An Overview On Financial Planning, Investments and Loans

An Overview on Financial Planning, Investments
and Loans
Financial Planning:
Introduction:
Some people claim that money isnt important, yet most of us spend at least 45 to 55 hours
a week working for money. The simple truth is that to fulfill our desires and needs we need
money. Thus, the sooner we take control of our finances, the sooner we can start putting
them to good use, which will improve the quality of our lives.
Financial Planning:
For some people financial planning may simply mean Cash Flow Planning, for some it may
be restricted to Tax Planning, other may think that financial planning is about investments
keeping in mind the tax planning issue.
But the simplest and most proper definition of financial planning may be as follows:
Financial planning is the process of meeting lifes goals like buying a house, saving for
childs education or planning for retirement through the proper management of finances.
[As per CFP Board of Standards, Inc]
Benefits of Financial Planning:
Financial planning can achieve the following for an individual:
1.
2.
3.
4.
5.
6.
7.
8.
Organize their finances

Improve cash flow
Lower personal income taxes
Plan for retirement
Plan for education expenses
Improve investment performance
Lower investment risk
Reduce insurance cost
Cash Flow and Budgeting:

Cash flow refers to the inflow and outflow of money. In simple terms, keeping a record of
income and expenses.
The purpose of cash flow planning refers to the process of identifying the major expenditures
in future (both short term and long term) and making planned investments so that the
required amount is accumulated within the required time frame.
The income of an individual will be more or less within an anticipated range. Unless proper
budgeting is done and expenditures are controlled, the individual might get in a debt trap.
Budgeting is the best, most practical way to keep track of spending and more importantly to
keep a grip on it. When we have a budget we can make sure our income and expenses
match.
Process of making a budget:
Step 1:
List the source of income. Income that is regular counts the most. This includes money from
a job, a pension, or other regular source.
There may be certain income which may not be accurately estimated on a monthly basis.
For example, interest and dividend incomes, bonuses, income from business, etc. In these
situations, an annual estimate should be made and divided by 12 to arrive at monthly
figures.
Step 2:
Expenses should be divided into three categories: fixed, variable and discretionary.
1) Fixed expenses: Mandatory expense and one pays the same amount every month.
Example- Mortgage or rent payments, insurance premiums, etc.
2) Variable expense: Mandatory expense but amounts vary each month. ExampleElectricity bill
3) Discretionary expenses: Optional expenses which should be considered if there is
any surplus after accounting for fixed and variable expenses. Example- Investments,
entertainment, etc.
Step 3:
Emergency funds planning:
Emergency funds are an absolute necessary for financial security because they give us
funds to fall back in moment of crisis. Building an emergency fund is healthy for financial
well being. Success at building an emergency fund depends on consistency of saving money
on a regular basis and resisting the urge to dip into this rainy day fund for non emergencies.
The minimum amount in emergency fund should be 3 to 6 months worth of basic
living expenses. This money should be kept separate from the general savings account.
Step 4:
Monitoring, evaluation and compliance of Budgets:
Due to changes in circumstances and priorities, actual figures may change than budgeted. If
it appears that the actual figures differ substantially from the allocation done in the budget
then its time to relook at the budget more closely and take immediate action to make it
more accurate. The following is suggested:
Control excessive expense not planned under budget.

Check if expenses under a particular head are budgeted under any other head.
Check if there is any one time non discretionary expense which resulted in mismatch
of the budget.
If necessary, curb discretionary expenses to adjust for increase in expenses not
planned earlier in the budget.
Compliance of a budget is extremely important for achievement of financial objectives. If the

required investments are not being made due to mismatch in budgeted figures, it will impact
the accumulation plans, thereby affecting the financial plan.
Investment Planning Overview:

Investing is an activity that is made from savings with a desire to earn a better return with
some risk. The basic theory driving investment is the belief that the pleasure derived from
future consumption will be more than the pleasure foregone today.
Characteristics of an Investment:
1) Return: The return expectation can be the amount received as interest, dividend received
on stocks, capital appreciation on assets and many more. Different investments have
different returns. Returns from an investment depend on rating, liquidity and time horizon of
the investment. It is measured as Holding Period Return.
2) Risk: Risk is an inherent part of any investment activity. Some of the risk associated with an
investment can be
a) Loss of capital.
b) Delay in repayment of capital,
c) Non-payment of interest,
d) Variability of returns
Risk and return are directly related. Higher the risk taken, higher can be the return, similarly
low return comes with low risk.
3) Safety: An investment is considered to be safe, if there is a certainty of return of capital
without any loss of the same.
4) Liquidity: The yield on any investment is, to a great extent, a function of liquidity provided
by the specific investment. Liquidity in marketable assets are provided by the market, while
non marketable assets like fixed deposits cannot be liquidated in market but can be offered
for premature repayment to bank.
5) Tax efficiency: An ideal investment is that, which offers tax efficient return commensurate
to risk with safety and liquidity.
Objectives of an Investment:
Every investment is considered after evaluating the five characteristics that have been
discussed here in above with the following objective:
a) To maximize the return
b) To protect the purchasing power of the saving
c) To minimize the risk
Types of Investment
Investment
Financial Investment
Investment
Non-Financial
a) Cash & Cash Equivalent

b) Small Savings Schemes
c) Government Schemes
a) Land & Building

b) Plant & Machinery
c) Business & like things
d)
e)
f)
g)
Bonds
Equity Shares
Mutual Funds
Insurance
a) Cash & Cash Equivalent:

Cash is not only physical money, but in the broader term is anything, which can be
converted very fast in cash without loss of value.
This definition of cash includes:
i.
Bank Certificate of Deposits: It is a debt instrument issued by a bank in
exchange for a deposit made by an investor for a specific term or period. Terms can
range from 7 days to 5 years or more. It varies from bank to bank. The interest
rates on these deposits are fixed by the respective banks, without any intervention
from Reserve Bank of India (RBI), that is, banks are free to offer any interest rate on
deposits mobilized. However to sustain and also operate competitively, it is
generally based on prime lending rates prevailing in the economy.
ii.
Money Market Mutual Funds: They are very short-term debt product offered by
mutual fund. Funds collected in these schemes are invested in short-term debt
instruments of high credit quality. Some of the money market instruments are:
i.
Call money market
ii.
Treasury bill
iii.
Commercial paper
iv.
Short term funding
The maturity of their investment portfolio is less than 1 year.
iii.
Bank Savings Account: Money deposited in savings bank account are always
money at call and can be withdrawn anytime without any loss of capital. The
balance maintained in savings bank account also earns interest, though less than
what is available on bank fixed deposits.
b) Small Saving Schemes

Small savings schemes are designed to provide safe and attractive investment options to
the public and at the same time to mobilize resources for development. National Savings
Organization (NSO) is responsible for national level promotion of small savings scheme. Over
the years small savings schemes have grown big. These schemes are meant for small urban
and rural investors. Institutions are not eligible to invest in major small savings schemes.
Non-Resident Indians (NRIs) are also not eligible to invest in small savings schemes.
The following schemes come under small savings schemes:1)
2)
3)
4)
5)
6)
7)
8)
Post Office Savings Account

5 Year Post Office Recurring Deposit Account
Post Office Time Deposit Account
Kisan Vikas Patra
National Savings Certificate
Post Office Monthly Income Account
Public Provident Fund (PPF)
Senior Citizen Savings Scheme
1) Post Office Savings Account:Interest Payable, Rates, and Periodicity: 4.0%per annum on individual/ joint accounts.
Minimum Amount for opening of account and maximum balance that can be
retained: Minimum INR 20/- for opening.
Salient features including Tax Rebate:
1) Account can be opened by cash only.
2) Minimum balance to be maintained in a non-cheque facility account is INR 50/-.
3) Cheque facility available if an account is opened with INR 500/- and for this purpose
minimum balance of INR 500/-in an account is to be maintained.
4) Cheque facility can be taken in an existing account also.
5) Interest earned is Tax Free up to INR 10,000/- per year from financial year 2012-13.
6) Nomination facility is available at the time of opening and also after opening of account.
7) Account can be transferred from one post office to another.
8) One account can be opened in one post office.
9) Account can be opened in the name of minor and a minor of 10 years and above age can
open and operate the account.
10)
Joint account can be opened by two or three adults.
11)
At least one transaction of deposit or withdrawal in three financial years is necessary
to keep the account active.
12)
Single account can be converted into Joint and Vice Versa.
13)
Minor after attaining majority has to apply for conversion of the account in his name.
14)
Deposits and withdrawals can be done through any electronic mode in CBS Post
offices.
15)
Inter Post office transactions can be done between CBS post offices.
16)
ATM/Debit Cards can be issued to Savings Account holders (having prescribed
minimum balance on the day of issue of card) of CBS Post offices.
2) 5 Year Post Office Recurring Deposit Account:-
Interest Payable, Rates, and Periodicity:

From 1.4.2014, interest rates are as follows:- 8.4% per annum (quarterly compounded)
- On maturity INR 10/- account fetches INR 746.53. Can be continued for another 5 years on
year to year basis.
retained:
Minimum INR 10/- per month or any amount in multiples of INR 5/-.
No maximum limit.
1) Account can be opened by cash/cheque and in case of cheque the date of deposit shall be
date of presentation of cheque.
4) Any number of accounts can be opened in any post office.
6) Joint account can be opened by two adults.
7) Subsequent deposit can be made up to 15th day of next month if account is opened up to
15th of a calendar month and up to last working day of next month if account is opened
between 16th day and last working day of a calendar month.
8) If subsequent deposit is not made up to the prescribed day, a default fee is charged for
each default, default fee @ 5 paisa for every 5 rupee shall be charged. After 4 regular
defaults, the account becomes discontinued and can be revived in two months but if the
same is not revived within this period, no further deposit can be made.
9) If in any RD account, there is monthly default(s) the depositor has to first pay the
defaulted monthly deposit with default fee and then pay the current month deposit. This
will be applicable for both CBS and non CBS Post offices.
10)
There is rebate on advance deposit of at least 6 installments.
11)
Single account can be converted into Joint and Vice Versa.
12)
Minor after attaining majority has to apply for conversion of the account in his name.
13)
One withdrawal upto 50% of the balance allowed after one year.
14)
Full maturity value allowed on R.D. Accounts restricted to that of INR. 50/denomination in case of death of depositor subject to fulfilment of certain conditions.
15)
In case of deposits made in RD accounts by Cheque, date of credit of Cheque into
Government accounts shall be treated as date of deposit.
3) Post Office Time Deposit Account:-

