your requirement. The rate at which the loan will be offered will be higher by one to two per cent than the interest rate on the deposit. There will be a lien on the deposit till you return the loan. Two, you can opt for premature closure of deposit, in which case the bank will treat your deposit as having been held only for the fractional period and you will earn only the

Outlook Money December 2016 www.outlookmoney.com

i am confused between debt funds and liquid funds. are they same and taxed similarly? Liquid funds are type of debt funds which invest in very short term debt instruments with a maturity period of less than 91 days. Generally, liquid funds do not have any exit load. As for taxation, capital gains on liquid funds is applicable just like any other type of debt fund. If you redeem units within three years, you will have to pay tax on the short term capital gains. The gains will be added to your income and taxed as per the income tax slab applicable to you. In case you hold the units for more than three years, the gains will qualify for long-term capital gains tax of 20 per cent with indexation benefit on your original investment.

arjun SinGh, Dehradun

is there any health cover which covers medical tests as well, or is it only for hospitalisation? i need to do medical tests on a regular basis as i am diabetic. A typical health insurance plan does not cover for outpatient incidents. However, these days there are health insurance policies that provide outpatient (OPD) cover. Under OPD extension, medical expenses not linked to hospitalisation are payable. This includes diagnostic expenses, doctor consultations and cost of medicines. If you want to get similar expenses covered, you should look for a plan with OPD cover. Medical equipment such as portable dialysis machines or test strips may not be covered by most plans. The cost of such a policy is high as you land up paying a higher premium. Typically, insurers charge an extra premium equal to the extent of OPD cover provided. The underlying assumption is that the insured will claim his full OPD limit every year. If you consider the extra administrative task of submitting bills and getting reimbursements, it is not much of a benefit. The major advantage of an OPD cover is that the increased premium can be claimed as a deduction under Section 80D of the Income-tax Act, 1961. SaviTri Kumar, bengaluru

i am single and have no dependants. What kind of life insurance would you suggest for a person like me? The basic purpose of life insurance is to provide a financial security for the dependents of the insured, in case of the death of the policyholder. In case you are single and do not have any dependents you should rather go for a personal accident policy with all benefits including temporary total disablement and a basic health insurance policy.

Mona kwatra, Gurgaon

i bought a maruti brezza car during the festive season last month and the very next day, two of the tyres were stolen. how much will my insurer pay for this loss and how soon can i expect it? It is unfortunate that someone stole your new car’s tyres a day after you bought it. Although the car insurance you would have taken is effective as soon as you move out of the car dealership, there are restrictions on what is covered by the insurance policy. For instance, under the comprehensive motor policy, in the event of a loss, compensation for all the rubber and plastic parts is limited to 50 per cent of the replacement costs. This means that irrespective of how old your car is, depreciation will be deducted to the tune of 50 per cent of the cost of the new tyres and tubes. However, as the car is less than six months old, there will be no deduction whatsoever when it comes to replacing other parts like the wheel rims. Likewise, the labour charges for fixing new tyres will be payable in full. Therefore, the amount of compensation in your case will be limited to the cost of the other parts, 50 per cent of the cost of the tyres, and the labour charges. More importantly, since this is a case of theft, to be eligible to stake a claim with your insurers, you must report the incident to the police and lodge an FIR. Likewise, in case you have taken a zero depreciation cover, which is available when taking insurance on new cars, the loss of tyres will not be paid by the policy. The zero depreciation insurance only covers for damage to the vehicle, including tyres, due to accidents. Your case involves the loss of tyres, which were stolen and hence outside the coverage are of the policy, which is why it will not be paid for by the insurer.

www.outlookmoney.com December 2016 Outlook Money

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Queries rameSh Kumar jha, Gurgaon

a bank in which i have an FD is offering me a credit card with my FD certificate surrendered as lien. What is the risk such a lien carries? A lien simply provides the bank the right to deny the borrower access to the asset in question. Such a lien is usually marked on assets against which loans are given so that on default of the loan the asset can be liquidated to realise the dues. A credit card is also a form of loan from the bank to you. If you do not pay the credit card dues, the bank will be able to exercise the lien and use the FD proceeds to clear

the dues. As long as you hold the card, you will not be able to access the deposit or draw from it. If you return the card, the lien will be lifted and you will be able to access the account. bala naThan, bengaluru

i am about to retire in a couple of months. Do i still need to pay the advance tax? most of my income post retirement will be in the form of interest from my investments. Generally, advance tax is payable by an individual as per the prescribed instalments if the total

surenDra pratap singh, Lucknow

tax liability (after tax deducted at source) on the estimated income is likely to be `10,000 or more during the relevant FY. But resident senior citizens who do not have any income from business or profession are exempted from payment of advance tax, irrespective of tax liability quantum. As you will retire later this year, and assuming you are over 60 years old then, you will qualify as a senior citizen for this financial year for tax purposes. Effectively, you need not pay advance tax instalments. If in the future you earn income from business or profession, you would be required to pay advance tax on that income. amriT Sharma, noida

my employer made me withdraw my pF before i moved to Singapore. is it necessary to do so?

i have investments in iCiCi prudential value Discovery Fund, Franklin india prima plus and Sundaram Select midcap Fund. are these good funds to invest in? The funds in which you are investing are good, with a significant track record and history to indicate that they have fared well over different market cycles. There are risks when investing in each of these funds, which you should be aware of. Moreover, to ensure that your investments achieve what your goal is, review the performance of these schemes once a year to ascertain if they are on track. This way you have the opportunity to make changes to your selection if need be. Fund name ICICI Prudential Value Discovery Franklin India Prima Plus Sundaram Select Midcap

1-year 3.29 3.92 10.98

Returns (%) 3-year 5-year 26.93 23.06 21,50 17.74 32.90 23.34

Returns as on Nov 24, 2016

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Outlook Money December 2016 www.outlookmoney.com

Ideally you have to be a member of the EPFO to avail the PF facility. If there is no contribution to the EPF account and it remains idle for 36 months, the account becomes inoperative and no interest is paid on such accounts after 36 months. For employers, it is mandatory to ask employees who quit their organisations to apply transfer of PF and to also notify the EPFO so that the government doesn’t have to pay interest to non-members of the PF. This could be the only reason why your employer asked you to withdraw your PF before you left for Singapore. naina joShua, Kochi

i bought a term plan in july 2016 and wish to add a critical illness rider to it now. is it possible to do so? No, you cannot opt for the critical illness rider, or any other rider for that matter, once the policy is in force. The riders must be selected at the outset, that is, while buying the policy.

News Roll

Investor alert

It’s still early days for effects of demonetisation to come to force, think before you do something in haste

T

he consequences of sucking up cash from the system cannot be comprehended easily and in a short time. Yes, there are benefits of reducing cash in the system and increasing the usage of digital money. One thing is clear though, there will be an impact on our finances and definitely so with our investments. The no cash-only credit scenario will impact the economy in the near term, which is why you should sit up and take note of sectors that will get impacted to play your investments accordingly. The impact on the markets can be attributed to multiple factors—the US election results, the approaching year end as well

16 Outlook Money

as the currency demonetisation drive. The sector which is likely to be most impacted is real estate, which is already facing difficulties due to the downward economic cycle. The impact will not be just on the construction and construction material segment, it will also be on Housing Finance Companies (HFCs). Another sector which will be impacted adversely is the jewellery segment, though jewellers welcomed the move as reduction in cash will create a demand for gold, which is favourable to them. The NBFC sector too will face the heat, as it is the lifeline for small and medium businesses. There could

December 2016 www.outlookmoney.com

be default in repayment of loans, especially in cases of loans against property, which is popular among the MSME segment of borrowers. At the same time, banking stocks are likely to do better with the increase in deposits. As an investor, you should not make any irrational move by shifting your investments in haste because of the impact of the demonetisation. As money is generally deployed keeping a few years timeframe in mind, one should give some time before taking any drastic steps. Be clued into the changes around you and track the market movements more regularly to understand the changes as they occur.

Things to note after note ban Sector

Impact Analysis Impact Duration

Automobile 2 wheelers

Moderate

2-3 quarters

4 wheelers

Modest

2-3 quarters

Commercial Vehicles

Meaningful

3-5 quarters

High share of purchase of motorcycles on cash (30-35%), especially in rural economy will be impacted. The demand of small cars is likely to be less affected compared to large cars. Weak freight demand and implementation of GST will postpone purchase decisions of commercial vehicles.

Banks and NBFCs Banks Consumer finance NBFCs Consumer Vehicle NBFCs

Mortgage NBFCs

Modest

2-4 quarters

Meaningful

Indefinite

Meaningful

2-4 quarters

Varied

2-4 quarters

Likely slowdown in credit growth in auto, CV, Loan Against Property (LAP), personal and SME loans in the short term. Also, there will be an increase in savings and term deposits in the medium term as a large part of the informal and cashbased economy will shift to the banking system for savings and transactions A section of buyers may postpone their purchase decisions as they reassess their finances and reprioritise in the short term. Transporters will postpone purchase decisions and review their business models and make attempts to become part of the formal economy. Residential real estate demand will slow down as (1) potential buyers in the salaried class postpone purchase decisions in anticipation of fall in real estate prices and interest rates and (2) others fix their finances given the hit on wealth and future income

Consumer products Staples

Negligible

–

Durables

Meaningful

2-4 quarters

Informal credit from retailers (neighborhood grocery stores) may support demand. Also, companies will extend credit to the distribution chain given low flow of cash in the system.

Real estate and related sectors Real estate Building materials Construction materials Paints

Meaningful

4-6 quarters

Meaningful

3-4 quarters

Meaningful

3-4 quarters

Moderate

2-3 quarters

Residential real estate demand will slow down as (1) potential buyers in the salaried class postpone purchase decisions in anticipation of fall in real estate prices and interest rates and (2) others fix their finances given the hit on wealth and future income Large portion of payment is by cash and will be impacted by delay in demand from new construction, may take longer to recover. Will also impact the fittings industry.

Source: Extracted from Kotak Institutional report

www.outlookmoney.com December 2016 Outlook Money

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News Roll

Instant redemption

A Death knell for Small Savings

T

he surplus cash deposits have struck its first target—small savers and depositors. The State Bank of India has cut its deposit rates for different tenures by 1.25–1.9 per cent, effectively reducing the 5-year deposit to less than 7 per cent. The impact of the cut of 0.10 per cent in popular small savings instruments—PPF, Sukanya Samridhi Scheme and the Senior Citizens schemes—have brought their interest levels to about 8 per cent and lower in some cases like the Kisan Vikas Patra (KVP), which is 7.7 per cent at the moment.

In a move that could actually equate your mutual fund investments with a savings account, investment in liquid funds could be redeemed instantly. At the moment if your redemption request is made before 3PM on a working day, the redemption reflects in your bank account the next morning. In a meeting of SEBI’s Mutual Fund Advisory Committee (MFAC), the regulator has asked AMCs to consider the redeeming investments up to `2 lakh in liquid funds for retail investors. Some AMCs are already providing investors with a cardlinked access to their holdings in

Retirement friendly? Instrument Public Provident Fund (PPF) Sukanya Samriddhi Yojana

Interest Returns (%) 8.1 8.6*

National Savings Certificates (NSC) 5-year

8.1

5-year Bank Fixed Deposits (FD)

7.0^

Senior Citizen Savings Scheme (SCSS)

8.5

As on Nov 24, 2016; *for 2016-17; ^for senior citizens

Not only are the options dwindling for small savings, the guarantees they provide when compared to the prevailing inflation rates, which is just a shade under 6 per cent, leaves very little to feel happy about. The pain is compounded in case of those who end up paying tax on the interest earned through some of these options. Imagine at 7 per cent interest on a bank fixed deposit, at 20 per cent tax bracket, the effective rate is 5.6 per cent, which, at best, may match inflation, eroding any real purchasing power that one expected after earning the interest. Demonetisation or not, there is very little to cheer for small savers who will now have to necessarily look for tax efficient options to park their savings or start investing. For those who fear the risk of investing in equities, the writing on the wall is clear—the biggest risk they will be taking is in trying to not invest in equities, which has the potential to meet and beat inflation.

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Outlook Money December 2016 www.outlookmoney.com

liquid funds with limits that are much less than that proposed by SEBI. The move will definitely have the necessary teeth to directly give competition to the traditional savings bank account if this move comes through solely because liquid funds are more tax efficient than the interest earned by the savings bank balance.

Non-agent salesmen Insurance selling has for long been the job of an agent. However, the insurance regulator has made some concession and is now allowing sales representatives to distribute life insurance policies. As of now, sales representative appointed by agents were allowed to sell health insurance and some other non-

News Roll

Changing tax matrix

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he much-anticipated Goods Additional cess on and Services Tax (GST) Council four items and the ‘one nation, one tax’ is not how it has turned out to be—there will be four tax slabs, with the lowest % Aerated drinks rate at 5 per cent and the peak rate of 28 per cent. Then there will be several items that will attract cess—aerated drinks, tobacco products, luxury cars % Pan masala and pan masala. There is respite for the common man as 50 per cent of items in the % Luxury cars Consumer Price Index (CPI) basket, along with food grains, will not be impacted from the proposed GST. However, these will not be classified % Tobacco products as exempt list as the GST council seems to have the view to reconsider taxing these items on a later date. It is for this reason that white goods that currently have Peak Rate: an effective tax rate of 30-31 per cent will be in the lower tax slab, because of wide usage by the % middle class. The fallout of the GST has been estimated by the GST Council to cost the Central government `50,000 crore in the first year to make good Standard rates: the losses of states. The Constitutional Amendment Bill for GST has provided for & compensation of losses in the first five years % % of GST implementation. The unified tax rate will come into effect from April 1, 2017, once the government gets two pieces of legislation—Central GST Lowest rate: (GCST) and Integrated GST (IGST)—passed % in the winter session of parliament, which seems bleak going by the fallout in parliament over demonetisation. Like the demonetisation, the impact of GST is also too early to emerge clearly. But, what is clear is that even the GST will have differential rates, which could be changed with time, making it much difficult to predict what lies ahead.

40 40 40 65

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life products, but after this move they will be able to sell even life insurance policies which do not come with predefined risk cover and costs. As life insurance premiums depend on factors like age, sum assured and even the profession, this new move will help uplift the profile of the salesman. To start with, these representatives will sell pure term insurance plans with sum assured of up to `25 lakh, endowment products with sum assured of up to `10 lakh, and immediate annuity products.