- Interest payable annually but calculated quarterly.
From 1.4.2014, interest rates are as follows:Period
1 Year A/c
2 Year A/c
3 Year A/c
5 Year A/c
Rate
8.40%
8.40%
8.40%
8.50%
retained:
Minimum INR 200/- and in multiple thereof.
No maximum limit.
1) Account may be opened by individual. Account can be opened by cash/cheque and in case of
cheque the date of realization of cheque in Govt. account shall be date of opening of
account.
4) Any number of accounts can be opened in any post office.
6) Joint account can be opened by two adults.
7) Single account can be converted into Joint and Vice Versa.
8) Minor after attaining majority has to apply for conversion of the account in his name.
9) *In CBS Post offices, when any TD account is matured, the same TD account will be
automatically renewed for the period for which the account was initially opened e.g. 2 Years
TD account will be automatically renewed for 2 Years. Interest rate applicable on the day of
maturity will be applied.
10)
Lock up period of 6 months for premature closer of TD accounts has been removed
and as and when any TD accounts is closed before one Year, interest @ savings account
applicable from time to time shall be payable. This will be applied for both CBS and non CBS
Post offices.
11)
The investment under 5 Years TD qualifies for the benefit of Section 80C of the Income
Tax Act, 1961 from 1.4.2007.
4) Kisan Vikas Patra
Amount Invested doubles in 100 months (8 years & 4 months)
retained:
- Available in denominations of Rs. 1,000, 5000, 10,000 and Rs. 50,000.
- Minimum deposit Rs 1000/- No maximum limit.
1) Certificate can be purchased by an adult for himself or on behalf of a minor or by two adults.
2) KVP can be purchased from any Departmental Post office.
3) Facility of nomination is available.
4) Certificate can be transferred from one person to another and from one post office to
another.
5) Certificate can be encashed after 2 & 1/2 years from the date of issue.
5) National Savings Certificates:Interest Payable, Rates, and Periodicity:

From 1.4.2014, interest rates are as follows: 5 Years National Savings Certificate (VIII Issue)
- 8.5% compounded six monthly but payable at maturity. INR. 100/- grows to INR 151.62 after 5
years.
10 Years National Savings Certificate (IX Issue)
- 8.80% compounded six monthly but payable at maturity. INR 100/- grows to INR 236.60 after
10 years.
retained:
- Minimum INR. 100/- No maximum limit available in denominations of INR. 100/-, 500/-, 1000/-,
5000/- & INR. 10,000/-.
1) A single holder type certificate can be purchased by, an adult for himself or on behalf of a
minor or by a minor.
2) Deposits qualify for tax rebate under Sec. 80C of IT Act.
3) The interest accruing annually but deemed to be reinvested under Section 80C of IT Act.
4) *In case of NSC VIII and IX issue, transfer of certificates from one person to another can be
done only once from date of issue to date of maturity.
5) *At the time of transfer of Certificates from one person to another, old certificates will not be
discharged. Name of old holder shall be rounded and name of new holder shall be written on
the old certificate and on the purchase application (in case of non CBS Post offices) under
dated signatures of the authorized Postmaster along with his designation stamp and date
stamp of Post office.
6) Post Office Monthly Income Account:Interest Payable, Rates, and Periodicity:
From 1.4.2014, interest rates are as follows:- 8.40% per annum payable monthly.
retained:
-
In multiples of INR 1500/-
Maximum investment limit is INR 4.5 lakhs in single account and INR 9 lakhs in joint
account.
An individual can invest maximum INR 4.5 lakh in MIS (including his share in joint accounts).
For calculation of share of an individual in joint account, each joint holder have equal share
in each joint account.

1) Account may be opened by individual.
2) Account can be opened by cash/cheque and in case of cheque the date of realization of
cheque in Govt. account shall be date of opening of account.
5) Any number of accounts can be opened in any post office subject to maximum investment
limit by adding balance in all accounts.
7) Joint account can be opened by two or three adults.
8) All joint account holders have equal share in each joint account.
9) Single account can be converted into Joint and Vice Versa.
10) Minor after attaining majority has to apply for conversion of the account in his name.
11) Maturity period is 5 years from 1.12.2011.
12) Interest can be drawn through auto credit into savings account standing at same post
office, through PDCs or ECS./In case of MIS accounts standing at CBS Post offices, monthly
interest can be credited into savings account standing at any CBS Post offices.
13) Can be prematurely en-cashed after one year but before 3 years at the discount of 2% of
the deposit and after 3 years at the discount of 1% of the deposit. (Discount means
deduction from the deposit.)
14) A bonus of 5% on principal amount is admissible on maturity in respect of MIS accounts
opened on or after 8.12.07 and up to 30.11.2011. No bonus is payable on the deposits made
on or after 1.12.2011.
7) Public Provident Fund 15 Year (PPF):Interest Payable, Rates, and Periodicity:
From 1.4.2014, interest rates are as follows:- 8.70% per annum (compounded yearly).
retained:
- Minimum INR. 500/- Maximum INR. 1,50,000/- in a financial year.
- Deposits can be made in lump-sum or in 12 installments.
1) An individual can open account with INR 100/- but has to deposit minimum of INR 500/- in a
financial year and maximum INR 1,50,000/2) Joint account cannot be opened.
3) Account can be opened by cash/cheque and In case of cheque, the date of realization of
cheque in Govt. account shall be date of opening of account.
Account can be transferred from one post office to another.
5) The subscriber can open another account in the name of minors but subject to maximum
investment limit by adding balance in all accounts.
6) Maturity period is 15 years but the same can be extended within one year of maturity for
further 5 years and so on.
7) Maturity value can be retained without extension and without further deposits also.
8) Premature closure is not allowed before 15 years.
9) Deposits qualify for deduction from income under Sec. 80C of IT Act.
10) Interest is completely tax-free.
11) Withdrawal is permissible every year from 7th financial year from the year of opening
account.
12) Loan facility available from 3rd financial year.
13) No attachment under court decree order.
14) The PPF account can be opened in a Post Office which is double handed and above.
8) Senior Citizens Saving Scheme

From 1.4.2015, interest rates are as follows:- 9.3% per annum, payable from the date of deposit of 31st March/30th Sept/31st December in
the first instance & thereafter, interest shall be payable on 31st March, 30th June, 30th Sept
and 31st December.
retained:
- There shall be only one deposit in the account in multiple of INR.1000/- maximum not
exceeding INR 15 lakh.
1) An individual of the Age of 60 years or more may open the account.
2) An individual of the age of 55 years or more but less than 60 years who has retired on
superannuation or under VRS can also open account subject to the condition that the
account is opened within one month of receipt of retirement benefits and amount should not
exceed the amount of retirement benefits.
3) Maturity period is 5 years.
4) A depositor may operate more than one account in individual capacity or jointly with spouse
(husband/wife).
5) Account can be opened by cash for the amount below INR 1 lakh and for INR 1 Lakh and
above by cheque only.
6) In case of cheque, the date of realization of cheque in Govt. account shall be date of opening
of account.
9) Any number of accounts can be opened in any post office subject to maximum investment
limit by adding balance in all accounts.
10) Joint account can be opened with spouse only and first depositor in Joint account is the
investor.
11) Interest can be drawn through auto credit into savings account standing at same post
office, through PDCs or Money Order.
12) In case of SCSS accounts, quarterly interest shall be payable on 1st working day of April,
July, October and January. It will be applicable at all CBS Post Offices.
13) *Quarterly interest of SCSS accounts standing at CBS Post offices can be credited in any
savings account standing at any other CBS post offices.
14) Premature closure is allowed after one year on deduction of an amount equal to1.5% of
the deposit & after 2 years 1% of the deposit.
15) After maturity, the account can be extended for further three years within one year of the
maturity by giving application in prescribed format. In such cases, account can be closed at
any time after expiry of one year of extension without any deduction.
TDS is deducted at source on interest if the interest amount is more than INR 10,000/- p.a.
16) Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax
Act, 1961 from 1.4.2007.
c) Government Schemes
1) Pradhan Mantri Jan-Dhan Yojana (PMJDY)
It is National Mission for Financial Inclusion to ensure access to financial services, namely,
Banking / Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an
affordable manner.
Account can be opened in any bank branch or Business Correspondent (Bank Mitr) outlet.
PMJDY accounts are being opened with Zero balance. However, if the account-holder wishes
to get cheque book, he/she will have to fulfil minimum balance criteria.
Special Benefits under PMJDY Scheme
a)
Interest on deposit
b)
Accidental insurance cover of Rs.1 lac
c)
No minimum balance required
d)
Life insurance cover of Rs.30,000/-
e)
Easy Transfer of money across India
f)
Beneficiaries of Government Schemes will get Direct Benefit Transfer in these

accounts.
g)
After satisfactory operation of the account for 6 months, an overdraft facility will be
permitted
h)
Access to Pension, insurance products
i)
Accidental Insurance Cover, RuPay Debit Card must be used at least once in 45 days
j)
Overdraft facility upto Rs.5000/- is available in only one account per household,
preferably lady of the household
Documents required to open an account under Pradhan Mantri Jan-Dhan Yojana

If Aadhaar Card is not available, then any one of the following Officially Valid Documents (OVD)
is required: Voter ID Card, Driving License, PAN Card, Passport & NREGA Card. If these
documents also contain your address, it can serve both as Proof of Identity and Address
Highlights:
Scheme for comprehensive financial inclusion launched by the Prime Minister of India,
Narendra Modi on 28 August 2014
Run by Department of Financial Services, Ministry of Finance
Inauguration day, 1.5 Cr. bank accounts were opened under this scheme
By 28 January 2015, 12.58 Cr. accounts were opened, with around 10,590 Cr.
2) Pradhan Mantri Suraksha Bima Yojana