Fancy investments If you have an NPS account and are not part of the government-run scheme under the NPS, you will have the option to invest a component of your contribution in a slightly adventurous asset class. The PFRDA has created a separate asset class under which subscribers to the private sector NPS can invest up to 5 per cent in Alternative Investment Funds (AIF) and Real Estate Investment Trusts (REITs). This new asset class is in addition to the existing equity, corporate bond and government debt category. Other than this new option, the PFRDA has also introduced two new Life Cycle Funds for private sector subscribers to provide a preprogrammed diversification of assets in various asset classes as per the age and risk profile of the subscriber. These are Aggressive Life Cycle Fund (ALCF) and Conservative Life Cycle Fund (CLCF). In ALCF, the maximum investment in equity is restricted to 75 per cent whereas the

News Roll

Chasing unaccounted cash

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he rush to deposit cash in bank accounts has resulted in the tax department working towards reining in any black money that may be deposited. Cash deposits in banks and post offices above certain limits between November 9 and December 30, 2016, will be reported to the income tax department. As per Section 285BA of the Income Tax Act, 1961 (as substituted by Finance Act, 2014 w.e.f 01-04-2015), specified entities (filers) are required to furnish a statement of financial transaction or reportable account (statement) in respect of specified financial transactions or any reportable account registered or recorded or maintained by them during the financial year to the income-tax authority or such other prescribed authority. The list of high value transactions is mentioned in rule 114E of the act. With change in rules each passing day, there has been an addition to the rule 114E list, which was amended with effect from November 15 to the effect that ‘cash deposits during the period November 9, to December 30, 2016, aggregating to `2.5 lakh or more, in one or more accounts (other than a current account) of a person, shall be reported by a bank and post office.

What should you do? Taxpayers who can account for higher cash deposits need not worry, as any aggregated deposit over `50,000 in this demonetisation phase will need to be furnished with PAN details. For those without PAN, the new amendment will be a cause of concern if they are unable provide any details. Some may receive a notice asking to explain the transaction for scrutiny assessment under section 143 (2) of the Act—to be present on a certain date himself or through a professional—for verification of records and seeking clarifications and opportunity to present this case. In case you are unable to clarify the source of the deposits, the tax department can levy tax along with interest and penalty on under-reported income if it could be established that such income pertains to previous years (prior to financial year 2016-17) and was not reported by the depositor while filing the tax return.

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Outlook Money December 2016 www.outlookmoney.com

`

`

Equity

Debt

same has been restricted to 25 per cent in case of the CLCF. This is a welcome change compared to the existing 50 per cent restriction in the current life cycle fund, which will now be known as moderate life cycle fund (MLCF).

RuPay Power The RuPay debit cards, linked to Jan Dhan accounts are getting a push in current times. The lower fee on usage of RuPay cards compared to debit cards on the Visa or MasterCard network is drawing scores of account holders to activate their cards as well as make the transition from cash to digital money. As of now, a little over 50 per cent of the Jan Dhan account holders are using the card, with the rest being activated. Account holders are also being taught how to use the card so that they can adapt to a cashless and digital way to transact, reducing the dependence on cash for their routine transactions. To push the usage of the card, the State Bank of India has waived the merchant discount rate (MDR) on RuPay cards for the time being to facilitate and encourage digital transactions. By Preeti Kulkarni and Narayan Krishnamurthy

Investment Destination

Spiritual capital of India The time has come for this city to rise from its slumber and experience an all-round development

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amously known for its mesmerising view of Ghats at dusk and dawn, Varanasi is a pilgrimage spot for Hindus from all over the world. This exuberant and spectacular city has existed since the inception of time. The city that has witnessed generations of flora and fauna come and go for many centuries is now on the verge of a major metamorphosis. Varanasi, also called Banaras, was in limelight during the General Elections 2014. Varanasi is on the latest list of Smart Cities Project. PM Narendra Modi launched seven new projects worth `5,000 crore on his last visit. Hence, the developers and the investors have high hopes from this city rising from its state of slumber.

Booming regions The main concern is to improve the connectivity with suburbs like Bhagwanpur, Ashapur, Chunar,

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etc. The Varanasi Bypass Ring Road project worth `261 crore will further improve the infrastructure thereby boosting the growth opportunities. With a rapid increase in the number of residential projects launched in and around Varanasi, areas such as Sigra, Mahmurganj, Maldhiya, etc., have seen tremendous growth in the property value. Recently, a metro project has been proposed from BHU to Sarnath and from Lanka, Cantt, Shivpur, Babatpur and that is further going to improve the connectivity within the city. In second phase, the metro line is proposed to be stretched till Ramnagar and Mugalsarai resulting in lesser commuting time. Areas such as Pindra, Badagaon, Harahua, etc., lying within the close proximity of international airport in Babatpur, are witnessing growth at massive levels. Several bottlenecks within the city like traffic congestion and age-old

Outlook Money December 2016 www.outlookmoney.com

drainage system are are going to be replaced with new and improved strategies. The city is connected via four national highways along with one international airport at Babatpur. Recently, transportation through waterways has also begun which will result in opening of small ports and its peripheral infrastructure development that will be a game changer for Varanasi’s economy.

Upcoming projects Banaras which takes pride in displaying its pompous way of life, received several other highway projects such as four-lane Ghagra Bridge-Varanasi section of NH 233, six-lane Varanasi-Aurangabad section of NH 2, etc., which is further going to improve the city’s connectivity with neighbouring areas. The development of waterways between Varanasi-Haldia stretch is expected to create more

Rapidly growing regions

Shivpur

Varanasi is witnessing a major boom in infrastructure, resulting in a substantial rise in housing demands

Shri kashi Vishwanath Temple

Varanasi Ramnagar

Banaras Hindu University

Development indicators

Booming Varanasi regions ■

■

■

■

Metro project proposed from BHU to Sarnath and from Lanka-CanttShivpur-Babatpur which is going to improve the connectivity within the ancient city The development of waterways between Varanasi-Haldia stretch to improve connectivity The city hosts India’s biggest trauma centre and many other super specialty hospitals Home to many SMSE industries including huge land banks for textile and handicraft industries

Ganges

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Several road transport and highway projects such as fourlaning of Ghaghra Bridge to Varanasi section of NH 233 With the coming of Varanasi Bypass Ring Road places like Bhagwanpur, Ashapur, Chunar, etc, to witness further growth. Several bottlenecks within the city like traffic congestion and ageold drainage system are going to be replaced Six laning of Varanasi–Aurangabad section of NH 2 launched in January 2015

Affordable housing in Varanasi Developers Name

Location

Price range (`)

Roma builders & Promoters

Ramnagar

21.70 lakh

Shree Sai Baba Infra Projects

Kaazi Sarai

13.60 lakh

Tirupati Group

Chandmari

17.62 lakh

Awadh Constructions

Harahua

15 lakh

Ridham builder

Shivpur

20 lakh

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Outlook Money December 2016 www.outlookmoney.com

employment opportunities. With operationalisation of KyotoVaranasi Collaboration Agreement, where survey work is soon to complete, the government will initiate many new projects in order to improve liquid and solid waste management and other civic issues, further boosting the infrastructure of the city. The city hosts India’s biggest trauma centre and many other super specialty hospitals, making it favourable for medical tourism. It also has good educational institutes including the eminent Banaras Hindu University. The city is home to many Small and Medium Enterprises including huge land banks for textile and handicraft industries. The city also has various heavy industries such as DLW, Coca Cola, BHEL, Hindustan Uniliver, etc., employing a large number of local people. Varanasi is one of the oldest cities in the world and despite that it has not received much importance resulting in inadequate infrastructure. It has several small cottage industries involved in the production of Banarasi sarees, betel leaves, rugs, handicrafts, etc. The central government has announced additional funds to the city under Heritage City Development Scheme. Further, a new flyover is being made within the city along with widening of existing roads in order to reduce traffic congestion. The city’s population is rising because of migration from adjoining areas, increasing the demand for affordable housing. With infrastructure and business opportunities growing, the city will transform in the long term and witness all-round development.

IFAN (Independent Financial Associates Network) is a webenabled distribution platform of IFAN Finserv Pvt. Ltd. (ifan.co.in)

Life Insurance Made Easy

Ways to save tax with insurance Life insurance policies not only give you benefits in the long run; they also enable tax benefits for every year

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here are many facets of life insurance— protection, savings and investments. Then there are policies to help you achieve your financial goals or to save for your retirement. There are a few plans like endowment and Ulips that can help you earn returns. The peace of mind with insurance stems from its basic protection orientation which ensures that your dependents do not suffer financially if something were to happen to you. Premiums paid towards life insurance are covered under Section 80C of the Income Tax Act up to a maximum of `1.5 lakh. Likewise, the proceeds in case of death of the policyholder or maturity of the policy are subjected to no taxation under Section 10(10) D. The benefits under Section

80C exist only if the policy has been in force for at least five years, because if the policy is terminated or surrendered within five years, the deductions are added to income and taxed accordingly. In case of Ulips, the condition to claim tax benefits is that the sum assured has to be at least 10 times the annual premium being paid. For instance, if the sum assured is `15 lakh and the annual premium paid is less than `1.5 lakh, then the entire amount can be claimed as deduction under Section 80C. If the premium is more than 10 per cent, say, `2 lakh for the same sum assured, then the deduction amount is capped at `1 lakh. However, for policies purchased before April 1, 2012, the premium to sum assured should not exceed 20 per cent for the proceeds to be tax free.

There are also tax benefits to be claimed through health riders like critical illness when attached to your base life insurance. Health insurance offers tax benefits under Section 80D, wherein premiums up to `20,000 for senior

citizens and `15,000 for others are eligible for tax benefit. Remember that regardless of its nature, life insurance offers tax benefits, a trait that makes it useful to align financial goals and tax savings. [email protected]

Tax Advantage Premiums paid towards servicing a life insurance policy qualify for tax deductions under Section 80C of the Income Tax Act The maximum deduction that can be claimed under Section 80C is `1.5 lakh Tax-free proceeds on maturity/death under Section 10(D) Premiums towards health riders like critical illness qualify for tax deductions under Section 80D Premiums up to `20,000 for senior citizens and `15,000 for others are eligible for tax benefit.

www.outlookmoney.com December 2016 Outlook Money

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Photo Feature

The year would be remembered by generations of Indians as one where they had to stand in long queues to deposit demonetised `500 and `1,000 denomination notes or wait at an ATM for the new notes 2

Photo: tribhuvan tiwari

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Outlook Money December 2016 www.outlookmoney.com

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very year brings with it a historic event which goes down in the history books to be discussed in later years. Without doubt, long queues at banks, and numerous caricatures of the impact of demonetisation will mark any future reference of 2016. Money was a major concern for every Indian this year— for the rich and the poor; for the urban and the rural. For those tracking the financial services, it was a year marked with several changes that provided many new opportunities to explore. One of the biggest changes that one will witness in the coming years will be transition in taxes with the passage of the GST Bill. On the policy level, inflation was the key focus area for the central bank, which also witnessed a change at the top with the tenure of Dr. Raghuram Rajan coming to an end and Dr. Urjit R. Patel taking charge from September 4, 2016. The RBI target for retail inflation is expected to be 5 per cent by March 2017. To achieve this level, the central bank has been reducing the repo rate with successive cuts of 25 basis points since its June policy review when it stood at 7.25 per cent, and which now stands at 6.25 per cent. The repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds and is used by the RBI to control inflation. For investors, the stock returns were rather insipid as the returns were pretty flat for the benchmark BSE Sensex. Yet, a lot transpired in the financial services to excite a bystander. Retail investors lapped up mutual fund investments with the number of folios crossing the 5 crore mark this year. Another factor to cheer was the flow

1 Photo: jitender guPta

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1. National pastime: standing in seemingly never-ending queues in front of ATMs; 2. Another painfully long wait in order to enter a bank; 3. This is how I manage inflation; former RBI Governor, Dr. Raghuram Rajan; 4. Age no bar when it comes to demonetisation woes

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Photo: tribhuvan tiwari

Photo: jitender guPta

www.outlookmoney.com December 2016 Outlook Money

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Photo Feature

1 Photo: tribhuvan tiwari

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Photo: tribhuvan tiwari

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Photo: narendra bisht

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Photo: nirala triPathi

6 Photo: sanjay rawat

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Photo: jitender guPta

A glum RBI Governor, Dr. Urjit Patel watches Economic Affairs Secretary, Shaktikanta Das, present the new currency notes; 2. In case of no change, traffic defaulters are being asked to settle the fine at the court; 3. Midnight rush at the airport as passengers wait for their turn at the ATM; 4. Now, when was the last time I filled a form to collect my own money from the bank?; 5. Gender-bender: women form a separate queue to get their way to the bank; 6. For those cribbing, a few months ago people flocked to lay their hands on a SIM for free data connection; 7. Our first brush with the pink note— worth every minute in the queue 1.

of funds into equity mutual funds all throughout the year with SIP contributions that crossed the 1 crore active SIP accounts mark as well. The change in the mutual fund consolidated account statement (CAS), which started reporting the gross commission paid to the distributor, has so far not impacted the investors much, but could shift the route taken by investors to the direct model. One cannot stop singing paeans of the Pradhan Mantri Jan-Dhan Yojana, which resulted in the opening of bank accounts for over 200 million Indians. The naysayers will sing a different tune as they start seeing activity in these accounts with the demonetisation drive, which in future, aided with the direct benefit transfer, could become the catalyst to make India less cash-dependent. The much needed Know Your Customer (KYC) procedure got easier and uniform with the functioning of the Central KYC Registry (CKYCR) platform, which paved way for the inter-usability of KYC records across the entire financial sector. For avid investors, the move removes the hassle of multiple KYC processes, and for those in the financial services business there is tremendous cost savings and convenience. On the real estate front—the long awaited real estate regulation saw light of the day with the passage of the The Real Estate (Regulation and Development) Bill, which will help establish statelevel real estate regulatory authorities (RERA) and appellate tribunals to regulate transactions relating to both residential and commercial projects and ensure their timely completion and handover. RERA should be in place from 2017, and provide greater certainty to buyers. Some bold steps by the EPFO will benefit subscribers to one of the oldest provident fund schemes in the country to get a greater benefit from investing in equities. The EPFO investment of about `7,000 crore in the stock markets in 2015 will go up this year. The Minister of State for Labour and Employment, Bandaru Dattatreya, told us: “While we are creating awareness amongst workers, we believe that seeing the positive returns generated by investments in capital markets, the workers themselves will agree.” The IPO party continued from 2015 with about a dozen big IPOs testing the markets in the first half of the year, raising over `8,100 crore. Big names like L&T Infotech IPO and the first private life insurer ICICI Prudential Life opened the doors for investors to take part in primary markets.

www.outlookmoney.com December 2016 Outlook Money

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Photo Feature

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1. A wholesaler wondering when will it be Acche Din; 2. Fuel pumps are having a roaring business as they continue to accept old notes; 3. Fill it, shut it, forget it seems to be in the minds of the car owners on the night of announcement; 4. Both caution sign and money speak the same language everywhere

Photo: nirala triPathi

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Photo: tribhuvan tiwari

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At the same time, the government gold bonds opened the doors for traditional investors to move from investing in physical gold to paper gold through this scheme. The demat form of the bonds ensured safety and convenience for people who otherwise fear losing the bond certificate or damaging it. A total of 10,155 kg worth of gold with investments of `3,060 crore flowed through first five tranches alone in this scheme. The insurance sector was also impacted with the e-insurance accounts coming into play which allow policyholders to manage their policies online. With this move, policyholders benefit from the e-insurance account as it will help them consolidate all their insurance policies like life, health, motor and other forms through a single account. The year saw an overall exciting and active development on a lot of fronts. With the implementation of GST and the rippling effects of demonetisation, there is no doubt that 2017 is going to be an interesting year.

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Outlook Money December 2016 www.outlookmoney.com

Mutual Funds Made Easy

Best of both worlds Don’t be intimidated by the choices on offer; there are options for smooth initiation into investing

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s an investor, you face the dilemma of making a choice from the plethora of fund schemes that exist. More often, for someone new to investing, the experience of selecting a fund to start with is too intimidating that they procrastinate than make a decision on choosing a fund scheme to invest in. To address the needs of the uninitiated, especially those looking to invest in equity funds, there are two variants that could be considered. The equity linked savings scheme (ELSS) or a balanced fund. Both these have all the necessary components which will address a first time investor’s concerns.

redeemed sum from this fund is tax free. The combination of equity and tax-saving makes ELSS an ideal gateway to equity.

ELSS

Balanced funds

This fund is a boon for every tax payer, as investments in this fund qualifies for tax deductions under Section 80C up to `1.5 lakh in a financial year. Investments in this fund come with a three year lockin, which is the least among other instruments in which savings and investments qualify for tax deductions. The lock-in instills discipline among new investors to wait before reacting to the performance of the fund scheme to exit. Moreover, on completion of the lock-in, the

As the name suggests, balanced funds maintain a pre-determined ratio between equity and debt assets. Depending on the tilt towards equity or debt, the fund may be termed equity-oriented or debt-oriented. What you need to keep in mind is that the equity-oriented type fund invests at least 65 per cent in equities, while the debt-oriented fund invest about that much in debt assets. This type of fund scores with the discipline they maintain towards asset balance, which means at a

defined frequency, when the equity allocation goes above a band, the fund manager will exit equity proportionately and invest the proceeds into debt to maintain the balance and vice-verse. In this manner, the asset allocation is maintained, which has proved to be the factor to make investing a success. You have the choice to invest systematically in both these funds, though when investing through a monthly SIP in ELSS, you will need to be cautious of the fact that each SIP instalment will need to stay invested for the three year lock-in, which is not a problem with the balanced funds. Make a beginning, start investing in mutual funds. [email protected]

www.outlookmoney.com December 2016 Outlook Money

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Fund Watch: SBI Magnum Multiplier Fund

Magnum opus Deftness in changing asset allocation and moving across sectors has helped this fund

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ntil a few years ago this fund was an average performer but, its performance underwent a spectacular transformation the moment it shifted focus towards large-caps. The largecap allocation is as high as 65 per cent in stocks of companies with sound management. It also invests in companies where it sees opportunities for growth, which is in-line with its own growth style. The fund follows the Benchmark S&P BSE 200 by limiting its deviation to sectors and stocks within levels. Cash position is also rarely above 7 per cent, giving it ample leeway to handle redemptions and opportunities. All these factors have played a huge role in its blockbuster performance since 2014. Its three-

year return is about 23 per cent, which is way ahead of its peers. It has repeatedly outperformed its benchmark, consistency making it a top performer. The portfolio is made of quality stocks such as HDFC Bank, UPL, Britannia Industries and Axis Bank, among others. The performance has been consistent over both bear and

Fund manager: Saurabh Pant

The fund has consistently outperformed the S&P BSE 200 benchmark YTD

Min investment: `500 Expense ratio: 2.12% (As on September 30, 2016)

3-year

5-year

Fund return

-0.18 21.10

18.36

Exit load: 1% for redemption within 365 days

S&P BSE 200

1.88

12.28

Benchmark: S&P BSE 200

12.81

All returns are absolute; YTD returns as on November 24, 2016

Top 5 stocks (%) The top 5 stocks account for over 26.22% of assets or `446.78 crore

Value of `1,000 SIP over past 10 years `1,000 SIP over past 10 years

`2.68 lakh

2.5 Figures in ` (lakh)

Assets managed: `1,704 crore (As on September 30, 2016)

Past performance (%)

Earning curve

3

SBI Magnum Multiplier Fund

HDFC Bank

7.71

%

5.47

4.54

%

Hindustan Petroleum Corp. %

4.02 4.48 %

%

Top 5 Sectors*

1 0.5 0 01-Dec-06

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`1.2 lakh 01-Nov-16

Outlook Money December 2016 www.outlookmoney.com

Banks

7.45 5.28 4.40 4.34 3.89

Petroleum Products Auto Finance

*All figures in %

Bajaj Finance Infosys

2 1.5

Tata Motors

Software

As on October 31, 2016; Source: Fund Factsheet

Saurabh Pant Fund Manager, SBI Magnum Multiplier Fund

‘We avoid companies with corporate governance issues’ What is the investment objective of this fund?

x

This is your typical multi-cap fund. The large-cap to midand small-cap proportion is around 60:40. We have no reason to believe this will change significantly. The size allocation is typically a function of sector allocation and stock selection. We do not consciously run a predetermined allocation strategy on size. The objective of the fund is like any other—outperform its benchmark consistently (3-year rolling returns) and outperform the average of a relevant multi-cap peer set. x How do you identify stocks that enter this fund?

We use two parameters to identify stocks—a) stocks which are below intrinsic value, or said another way, where implied growth is below potential growth and b) Positive change in fundamental variables. Large-caps are typically evaluated based on one-year outlook. We also leverage on our quant skills which helps us factor in non-fundamental variables for

bull phases of the market, which is a good test for investors to consider investing in this fund. The fund manager’s deftness in changing asset allocation and moving across sectors to benefit from market movements has augured well in its performance. For instance, the fund’s positions

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large-caps. Mid- and small-caps are evaluated from a three-year horizon and are purely based on fundamental research. x What kind of stocks or

companies never make the portfolio cut? All stocks or companies are eligible to enter. But as a rule, we avoid companies with serious corporate governance issues.

BSE 200 index has about 87 per cent of its weight in largecaps and the balance is from mid-caps. Suffice to say that its performance is largely aligned to large-cap category. For the fund, our target is to better the benchmark performance which we try and achieve through superior stock selection in large-caps and by identifying opportunities down the market capitalisation curve.

x What is the investment universe

for this fund? The fund can potentially invest in any listed stock. Having said that, the template ensures the risk is reduced by setting limits on stock, sector and market-cap. Stock limits are ±5 per cent, sector limits are ±8 per cent vis-à-vis the benchmark. For market cap, we operate in the following bands: 0-10 per cent for small caps, 20-50 per cent for mid-caps and 3080 per cent for large-caps. The benchmark for the fund is BSE 200. x What should an investor expect

when investing through SIPs in this fund?

in Ahluwalia Contracts and Aurobindo Pharma have proved valuable. It does take calls to be in sync with cyclical sectors, but is also cautious to increase exposure to defensive sectors such as pharma and consumer non-durables when the markets

Outlook Money December 2016 www.outlookmoney.com

x What has aided the performance of this scheme in the past one year?

Bajaj Finance, Hindustan Petroleum and UPL have been the top stock attributors and among the sectors, being underweight in IT and overweight in energy and fertilizer has helped over the last one year. Higher allocation to mid- and small-caps has also helped the fund outperform the benchmark over the past one year. Allocation to mid- and small-caps is largely a derivative of bottom up stock selection and some of these picks have done well for the fund.

are volatile. The over two-decade history, consistency, and pedigree of the fund house are all factors that make this a suitable fund to consider investing in. Make SIP investments in this fund with a 3-5 year timeframe to benefit the most. [email protected]

HealthCheck

Get more for less

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pure vanilla health insurance is a passé, there are options that will help you customise your policy at optimal costs, without compromising the scope of insurance cover.

I have a health insurance provided by my employer. Is it enough? Health insurance provided by employers are most often limiting as the scope of cover is a measure of your level in the company and your salary. Ideally, you should take a personal health insurance. Most often costs are the reason to not go for an individual health insurance; so, you could explore the top-up health insurance plan to supplement the insurance provided by your employer. This is like a pizza topping, by paying a marginal sum you get a higher sum assured, which kicks-in above the sum assured on the basic health insurance provided by your employer. The importance of this policy can be realised when you leave the job and the new employer may not offer a similar policy or offer a reduced cover. Can you explain how do top up plans work? Unlike a standard health insurance policy, which settles your hospital bills within the limits of the sum assured under the cover, the top-up comes into play when the claim

surpasses a threshold. For instance, with every top-up, there is a threshold known as deductible, which is a must. So, in case you take a `5 lakh top-up with `2 lakh deductible, the top-up will pay for claims that surpass the `2 lakh deductible. So, if a claim for `3 lakh rises, the top-up will pay `1 lakh. Which is why, it is suggested that one should take a standard health insurance for `2 lakh and add a top-up to it. This way, the topup comes into play only selectively when the sum assured is surpassed. So, the top-up plan is beneficial when you want to increase the cover while paying low premium. Who should buy a top-up? Top up health insurance policies are one of the most economical ways to increase the scope of your health insurance cover. For instance, the premium in case of `5 lakh Optima Restore policy is `8,216 including tax and if you buy `5 lakh Optima Super top up plan with `2 lakh deductible limit, you will pay just `2,363 including tax. Such plans are best suited for individuals with group cover or low sum insured

policies or those who can spend the first few lakhs from their pocket. Is it necessary to have a base cover to buy a top up plan? Will I get tax exemption? No, a top up plan can be bought without a base cover but in doing so; you will be funding the deductible sum, with the top-up paying for the rest. When going in for a top-up, look for a plan that is on an aggregate basis, which means it will club many instances of hospitalisation in a year and not just a single one to calculate the deductible limit. Yes, you will get tax exemption under section 80D of I-T Act.

Is it possible to later convert my top-up plan into a fullfledged health insurance plan? Yes it is. Apollo Munich’s Optima Super comes with the unique SWITCH benefit where the customers have an option of converting their Optima Super into a full-fledged nil deductible plan without any underwriting or consideration of your current health status at two occasions. One – when a customer is due for his 5th consecutive renewal. Two - when a customer is 55-60 years old, has availed the policy before the age of 50 years and has been renewing his/her policy regularly.

www.outlookmoney.com December 2016 Outlook Money

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Cover Story

Befriending income tax Smart tax planning strategies can help you not only optimise your tax liability but could also help you achieve your financial goals, says Shipra Sharma

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Year-long exercise

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Accept the fact that you cannot avoid income tax. And the sooner you start accepting that money will be deducted from your salary towards tax deductions, the better it is. Not only will it make you use tax savings meaningfully, it will also help you with your overall finances. You should refrain from buying life

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f you fear income tax, rest assured, the Prime Minister is well aware of your concerns. A few months ago, PM Narendra Modi asked tax officials to remove fear of harassment from the minds of taxpayers and focus on five pillars of administration—revenue, accountability, probity, information and digitisation (RAPID). Taxpayers should be proud that their contributions go into nation

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Mohnish Panchal comes across like any average taxpayer till he informs about having exhausted his tax savings limit under Section 80C. “I used the limit by putting money into PPF and insurance and am satisfied,” he says. Nothing wrong but if he had given some thought he could have done a lot better.

building, yet, most treat tax savings as a chore. The last quarter JFM (JanFeb-Mar) syndrome is used smartly by financial services companies that have products in which you can save and invest to claim tax deductions. Sadly, the diligence shown by taxpayers in choosing a smartphone or a year-end travel plan by endlessly trawling the net is something that they never use when it comes to their annual tax planning. At 26,

Outlook Money December 2016 www.outlookmoney.com

Hemant Beniwal FINANCIAL PLANNER

Your tax saving should be result of your investment planning and not vice versa. Make your goals, make a plan for them and then choose an appropriate tax saver.

rajat Yadav, 32,

GurGaOn

along with my wife, we have a joint home loan, which has helped us in building an asset early in our lives and also save on taxes.

Photo: gireesh. gv

insurance, which seems to be the most sought-after tax saving option, without understanding its use. The window to save tax is the same whether you earn `2.5 lakh a year or `2.5 lakh a month. All taxpayers can save taxes up to `1.5 lakh annually under Section 80C, which allows one to claim deduction on savings, select expenses and also investments. The first step towards befriending income tax is to use this wide range of instruments by parking your money to suit your needs. Salaried taxpayers wake up to tax savings sometime between November and January, when the office accounts department starts asking for proof of tax savings, lest they start deducting it from their salary. “You should think about saving tax at the beginning of the financial year. You cannot act in a haste and buy a few random products to fulfil the Section 80C deductions,” says Hemant Beniwal, financial planner. If planned well,

your income tax planning can be very effective, if not, it could turn out to be a mess. For entrepreneur couple Moksh

anuj matHur CEO, CANARA HSBC OBC LIFE INSURANCE

While Life Insurance solution is a “must” and a “first step” to financial planning, the collateral benefit that one gets by buying a life insurance policy is tax benefits.

Juneja and Aditi Juneja, the annual tax planning exercises starts and ends with PPF, life insurance and medical insurance. “Right now, saving tax is not a priority. I prefer parking my money where I can get maximum returns,” says Moksh. His choice of instruments to save taxes tells a very different story in comparison to what he has stated. The penchant for fixed return instruments is well known, which could be due to the tilt towards such products within the tax saving basket. The savings options, which earn a fixed return, include contributions to the mandatory Provident Fund (PF), PPF, savings in five-year fixed deposits, five-year post office term deposits, National Savings Certificate (NSC), Sukanya Samriddhi Yojana and the Senior Citizen’s Savings Scheme. Many taxpayers tend to ignore the available options towards investments like those in unit-linked insurance plans (Ulips), equity-

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Cover Story

avenues to save tax Section

Maximum Limit (`)

1.5 lakh

Section 80C

Section 80D

25,000

(35,000 for senior citizens)

Comment Includes a wide net of instruments in which savings and investments qualify for tax deductions Premiums paid towards medical insurance qualify for deductions

lakh (self occupied property)

The interest component of home loans is allowed as deduction under Section 24B for up to `2 lakh in case of a self-occupied house. If your property is a let-out one then the entire interest amount can be claimed as tax deduction.

Section 80EEE

50,000

Effective Budget 2016-17, first time home buyers can claim an additional tax deduction of up to `50,000 on home loan interest payments. The home loan should have been sanctioned in FY 2016-17 and the loan amount should be less than `35 lakh, with the value of the house no more than `50 Lakh. The home buyer should have no other existing residential house in his name.

Section 80GG

60,000

applicable for all those individuals who do not own a residential house and do not receive Hra

Section 87A

50,000

If you are earning below `5 lakh, you can save an additional `3,000 in taxes. In case if your tax liability is less than `5,000 for FY 2016-17, the rebate u/s 87a will be restricted up to income tax liability only

Section 80CCD(1B)

50,000

Employee’s contribution in nPS is eligible for additional tax deduction outside the Section 80C limit

10,000

Deduction from gross total income of an individual up to a maximum of `10,000 in respect of interest on deposits in savings account with a bank, co-operative society or post office can be claimed under this section.