Highlights of the Pradhan Mantri Suraksha Bima Yojana (PMSBY Accidental Death
Insurance) are
Eligibility: Available to people in age group 18 to 70 years with bank account.
Premium: Rs. 12 per annum.
Payment Mode: The premium will be directly auto-debited by the bank from the
subscribers account. This is the only mode available.
Risk Coverage: For accidental death and full disability Rs 2 Lakh and for partial
disability Rs 1 Lakh.
Eligibility: Any person having a bank account and Aadhaar number linked to the
bank account can give a simple form to the bank every year before 1 st of June in order to join
the scheme. Name of nominee to be given in the form.
Terms of Risk Coverage: A person has to opt for the scheme every year. He can
also prefer to give a long-term option of continuing in which case his account will be autodebited every year by the bank.
Who will implement this Scheme? : The scheme will be offered by all Public Sector
General Insurance Companies and all other insurers who are willing to join the scheme and
tie-up with banks for this purpose.
The premium paid will be tax-free under section 80C and also the proceeds amount
will get tax-exemption u/s 10(10D).But if the proceeds from insurance policy exceed Rs.1
lakh , TDS at the rate of 2% from the total proceeds if no Form 15G or Form 15H is submitted
to the insurer.
3) Pradhan Mantri Jeevan Jyoti Bima Yojana

Highlights of the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY - For Life Insurance Cover)
Eligibility: Available to people in the age group of 18 to 50 and having a bank account .
People who join the scheme before completing 50 years can, however, continue to have the
risk of life cover up to the age of 55 years subject to payment of premium.
Premium: Rs 330 per annum. It will be auto-debited in one instalment.
Payment Mode: The payment of premium will be directly auto-debited by the bank from
the subscribers account.
Risk Coverage: Rs. 2 Lakh in case of death for any reason.
Terms of Risk Coverage: A person has to opt for the scheme every year. He can also
prefer to give a long-term option of continuing, in which case his account will be autodebited every year by the bank.
Who will implement this Scheme?: The scheme will be offered by Life Insurance
Corporation and all other life insurers who are willing to join the scheme and tie-up with
banks for this purpose.
Comparison between Jeevan Jyoti Bima Yojana (PMJJBY) Vs Suraksha Bima Yojana
(PMSBY)
Features
Eligibility
Number of Policy
When to Join the Scheme?
Sum Assured (Fixed)
Premium
Cover stops at age
Maturity Benefit
Death Benefit (Natural Death)
Death Benefit (Accidental Death)
Pradhan Mantri SurakshaPradhan Mantri Jeevan Jyoti

Bima Yojana (PMSBY)
Bima Yojana (PMJJBY)
18-70 years
18-50 years
One Policy Per Person
One Policy Per Person
Any time
Any time
Rs 2 lakhs
Rs 2 lakhs
Rs 12 per annum
Rs. 330 per annum
At the age of 70 years
At the age of 55 years
Nil
Nil
Nil
Rs 2 lakhs
Rs 2 lakhs
Rs 2 lakhs
Disability of both eyes, both hands,

both legs or one eye and one limb
Rs 2 lakhs
Nil
Disability of one eye or one limb
Rs 1 lakh
Nil
Maximum Insurance cover

Risk Period
Rs 2 lakhs
Rs.2 lakhs
1st June to 31st May every
1st June to 31st May every
year.
year.
Mode of Payment Premium will be auto debited Premium will be auto debited
from account in the month
from account in the month
of May every year.
of May every year.
4) Atal Pension Yojna (APY)

The scheme will be launched on June 1 2015 and focus is on the unorganised
sector. A pension provides people with a monthly income when they are no longer earning.
The scheme is administered by the Pension Fund Regulatory and Development Authority
(PFRDA) through NPS Architecture.
Under the APY, there is guaranteed minimum monthly pension for the subscribers ranging
between Rs. 1000 and Rs. 5000 per month.
The benefit of minimum pension would be guaranteed by the GOI.
GOI will also co-contribute 50% of the subscribers contribution or Rs. 1000 per annum,
whichever is lower. Government co-contribution is available for those who are not covered
by any Statutory Social Security Schemes and is not income tax payer.
GOI will co-contribute to each eligible subscriber, for a period of 5 years who joins the
scheme between the period 1st June, 2015 to 31st December, 2015. The benefit of five
years of government Co-contribution under APY would not exceed 5 years for all subscribers
including migrated Swavalamban beneficiaries.
All bank account holders may join APY.
Eligibility for APY: Atal Pension Yojana (APY) is open to all bank account holders who are
not members of any statutory social security scheme.
Age of joining and contribution period: The minimum age of joining APY is 18 years
and maximum age is 40 years. One needs to contribute till one attains 60 years of age.
Enrolment agencies: All Points of Presence (Service Providers) and Aggregators under
Swavalamban Scheme would enrol subscribers through setup of National Pension
System.
Indicative Monthly Contribution Chart
Age of
Entry
18
20
25
30
35
40
Monthly
Monthly Monthly
Monthly
Monthly
pension
pension pension
pension
pension
of Rs.
of
of
of
of
1000
Rs.2000 Rs.3000
Rs.4000
Rs.5000
42
84
126
168
210
50
100
150
198
248
76
151
226
301
376
116
231
347
462
577
181
362
543
722
902
291
582
873
1164
1454
Charges for default

In Atal Pension Yojna monthly contribution would automatically be deducted from
Subscribers bank account. Subscriber should ensure that the Bank account to be funded
enough for auto debit of contribution amount. If there is delay in contributions then Bank
would levy penalty. The fixed amount of interest/penalty will remain as part of the pension
corpus of the subscriber.
Rs 1 per month for contribution upto Rs. 100 per month.
Rs 2 per month for contribution upto Rs. 101 to 500 per month.
Rs 5 per month for contribution between Rs 501 to 1000 per month.
Rs 10 per month for contribution beyond Rs 1001 per month.
Discontinuation of payments of contribution amount shall lead to following:
After 6 months account will be frozen.
After 12 months account will be deactivated.
After 24 months account will be closed.
Exiting from Atal Pension Yojna
On attaining the age of 60 years: The exit from APY is permitted at the age with 100%
annuitisation of pension wealth. On exit, pension would be available to the subscriber.
In case of death of subscriber pension would be available to the spouse and on the
death of both of them (subscriber and spouse), the pension corpus would be returned to his
nominee.
Exit Before the age of 60 Years: Exit before 60 years of age is not permitted however
it is permitted only in exceptional circumstances, i.e., in the event of the death of beneficiary
or terminal disease.
5) Sukanya Samridi Account

Sukanya Samriddhi Account is another welcome step from Govt of India. Honorable Prime
Minister of India, Sh. Narendra Modi Ji launched Sukanya Samriddhi Account A Small Savings
Scheme on 22nd January, 2015. It is part of Beti Bachao Beti Padhao initiative of
Government of India (GOI) also known as BBB.
Objective:
Sukanya Samriddhi Account, Govt is trying to give a social message that Girl Child is not a
financial burden if parents of a Girl child secure their future through proper financial
planning.
Benefits:
1)
Highest Interest Rate among all Small Savings Schemes offered by Govt of
India: Sukanya Samriddhi Account will offer interest rate of 9.1% for current financial year
i.e. FY 2014-15. It is highest among all Small Savings Schemes.
2)
Tax Savings: In order to encourage people to open Sukanya Samriddhi Account, Govt
has exempted contribution to this account u/s 80C of the Income Tax Act, 1961.
3)
Lock-in Period: The maturity of account is 21 years from the date of opening of the
account or Marriage of the Girl Child, Whichever is earlier. For Marriage, Girl should be of 18
years at the time of marriage. The operation of account is not permitted beyond date of
marriage.
4)
Purpose of Sukanya Samriddhi Account: It is quite evident that Sukanya

Samriddhi Account is launched with sole objective of financial planning for the marriage of
Girl Child. Social Message is that Marriage or Education of a Girl Child is not a financial
burden if parents plan well in advance.
5)
Maturity Proceeds to be Paid to Girl Child: On maturity of Sukanya Samriddhi

Account, the account balance along with accrued interest will be paid directly to the account
holder i.e. Girl Child. It gives financial independence to Girl child which is currently missing in
India.
6)
Interest to be paid even after Maturity: Unlike other financial schemes where
interest is not paid after maturity of the deposit / investment scheme. Unique feature of
Sukanya Samriddhi Account is that even after maturity, if the account is not closed by the
account holder, Interest shall be payable in the account till final closure of the account.
7)
Flexibility to operate Sukanya Samriddhi Account: Based on past experience,

Government of India has given lot of flexibility in terms of account operations.
(a) Account can be opened with initial deposit of Rs 1000 and thereafter any amount in
multiple of Rs 100 can be deposited subject to max limit of 1.5 lakh during financial
year. Every FY, a min sum of Rs 1000 should be deposited to keep account operative.
(b) On attaining age of 10 years, a girl child can operate her account.
(c) Account can be closed if it is proved that account is causing undue hardship to the
account holder.
(d) Account can be transferred anywhere in India.
6) Kisan Vikas Patra (KVP) (Re-introduced)

INTEREST RATE - 8.7%
-
The re-launched Kisan Vikas Patra (KVP) will be available to the investors in the
denomination of Rs. 1000, 5000, 10,000 and 50,000, with no upper ceiling on investment.
The certificates can be issued in single or joint names and can be transferred from one
person to any other person / persons, multiple times. The facility of transfer from one post
office to another anywhere in India and of nomination will be available. The certificate can
also be pledged as security to avail loans from the banks and in other case where security is
required to be deposited. Initially the certificates will be sold through post offices, but the
same will soon be made available to the investing public through designated branches of
nationalised banks.
Kisan Vikas Patras have unique liquidity feature, where an investor can, if he so desires, en
cash his certificates after the lock-in period of 2 years and 6 months and thereafter in any
block of six months on pre-determined maturity value. The investment made in the
certificate will double in 100 months.
Reintroduction of Kisan Vikas Patra (KVP) is a welcome step not only in the direction of
providing safe and secure investment avenues to the small investors but will also help in
augmenting the savings rate in the country. The scheme will also safeguard small investors
from fraudulent schemes. With a maturity period of 8 years 4 months, the collections under
the scheme will be available with the Govt. for a fairly long period to be utilized in financing
developmental plans of the Centre and State Governments and will also help in enhancing
domestic household financial savings in the country.
d) Bonds:
A bond is a debt investment in which an investor loans money to an entity (typically
corporate or governmental) which borrows the funds for a defined period of time at a
variable or fixed interest rate. Bonds are used by companies, municipalities, states and
sovereign governments to raise money and finance a variety of projects and activities.
Owners of the bonds are debtholders, or creditors, of the issuer.
Characteristics of Bonds:
Most bonds share some common basic characteristics including:
Face value is the money amount the bond will be worth at its maturity, and is also
the reference amount the bond issuer uses when calculating interest payments.
Coupon rate is the rate of interest the bond issuer will pay on the face value of the
bond, expressed as a percentage.
Coupon dates are the dates on which the bond issuer will make interest payments.
Typical intervals are annual or semi-annual coupon payments.
Maturity date is the date on which the bond will mature and the bond issuer will pay
the bond holder the face value of the bond.
Issue price is the price at which the bond issuer originally sells the bonds.
Varieties of Bonds:
Zero-Coupon Bonds do not pay out regular coupon payments, and instead are
issued at a discount and their market price eventually converges to face value upon
maturity. The discount a zero-coupon bond sells for will be equivalent to the yield of a
similar coupon bond.
Convertible Bonds are debt instruments with an embedded call option that allows
bondholders to convert their debt into stock (equity) at some point if the share price
rises to a sufficiently high level to make such a conversion attractive.
Some corporate bonds are callable, meaning that the company can call back the
bonds from debtholders if interest rates drop sufficiently. These bonds typically trade
at a premium to non-callable debt due to the risk of being called away and also due to
their relative scarcity in today's bond market. Other bonds are putable, meaning that
creditors can put the bond back to the issuer if interest rates rise sufficiently.
The majority of corporate bonds in today's market are so-called Bullet Bonds, with
no embedded options whose entire face value is paid at once on the maturity
date.
e) Equity Shares:
Equity is a part of a company, also known as stock or share. When you buy shares of a
company, you basically own a part of that company. A company`s stockholders or
shareholders all have equity in the company, or own a fractional portion of the whole
company. They buy the shares because they expect to profit when the company profits.
There are two basic types of shares that any company issues: equity shares and preference
shares.
Both public and private corporations issue equity shares. Equity shareholders are the owners
of a company and initially provide the equity capital to start the business. Equity share
ownership in a public company offers many benefits to investors.
The following are some of its main advantages:
Capital appreciation
Dividends
Voting privileges
Liquidity - shares can easily be bought or sold
Dividend tax credit and capital gains tax

Types of Equity Shares:
There are two types of shares under Indian Company Law:-
1) Common Share (Equity): Common share represents an ownership claim on the earnings
and the assets of a company. After holders of debt claims are paid, the management of the
company can either pay out the remaining earnings to stock holders in the form of dividends
or reinvest part or all of the earnings. The holder of a common stock has limited liability upto
the amount of share capital contributed.
2) Preference Share : Preference share means shares which fulfil the following two conditions
a. It carries preferential rights in respect of dividend payable at fixed amount or at fixed
rate. This dividend must be paid before the holders of the equity shares can be paid
dividend.
b. It also carries preferential right in regard to payment of capital on winding up or
otherwise. It means the amount paid on preference share must be paid back to
preference share holders before anything in paid to the equity shareholders. In other
words, preference share capital has priority both in payment of dividend as well as
repayment of capital.
Risks in Investing in Equity
Macro-economic risks: Share prices are sensitive to the developments in the economy,
such as a change in interest rates, value of currency, inflation rate, government policies,
tax rates, and central bank policies. All these tend to influence the prices of equity
securities. For instance, an increase in inflation rate leads to a rise in equity risk premium,
which depress the equity markets. Similarly, a weakening currency dampens the equity
markets.
Liquidity risks: The liquidity of a stock is a function of its trading volume. A constriction
in the volume of securities could affect the fund manager's ability to transact, which in
turn, could affect the fund's overall NAV. The funds that invest in small-cap or unlisted
stocks are more prone to such risks. The inability to sell securities due to a lack of
volumes could lead to substantial losses for the mutual fund.
Non-diversification risks: A mutual fund aims at eliminating or minimising internal, or

company-specific, risks through diversification. However, at times, a particular sector or
segment of capital market may acquire a sizeable proportion in the fund's total assets and
expose it to the risk of non-diversification. For example, if mid-cap stocks acquire a
majority stake in an equity diversified fund's corpus, the fund could be at substantial risk
if the markets were to turn bearish in the near future. This is because mid-cap stocks are
the first to bear the brunt when the market declines.
Corporate performance risks: Fund managers look for undervalued companies with
strong fundamentals that are likely to show improved operational performance over time.
However, companies may not perform as per the investors' expectations due to the
increase in costs or reduced revenue. The radically changing consumer preferences can
also lead to a lack of demand for a company's products and result in underperformance.
This could drastically affect the NAV of a fund as the stocks of underperforming
companies are hammered on the stock exchanges.
In addition to these, an equity fund that invests in overseas securities is subject to the
following risks:
Currency risks: If a fund invests a proportion of its corpus in stocks, whose prices are
denominated in foreign currencies, it is exposed to the risk of currency movement. The
distribution of income and, correspondingly, the value of the fund are adversely affected
by any changes in the value of foreign currencies relative to the Indian rupee.
Country and political risks: These are the risks associated with the deteriorating
relationships between countries. Some of the possibilities include immobilisation of
overseas financial assets and introduction of extraordinary exchange controls. Such risks
also include a country's inability to meet its financial obligations that could adversely
affect the value of the fund.
f) Mutual Funds
An investment instrument that is made up of a pool of funds collected from many investors
for the purpose of investing in securities such as stocks, bonds, money market instruments
and other similar assets.
Mutual funds are operated by fund managers, who invest the fund's capital and attempt to
produce capital gains and income for the fund's investors. A mutual fund's portfolio is
structured and maintained to match the investment objectives stated in its prospectus.
Mutual Fund is a suitable investment option for the common man as it offers an opportunity
to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Why do people invest in Mutual Funds?

Mutual funds offer investors an affordable way to diversify their investment portfolios.
Mutual funds allow investors the opportunity to have a financial stake in many different
types of investments.
These investments include: stocks, bonds, money markets, real estate, commodities, etc.
Individually, an investor may be able to own stock in a few companies, a few bonds, and
have money in a money market account. Participation in a mutual fund, however, allows the
investor to have much greater exposure to each of these asset classes.
Most mutual funds are professionally managed by an investment expert known as a portfolio
manager.
This individual makes all of the buying and selling decisions for the fund.
This provides investors with many options to help them achieve their investment objectives.
How does a Mutual Fund work?
1)
A)
B)
2)
A)
B)
C)
D)
Different Types of Mutual Funds?

By Structure
Open ended funds
Close ended funds
By Investment Objective
Equity Funds
Debt Funds
Balanced Funds
Money Market Funds
Open ended funds
These funds buy and sell units on a continuous basis and, hence, allow investors to enter
and exit as per their convenience.
The units can be purchased and sold even after the initial offering (NFO) period (in case of
new funds).
The units are bought and sold at the net asset value (NAV) declared by the fund.
Open ended schemes are offered for sale at a pre-specified price, say INR 10, in the initial
offer period. After the pre-specified period, say 30 days, the fund is declared open for further
sales and repurchases.
Close ended funds
The unit capital of closed-ended funds is fixed and they sell a specific number of units.
Unlike in open-ended funds, investors cannot buy the units of a closed-ended fund after its
NFO period is over. This means that new investors cannot enter, nor can existing investors
exit till the term of the scheme ends. However, to provide a platform for investors to exit
before the term, the fund houses list their closed-ended schemes on a stock exchange.
A) Equity Funds
Equity or Growth Funds normally invest a majority of their corpus in equities.
The aim of Growth/ Equity Funds is to provide capital appreciation over medium to long
term.
Types of Equity Funds

1) Large Cap Funds- These are stocks of usually large and well-established companies that
have a strong market presence and are generally considered as safe investments. Their
stocks are publicly traded and have large market capitalizations. One important fact about
large caps is that information regarding these companies is readily available in newspapers
and magazines. Most of the large cap companies have good disclosures and therefore there
is no dearth of information for an investor looking into them. Ex:- Infosys, TCS, Wipro
2) Mid Cap Funds- Mid caps lie between large cap stocks and small cap stocks. These
represent mid-sized companies that are relatively more risky than large cap as investment
options yet, they are not considered as risky as small cap companies.
3) Small Cap Funds- Lying at the lowest end of market capitalisation, Small cap stocks are
generally viewed under the misconception of being hazardous or 'quick rich' stocks.
However, both these labels are untrue. Small cap companies have smaller revenue and
client bases, and usually include the start-ups or companies in the early stage of
development.
4) Sector Funds- A mutual fund which invests entirely or predominantly in a single sector.
Sector funds tend to be riskier and more volatile than the broad market because they
are less diversified, although the risk level depends on the specific sector.
B) Income/Debt Funds
Income or Debt Funds generally invest in fixed income securities (debt securities)
such as bonds, corporate debentures and Government securities.
The aim of Income Funds is to provide regular and steady income to investors.
Income Funds are ideal for capital stability and regular income.
Capital appreciation in debt funds may be limited, though risks are typically lower than that
in an equity fund.
Funds those invest only in government securities are called Gilt Funds and do not carry any
credit risk.
Types of Debt Funds