Section 24B

Section 80TTA

40

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Outlook Money December 2016 www.outlookmoney.com

linked savings scheme (ELSS), contributions to the National Pension System (NPS) which has an additional window of `50,000 to be claimed as tax deduction, and home loan principal repayment which also qualify for deductions.

the best option When you have plenty to choose from, the chances of bias setting in selection are high. In her book ‘The Art of Choosing’, Sheena Iyengar writes: “An abundance of choice doesn’t always benefit us...The expansion of choice has become the explosion of choice, and while there is something beautiful and immensely satisfying about having all this variety at our fingertips, we also find ourselves beset by it.” The choice when it comes to using the mandated `1.5 lakh towards tax savings cannot be better described. It also does not come as a surprise why people predominantly opt for life insurance even if not for the right reasons—risk mitigation (Read story on page 56 for more). Like most other things in personal finance, the answer to the best tax plan will vary from person to person (Read story on page 48 for more). There is also a role that each tax saving option can play in your financial life. “Life insurance is a sound long term financial solution. The simple advice that we would give is—please start early. This most critical solution for your needs demands a disciplined approach much early in your life so that over the years you build a good corpus,” stresses Anuj Mathur, CEO, Canara HSBC OBC Life Insurance. The opportunity to create wealth and at the same time save taxes is a potent combination that taxpayers can smartly deploy. A financial instrument that provides this feature is the ELSS. “ELSS is among the few eligible equity-based tax saving product which also comes

MokSh juNeja (34) & aditi juNeja (31) MuMBaI We have mostly used PPF and mediclaim which takes care of our tax planning needs within the prescribed limits.

Photo: soumik kar

NPS verSuS ePF

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retirement contributions by way of putting money into he debate over the national Pension System the nPS adds up to `2 lakh in a financial year instead of (nPS) being better than the age-old Employees the `1.5 lakh limit in case of the EPF. Further, the nPS, provident fund scheme (EPF) can be never-ending, unlike the EPF, is flexible—you do not need to invest each depending which of the two you are contributing to. month, you can skip contributions for a few One aspect that is clearly emerging is that months as long as you make the once-athe government is pushing for more people year minimum contribution. The additional to opt for the nPS, given the tax benefits available to an nPS subscriber over the EPF. `50,000 tax rebate available when putting although the EPF is mandatory for money in the nPS has got many takers to employees earning up to `15,000 a month the scheme. in the organised sector, many employers Says Delhi-based Manu agarwal: “I insist on EPF contributions for all their fall under the nPS as a Government employees. as your employer matches CV GanesH of India employee. I was unhappy with the statutory EPF contributions, many the contributions initially, but with the COO & BUSINESS HEAD— employees assume this sum is in addition DIGITAL CHANNELS, HDFC additional tax benefit, I have increased my SECURITIES to their salary, which is not the case. In contribution, which is earning well.” The these times of cost-to-company (CTC), Post the tax benefit additional tax benefits have increased the contributions by both employers and of `50,000, retail number of takers to this scheme. “Post employees are clubbed in the CTC. customers in the NPS the additional tax benefit of `50,000, the In comparison, the nPS is voluntary but have approximately number of retail customers in the nPS have approximately quadrupled on a cumulative several employers are finding merit in the quadrupled on a basis,” says CV Ganesh, COO & business scheme and offering it to employees as a cumulative basis. head—digital channels, HDFC Securities. choice over the EPF. The tax benefit through

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tax Shelter

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sandeep patel MD & CEO, CIGNA TTK HEALTH INSURANCE

Health insurance should be an integral part of your financial plan; tax benefit is a motivator and should not be the only reason to buy it. with a lower lock-in period of three years vis-à-vis five years for most others in the Section 80 list,” says Sanjay Sapre, president, Franklin Templeton Investments—India. There are several ELSSs to choose from, and each adopts a different investment approach, providing taxpayers to select a fund that suits their risk profile. The shortest lock-in compared to other tax saving options makes it an automatic first choice investment vehicle for tax savers (Read story on page 52 for more).

wning a house is every Indian’s topmost desire and dream. That it is becoming affordable with a push by the government is evident by the additional tax benefits that are available to first time home buyers in the affordable housing space. “I took a home loan in 2010 and have used both the tax savings available on principal repayment and the sanjaya interest component,” says rajat Yadav. Gupta The banking background gave him the MD, PNB HOUSING necessary edge to understand what he was to FINANCE gain by going in for a home loan. His `25 lakh One way to loan costs him `24,00 in EMIs and he is already 6 years into the loan, with another 9 years to go maximise tax benefit is by availing loan before it comes to an end. in joint name, this as the home loan repayment has two components— principal and interest—there are way both owners will be eligible for tax tax rebates to be claimed under both heads. rebates. You get a deduction of home loan interest repayment under Section 24 of the Income Tax act and a deduction of the principal amount under Section 80C. “as my wife is also employed, we went in for a joint home loan, we both are able to claim the tax benefits,” Yadav explains.

joint loan advantage Suppose Mr X and his wife take a joint home loan of `50 lakh with equal shareholding and both are in the highest tax bracket of 30 per cent. assuming the loan is for 20 years, at 9.25 per cent interest, their combined tax exemption is `5.49 lakh each year. If only Mr X had taken the loan, he would have got an exemption of only `3.5 lakh (`1.5 lakh under Section 80C and `2 lakh under Section 24). However, by going for a joint loan, they are able to get an additional benefit of `1.95 lakh.

Details

Making tax savings work It is one thing to save tax and another to make it work for you. Tax savings that you get on the EMIs repayment on a housing loan is one way to not only build a financial asset but also make tax savings work for you (See: Joint loan advantage). “Impetus to affordable housing through tax benefits announced in the 2016 Budget is making it possible for several taxpayers to own a house,” says Sanjaya Gupta, MD, PNB Housing Finance. Another route that can help you

44

Amount (`)

Home Loan Amount

50 lakh

EMI Principal + Interest payable (`2.32 lakh + `3.17 lakh)

5.49 lakh

Amount payable by each

2.74 lakh

Combined Tax Deduction under Section 80C in the first year within the `1.5 lakh cap Combined Tax Deduction under Section 24 in the first year within the `2 lakh cap

total tax deduction

Outlook Money December 2016 www.outlookmoney.com

2.32 lakh or 1.16 lakh each 3.17 lakh or 1.58 lakh each 5.49 lakh

Cover Story

aNita verMa 29, GurGaOn My tax savings are in PF, PPF and life insurance policies for the wealth protection and flexibility they offer besides tax savings.

Photo: gireesh. gv

create a corpus for your golden years is the National Pension System (NPS). The fund options within the NPS and the additional

sanjay sapre PRESIDENT, FRANKLIN TEMPLETON INVESTMENTS— INDIA

There are two key aspects one must consider before investing in ELSS— risk appetite and investment horizon.

46

tax deductions available on contributions to this instrument make it a strong retirement planning tool (Read: NPS versus EPF). Savvy tax savers use every rule in the book to make every rupee that they pay as tax work for them, without avoiding taxes (See page 55 for ways to claim tax benefits). A simple way to do so is to create an HUF (Hindu undivided family) account, which allows them to save additional sums. With the HUF, you basically create one more entity within the family which can benefit from the money deployed towards tax savings in them. The HUF as a concept is easy, but venture into it only if you see merit in it and can manage the compliance element of filing tax returns under the HUF. Instead of getting bogged down by the many choices that stare at you when planning taxes, sit back and think of your financial needs and how you could use tax savings to achieve them. Not only will you

Outlook Money December 2016 www.outlookmoney.com

be able to reduce your tax liability, you will be able to benefit from the dual advantage of tax savings and realising your financial goals. More choice is not always better, but neither is less, according to Iyengar. So, choose tax saving instruments that you understand than getting myopic with blindly tax savings. The optimal amount of choice lies somewhere in between infinity and very little, and that optimum depends on context and culture. “In practice, people can cope with larger assortments than research on our basic cognitive limitations might suggest,” Iyengar writes. As a taxpayer, make sure you maximise the opportunity that comes your way towards meeting your long-term financial needs than get obsessed with utilising the `1.5 lakh you need to save and invest to reduce your tax liability. This approach creates the smart taxpayer who tastes the best of both the worlds: tax savings and meeting financial goals.

Cover Story

Mix ‘n’ Match Adopt smart ways to align tax planning to financial goals and benefit from best of both worlds, says Shipra Sharma

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wo heads are better than one. Teams tend to perform better than individuals and by the same logic, by aligning your financial goals with the available tax saving options, you are likely to benefit the most. For most of us, income tax is the first exposure to financial decision making even before one can start writing down financial goals. Although both these aspects of our personal finances could be treated independently, you will be much better off by combining the two. At 26, Mumbai-based Mohnish Panchal demonstrates the maturity of a veteran financial expert by matching his tax savings choice with his financial goals to make the most of the tax savings. “I am using the tax

Tax Planning option Life Insurance (premiums qualify for tax deduction under Section 80C)

Health insurance (premiums qualify for tax deduction under Section 80D) EPF, NPS, Pension policy (contributions qualify for tax deductions under Section 80C and variants) Tuition fee under Section 80C and education loan under Section 80EEE Home loan repayment rebate under Section 24 towards principal and Section 80C toward interest

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Outlook Money December 2016 www.outlookmoney.com

Nimesh shah MD AND CEO, ICICI PRUDENTIAL AMC

Traditional instruments offer assured returns that may be unable to beat inflation over the long-term, unlike ELSS that has the potential to beat inflation and create wealth.

ReNu maheshwaRi CEO, FINSCHOLARZ

Goal financing should be the primary criterion around which tax saving products should be chosen, but the first step should be asset allocation as per financial goals.

offer for you. Both these products serve the purpose of saving for your retirement needs. “The NPS was the mandatory retirement saving for me, which I did not appreciate in the beginning. However, over time and with the additional tax benefits it attracts, I find it to be the best retirement savings option that I could have got into,” says Delhi-based Manu Agarwal. Several taxpayers are finding favour with opting for the NPS, which has a stringent long lockin period and ensures one is able

to save towards retirement without having the flexibility and liquidity to exit at the slightest of provocation.

Early start If you are in your 20s, you have many years ahead of you, which should automatically stop you from

Mohnish Panchal, 26, MuMbai i am using the tax concessions available towards my financial needs of insurance and healthcare, which are working adequately.

saving windows to meet my financial needs, which allows me to align the two effectively,” he says. The choice of financial instruments to save taxes is plenty, but to derive more than just tax savings you need to match their benefits with your financial goals.

Building a foundation At the base of every financial plan rests the aspect of protection and risk mitigation. The two most important insurance policies that one should have are health insurance and life insurance, especially term plans. As premium payments towards life insurance qualify for tax deduction, one should first opt for adequate life insurance cover. The life insurance cover will take care of future financial needs of your dependents if you were not to wake up tomorrow. You should next go for an adequate health insurance plan so that you are geared to face the financial implications of healthcare risks that you are exposed to. The other tax saving instrument which the salaried can benefit from is the EPF or the NPS, depending on what is on

Photo: soumik kar

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Manu aGarwal, 45, New Delhi i have increased the mandatory contributions to the NPS because of the additional tax benefits, which will help me create a bigger corpus for my retirement.

Photo: gireesh. gv

putting money in fixed return tax saving options like the NSC, 5-year bank deposits and even the PPF. Tax saving instruments like the NPS and ELSS which have equity exposure should be your first choice. The reason to opt for these over other fixed return instruments is two pronged—you gain from the longterm equity exposure and also the power of compounding. “For first time investors, the equity linked savings scheme (ELSS) is a good choice to experience equity investments,” says Nimesh Shah, MD and CEO, ICICI Prudential AMC. According to him, ELSS, which comes with a three-year lock-in, offers an investor twin benefits of wealth creation and tax efficiency. Those with over 10-15 years left in the workforce, the NPS is an excellent product to invest in to save taxes and also build retirement corpus. The choice of funds that one can invest within the NPS further allows you to manage the investment risk and still have equity exposure which is the only asset class which in the long run beats inflation.

50

special situations Today, buying a house without taking a home loan is rare. Now, if you can borrow to buy a house and also use the repayment to gain tax benefits, it is a move which puts you in a much better financial situation

adhil shetty

Outlook Money December 2016 www.outlookmoney.com

CEO, BANK BAZAAR

If you are a firsttime homeowner and looking for a house that costs less than `50 lakh, you can make use of the additional tax benefits under Section 80EE.

that you could imagine. Says Adhil Shetty, CEO, Bank Bazaar: “You can claim deduction of up to `2 lakh on your home loan interest if you or your family reside in the house property or if the property is vacant.” And, if you have rented out your property on which the loan is running, the entire interest on the home loan is allowed as a deduction. The rising cost of education can take a toll on your finances, which is where the Section 80C benefit comes to your rescue under which you can claim tax deduction towards the sum you pay towards tuition fee for up to two children. This is beneficial for those too who wish to pursue higher education. A loan to fund your higher studies is easily available these days and most students opt for this. To provide incentives to students to pursue higher education in India, the government offers tax benefits for education loan takers under Section 80E. With this deduction, an education loan not only funds your higher studies but also helps save tax as the interest paid on the education loan can be claimed as deduction under Section 80E. To make the most of tax savings, examine your tax liabilities and finances before selecting tax-saving instruments. The choice would largely depend on several factors like product lock-in, risks involved with the instrument and the returns they earn. To make the most of the options you need to fit the two to meet your overall financial goals.

General Insurance Made Easy

Beyond health Health insurance comes with a feature that should not become the driver for going in for it—tax benefits

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ise in healthcare risks and incidents of lifestyle diseases have made it practically impossible for most of us to be without health insurance to address the financial implications of hospitalisation. There is no way one can hold the premium that one pays towards a health insurance policy to be an avoidable expense. The fallacy that health insurance is expensive is busted the moment one experiences hospitalisation even for a few days resulting into a sizeable bill. In fact, for most people, even before taking up life insurance, one should take a health insurance policy. There are several types of existing health insurance policies. Depending on one’s needs, one can select a combination that best addresses their needs. But a standard basic health insurance policy is a must which covers expenses incurred from an accident or hospitalisation. There exists another inherent benefit of taking a health insurance; premiums paid towards the policy come with tax benefits. Premiums paid towards health insurance policies are eligible for tax benefits under Section 80D as the health insurance premium

Overall deductions under Section 80D Health CheckUp Exemption (`)

Total (`)

People covered

Exemption Limit (`)

Self and family

25,000

5,000 30,000

Self and family + parents

(25,000 + 25,000) = 50,000

5,000 55,000

Self and family + senior citizen (25,000 + 30,000) = 55,000 parents Self (senior citizen) and family (30,000 + 30,000) = 60,000 + senior citizen parents

5,000 60,000 5,000 65,000

Under Section 80D, a taxpayer can claim deductions on health insurance premiums paid for self/family and parents, apart from deductions on expenses related to health check-ups.

paid for self, spouse, children and parents all qualify for tax deductions. In fact, even the Hindu Undivided Families (HUF) can claim deductions under this section. Premium payments of any member in a HUF can be used for tax deduction subject to upper limit as per the Act. Further, the income tax rules allow for deduction under Section 80D for even preventive health checkup. The aggregate amount you can claim as deduction in a year is `5,000. The health check-up could be done for either the individual or her family, including parents, spouse and children. The scope of health insurance definitely goes up even for those who are sceptical about the benefits of the policy. However, do not go in for a policy just because of tax benefits. It is best to zero down on a health

policy that meets your needs. With the New Year round the corner, it may be a good idea to include health insurance as part

of your resolution. But, do not treat it like several resolutions that never tend to be followed. [email protected]

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Extra edge with equities Equity-linked saving schemes (ELSS) are mutual funds in which investments qualify for tax deductions; make them your first choice of tax savings, says Preeti Kulkarni

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here are several financial instruments in which you can park money to claim tax deductions under Section 80C of the Income Tax Act. The nature of tax savings could be by way of saving, investing and in certain cases even spending money, with the combined limit of `1.5 lakh. Although the advantages of longterm investing cannot be emphasised more, there is one financial instrument that could be the first investment vehicle for scores of taxpayers—the equity-linked saving schemes (ELSS). The ELSS comes

Mahesh Patil CO-CIO, BIRLA SUN LIFE AMC

The lock-in plays an important role in the investment style of the fund, allowing us to take a medium to long-term view on stocks of emerging quality companies.