1) Liquid Funds / Money Market Funds
These funds invest in highly liquid money market instruments and provide easy liquidity. The
period of investment in these funds could be as short as a day. They aim to earn money
market rates and could serve as an alternative to corporate and individual investors, for
parking their surplus cash for short periods. Returns on these funds tend to fluctuate less
when compared with other funds.
2) Ultra Short Term Funds
Earlier known as Liquid Plus Funds, they invest in very short term debt securities with a
small portion in longer term debt securities. Most ultra short term funds do not invest in
securities with a residual maturity of more than 1 year. Also referred to as Cash or Treasury
Management Funds, Ultra Short Term Funds are preferred by investors who are willing to
marginally increase their risk with an aim to earn commensurate returns. Investors who have
short term surplus for a time period of approximately 1 to 9 months should consider these
funds.
3) Floating Rate Funds
These funds primarily invest in floating rate debt securities, where the interest paid changes
in line with the changing interest rate scenario in the debt markets. The periodic interest
rate of the securities held by these products is reset with reference to a market benchmark.
This makes these funds suitable for investments when interest rates in the markets are
increasing.
4) Short Term & Medium Term Income Funds
These funds invest predominantly in debt securities with a maturity of upto 3 years in
comparison to a Regular Income Fund. These funds tend to have a average maturity that is
longer than Liquid and Ultra Short Term Funds but shorter than pure Income Funds. These
funds tend to perform when short term interest rates are high and could potentially benefit
from capital gains as liquidity comes back to the market and interest rates go down. These
funds are suitable for conservative investors who have low to moderate risk taking appetite
and an investment horizon of 9 to 12 months.
5) Income Funds, Gilt Funds and other dynamically managed debt funds
These funds comprise of investments made in a basket of debt instruments of various
maturities & issuers. These funds are suitable for investors who willing to take a relatively
higher risk as compared to corporate bond funds, and have longer investment horizon.
These funds tend to work when entry and exit are timed properly; investors can consider
entering these funds when interest rates have moved up significantly to benefit from higher
accrual and when the outlook is that interest rates would decrease. As interest rates go
down, investors can potentially benefit from capital gains as well. A few types of dynamically
managed debt funds are mentioned below
Income funds invest in corporate bonds, government bonds and money market
instruments. However, they are highly vulnerable to the changes in interest rates and are
suitable for investors who have a long term investment horizon and higher risk taking ability.
Entry and exit from these funds needs to be timed appropriately. The correct time to invest
in these funds is when the market view is that interest rates have touched their peak and
are poised to reduce.
Gilt Funds invest in government securities of medium and long term maturities
issued by central and state governments. These funds do not have the risk of default since
the issuer of the instruments is the government. Net Asset Values (NAVs) of the schemes
fluctuate due to change in interest rates and other economic factors. These funds have a
high degree of interest rate risk, depending on their maturity profile. The higher the maturity
profiles of the instrument, higher the interest rate risk.
Dynamic Bond Funds invest in debt securities of different maturity profiles. These
funds are actively managed and the portfolio varies dynamically according to the interest
rate view of the fund managers. These funds Invest across all classes of debt and money
market instruments with no cap or floor on maturity, duration or instrument type
concentration.
6) Corporate Bond Funds

These funds invest predominantly in corporate bonds and debentures of varying maturities
that offer relatively higher interest, and are exposed to higher volatility and credit risk. They
seek to provide regular income and growth and are suitable for investors with a moderate
risk appetite with a medium to long term investment horizon.
7) Close Ended Debt Funds
Fixed Maturity Plans (FMPs) are closed ended Debt Mutual Funds that invest in debt
instruments with a specific date of maturity that is less than or equal to the maturity date of
the scheme. Securities are redeemed on or before maturity and proceeds are paid to the
investors.
FMPs are similar to passive debt funds, where the portfolio manager buys and holds the debt
securities for the entire duration of the product. FMPs are a good option for conservative
investors, as they do not carry any interest rate risk provided the investor stays invested
until the maturity of the product. They are also a tax efficient investment option.
C) Balanced Funds
Balanced Funds invest both in equities and fixed income securities in the proportion
indicated in their offer documents.
This proportion affects the risks and the returns associated with the balanced fund - in case
equities are allocated a higher proportion, investors would be exposed to risks similar to that
of the equity market.
The aim of Balanced Funds is to provide both growth and regular income.
These funds periodically distribute a part of their earning
Balanced funds with equal allocation to equities and fixed income securities are ideal for
investors looking for a combination of income and moderate growth.
Monthly Income Plans (MIPs) strive to offer the benefit of diversification across asset
classes by investing a proportion of the portfolio in debt securities (70% to 95%) with a
smaller allocation in equity securities (5 % to 30 %).
As the correlation between prices of equity and debt is low, this product endeavors to give
an investor returns that are relatively higher than debt market returns. MIPs can be classified
as debt oriented hybrids that seek to
Generate income from the debt securities
Maximise the benefits of long term growth from equity securities
Aim for periodic distribution of dividends

However, an important point to be noted is that monthly income is not assured and it is
subject to the availability of distributable surplus in the fund.
Capital Protection Oriented Funds are closed ended funds that are hybrid in nature; they
allocate money to debt and equity securities. The allocation to debt securities is done in
such a way that at the end of the term of the product, the value of debt investment is equal
to the original investment in the fund. The equity portion aims to add to the returns of the
product at maturity. These funds are oriented towards protection of capital and do not offer
guaranteed returns.
Say, for example, AAA bonds are quoting at interest rate of 10% p.a. for a 5 year term.
This means that at the end of 5 years, the investment of Rs. 100 in such bonds would
be worth Rs. 161.05, assuming reinvestment of the interest.
On the other hand, if one invests Rs. 62.09 in such bonds, the value of the bonds at
the end of 5 years would be Rs. 100.
In such a case, the allocation between equity and debt would be 38 : 62 respectively.
So, if the equity value reduces to zero, the investor gets back the original amount invested.
The asset allocation is a function of prevailing interest rates on high quality (AAA rated) bonds.
It is mandatory for the fund to be rated by at least one rating agency in order to be called a
capital protection oriented fund. Debt securities held in the portfolio must be of highest
rating.
Multiple Yield Funds are close ended income funds that aim to optimize income from debt
securities and potential growth from equity. They aim to limit the downside by investing in
rated debt instruments of reputed issuers. Through a limited equity exposure, they aim to
provide capital appreciation by investing in shares of companies without any sector or
market capitalization bias. This exposure will help to participate in the growth of these
companies thus seeking to provide the portfolio with an element of potential long term
capital appreciation.
D) Money Market Funds

These funds generally invest in safer short-term (less than a year) money market
instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper and Inter-Bank
Call Money.
The aim of Money Market Funds is to provide easy liquidity, preservation of capital and
moderate income.
Returns on these schemes may fluctuate depending upon the interest rates prevailing in the
market.
Ideal for corporate and individual investors as a means to park their surplus funds for short
periods.
The investment portfolio is very liquid and enables investors to hold their investments for
very short horizons of a day or more.
Various Options in Mutual Funds:
1) Growth Option: Dividend is not paid-out and the investor realizes only the capital
appreciation on the investment (by an increase in NAV).
2) Dividend Payout Option: Dividends are paid-out to investors. However, the NAV of the
scheme falls to the extent of dividend payout.
3) Dividend Re-investment Plan: Dividend accrued is automatically re-invested in
purchasing additional units in open-ended funds.
Different Modes in Mutual Funds

1) Lumpsum Investment: A lump sum investment means investing the entire amount at one
go.
2) Systematic Investment Plan (SIP):
- SIP is a disciplined way of investing where investors invest a regular sum every month in
mutual funds.
- A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in
mutual funds.
- SIP allows you to invest a certain pre-determined amount at regular interval- weekly, monthly,
quarterly etc.
- SIP is a planned approach towards investments and helps you inculcate the habit of saving
and building wealth for the future.
- For example: you start to invest Rs 5,000 every month in a mutual fund. If you do it via SIP,
this money will be taken from your account every month and invested in the mutual fund
that you have selected for SIP.
How does it work?
A SIP is a flexible and easy investment plan. Your money is auto-debited from your
bank account and invested into a specific mutual fund scheme.
You are allocated certain number of units based on the ongoing market rate (called
NAV or net asset value) for the day.
Every time you invest money, additional units of the scheme are purchased at the
market rate and added to your account. Hence, units are bought at different rates and
investors benefit from Rupee-Cost Averaging and the Power of Compounding.
Importance of SIP:
1) Disciplined Saving - Discipline is the key to successful investments. When you invest
through SIP, you commit yourself to save regularly. Every investment is a step towards
attaining your financial objectives.
2) Flexibility - While it is advisable to continue SIP investments with a long-term perspective,
there is no compulsion. Investors can discontinue the plan at any time. One can also
increase/ decrease the amount being invested.
3) Long-Term Gains - Due to rupee-cost averaging and the power of compounding SIPs have
the potential to deliver attractive returns over a long investment horizon.
4) Convenience - SIP is a hassle-free mode of investment. You can issue a standing
instruction to your bank to facilitate auto-debits from your bank account.
3) Systematic Transfer Plan (STP): STP is a variant of SIP. STP is essentially transferring
investment from one asset or asset type into another asset or asset type. The transfer
happens gradually over a period.
Systematic Transfer Plan is of two types:I. Fixed STP: A fixed STP is where investors take out a fixed sum from one investment to
another.
II. Capital appreciation STP: A capital appreciation STP is where investors take the profit
part out of one investment and invest in the other.
4) Systematic Encashment Plan (SEP): This allows the investor the facility to withdraw a
pre-determined amount / units from his fund at a pre-determined interval. The investor's
units will be redeemed at the applicable NAV as on that day.
5) Systematic Withdrawal Plan (SWP): A Systematic Withdrawal Plan (SWP) is a facility that
allows an investor to withdraw money from an existing mutual fund at predetermined
intervals. The money withdrawn through a systematic withdrawal plan can be reinvested in
another fund or retained by the investor in cash.
When is SWP generally used?

Systematic withdrawal plans are used by investors to create a regular flow of income from
their investments. Investors looking for income at periodical intervals for e.g. funding a
travel plan during the childrens summer vacations, also set up their withdrawals in such a
way that the cash is available when most required.
SWP is available in two options:
Fixed Withdrawal: Where you specify amounts you wish to withdraw

from your investment on a monthly/quarterly basis.
Appreciation Withdrawal: Where you can withdraw your appreciated

amount on a monthly/quarterly basis.
Risk Profile of Fund Categories

1) Equity Funds: High Level of Return, but as high level of risk too
2) Debt Funds: Returns comparatively less risky than equity funds
3) Money Market Funds: Provide stable but low level of return
Note: Investors have to face the risk-return trade off
Investor Categories eligible to buy MF Units
Resident Individuals
Indian Companies
Indian trusts and charitable institutions
Banks
Non-banking Financial Companies (NBFC)
Insurance companies
Provident funds
Non-resident Indians (NRI)
Overseas Corporate Bodies (OCB)
SEBI registered FIIs
Risk in MF Investments
Market Risk: At times the prices or yields of all the securities in a particular market
rise or fall due to broad outside influences affecting stock prices. This change in price is due
to "market risk".
Inflation Risk: Also referred to as "loss of purchasing power, this risk emerges
whenever the rate of inflation exceeds the earnings on investment.
Credit Risk: This arises from the credibility and reliability of the company associated.
Interest Rate Risk: Changing interest rates affect both equities and bonds.
Generally, when interest rates rise, prices of the securities fall and vice versa.
Investment Risks: NAV of sectoral schemes are linked to the equity performance of
such companies and may be more volatile than a more diversified portfolio of equities.
Liquidity Risk: Thinly traded securities carry the risk of not being easily saleable at
or near their real values. Liquidity risk is characteristic of the Indian fixed income market.
Changes in the Government Policy: Policy changes, especially in regard to the tax
benefits may impact the business prospects of the companies leading to an impact on the
investments made by the fund.
Net Assets of Mutual Funds
The net assets represent the market value of assets which belong to the investors, on a
given date.
Net Assets = Market Value of Investments + Current Assets and Other Assets + Accrued
Income - Current Liabilities and Other Liabilities - Accrued Expenses
Net Asset Value

Net Asset Value (NAV) is the market value of the assets of the scheme minus its liabilities.
The per unit NAV is the net asset value of the scheme divided by the number of units
outstanding on the Valuation Date.
Typically, NAV is calculated by summing the current market values of all securities held by
the fund, adding in cash and any accrued income, then subtracting liabilities and dividing
the result by the number of units outstanding.
Example:Total Value of Securities
(Equity, Bonds, Debentures etc.)
Cash
Liabilities
Total outstanding units
NAV = [(1000+1500-500)/100]
INR 1,000
INR 1,500
INR 500
100
INR 20 per unit
Risk and Return Measures of Mutual Fund Schemes:
Sharpe Ratio: It is used to measure the risk-adjusted performance of a portfolio. The

Sharpe ratio is calculated by subtracting the risk-free rate from the rate of return for a
portfolio and dividing the result by the standard deviation of the portfolio returns. The
Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a
result of excess risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted
performance has been. A negative Sharpe ratio indicates that a risk-less asset would
perform better than the security being analyzed.
Alpha: A measure of performance on a risk-adjusted basis. Alpha takes the volatility

(price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark
index. The excess return of the fund relative to the return of the benchmark index is a fund's
alpha. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%.
Correspondingly, a similar negative alpha would indicate an underperformance of 1%.
Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. A beta of 1 indicates that the security's price will
move with the market. A beta of less than 1 means that the security will be less volatile than
the market. A beta of greater than 1 indicates that the security's price will be more volatile
than the market.
TaxReckoner201516
Theratesareapplicableforthefinancialyear201516.
TaxImplicationsonDividendreceivedbyUnitholdersfromaMutualFund
Individual/HUF
Dividend
Allschemes
DomesticCompany
NRI
TaxFree
Taxondistributedincome(payablebythescheme)rates**
Equity
oriented Nil
Nil
schemes*
Infrastructure
Fund(IDF)
Debt 25%+12%Surcharge+3%Cess
=28.84%
Other than
equity 25%+12%Surcharge+3%Cess
orientedschemesand
IDF
=28.84%
Nil
30%+12%Surcharge+3%Cess
=34.608%
=5.768%
=34.608%
=28.84%
Securitiestransactiontax(STT)willbedeductedonequityorientedschemeatthetimeofredemption/switchtotheotherschemes/saleofunits.MutualFund
wouldalsopaysecuritiestransactiontaxwhereverapplicableonthesecuritiessold.
Forthepurposeofdeterminingthetaxpayable,theamountofdistributedincomebeincreasedtosuchamountaswould,afterreductionoftaxfromsuch
increasedamount,beequaltotheincomedistributedbytheMutualFund.Theimpactofthesamehasnotbeenreflectedabove.
CapitalGainsTaxation
Individual/HUF
DomesticCompany
$/#
NRI
LongTermCapitalGains
Equity
oriented Unitsheldformorethan12months
schemes
Nil
Nil
Nil
Surcharge+3%Cess
20%withindexation+Surchargeas
applicable+3%Cess
20%withindexation+12%
Surcharge+3%Cess
=23.072%
Surcharge+3%Cess
=22.042%or23.072%
20%withindexation+Surchargeas
applicable+3%Cess
=23.072%
10%withoutindexation+12%
Surcharge+3%Cess
=23.072%
=22.042%or23.072%
=11.536%
15%+Surchargeasapplicable+3%
Cess
=17.304%or16.5315%
=17.304%
30%^+12%Surcharge+3%Cess
30%+Surchargeasapplicable+3%
Cess
30%^+12%Surcharge+3%Cess
=34.608%
=34.608%or33.063%
=34.608%
Otherthan
equity Unitsheldformorethan36months
orientedschemes
Listed
Unlisted
ShortTermCapitalGains
Equityorientedschemes
Unitsheldfor12monthsorless
Otherthanequityoriented
schemes
=17.304%
Unitsheldfor36monthsorless
TaxDeductedatSource(ApplicableonlytoNRIInvestors)
Equityorientedschemes
Otherthanequityorientedschemes(Listed)
Otherthanequityorientedschemes(Unlisted)
Shorttermcapitalgains
Longtermcapitalgains
17.304%
34.608%^
34.608%^
Nil
23.072%
11.536%
$Surchargeattherateof12%isleviedincaseofindividual/HUFunitholderswheretheirincomeexceedsRs1crore.
@Surchargeattherateof7%isleviedfordomesticcorporateunitholderswheretheincomeexceedsRs1crorebutlessthanRs10crores
andattherateof12%whereincomeexceedsRs10crores.
#Shortterm/longtermcapitalgaintaxwillbedeductedatthetimeofredemptionofunitsincaseofNRIinvestorsonly.
^Assumingtheinvestorfallsintohighesttaxbracket.
EducationCessattherate3%willcontinuetoapplyontaxplussurcharge
TheFinanceAct,2015providestaxexemptiontounitholdersuponconsolidationormergerofmutualfundschemes,providedconsolidation
isoftwoormoreschemesofequityorientedfundortwoormoreschemesofafundotherthanequityorientedfund.
DividendStripping:Thelossduetosaleofunitsintheschemes(wheredividendistaxfree)willnotbeavailableforsetofftotheextentof
thetaxfreedividenddeclared;ifunitsare:(A)boughtwithinthreemonthspriortotherecorddatefixedfordividenddeclaration;and(B)
soldwithinninemonthsaftertherecorddatefixedfordividenddeclaration.
BonusStripping:Thelossduetosaleoforiginalunitsintheschemes,wherebonusunitsareissued,willnotbeavailableforsetoff;if
originalunitsare:(A)boughtwithinthreemonthspriortotherecorddatefixedforallotmentofbonusunits;and(B)soldwithinninemonths
aftertherecorddatefixedforallotmentofbonusunits.However,theamountoflosssoignoredshallbedeemedtobethecostofpurchaseor
acquisitionofsuchunsoldbonusunits.
0.001% Seller
1. IncomeTaxRates
mutualfund(deliverybased)
Saleofequityshares,unitsof
0.025%
ForIndividuals,HinduUndividedFamily,Associationof
equityorientedmutualfund(non
Seller
Persons, BodyofIndividualsandArtificialJuridical
deliverybased)
Persons
0.017%
Saleofanoptioninsecurities
Seller
TotalIncome
UptoRs.250,000(a)(b)
Rs.250,001toRs.500,000
(c)(d)
Rs.500,001toRs.1,000,000(d)
Rs.1,000,001andabove
(d)(e)
TaxRates
NIL
10%
20%
30%
(a) Inthecaseofaresidentindividualoftheageof60yearsor
abovebutbelow80years,thebasicexemptionlimitisRs
300,000.
(b) Incaseofaresidentindividualofageof80yearsorabove,
thebasicexemptionlimitisRs500,000.
(c) A rebate of Rs.2,000 for individual having total Income
uptoRs.5lakhs
(d) Education cess is applicable @ 3% on income tax plus
surcharge
(e) Surcharge@12%isapplicableonincomeexceeding
Rs1crore;Marginalreliefforsuchpersonisavailable
2. SecuritiesTransactionTax(STT)
STTisleviedonthevalueoftaxablesecuritiestransactionsas
under.
Transaction
Rates
Payableby
Purchaser/
Purchase/Saleofequityshares
0.1%
Seller
Purchaseofunitsofequityoriented
Nil Purchaser
mutualfund(deliverybased)
Saleofunitsofequityoriented
Saleofanoptioninsecurities,
whereoptionisexercised
4.
Saleofafuturesinsecurities
Saleofunitsofanequityoriented
fundtotheMutualFund
0.125% Purchaser
0.010%
Seller
0.001% Seller
(c) IncasethenonresidenthasaPermanentEstablishment(PE)
inIndiaandtheroyalty/feesfortechnicalservicespaidis
effectivelyconnectedwithsuchPE,thesamecouldbetaxed
at40%(plusapplicablesurchargeandeducationcess)onnet
basis.
(2) Taxonnonresidentsportsmenorsportsassociationonspecified
income@20%plusapplicablesurchargeandeducationcess.
CapitalGains
Transaction
Shortterm
(a)
capitalgains
Saletransactionsofequity
sharesandunitofan
equityorientedfundboth
15%
ofwhichattractSTT
Saletransactionotherthanmentionedabove:
Individuals (residentand Progressiveslab
nonresidents)
rates
Partnerships(residentand 30%
nonresidents)
Residentcompanies
30%
Overseas
financial 40% (corporate)
organizationsspecifiedin
30% (non
section115AB
corporate)
FIIs
30%
OtherForeigncompanies
40%
Localauthority
30%
Cooperativesocietyrates
Progressiveslab
Longterm
(a)(b)
capitalgains
Nil
20%/10%
10%
10%
20%/10%
20%/10%
(a) These rates will further increase by applicable surcharge &