52

Outlook Money December 2016 www.outlookmoney.com

with a three-year lock-in, which is the shortest compared to other tax savings avenues. The ELSS is an open-end equity mutual fund that doesn’t just help you save tax but also lets your money grow. The three-year lock-in works to the advantage of both the taxpayer as well as the fund manager as both get the necessary time to counter market volatility. The taxpayer has the added advantage of being in a fund where only other taxpayers are investors, making them fairly homogenous in their construct. Further, the exposure to equities gives the investor the edge to earn higher returns, which have the potential to beat inflation.

Investment strategy Although the investment objectives of all ELSS are the same, the way the funds are managed and how the investment strategy is adopted differ. So there is ELSS which may have a large-cap orientation or one which could adopt a multi-cap approach. The varying strategy adopted also gives an opportunity to select a fund that is managed in a manner that it suits their risk appetite. Says Mahesh Patil, co-CIO, Birla Sun Life AMC: “Quality orientation involves selecting companies run by professional managements backed by strong promoters when building the fund’s portfolio.” Then there are fund managers who swear by the benefits of diversification to spread risks and optimise returns. “Invesco India Tax Plan’s portfolio has a healthy blend of growth and value, but is growthbiased. We invest across market capitalisation with a blend of both large-caps as well as mid-caps with a long-term view. Hence the portfolio is managed with a very low turnover,” explains Vinay Paharia, fund manager, Invesco Mutual Fund. Says Lakshmikanth Reddy, VP and portfolio manager, Franklin Templeton Investments—India: “We

Options to pick from Tax Saver

Assets Managed (`crore)

Returns (%) 3-year

5-year

7-year

422

21.61

18.88

12.35

DSP BlackRock Tax Saver

1,496

23.57

20.9

13.5

Franklin India Taxshield

2,442

21.76

18.11

14.26

Invesco India Tax Plan

340

21.61

18.46

14

Principal Tax Savings

294

20.46

19.61

11.19

Birla Sun Life Tax Plan

Returns as on Nov 23, 2016; Assets as on Oct 31, 2016

Vinay Paharia FUND MANAGER, INVESCO MUTUAL FUND

We invest about 50 per cent of the assets in attractive mid-cap stocks because of the three-year lock-in, which allows us the flexibility to invest in this manner. follow a bottom-up approach, and invest across market-cap. The idea is to have a mix of large and mid/smallcap stocks that can help the fund deliver superior risk-adjusted returns across market cycles.” Franklin India Taxshield is designed to be sector-

agnostic with “prudent” limits on exposure to any single stock. “My strategy is guided by a pure stock-determined approach. I look at corporate earnings for the next two years and how the cash flow profile of the company is going to improve; if a company is delivering an X ROE, what will lead to growth in the coming days,” says Rohit Singhania, VP and fund manager, DSP BlackRock Investment Managers. In case of small- or mid-cap companies, he looks at the scalability and its plans for capacity expansion.

The lock-in advantage One advantage for fund managers when managing ELSS is the threeyear lock-in. As much as the lock-in forces an investor to stay invested for a fixed period, it also gives the freedom to manage the fund without the fear of redemption pressure during market swings. “The lock-in allows investment decisions to be taken with a longer term outlook as there would not be fears of redemption. We, however, do build a significant part of our portfolio with a 2-3 year view,” says PVK Mohan,

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rohit singhania

P.V.k. Mohan

VP AND FUND MANAGER, DSP BLACKROCK INVESTMENT MANAGERS

HEAD—EQUITY, PRINCIPAL MUTUAL FUND

The three-year lockin allows investment decisions to be taken with a longer term outlook as there would not be fears of redemption.

Benchmark for my fund doesn’t solely guide my stock selection. A stock that is heavyweight in the benchmark need not necessarily be in the portfolio. head—equity, Principal PNB AMC. Fund managers have the flexibility to invest in companies that can deliver. “The lock-in plays an important role. It helps in taking medium- to long-term view on stocks of emerging quality companies and helps us to invest in early stages,” says Patil. The lock-in also helps fund managers stick to their mandate and stay invested even in times of crisis. “So the fund takes the best advantage of staying invested in equities during times of panic, helped by a three-year lock-in and tries to generate superior risk-adjusted returns over the long term,” adds Patil. “We typically stay fully invested and the cash exposure is only to meet liquidity needs. This is because our product portfolio comprises long only products—a product structure that by design forbids managers from taking cash calls,” says Reddy. “Our fund typically invests about 50 per cent of the assets in a portfolio of attractive mid-caps. This is possible because the three-year lock-in provides us with the flexibility to do so, thereby enhancing the prospects

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lakshMikanth reddy VP AND PORTFOLIO MANAGER, FRANKLIN TEMPLETON INVESTMENTS – INDIA

We invest across market-cap, with a mix of large and mid/ small-cap stocks that can help the fund deliver superior riskadjusted returns.

Look at returns over the long-term period instead of being dazzled solely by their recent performance. of the fund,” says Paharia. The flipside of this approach, of course, is market risk and lack of liquidity for three years. Taxpayers who are willing to stomach the risk in the short term are likely to choose this option.

Mix ‘n’ match The decision to choose an ELSS from over 40 available schemes is a daunting task. As an investor, you need to take into account several factors while identifying the scheme that fits your needs. Performance history of the fund manager as well as the scheme is the most critical parameter. Market outperformance is important as is consistency of returns. Look at returns over the long-term period instead of being dazzled solely by their recent performance. More importantly, do not get taken in by their returns during a bull run. “Their performance in down markets should be understood as you do not

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want your tax-saving money to go down south in bear markets,” advises Vidya Bala, head—mutual fund research, Fundsindia.com. Analyse the fund’s risk profile, its track record and consistency in performance—the wide choice allows you to pick a fund that meets your needs than blindly invest in tax savings options. As for exiting the fund, unlike other tax saving options where the tenure of the instrument most often results in exit, there is no such compulsion to exit an ELSS once the lock-in ends. Once your lock-in is over, you could stay invested in the scheme. The three-year return on all ELSS ranges from 12.22 per cent to 28.66 per cent as on November 24, 2016. What it means is that even the worst performing ELSS earns higher than any of the guaranteed return tax savings options, making ELSS an automatic first choice investment and tax saving option.

Ways to claim tax benefits up to

`4.44 lakh `2 lakh

deduction towards interest payment on home loan under Section 24

`1.5 lakh deductions under Section 80C

`19,200 exempt towards

conveyance allowance

`50,000

additional deductions under Section 80CCD towards NPS contribution

`46,350 saved under Section 80C at the highest tax bracket

`10,815

saved on contribution of under Section 80D

`4,44,200

Total tax savings

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Limitations of having too many options The cap of `1.5 lakh leaves too little to choose from Section 80C, say Shipra Sharma and Narayan Krishnamurthy

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plenty of choices to claim tax rebate. For scores of taxpayers, the choice of instruments available under this section becomes the only savings and investment avenue. There are at least 14 instruments through which you can claim tax deductions under Section 80C. Some of the instruments that offer this benefit include the EPF, PPF, NSC, payment towards children’s tuition fees, ELSS, NPS, life insurance policy premiums,

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deposit in the Sukanya Samriddhi Yojana, and many others. That these can be categorised as savings, spending and investing alternatives can help taxpayers proportion their contributions accordingly to maximise their tax gains.

Confusing It’s a case of problem of plenty when it comes to Section 80C. Not only is there a lot to choose from, the end result of each of the instrument

Amit SenguptA and mouSumi SenguptA, KOlKata When it comes to saving taxes, we want to play safe and opt mostly for insurance policies for future needs of our child and to mitigate healthcare risks.

varies with varying lock-in of monies. The shortest lock-in of three years is with the ELSS investments, whereas the longest is the NPS contribution, which can puzzle the smartest minds. It is common for many taxpayers to make the wrong choice of instruments to claim tax benefits under this section, resulting in difficulties with liquidity as well as a meaningful usage of the available tax benefits to their advantage in achieving financial goals. Kolkata-based Amit Sengupta says: “My wife and I both have put money in safe and reliable financial instruments like PPF and NSC besides life insurance policies to save taxes.” The inherent bias towards safety most often than not leads to taxpayers ignoring larger benefits they can derive from other available options. The penchant to take life insurance policy to save taxes has resulted in life insurance being used for tax savings more than being a financial instrument to mitigate risk to one’s life. Photo: sandiPan chatterjee

Constraints There is practical constraint when it comes to using the Section 80C benefits, especially for the salaried, who are part of the EPFO or contributions to the NPS. After the mandatory contributions, especially for those in the higher tax bracket, there is little left from the `1.5 lakh-cap to utilise effectively. Take for instance, someone with a gross `11.75 lakh annual salary will end up contributing `96,000 towards the mandatory PF, and have `54,000 in

total to maximise the Section 80C benefits. However, routine expenses towards the education of two children would more or less wipe out the remaining sum to benefit from any of the other available tax saving option. The pain can be more for those in the lower tax bracket, where the fight will be to save taxes or manage one’s regular household expenses. Chances are many taxpayers in the lower tax bracket

would not be fully utilising even the Section 80C benefits and instead be willing to pay taxes, as that costs them less. Gurgaonbased Prakhar Porwal says: “Saving taxes is priority, but there is hardly anything left to utilise after the mandatory provident fund contribution and premiums that I pay for life insurance.” For instance, someone in the 10 per cent tax bracket earning gross `4.7 lakh annual salary may find

www.outlookmoney.com December 2016 Outlook Money

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Cover Story

prAkhAr porWAL Gurgaon after the mandatory provident fund contribution and premiums that I pay for life insurance, there is hardly anything left to utilise. Photo: gireesh. gV

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the mandatory PF contribution of `48,000 on a basic `4 lakh income too draining. And, although there is a window to save and invest `1.02 lakh to maximise the Section 80C limit, many a time, they may not have that much left after meeting routine expenses. Suppose this person manages to use an additional `30,000 by way of tax savings and defers contributing the remaining `72,000 for optimal tax gains. In his case, he would be staring at a tax liability of about `10,000. Paying this

N •

EPF: Employees’ provident fund EPS: Employees’ pension scheme

58

Outlook Money December 2016 www.outlookmoney.com

tax is far better than wiping out one’s earnings only to optimise tax savings.

What can you do? To overcome this drawback, several taxpayers prefer taking a home loan to make the best use of tax savings under the Section 80C umbrella. The rebate that one can claim towards the repayment of interest on the loan is significant in the early years of the loan repayment, which does not burden with any additional tax savings. As the loan is used towards asset building by way of ownership of a house, it is a move that should be explored and used especially when there are additional tax benefits available on home loans for affordable housing. As a taxpayer, it is in your interest to explore all the avenues through which you can deploy money to save tax under Section 80C and then select those instruments that will work for you. The other way is to also evaluate how much money you will lose by way of paying tax were you not to be bogged by locking in `1.5 lakh. At the highest tax bracket, `46,350 is what you save when you maximise the Section 80C benefit. The other way to interpret this detail—you lose if you do not put a single rupee into tax savings under Section 80C window. At lower levels, the tax liability will be relatively much lower.

Expert Speak

Make it easy for your legal heirs

Writing a will is considered a taboo in India as it is regarded as a bad omen, but not doing so will only spell more trouble for your family

Dilshad Billimoria Director, Dilzer Consultants

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he passing away of a loved one always creates an emotional and financial trauma, especially if they have suffered a lot. It may be difficult to draft a will when someone has a serious illness like last stage of cancer, or if there is a sudden accidental death and the only survivors are the children who are minors, or if a patient becomes brain dead and is incapacitated. Sometimes, even in old age, grandparents and parents consider writing a will as taboo, since it is considered a bad omen if one were to write about distribution of assets. We recommend that our clients make a will the moment they have dependents to look after. Dependents could be a homemaker, or children, or ageing parents that are being looked after. When the family is dependent on a sole bread earner, it is very important that a will is created to ensure smooth transition of assets. Another important time when will creation is important is if people have a large family and are living in the joint family set up. The person who makes a will is

60

called a Testator. The person who executes or helps in division of assets on the death of the testator is called the Executor and the claimants are the beneficiaries of a will. A Witness validates or authenticates the will written and states that the person writing the will is in sound mind. One must consider writing a will for the following reasons: Bringing financial affairs in order, i.e. review the mode of holding Having nominations for each financial assets and property. Removing conflict by giving clear instructions Deciding beneficiaries to whom you wish to leave your wealth Anyone can make a will— irrespective of their religion, anyone over the age of 21 years can make a will. However, Muslims, not married under Special Marriages Act, are allowed to bequeath only onethird of their assets while the rest

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is bequeathed in accordance with Muslim personal laws. A will can be challenged on the following grounds: sanity, under coercion and authenticity. A nominee is only a trustee and therefore, a will supersedes such nominations and having a will in place is mandatory in spite of nominations made. Following are the areas that clients should consider for creating a will, and to ensure smooth transmission of assets: House, bank accounts, mutual funds, insurance companies and retirement benefits. In the following cases, nomination supersedes a will and hence, making nominations for all categories of assets, and more so for demat account, physical shares and corporate bonds and debentures. In the last one month, we have received two cases of death among our clients and thought of mentioning some important pointers for individuals making

Expert Speak

nominations. All mutual fund investments should be held in anyone or survivor mode. This makes the transmission the easiest and fastest. Nominees created while investing in a mutual fund can be one, two or three. However, the process for distribution of investments to nominees is cumbersome and requires more paper work; besides the basic documentation on transmission of assets. In addition to KYC documents (PAN copies and address proof) of nominee and original/notarised copy of death certificates, the nominee bank account details with bank manager attestation is required. In some cases where the will does not clearly mention the nature of investment for division of assets, an indemnity bond executed by the nominee on stamp paper is required, indemnyfying the asset management company against any claims, losses, risks charges, and expenses which the company may suffer at the time of transfer of ownership of the asset to the nominee account. For company deposits, an affidavit on stamp paper (notarised) is required, mentioning details of legal heirs

62

All mutual fund investments should be held in anyone or survivor mode. This makes the transmission the easiest and fastest. and an NOC from other legal heirs stating that they have no objection to the amount being distributed to the nominee. All above documents are needed in case of nomination only (mostly).Therefore, having a joint or anyone or survivor account as mode of holding for mutual funds, bank accounts, company FDs, shares, demat accounts and for immovable assets like property makes the paper work less cumbersome and the transmission smooth. Also, the phase of losing someone to death is called a transition phase. Therefore, discussing such issues with the nominee sometimes creates resentment and emotional breakdown and therefore has to be dealt with professionally and in an unbiased manner. Clients have shown resentment in distribution of disproportionate assets among siblings and sometimes feel advisors are taking sides. Some clients are in a hurry to transfer assets in their name and then redeem and make good of the money, while others prefer only transfer of assets to hold for the long term for future

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growth and create an estate for the family. It’s important that advisors look at the situation objectively and follow the formalities and procedures laid down in the will. If needed, consultation with lawyers, property and tax consultants is also needed for execution of the will. If the family has a differentlyabled child, creating a trust for the lifelong benefits of the child with trustees who are younger in age ensures continuity and division in assets for beneficiaries. In the 20th century, property division was said to be among generation of people in the family, level 1, 2 and 3 heirs, and created a lot of confusion, legal formalities and tax queries in distribution of assets; especially when there are grandparents, parents and siblings that are apportioned small parts of the same asset. In conclusion, what would you want from your family in your absence? Peace of mind and equitable distribution of assets that you have created over the years. Why not enable that for your family and make your will today?

Swotroryipng Your Tax and Financial Planning Roadmap Are you paying too much tax? Why insurance is not an investment? Ways to integrate your taxes with your financial goals Take advantage of setting financial goals

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My Plan

Cracking the code Financial planning is a simple 6-step process, which is simple to follow and easy to implement to achieve all your financial goals, says Narayan Krishnamurthy

I

n recent times, several readers have posted queries on the approach they need to adopt to set their financial goals and work towards achieving them. Typically, financial goals depend on the life stage one is in. For instance, over one’s life one will have goals like buying a house, buying a car, go on a family vacation, save for children’s education and one’s own retirement. Although these needs are fairly universal, yet, each individual’s goals would vary based on the money needed to achieve them and the time needed to reach each goal. Whatever is the stage of your life or circumstances, the process to achieve any financial goal is the same.

Step 1

all on paper. Write down your income, expenses, existing savings and existing investments with a value to each of these heads.

Steps 2

Chalk your goals You should state all your financial goals and assign them a value and timeline by which you wish for it to materialise. Once you have the list, you can bucket them under different heads—short, medium or long-term. For instance, goals like purchasing an LED TV in three months is short term; family vacation that is three years later is a medium-term goal and your child’s education and your own retirement are long-term goals.

Your current situation

Step 3

Make a start by writing down your current financial situation. This could be by way of listing all your current assets and its monetary value and any liabilities that you may have by way of loans and outstanding sums you may be owing to anyone. This is the most important step and if you have a budget, it would be a cakewalk to get it

You need to now ascertain your comfort to risk, which is nothing but how much risk you can take when it comes to investing. For instance, if you are comfortable with 20 per cent erosion in value of your portfolio, you are a risk-taker. However, if you have sleepless nights when the value of your

66

Action plan

Outlook Money December 2016 www.outlookmoney.com

portfolio takes even a small dip, you are not a risk taker. The kind of risk that you can take will determine the type of financial instruments in which you can put money.

Step 4

Evaluating options Link a savings and investment option for each of your financial goals. Doing so will ensure you do not mix your investments and are unable to prioritise funds for the many financial goals that you may have. This will also help in the selection of the appropriate financial instrument in suitable asset classes. Choose investments based on their tax efficiency and not be blinded by returns. For instance, you can deploy money in equity-oriented instruments to achieve goals that are over 5-7 years from now. Alternately, if the goals are between 2-3 years from now, you could look at parking money into debt instruments.

Step 5

Plan implementation The next stage is to fix a regular sum to invest to achieve your financial goals,

Six-step process to personal finance planning Start

Assess your current financial situation

1

Determine what actions to take like budgeting, spending and tracking cashflow

3

Create your financial plan by selecting suitable financial products and services

5

which will make goal-based investing a habit. Being regular with investments also gives you the convenience of achieving your financial goals smoothly.

Step 6

Review and revision Investing for a financial goal is not a

2

Develop your personal financial goals

4

Evaluate the alternatives by identifying your needs and wants

6

Review and revise your financial plan based on life-changing situations

one-time exercise. To be on top of your finances, you should evaluate the progress made by your investments to achieve your financial goals at least once a year. This approach will help you understand how your investments are faring, with the opportunity to make any changes to them or restructure your plan if need be.

End

Last, as you approach closer to each of your financial goals, you should start moving money from equities to more stable debt-type of instruments. This way, you will not be impacted by any major impact to the stock markets, which are far more volatile and can upset your best laid plans. [email protected]

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67

Book Review

Building an innovative learning organization

How to enHance tHe culture of life long learning in organizations

I

f you are looking for a book that will inspire you to sow the seeds of a new thought process, this one’s for you. The essence of this book rests on the core premise that lifelong learning is the key to success for everyone and should be adapted as quickly as possible so that the growth trail is in line with your potential and desire. You believe it when it comes from Russel Sarder, the CEO of NetCom Learning. According to Sarder, learning occurs when people become attentive of opposing ideas. Recognising the value of alternative worldviews increases motivation, sparks fresh thinking, and prevents lassitude and drift. The book constantly guides you on how to create a culture of lifelong learning in your organization for personal and professional development, with detailed explanations, practical examples, and

step-by-step instructions so you can get started right away. He simply describes how companies can rid themselves of the learning afflictions that threaten their productivity and success by adopting the strategies of learning organizations. This book is a practical and working guide on how to enhance and improve performance, and innovate more swiftly. A key learning is that culture of an organisation can be changed fast, provided blockages are tackled, people’s capabilities and potentials are renewed, and processes and systems get constantly reviewed and challenged internally. The book is strewn with practical and motivating principles coupled with the author’s personal experiences and expertise from leading practitioners that make for an interesting read.

Publisher Author

Russel saRdeR

John Wiley Price

`499

domino: tHe simplest way to inspire cHange get inspired and alter your ways of execution

I

f you are looking to change the way things are around you, here is a book to get the inspiration from. Simple and easy to understand, the book highlights a new approach for executing change and inspiring dexterity in the workplace. Whether you are a in a corporate setup or functioning on your own, who is trying out ways to improve the working ways around you, Domino will provide you with immediate and practical solutions. Tasler has done a wonderful job in bringing in experience with research to demonstrate ways to accomplish to inspire change. There are simple offers of ways to conquer uncertainty in the workplace and deliver consistent results in any business environment. This engaging resource gives new managers in all industries a concrete

68

set of principles for effective leadership that they can use in their everyday tasks to execute change and inspire agility in their teams. Elegantly simple, the book is a great read for anyone, even those who do not have anyone to report to or anyone reporting to them. The ideas in the book are explained in a manner that it naturally builds curiosity and interest to know how to go about effecting a change. Like his earlier books, this one too will equip you with the necessary knowledge to make the changes around you. The book is also entertaining to read and will transform the way you see yourself, the decisions you make (or don't make), and the effect they have on leading the change you desire. Domino will change the way you approach change.

Outlook Money December 2016 www.outlookmoney.com

Publisher Author

nick TasleR

Wiley

Price

`189

Predictions

2017 The Year of New Beginnings 2017 Numerology Forecast by Farzana Suri “Isn’t it nice to think that tomorrow is a new day with no mistakes in it yet?” —L.M. Montgomery

T

Jan

he year 2016 marked the year of change at many levels. It was all about transformations, transitions and realistic manifestations. On a global level, the transformation saw changing power paradigms. European equity prices have been on a downward trend. The Brexit issue, the slowdown of the Chinese economy, Wells Fargo financial scandal, the impact of the US Presidential elections remain a cause of concern. Closer home, the financial mismanagement leading to early demise of noteworthy start-ups has questioned the new age investors. Family-owned corporates are facing the heat and the inflation is being kept almost in check. The economy seems robust despite the global shift. The Universal Year 1 demonstrates the need to shrug off the remnants of last year and usher in the dawn of new beginnings and opportunities with renewed focus and zest. This is the time to decide what to do with the opportunities that confront you. The canvas is clean, so plan your long-term future goals smartly. The foundation you lay in 2017 will set the tone for the coming nine years. Mindfulness is needed while spending or increasing debt out of sheer vanity and ego. Experimentation, initiation, self-reflection, introspection and leadership are keywords for 2017. Learn, adapt and move according to the direction of the wind in the financial market. It would be wise to take calculated risks. 2017 is the year of personal victories. I wish you all the joy of success in financial freedom.

2017

70

1

Arriving at your PY 2017 As the dust settles in 2016, 2017 adds up to number 1 (2+0+1+7 = 10 =1) which displays a ray of hope.

How to determine your Personal Year for 2017 Add the numbers of your birth month, your birth day and the number 1 (the number of the universal year 2017). For e.g March 1 is 1+3+1=5 Personal Year. Or October 12 is 1+2+1+0+1=5 Personal Year. Or December 25 is 2+5+1+2+1=11=1+1=2

Leadership | Independence | Creativity The struggles of the past year fade away, marking a new phase of your life. Situations may drive you towards a whole new approach in the way you perceive your financial preparedness. Your determination, willpower and creativity in your outlook towards money management is likely to yield success. Go easy on that need to charge impulsive spends on your credit card. Calculated risks would be more gainful. You will discover a new you this year. Opportunities that were invisible suddenly appear to flash all around you. It will be a great time to begin your own business or change your job or commit to a relationship. Dream big and invest the next nine years towards achieving it.

Outlook Money December 2016 www.outlookmoney.com

4 5

Feb Mar Aug

Jul

Jun

May

Apr

2 3

6

Co-operation | Partnership | Mediator This is a year to nurture your plans and stay focused on your financial and other goals. Opportunities of collaboration and partnership will present themselves to you at work and in business. You make new friends and build new relationships that are beneficial. Money may seem scarce and your emotional sensitivity will magnify that thought into worry. Relax, it isn’t all that bad. The year may seem slower, be patient. Keep a check on those mood swings and avoid confrontations. Tact is the keyword. Be a catalyst to someone else’s growth and learn to listen to others. Unconventional sources of income may just wind their way to you. Tune into your intuition to guide you.

Humour | Creativity | Spontaneity Your approach to situations this year is to be optimistic. The closing of one door may open up a bigger gate into greener pastures. Opportunities bedazzle you with frequent surprises introducing you to lifestyles that could bowl you over. Go with the counsel of your financial advisor lest you get carried away and splurge. You will spend more than is necessary though. A socially active year, you may even find all that partying adding kilos to your weight. A super year for self-expression. Give that talk or teach or write to express yourself. Learn to push away those feelings of lethargy, impulsive behaviour and mood fluctuations. A windfall may add surprise to your year, so be in the receiving.

Organised | Practical | Dependable This year you focus on re-evaluating your financial goals to build the foundation of your business/job as a stepping stone for the future. It spells hard work where the efforts may not commensurate with the result immediately. You may find yourself doing things several times until you get them right. Patience is the name of the game. Expect dramatic changes in your work and life. Clinging to a job or project that is not beneficial may force you to leave it or result in your exit. Property matters will yield benefits if you toe the line. It’s a profitable year for selling and trading. Expect added financial responsibilities. There’s hope. All the hard work will bear fruits beyond your expectation, closer to September, so chin up and smile.

Change | Freedom | Learning Change, adventure, breakthroughs signify this year. You will experience freedom from old conditions of delays and frustrations. Old relationships make way for new ones. Embrace the change. The choices you make will help you break free and charge ahead with confidence. Your inventiveness will have you seeking unconventional investments. Take a few risks, get out of your comfort zone. Opportunities flood you towards a new direction. Expand your network, promote yourself. It’s time for growth, however, avoid overcommitting and curb that lavish expenditure. Let your new venture or project wait till September. Spontaneous travel opportunities will take you on an adventure filled with joy.

Responsibility | Harmony | Advisor Home and family take precedence this year. Matters of health will be a concern and with the added responsibility you may experience a slight financial crunch. This, however, is a great year for finances with unexpected opportunities walking to you on a platter. Reunions and meetups will be a source of delight. Investment in a home or renovating it is likely. Personal growth through a new job or promotion may see your hard work being recognised. You feel nurtured and supported more than you have experienced in a long time. You create an environment of harmony if you’re able to balance your giving and receiving. Don’t resist falling in love as this could be an interesting year.

www.outlookmoney.com December 2016 Outlook Money

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Dec

Nov

Oct

Sep

Predictions

2017

7 8 9

Perceptive | Spiritual | Analytical Move away from old patterns and attitudes and open up to a new perspective, awareness and journey life is placing before you. The situations that seemed challenging are all in your perception. You attract money even if you don’t pursue it actively. This year is about introspection, spirituality and the need to tune in to yourself. Focus on your goal and be steadfast. Specialise in what you hold close to your heart. A great time to invest in that bike or car you’ve been promising yourself. Recognition comes to you, don’t go seeking it. Things may seem slow but the wheels of progress are moving and will accelerate next year. You may find yourself being a catalyst of growth for others. Don’t be surprised if you are given a chance to share centerstage and have encounters with brilliant minds.

Success | Structure | Inner Strength This year, let your inner voice be your guide while handling money and taking monetary decisions. Don’t go with the herd. The efforts of the past eight years pay off as dividends, depending on your karmic balance of scales. Unconventional sources of investment can be rewarding, but caution is urged with respect to speculation. Focus on restoring balance and justice to unsettled issues. You may undergo an internal conflict between your material needs and spirituality. New experiences pull you out of your comfort zone for it is time to learn from the past. Structure is needed in all you do. A good time to buy or sell property. The legal system may cause some strain, so toe the line. You may find yourself placed in a position of influence and authority, so take charge. The possibility of going solo in a new venture is high.

Progressive | Willpower | Humanity The year is all about endings and beginnings. It calls for closure of situations and issues that are not helping you move forward. Let go and let God. It’s a good time for financial growth and progress in business. You feel an increased sense of social responsibility and find yourself involved in charitable work. If you have been in business, you may find yourself drawn towards the arts. The possibility of success and recognition are high. Travel in order to learn and grow. Donate, detox, declutter and disassociate. The inefficiencies of others may bog you down, momentarily. Money finds its way to you mysteriously. You have the determination to get what you desire. Manifest wisely. 2017 holds the promise of manifestation. If you can think it, you can create it. Raise your energy and recalibrate your life and financial blueprint. The positive highlights are inventiveness, confidence, optimism, new opportunities and long-term commitments. Wish you a victorious 2017!