educationcess.
(b) Indexationbenefit,asapplicable.
(c) Foreigncurrencyconversionbenefit,asapplicable
Personal Tax Scenarios (Amount in Rupees)
Individual
3.
TaxinFY201415
TaxinFY201516
EffectiveTaxSavings
IncomeLevel
500,000
5,000,000
25,750
1,364,750
25,750
1,364,750
NA
NA
11,000,000
3,540,625
3,605,000
NA
EffectiveTaxSavings
AdditionalTaxBurden
NA
NA
NA
NA
NA
64,375
AdditionalTaxBurden
NA
NA
1.82%
Specialratesfornonresidents
(1) Thefollowingincomesinthecaseofnonresidentaretaxed
atspecialratesongrossbasis:
Transaction
Rates(a)
(b)
Dividend
20%
Interestreceivedonloansgivenin
foreigncurrencytoIndianconcernor
20%
GovernmentofIndia.
Incomereceivedinrespectofunits
purchasedinforeigncurrencyof
20%
specifiedMutualFunds/UTI
Royaltyorfeesfortechnicalservices
10%
Interestincomefromanotified
5%
infrastructuredebtfund
InterestonFCCB,FCEB/Dividendon
10%
GDRs(b)
(a) These rates will further increase by applicable surcharge
andeducationcess.
(b) OtherthandividendsonwhichDDThasbeenpaid.
Residentseniorcitizen
(ageof60yearsbut
below80years)
TaxinFY201415
TaxinFY201516
EffectiveTaxSavings
EffectiveTaxSavings
AdditionalTaxBurden
AdditionalTaxBurden
IncomeLevel
500,000
5,000,000
11,000,000
20,600
20,600
NA
NA
NA
NA
3,534,960
3,599,232
NA
NA
64,272
1.82%
Residentverysenior
citizenattheageof80
yearsandabove
TaxinFY201415
TaxinFY201516
EffectiveTaxSavings
EffectiveTaxSavings
AdditionalTaxBurden
AdditionalTaxBurden
IncomeLevel
500,000
5,000,000
11,000,000
Nil
Nil
NA
NA
NA
NA
3,512,300
3,576,160
NA
NA
63,860
1.82%
1,359,600
1,359,600
NA
NA
NA
NA
1,339,000
1,339,000
NA
NA
NA
NA
Marginalreliefasapplicablewouldbeavailable
NOTES:
1)
The tax rates mentioned above are those provided in the Income tax Act, 1961 and amended as per Finance Act, 2015, applicable for
the financial year 2015-16 relevant to assessment year 2016-17. In the event of any change, we do not assume any responsibility to
update the tax rates consequent to such changes. The tax rates mentioned above may not be exhaustive rates applicable to all types
of assesses /taxpayers.
2)
The tax rates mentioned above are only intended to provide general information and are neither designed nor intended to be a
substitute for professional tax advice. Applicability of the tax rates would depend upon nature of the transaction, the tax
consequences thereon and the tax laws in force at the relevant point in time. Therefore, users are advised that before making any
decision or taking any action that might affect their finances or business, they should take professional advice.
3)
A non-resident tax payer has an option to be governed by the provisions of the Income tax Act, 1961 or the provisions of the relevant
DTAA, whichever is more beneficial. As per the provisions of the Income tax Act, 1961, submission of tax residency certificate (TRC)
along with From No. 10F will be necessary for granting DTAA benefits to non-residents. A taxpayer claiming DTAA benefit shall furnish
a TRC of his residence obtained by him from the Government of that country or specified territory. Further, in addition to the TRC, the
non-resident may be required to provide such other documents and information subsequently, as may be prescribed by the Indian Tax
Authorities.
Insurance
i.
Life Insurance
Life Insurance is the key to good financial planning. On one hand, it safeguards your
money and on the other, ensures its growth, thus providing you with complete
financial well being.
Insurance is the transfer of risk by an individual, such as yourself, or an
organisation, such as your business, to the insurance company. You or your
organisation will thus be known as the policy owner. The insurance company
receives payment in the form of premium and will compensate you in the event of
insured individual's or individuals' death or other event, such as terminal illness,
critical illness or maturity of the policy.
Types of Life Insurance
1) Term Plan:
Term Insurance helps the customers in safeguarding their families from financial
worries that arise due to unfortunate circumstances.
Term plans are pure risk cover plans with or without maturity benefits. These pure
risk plans cover your life at a nominal cost.
Term plans also let you avail the benefit to cover your outstanding debts like
mortgage, home loan etc. In case of something happens to you, the financial burden
is borne by the insurance company and not your loved ones.
Benefits
High insurance Cover at lower costs
Financial security against loans and mortgages
Single premium payment option available
Available with host of Additional rider benefits
2) Endowment Plans:
Endowment Plans are an ideal choice for the risk-averse customer. Endowments are
long-term, regular savings plans with a built-in life cover.
Provided you have paid all your premiums, at the end of the term the policyholder
receives the sum assured plus accrued /guaranteed bonuses that have been
declared over the years, as a lump sum.
In case of the unfortunate death during the term of your plan, the sum assured, will
be paid out as a lump sum with the bonuses that the policy is entitled to.
Benefits
Available as money back plans also
Option to avail a host of additional rider benefits
Cover your life for a longer period of time
Loan facility can be availed against most of the plans
3) Whole Life Insurance:

Whole Life Insurance plans provide cover throughout your lifetime. The premium
could be paid for as long as a lifetime or for a limited period.
Unlike endowment plans they do not carry a maturity value and pay the sum
assured to the family in case of the unfortunate death of the policyholder.
A Whole Life Insurance plan assures that your family is protected against financial
loss that could occur after your death.
4) Group Insurance:
Group insurance covers a group of people, usually members of societies, employees

of a common employer, or professionals. All employees or members are included
under one 'master policy' owned by the employer /nodal agency.
Group Insurance covers both life and savings products along with options like
Superannuation and Health.
5) Retirement Plans:
-Retirement Plans make sure that you have support in the twilight years of your life.
The savings you set aside today become your wealth and support in the years to
come.
Retirement plans are of two types:
a.
Immediate Annuity PlansThese plans allow you to convert a sum of money into a guaranteed series of
payments for a definite period or for life.
b.
Deferred Annuity PlansThis plan allows you to save regular amounts of money for a peaceful retirement.
This type of annuity has two main phases, the accumulation phase which allows you
to invest and save money into your account, and the payout phase in which the
plan is converted into regular annuity installments and payments are received.
Benefits
An alternative to superannuation's and provident fund;
Compulsory Saving
Saving tax
Choice of Open Market Option, i.e., you have the option to purchase an immediate
annuity from your current insurer or from any other life insurer as recognized by
IRDA
6) Childrens Plans:
Insurance today offers a very simple assurance in terms of monetary support to a

child and family in case of death or disability of parent and helps ensure that the
shortage of fund never hampers dreams or aspirations of your child.
In short, Children's Plans ensure a secured financial future for your child.
As parents, make sure you keep the following factors in mind before choosing a child
insurance plan:
Should cover your child throughout even if something happens to the parent
The payout should be at a age when the child requires it the most, i.e., when
he wants to enter his dream college or needs to start his career
Should provide a regular source of income so that child doesn't have to

compromise on his dreams and aspirations
Your child should not be forced to pay the premiums of the policy
7) Unit Linked Insurance Policy:

ULIP or unit linked insurance policy is life insurance plan which combines both
insurance cover and investment. Simply put, ULIP provides financial protection
along with investment opportunities.
The premium in ULIP after the deductions is invested in equity or debt market. In
ULIP the investment risk is generally borne by the investor.
How does ULIP work?
ULIP is combination of risk cover and investment. Generally in a term plan, if you
pay premium the specified cover is provided and that is all. However ULIP works
differently.
A small deduction is made on the premium made by you on account of insurer
charges. The major amount is invested into the fund chosen by you and converted
into units. The mortality cover and fund management charges and similar expenses
are deducted by cancellation of units.
The fund is dependent upon equity and debt market for growth.
Types of Funds in ULIP:
General Description
Nature of Investments
Risk Category
Equity Funds
Primarily invested in company stocks
Medium to High
with the general aim of capital

appreciation
Income, Fixed Interest Invested in corporate bonds, government
and Bond Funds
securities and other fixed income
instruments
Medium
Cash Funds
Sometimes known as Money Market

Funds invested in cash, bank
deposits and money market
instruments
Low
Balanced Funds
Combining equity investment with fixed

interest instruments
Medium
Benefits:
Death Benefit- In case of death of insured, the Sum Assured and fund value is
released to the beneficiary.
Maturity Benefit- On maturity of ULIP plan, the fund value along with bonuses if
any, is provided to the policyholder.
Tax Benefit- ULIP also offers tax benefits under Section 80C and 10(10D) of the
Income Tax Act, 1961. The premium paid is deductible from taxable income for
maximum amount of Rs. 1,00,000.
Advantages of Life Insurance
Risk Cover - Life today is full of uncertainties; in this scenario Life Insurance
ensures that your loved ones continue to enjoy a good quality of life against any
unforeseen event.
Planning for life stage needs - Life Insurance not only provides for
financial support in the event of untimely death but also acts as a long term
investment. You can meet your goals, be it your children's education, their
marriage, building your dream home or planning a relaxed retired life, according to
your life stage and risk appetite. Traditional life insurance policies i.e. traditional
endowment plans, offer in-built guarantees and defined maturity benefits through
variety of product options such as Money Back, Guaranteed Cash Values,
Guaranteed Maturity Values.
Protection against rising health expenses - Life Insurers through riders

or stand alone health insurance plans offer the benefits of protection against critical
diseases and hospitalization expenses. This benefit has assumed critical importance
given the increasing incidence of lifestyle diseases and escalating medical costs.
Builds the habit of thrift - Life Insurance is a long-term contract where as

policyholder, you have to pay a fixed amount at a defined periodicity. This builds the
habit of long-term savings. Regular savings over a long period ensures that a decent
corpus is built to meet financial needs at various life stages.
Safe and profitable long-term investment - Life Insurance is a highly

regulated sector. IRDA of India, the regulatory body, through various rules and
regulations ensures that the safety of the policyholder's money is the primary
responsibility of all stakeholders. Life Insurance being a long-term savings
instrument, also ensures that the life insurers focus on returns over a long-term and
do not take risky investment decisions for short term gains.
Assured income through annuities - Life Insurance is one of the best

instruments for retirement planning. The money saved during the earning life span
is utilized to provide a steady source of income during the retired phase of life.
Protection plus savings over a long term - Since traditional policies are
viewed both by the distributors as well as the customers as a long term
commitment; these policies help the policyholders meet the dual need of protection
and long term wealth creation efficiently.
Growth through dividends - Traditional policies offer an opportunity to

participate in the economic growth without taking the investment risk. The
investment income is distributed among the policyholders through annual
announcement of dividends/bonus.
Facility of loans without affecting the policy benefits - Policyholders

have the option of taking loan against the policy. This helps you meet your
unplanned life stage needs without adversely affecting the benefits of the policy
they have bought.
Tax Benefits-Insurance plans provide attractive tax-benefits for both at the