Ways to leverage the Universal Year’s No. 1 energy: A great time for new ventures or shift in career choices x Start that health and fitness regime now for a higher success x Investing in property or redecoration of an existing one x Get a lot of rest—spas and massages would be excellent x New learning and upgradation would be fruitful x Pack those bags and chart a travel plan x

Note: This is a broad analysis. On a personal level, your experiences may differ based on your numerological Pinnacle and Challenge numbers. The writer is Victory Coach—Numerologist

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100 BEST RESORTS & RETREATS IN INDIA BEST OF INDIA: 60 COOL HOLIDAYS BEST OF GOAN HOLIDAYS NATURE HOLIDAYS IN INDIA 100 HOLIDAYS IN THE HILLS FAMILY HOLIDAYS IN INDIA DRIVING HOLIDAYS ACROSS INDIA INDIA GUIDE

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explorers, has celebrated Indian years. He has one of the most the past 50 Harish Kapadia, in the Himalayas over many and explored trekked extensively 150 Himalayan passes his contribution than numerous books,significant. crossed more is The author of unknown valleys. about the Himalayan Range Patron’s the prestigious to our knowledge years to receive of the Tenzing Indian in 125 also the recipient King Albert He is the first Society. He is and the is the Royal Geographical for Lifetime Achievement g organisations, he Medal from Adventure Award many mountaineerin Norgay National An honorary member of Club. padia.com Mountain Award. the Himalayan at www.harishka Emeritus of Visit his website also the Editor and lives in Mumbai. He is married sponsors

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Special Holidays in India This travel guide is truly special: We’ve simply put in all kinds of things about India that interest us! You’ll come across features of our country that you didn’t know about and would love to explore. Like taking the kids to learn how to bathe elephants. Setting off on a toy train. Going to Kerala and watching the monsoon as it comes across the Arabian Sea and bursts on the land. Equally, we hope this book will be an enjoyable read for the armchair traveller, as he/ she savours descriptions of the Valley of Flowers, or how it feels getting close to a colourful life under water... ■ Natural Phenomena: The stunning beauty of India as it rains and blossoms across the country, with a special feature on the monsoon ■ Offbeat Holidays: Go mo’biking to Spiti, try a houseboat in Srinagar, cruise down the Hooghly... with a special feature on toy trains ■ Festivals: Carnival in Goa? Boat race in Alleppey? Women beating men during Holi in Braj? And a special feature on Navratri/ Dussehra and the varied ways in which India celebrates them ■ Unique Indian Landscapes: The Thar, the Sunderbans mangroves, the cold desert of Ladakh... and a special feature on India’s borders at Wagah, Nathu La and Pangong Tso

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Getaways presents Outlook Traveller to Kerala guide an exclusive mesmerizing through the ■ Cruise Alleppey in charming backwaters of the surrounding houseboats with company greenery for cultural the state’s rich ■ Experience numerous religious art, heritage in its dances, martial destinations, cuisine and festivals soul with a your body and ■ Relax resort an Ayurvedic treatment at at a quiet beach unwinding or by on what information ■ Find exhaustive several hotel destination, extensive to do in each options, and restaurant to help and information tourist and travel of your holiday most you make the

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Travel

The World of God That is how Rudyard Kipling described Spiti in Kim and that is what I experienced when travelling to this mountain valley, says Rajan Pathak

D

ozing in the desolated region of Himachal Pradesh, far away from hustle and bustle of city life, Spiti Valley is less heard by the majority. Situated near the Indo-China border, the region has nature’s blessing in abundance as rivers, valleys, apple orchards, lakes and mountains envelop it. It is breathtaking a view. When I visited Kalpa in 2015, I could not succeed in my attempt to visit Spiti Valley due to time constraints. I am glad that I made up for it this time. I had heard a lot about the ‘World’s Most Dangerous Road’ from Pooh to Kaza and now it

76

was time to take the roughest terrain. It was the most adventurous and exciting journey for me as well as for my 10-year-old son. The road was very narrow, which meant only one vehicle could pass at a time, even as the Satluj river flowed along the road. The terrain is such that landslides are common. The role played by the Border Roads Organisation and the ITBP jawans is commendable to clear the traffic and ruble in quick time. We could have been stuck for a long time but the jawans were a blessing in disguise. You feel the nature every moment and no matter how much I write, you need to experience it to feel what it is all about.

Outlook Money December 2016 www.outlookmoney.com

Tabo and beyond We reached Nako Village, which was situated at the top of the mountain with no more than 150 people living with a small lake. There was a camping site and I could spot a group of bikers, who were already settled there. We decided to take our lunch break here and more towards Tabo post lunch. To be adventurous, we did not book a place to stay, which meant it took a while to find a place in Tabo to stay. Tired after a gruelling day, we decided to call in early. We woke up early the next morning to catch the early lights—Tabo looked stunning from the hotel’s balcony and I could hear the Spiti

How To rEacH SPiTi Nearest airport is in Kullu which is approx. 240km away. Nearest railway station is in Shimla which is approx 440km away. There are two ways to reach Spiti by road:

From Shimla-Kinnaur route: Spiti is almost 440km away from Shimla. The road is open in all seasons. It takes two days to reach Spiti with a night stay in Kalpa. From Manali: Distance between Spiti and Manali is approx 200km but the road is open only from June-October. It takes 12-14 hours to reach Spiti, depending on the road condition.

Places to visit: Keylong, Kaza, Tabo monasteries, Kibber, Batal Expense: `20,000/person for 7 days. Best Season: May to September

Travel

Anticlockwise: Mesmerising view of Chandra Taal Lake; Halt at ‘World’s Most Dangerous Road’; View of Kibber village

river singing along like a song. The first rays of the sun enveloped Tabo and the over 1,000-year-old Tabo Monastery was shining like a golden star. It was all so serene that I did not realise the trail of monks who were heading out of the monastery. The plan for the day was to visit the monastery, which retains its ethnic appearance. We visited old caves and admired the paintings on them, which were so colourful and appealing. While taking a walk around Tabo, I also came across a small premises with 12-15 toddlers singing nursery rhymes with their

www.outlookmoney.com December 2016 Outlook Money

77

Travel

Anticlockwise: Picturesque Kunzum La; Dankar village at 12,774 ft.

cheeks fully red and full of zest. I started talking to the man running it who was all of 28 and was keen to provide the best. So the school had free mid-day meals for these kids, even though it had no funding and the school is yet to get any affiliation for government support. We next ventured towards Dankar Monastery, before heading for Kaza, which is a small place, with one or two home-stay facilities. This being the district headquarters of Spiti Valley had a small market place, a petrol pump, and an SBI ATM. We figured that this place was used by trekkers as their base, which was evident given the number of hotel options available to suit different budgets. We decided to stay the night here. The next day we drove towards Chandra Taal and some smaller lakes on the way. On our way we discovered Kibber—the world’s highest motorable village which rests at 14,200 feet. Kibber is a U-shaped village with less than 100 people. The Key Monastery is nearby which meant we had to visit it. This was yet another marvellous monastery

78

which is surrounded by yellow leaf trees, giving it a pearl-in-a-golden cone feel. We stopped at Losar before we reached Chandra Taal to camp.

Kunzum Pass Kunzum Pass connects Kullu and Lahaul with the Spiti valley, which are all very close to the snowcapped mountains. The second longest glacier—Bara Shigri—was in front of us and it looked fascinating. The winds were very strong, causing the temperature to dip but the oxygen level was comfortable. We decided to stop there for 10-15 minutes and enjoy the breathtaking view. This entire area is surrounded by Chandra Bhaga (CB) range and origins of Chandra and Bhaga Rivers merge at Tandi near Kylong

Outlook Money December 2016 www.outlookmoney.com

and known with near name ‘Chenab’ later. We reached Chandra Taal when we reached Tenzing campsite. This camping site was very spacious and had more than 50 tents. The camp organiser explained about the surrounding areas and suggested we acclimatise to the altitude. Chandra Taal is surrounded by snow-cap mountains which are so mesmerising that I had to really push myself to return. The experience left us captivated and I am looking forward to the next summer break to make a trip back to the hills.

The writer is President & Head of Business at IFAN Finserv

Gadgets

Pixel XL vs iPhone 7 Plus With the Pixel range, Google has finally launched its first ever own-brand Android smartphone; Tushar Kanwar deconstructs the Pixel XL versus iPhone 7 Plus for you

Y

ou’d think that with the untimely and rather explosive exit of the Samsung Galaxy Note 7, the Apple iPhone 7 and 7 Plus would have a clear run at the premium smartphone segment for next couple of months, right? Not if Google has its way. With the launch of the Pixel range, the Internet giant enters the fragmented Android market with its own brand. Is the best from Google enough to topple the best from Apple, or is it merely a glossy wannabe?

Design

With the iPhone 7 Plus, Apple skipped the aesthetic overhaul that it usually reserves for major version number changes, opting to kit the iPhone in two new colors—a glossy Jet Black and a classy matte finish Black—without deviating from the familiar form factor. Well, almost—there is the

much bandied-about matter of the headphone jack (or lack thereof) and a new home button that vibrates instead of actually depressing in response to being clicked. The upside? Proper water resistance, something that the Pixel XL lacks, despite it taking a number of heavily inspired design cues from Apple. The Pixel offers a generic, almost underwhelming design, and the only saving grace is the neat two-tone finish on the rear. Compared to the iPhone’s stereo speaker setup, the Pixel has a single mono speaker, but it does pack in a headphone jack.

Display

The Pixel XL has the upper hand in this department thanks to its quad-HD (2560 x 1440 pixel) OLED panel, which edges ahead of the full-HD (1920x1080) LCD panel on the iPhone by the slimmest of margins. If you like punchy eye-catching colours, you’ll prefer the Pixel…else, you won’t notice a significant difference between the two on a day-to-day basis. Also, bear in mind, the iPhone also packs in 3D Touch, Apple’s

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79

Gadgets

implementation of a pressure sensitive display which gives you access to different features and functions based on how hard you press the screen.

Hardware

Both phones back top-of-the-shelf hardware (iPhone’s A10 Fusion processor with 3GB memory vs the Pixel’s Snapdragon 821 chip with 4GB of memory) for the price, so there isn’t a lot you can do to tax either phone past its limits. For everyday tasks, the Pixel XL and the iPhone 7 Plus will handle your apps, media and games without breaking a sweat. Where the Pixel noses ahead is courtesy the Android 7.1 Nougat software running on the phone. Google has optimised Android to run blisteringly fast on the Pixel, and the sheer speed and fluidity of the platform on the Pixel hardware sets a benchmark not only for Android phones but for the iPhone as well. Battery performance is comparable on both, with the Pixel having to power a higher resolution screen from its marginally beefier

3,450 mAh battery, while the iPhone with iOS 10 is rather efficient with its 2,900 mAh battery. While both phones lack wireless charging, the Pixel XL gets fast charging, so you can add about seven hours of life with just a 15-minute splashand-dash-charge. And as far as storage is concerned, both lack expandable storage but offer plenty of space with a 128GB model, with the iPhone going one step further with a 256GB variant.

Camera

The dual 12-megapixel lenses camera setup on the iPhone 7 Plus allows for some neat tricks, including actual optical zoom—a rarity on smartphone cameras—and a Portrait mode that delivers DSLR-like results of human subjects, slightly blurred backdrops and all. Coupled with the f/1.9 aperture lens and the optical image stabilisation, the 7 Plus stands abreast the Samsung S7 as one of the best snappers this year. Now, the Pixel XL camera seems weak on paper with no image stabilisation, but take it for a spin, particularly with its auto HDR+ mode turned on, and you’ll turn into a believer. Outdoor exposure and colour reproduction is brilliant on the Pixel XL, and the electronic software-based image stabilisation on video turns out slick, jitter-free video every single time. In low light, the Pixel turns out brighter images than the iPhone, but at the expense of graininess that creeps into the occasional shot. No matter where your shooting preferences lie, the camera performance on both phones is top-notch, and you couldn’t go too wrong with either.

Software

iOS and Android 7.1 are both incredibly mature mobile platforms, and of course, if you’re a long-term Google/Gmail user, the Pixel XL seamlessly fits into your life, whereas if you’re surrounded by Macs and iPads, the iPhone joins the family just nicely, thank you. That said, Google Assistant is the Pixel’s secret weapon, as it’s the only phone to ship with Google’s voice assistant built-in. Once you get down to using it frequently, Assistant is incredibly useful, responding intelligently to your questions and bringing up relevant contextual information, such as movie times if you’re looking up information about a film. The conversational aspect of Assistant really stands out—say, if you’ve asked about the weather in your city, you can follow it up with a “and what about next week?” and it will intelligently understand you’re still talking about the weather! It’s also much better at actually finding answers for questions I posed to it, rather than merely directing me to a web search as Apple’s Siri’s wont is. As a bonus, Google is offering unlimited free full resolution backups for all your photos and video for all Pixel owners, a big step up from the anaemic 5GB of free storage you get when you sign up for a free iCloud account from Apple.

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Outlook Money December 2016 www.outlookmoney.com

Verdict

For a first-generation product, the Pixel XL is a remarkably sorted and well thought-through product, even if the design is entirely ho-hum. It packs in a great hardware-software experience, a snappy camera and even offers fast charging, a feature that is fast becoming a table stake for most buyers. There’s even a headphone jack for those of you slighted by Apple’s decision to drop the audio port from their latest phones. iPhone, on the other hand, maintains the edge in terms of overall polish and quality of apps, and let’s be honest, we’ve been far more conditioned to spend big bucks on Apple products than on Android devices, be it due to resale value or the inherent longevity of an iPhone. This is where the Pixel falters, in a sense, and the pricing—`67,000 for the 32GB variant and `76,000 for the 128GB variant—is significantly more expensive than the extremely well-regarded Samsung S7 Edge with none of the bells and whistles that Samsung packs in—a curved screen, sleek waterproof design, best in class displays and cameras. It almost feels like Google’s Pixel team decided to make a Google iPhone in every sense, pricing included, and priced itself out of contention as a result.

A refreshingly different monthly dose of personal finance in Ad find answers to Monthly money worries | Indians’ money concerns | The impact of news

Make a be t ter decision with your Mone y

www.outlookmoney.com December 2016 Outlook Money

81

Smart Money

Reboot

Hard facts about demonetisation of high-denomination currency

Printing cost

In circulaton (million pieces) 0

10,000

20,000

30,000

lakh crore

`10

Worth of highdenomination notes due to be exchanged

`100

`500

`15.34

`50

lakh crore

`100

Value of `500 and `1,000 notes in circulation

`16.98

`500

`1.8 for `2.5 for `3.17 for `1,000

`15.3

`5

`20

96 paise for `10

Number crunching

lakh crore

`1000

A strong balance sheet for the RBI

currency with public on October 14, 2016

As on June 30 2015

2016

Currency and Gold Revaluation Account (CGRA)

5,592

6,375

Contingency Fund (CF)

2,216

2,202

32

524

Asset Development Fund (ADF)

218

228

Gratuity and Superannuation Fund

140

158

Provision for Payables

17

32

Provision for Forward Contracts Valuation Account (PFCVA)

0

15

Bills payable and (FCVA)*

0

0

Miscellaneous

31

28

659

659

8,905

10,221

Investment Revaluation Account (IRA)

Surplus Transferable to the Government of India Total

`17.74

lakh crore Value of notes in circulation as of November 4, 2016

86%

Currency in circulation in `500 and `1,000 denomination

Source: RBI Annual Report, Kotak Economic Research; *Forward Contracts Valuation Account (FCVA); all figures in `(billion) Source: RBI

82

Outlook Money December 2016 www.outlookmoney.com

RNI NO. DELENG/2002/08292

Disclaimer As part of its Investor Education and Awareness Initiative, Invesco Mutual Fund has sponsored this booklet. The contents of this booklet, views, opinions and recommendations are of the publication and do not necessarily state or reflect views of Invesco Mutual Fund. The various tax saving instruments and their benefits mentioned in this booklet are for the purpose of explaining the concept of several tax savings and should not be construed as an advice to any party. The actual results and performance may differ from those expressed in such instruments. Investors should be aware that the fiscal rules/ tax laws may change and there can be no guarantee that the current tax position may continue indefinitely. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax advisor. Invesco Mutual Fund does not accept any liability arising out of the use of this information.

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

Contents

Saving Taxes ........................................................................ 2 Long term savings schemes ............................................... 4 Mutual fund way to tax savings .......................................... 8 ELSS benefit........................................................................ 11 Easy and straightforward .................................................. 12 How they stack up ............................................................. 13

December 2016 Design: Vinay Dominic Copyright © Outlook Publishing (India) Private Limited, New Delhi. All Rights Reserved No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or means electronic, mechanical, photocopying, recording or otherwise, without prior permission of Outlook Publishing (India) Private Limited. Printed and published by Indranil Roy on behalf of Outlook Publishing (India) Pvt. Ltd Editor: Narayan Krishnamurthy. Published from Outlook Money, AB 5, 3rd Floor, Safdarjung Enclave, New Delhi-29 Outlook Money does not accept responsibility for any investment decision taken by readers on the basis of information provided herein. The objective is to keep readers better informed and help them decide for themselves.

The information provided herein is solely for creating awareness and educating investors/potential investors about rules of investment and for their general understanding. Readers are advised not to act purely on the basis of information provided herein but also to seek professional advice from experts before taking any investment decisions. Outlook Money does not accept responsibility for any investment decision taken by readers on the basis of information provided herein. The objective is to keep readers better informed and help them decide for themselves.

Saving taxeS Paying tax is an obligation we all have to fulfill and it is important that we are aware of all the avenues that can help us save tax and at the same time build wealth over time. There are multiple investment avenues available these days that automatically take care of your tax liabilities and at the same time secure your life and health. These tax savers cover a wide ambit, from the tuition fee you pay for your children’s school to the preventive health checkup you go for. Most of us wait till the year end to hastily plan our tax savers but it should rather be a year-round affair. Just like your Provident Fund (PF) gets deducted every month from salary, your tax planning too should move regularly. Remember, investing too is a form of saving. National Pension System (NPS), home loan, pension funds, insurance, ELSS, etc, are all investments that secure your future. By taking up a good health and life policy, the gain is not just in terms of taxes; your dependents have it easy even when you are not around. Read on to find out how some simple decisions can have a far reaching impact.

Spreading the Section 80C benefits with `1.5 lakh limit ePF PPF nSC nPS Ulips Lta

Children’s tuition fee Medical expenses insurance premiums 5-year tax saving FD equity-linked savings scheme Senior citizen’s saving scheme Sukanya Samriddhi Yojana Home loan principal repayment

2

OtHer tax SaverS income tax Section

What can you do?

Maximum investment

Section 80CCC

Claim tax deductions on contributions to annuity plans from insurers

`1.5 lakh in conjunction with Section 80C benefit in a financial year

Section 80D*

Purchase medical insurance policies for self, family and parents

Self and family: Senior citizen: Self and family + parents: Self and family + senior citizen parents:

Section 80CCD

Contribute to the National Pension System (NPS)

Employee and/or employer contribution up to 10% of basic salary and DA** is eligible up to `1.5 lakh for tax deduction in conjunction with Section 80C benefits under Section 80CCD(1&2) as applicable. Additional exemption up to `50,000 in NPS is eligible for income tax deduction outside the Section 80C limit and can be claimed as a deduction under Section 80CCE

Section 80CCg

Rajiv Gandhi Equity Savings Scheme (RGESS)

Deduction available on 50% of the sum invested or `25,000, whichever is less. Deductions can be claimed for 3 successive years, over and above the Section 80C limit subject to complying with other requirements.

`25,000 `30,000 `50,000 `55,000

*Additional deduction of `5,000 on expenses related to health check-up. ** Dearness allowance; By exhausting the investment options under Section 80C one can save tax up to `46,350 for the financial year 2016-17, provided one falls under the highest tax bracket.

LOng terM SavingS SCHeMeS 1. Public Provident Fund (PPF): An old and trusted instrument and meant for long term investors. All individuals, including minors, are eligible for it. The PPF comes with a 15-year lock-in period that currently earns interest at 8.1 per cent p.a. (for 2016-17) calculated on the minimum balance between fifth and the last day of the month. It has the status of EEE in terms of tax benefits. EEE means that subscription amount, interest earned and the withdrawal amount are all exempt from tax. One can make premature withdrawal which is allowed to only those subscribers whose account has completed five years. 2. Sukanya Samriddhi Yojana: This scheme was one of the highlights of Budget 2015. It is effectively a savings account aimed at the welfare of the girl child, particularly her higher education and marriage. It also has the status of EEE in terms of tax benefits. Under the scheme, a parent or guardian can open an account with a post office or any of the designated banks. Similar to the popularly known PPF, this scheme is currently offering 8.6 per cent annual return for 2016-17 (notified by ministry of Finance), which will be revised every year. A minimum amount of `1,000 and maximum amount of `1.5 lakh can be deposited in the account in a financial year. Like the PPF, it also comes with a degree of liquidity by way of partial withdrawal.

4

One can withdraw 50 per cent of the account balance prematurely if the need arises after the girl turns 18. Deposits will have to be made till 15 years from the date of the opening of the account and the account will remain operative for 21 years from the date of opening or till marriage of the girl child, whichever is earlier 3. Life Insurance: You get tax rebate for securing your life by taking up a life insurance under Section 80C. Premium can be in the name of self, spouse or dependent children, up to `1.5 lakh in a financial year. In case of unit-linked insurance plans (ULIPs), deduction is available provided the sum assured is at least 10 times the annual premium and the policy is in force for at least five years. If the ULIP is discontinued before two years, tax benefits under Section 80C will not be allowed. Any deduction allowed in the previous years will be added back to your income in the year in which ULIP is closed. 4. Housing Loan: The principal component of Equated Monthly Instalments (EMI) that you pay for your home loan qualifies for deduction under Section 80C, up to `1.5 lakh in a financial year. The interest component up to a maximum of `2 lakh in case of self-occupied property is allowed as deduction annually under Section 24 of the Income Tax Act. Where the property has been let out, whole of interest on housing loan is allowed as deduction on accrual basis. 5. Education Loan: You can claim the benefit of tax deduction on the interest paid on an education loan for higher studies in India or abroad for a full-time course from an educational institution or an approved charitable

institution under Section 80E. The maximum period for which you get deduction is eight years (starting when you begin repaying the loan), or till the entire loan is repaid, whichever is earlier. No such benefit is given for repayment of the principal amount. 6. Pension Funds: Under Section 80CCC, an investment in pension funds of any insurance company is eligible for deduction from your income, clubbed within the limit under Section 80C. 7. National Pension System (NPS): Under Section 80CCD(1) and Section 80CCD(2) contributions by the employee and employer, within stipulated limits, qualify for tax deduction up to `1.5 lakh on contributions to the NPS Tier 1 account. Additional exemption up to `50,000 is eligible for income tax deduction outside the Section 80 limit of `1.5 lakh and can be claimed as a deduction under Section 80CCE 8. Employees’ Provident Fund (EPF): Contributions made by you to the EPF qualify for deduction under Section 80C. The investment in PF is riskfree as the scheme works like a deposit on which the annual rate of return is fixed for each financial year. At the moment the EPF earns interest at 8.6 per cent p.a. for 2016-17. You cannot withdraw money from your account until you retire or opt out of the job market. However, withdrawals are permitted for specific purposes only and within prescribed limits. 9. National Savings Certificates (NSCs): These are available in two variants of 5- and 10-year tenure; savings in the NSC qualify for tax deduction under Section 80C. Interest is compounded half-yearly, but deemed to be reinvested and will also qualify for tax benefit. Current interest on 5-year scheme is 8.1 per cent p.a. and 8.8 per cent p.a. for 10 years.

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SHOrt terM SavingS SCHeMeS

OtHer SavingS avenUeS

1. Five-year tax saving FD: 5-year deposit in post office and banks qualifies for tax savings under Section 80C. 2. Senior Citizen’s Savings Scheme (SCSS): Individuals who are 60 years or older, or are 55 years old and have retired under VRS, are eligible. SCSS has a lock-in of five years and TDS is deducted if the interest exceeds `10,000 annually. 3. Health insurance: Premium paid towards health insurance qualifies for tax deduction under Section 80D. Maximum deduction allowed is `25,000 (`30,000 in case of senior citizens, aged over 60). Under Section 80DDB, you can claim a deduction of up to `40,000, or `60,000 in case of senior citizens and `80,000 in case of super senior citizens (those over 80 years old), for the treatment of specified ailments in cases where a family member such as a spouse, parent or sibling are dependent.

1. Tuition Fee: Tuition fees to any university, college, school or other educational institution in India for full-time education of any two children of the taxpayer is allowed as a deduction under Section 80C within the `1.5 lakh limit. 2. Leave Travel Allowance: LTA is the remuneration paid by an employer for employee’s travel in the country, when he is on leave with the family or alone. The LTA amount is tax free and is exempt from taxes. The exemption is on the fare only (subject to conditions) and does not include the cost of stay or any other expenses. The tax rules provide for an exemption only in respect of two journeys in a block of four calendar years. The current block runs from 2014-2017. If you do not use your exemption during any block on any one or on both occasions, the exemption can be carried over to the next block and used in the immediate calendar year.

MUtUaL FUnD WaY tO tax SavingS (eLSS)

T

ax planning for each financial year is an annual chore. And sometimes most tax payers end up buying wrong investment instruments. This is where Equity Linked Savings Scheme (ELSS) comes in handy. Not only does investment in this product save taxes, it also has the potential to earn returns.

WHat iS it?

E

LSS is nothing but a type of mutual fund which invests in equities. So investments in this fund qualify for tax deduction under Section 80C of the Income Tax Act. The mutual fund structure ensures that these funds come with the dual advantage of potential capital appreciation and tax benefits. Considering these are market linked and have a considerable equity exposure, these schemes have the potential to beat inflation and give returns, which are tax free, subject to Securities Transaction Tax (STT). Effectively, investing in ELSS comes with tax savings and at the same time allows you to experience the potential of equity investments through a mutual fund. With so much going for it, and these schemes being open to retail investors, there is stability in the corpus managed by the fund manager, allowing them to invest with little worry of short-term redemptions.

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SMart WaYS tO USe eLSS

T

axpayers can take advantage of the lockin period of three years that comes with ELSS and use the same towards realising long-term financial goals. For instance, one could invest in an ELSS for the tax savings it offers and then let the accumulated money stay in the fund for the long run. So, one could create a corpus for financial goals that are over three years ahead like money for child’s education or even towards one’s own retirement and save tax at the same time.

WeaLtH CreatiOn

A

s tax savings is an ongoing process, so, by investing in an ELSS each year, you get to reduce your income tax liability. That aside, you also get to build wealth for the long term, such as for your retirement needs. The fact that the redemption from ELSS also happens to be tax-free only aids in wealth building over the long term.

DiverSiFiCatiOn

B

eing an equity fund, the fund is well diversified, making it a suitable option for every investor looking to save tax and also invest in equities. The diversification that these funds offer is across sectors and market capitalisation, allowing your investments to benefit from the stock markets.

eqUitY exPOSUre

C

ompared to other fixed-return options, ELSS is the only option with significant equity orientation as a tax saving option. Though NPS and even ULIPs have equity exposure, they are never as high as what ELSS tends to have. It’s a well-known fact that in the long run, equity is an asset class that has the potential to beat inflation, which makes ELSS an option worth considering by every taxpayer.

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eLSS FLexiBiLitY

You can invest in this scheme just the way one invests in other mutual funds through SIPs or in lump sum. If investing systematically, remember that each SIP needs to fulfil the three-year lock-in criteria before you can redeem the units.

tax Free

There is no ceiling for investments in ELSS, which means you can invest beyond the `1.5 lakh limit that is applicable to save tax under Section 80C if you wish to. Further, securities transaction tax, or STT at 0.001% will be deducted at the time of redemption of units and not on their purchase.

LOCK-in

Equity Linked Savings Scheme (ELSS) has a three-year lock-in period, which makes it the most liquid of all available options under Section 80C.

tranSParent

Investments in ELSS are open in the sense that each month the AMC releases the portfolio in which the fund has invested for one to know the type of stocks in which their investments are in, the sectors, and the exposure in debt and cash. Mutual funds are regulated by the stock market regulator SEBI (Securities and Exchange Board of India), which mandates the release of daily NAVs of the fund, indicating the value of one’s investments each day. While the lock-in is applicable for three years, one can still track the performance of their investments in these funds regularly.

eaSY anD StraigHtFOrWarD

A

simple way to compare ELSS with the other available options to save tax under Section 80C is to evaluate them across parameters that matter the most. For instance, most important factors for taxpayers are—the tenure of the product, the minimum investment to make, and the risk involved when investing in the product, and the potential returns that are on offer. While every taxpayer would have a different appetite for risk, what makes ELSS stand out is the return potential. And, with ELSS having the lock-in period of three years, it stands out compared to the rest.

tax PLanning CHeCKLiSt Earmark the sum to be invested Select the tax savings option that best suits you ELSS has a lock-in of three years Check the performance of the fund Understand the risk associated with the scheme Select a fund based on your financial goal and not just tax savings

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HOW tHeY StaCK UP Compare that with other traditional tax saving instrument, and you’ll know exactly why this could be your good bet

investment Option

Lock-in Period

returns Cagr per annum

tax Status of returns

Public Provident Fund

15 Years

8.10%

Tax Free

national Saving Certificate

5 Years

8.10%

Taxable

5-year tax saving deposits with banks

5 Years

7.0%^

Taxable

equity Linked Savings Scheme

3 Years

19.68%^^

tax Free

Past performance may or may not be sustained in future. Partial PPF withdrawals are allowed after every 5th financial year. All data for 2016-17; ^for senior citizen (6.5% for others); ^^3-year ELSS category average as on Nov 24, 2016 (from Nov 25, 2013 to Nov 24, 2016; Value Research). Source: Indiapost, State Bank of India