time of entry and exit under most of the plans.
Mortgage Redemption- Insurance acts as an effective tool to cover

mortgages and loans taken by the policyholders so that, in case of any unforeseen
event, the burden of repayment does not fall on the bereaved family.
ii.
Health Insurance
The term Health Insurance relates to a type of insurance that essentially covers
your medical expenses. A health insurance policy like other policies is a contract
between an insurer and an individual / group in which the insurer agrees to provide
specified health insurance cover at a particular premium subject to terms and
conditions specified in the policy.
What a Health Insurance policy would normally cover
1
2
3
4
A Health Insurance Policy would normally cover expenses reasonably and

necessarily incurred under the following heads in respect of each insured person
subject to overall ceiling of sum insured (for all claims during one policy period).
Room, Boarding expenses
Nursing expenses
Fees of surgeon, anesthetist, physician, consultants, specialists
Anesthesia, blood, oxygen, operation theatre charges, surgical appliances,
medicines, drugs, diagnostic materials, X- ray, Dialysis, chemotherapy, Radio
therapy, cost of pace maker, Artificial limbs, cost or organs and similar expenses.
Sum Insured
The Sum Insured offered may be on an individual basis or on floater basis for the
family as a whole.
Cumulative Bonus
Health Insurance policies may offer Cumulative Bonus wherein for every claim free
year; the Sum Insured is increased by a certain percentage at the time of renewal
subject to a maximum percentage (generally 50%). In case of a claim, CB will be
reduced by 10% at the next renewal.
Cost of Health Check-up
Health policies may also contain a provision for reimbursement of cost of health
check up. Read your policy carefully to understand what is allowed.
Minimum Period of stay in hospital
In order to become eligible to make a claim under the policy, minimum stay in the
Hospital is necessary for a certain number of hours. Usually this is 24 hours. This
time limit may not apply for treatment of accidental injuries and for certain
specified treatments. Read the policy provision to understand the details.
Pre and post hospitalization expenses
Expenses incurred during a certain number of days prior to hospitalization and post
hospitalization expenses for a specified period from the date of discharge may be
considered as part of the claim provided the expenses relate to the disease /
sickness.
Cashless facility
Insurance companies have tie-up arrangements with a network of hospitals in the
country. If policyholder takes treatment in any of the net work hospitals, there is no
need for the insured person to pay hospital bills. The Insurance Company, through
its Third Party Administrator (TPA) will arrange direct payment to the Hospital.
Expenses beyond sub limits prescribed by the policy or items not covered under the
policy have to be settled by the insured direct to the Hospital. The insured can take
treatment in a non-listed hospital in which case he has to pay the bills first and then
seek reimbursement from Insurance Co. There will be no cashless facility applicable
here.
Why is Health Insurance Important
Buying health insurance protects us from the sudden, unexpected costs of

hospitalization (or other covered health events, like critical illnesses) which would
otherwise make a major dent into household savings or even lead to indebtedness.
Each of us is exposed to various health hazards and a medical emergency can strike
anyone of us without any prior warning. Healthcare is increasingly expensive, with
technological advances, new procedures and more effective medicines that have
also driven up the costs of healthcare. While these high treatment expenses may be
beyond the reach of many, taking the security of health insurance is much more
affordable.
What kinds of Health Insurance Plans are available
Health insurance policies are available from a sum insured of Rs 5000 in microinsurance policies to even a sum insured of Rs 50 lakhs or more in certain critical
illness plans.
Most insurers offer policies between 1 lakh to 5 lakh sum insured. As the room rents
and other expenses payable by insurers are increasingly being linked to the sum
insured opted for, it is advisable to take adequate cover from an early age,
particularly because it may not be easy to increase the sum insured after a claim
occurs.
Also, while most non-life insurance companies offer health insurance policies for a
duration of one year, there are policies that are issued for two, three, four and five
years duration also. Life insurance companies have plans which could extend even
longer in the duration.
A Hospitalization policy covers, fully or partly, the actual cost of the treatment
for hospital
admissions during the policy period. This is a wider form of coverage applicable for
various hospitalization expenses, including expenses before and after
hospitalization for some specified period. Such policies may be available on
individual sum insured basis, or on a family floater basis where the sum insured is
shared across the family members.
Another type of product, the Hospital Daily Cash Benefit policy, provides a fixed
daily sum insured for each day of hospitalization. There may also be coverage for a
higher daily benefit in case of ICU admissions or for specified illnesses or injuries.
A Critical Illness benefit policy provides a fixed lumpsum amount to the insured
in case of diagnosis of a specified illness or on undergoing a specified procedure.
This amount is helpful in mitigating various direct and indirect financial
consequences of a critical illness. Usually, once this lump sum is paid, the plan
ceases to remain in force.
There are also other types of products, which offer lumpsum payment on
undergoing a specified surgery (Surgical Cash Benefit), and others catering to
the needs of specified target audience like senior citizens.

What are the tax benefits I get if I opt for Health Insurance?
Health insurance comes with attractive tax benefits as an added incentive.
There is an exclusive section of the Income Tax Act which provides tax benefits
for health insurance, which is Section 80D, and which is unlike the section 80C
applicable to Life Insurance wherein other form of investments/ expenditure also
qualify for the deduction.
The deduction allowed under Section 80D is Rs. 15,000 and Rs. 20,000 (for Senior
Citizens). Keeping in account the rising cost of Medical Expenses, Budget 2015
has increased the deduction allowed to Rs. 25,000 & Rs. 30,000 (for Senior
Citizens)
What are the factors that affect Health Insurance premium?
Age is a major factor that determines the premium, the older you are the
premium cost will be higher because you are more prone to illnesses.
Previous medical history is another major factor that determines the premium. If
no prior medical history exists, premium will automatically be lower.
Claim free years can also be a factor in determining the cost of the premium as it
might benefit you with certain percentage of discount. This will automatically
help you reduce your premium.
iii.
General Insurance
General insurance is basically an insurance policy that protects you against losses
and damages other than those covered by life insurance. For more comprehensive
coverage, it is vital for you to know about the risks covered to ensure that you and
your family are protected from unforeseen losses.
The coverage period for most general insurance policies and plans is usually one
year, whereby premiums are normally paid on a one time basis.
The risks that are covered by general insurance are:
Property loss, for example, stolen car or burnt house

Liability arising from damage caused by yourself to a third party
Accidental death or injury
The main products of general insurance include:

Motor Insurance
- You need motor insurance when you buy a motor vehicle. Motor insurance covers
your vehicle, be it a motorcycle, a car or a lorry, in case of accidents or theft.
Fire Insurance
- This policy provides you with coverage against loss or damage to insured property
(i.e. house, shop and factory) caused by fire, lightning or explosion.
Personal Accident Insurance
- Personal Accident insurance or PA insurance is an annual policy which provides
compensation in the event of injuries, disability or death caused solely by violent,
accidental, external and visible events.
Travel Insurance
- Travel insurance coverage is usually limited to the period of your travel. However,
some insurance companies may offer various combinations of protection to cater to
the specific needs of customers, including long-term annual policies for a frequent
traveller.
- A travel insurance can be purchased for you and/or your family to insure against
travel-related accidents, losses or interruptions, such as:
1) Personal accident
2) Medical related expenses
3) Loss of travel or accommodation expenses due to cancellation or curtailment of the
journey
4) Losing your baggage, belongings and money
5) Losing your passport
6) Personal liability
7) Delayed baggage
8) Travel delays
9) Hijacking
10) Repatriation
Loan
The act of giving money, property or other material goods to another party in
exchange for future repayment of the principal amount along with interest or other
finance charges. A loan may be for a specific, one-time amount or can be available
as open-ended credit up to a specified ceiling amount.
Types of Loan
Secured Loan:
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or
property) as collateral for the loan, which then becomes a secured debt owed to the
creditor who gives the loan.
Secured loans usually offer lower rates, higher borrowing limits and longer
repayment terms than unsecured loans.
As the term implies, a secured loan means you are providing "security" that your
loan will be repaid according to the agreed terms and conditions.
Secured loans can also be home equity loans or home equity lines of credit. Such
loans are based on the amount of home equity, which is simply the current market
value of your home minus the amount still owed. Your home is used as collateral
and failure to make timely payments could result in losing your home.
Example: Mortgage, Home Equity Line of Credit, Auto Loan, Recreational Vehicle Loan
Unsecured Loan:
Unsecured loans are the opposite of secured loans and include things like credit
card purchases, education loans, or personal (signature) loans. Lenders take more
of a risk by making such a loan, with no property or assets to recover in case of
default, which is why the interest rates are considerably higher.
When you apply for a loan that is unsecured, the lender believes that you can repay
the loan on the basis of your financial resources. You will be judged based on the
five (5) C's of credit - character, capacity, capital, collateral, and conditions these
are all criteria used to assess a borrower's creditworthiness.
Character, capacity, capital, and collateral refer to the borrower's willingness and
ability to repay the debt. Conditions include the borrower's situation as well as
general economic factors.
Unsecured personal loans can be used for almost any worthwhile purpose, and are
often used for the following:
Vehicle
Holiday
Wedding
Debt Consolidation
Furniture & Appliances
Example: Credit Cards, Personal Loans, Personal Line of Credit, Student Loans, Some
Home Improvement Loans
1) Student Loan
- Student loans are offered to college students and their families to help cover the cost
of higher education.
- A student loan is designed to help students pay for university tuition, books, and
living expenses. It may differ from other types of loans in that the interest rate may
be substantially lower and the repayment schedule may be deferred while the
student is still in school.
- In general, students are not required to pay back these loans until the end of a grace
period, which usually begins after they have completed their education.
2) Home Loan
Home Loan is offered to individuals who wish to purchase or construct a house. The
property is mortgaged to the lender as a security till the repayment of the loan. The
bank or financial institution will hold the title or deed to the property till the loan has
been paid back with the interest due for it.
- The maximum amount that can be borrowed depends on the status of the borrower
(resident/non-resident), type of home loan (renovation, property purchase, property
extension) and the financial institute. It is generally offered for up to 80-85% of the
cost of the property.
- The repayment tenure takes into consideration the repayment ability of the
borrower based on their income and existing EMIs. The typical duration for which a
home loan can be taken is anywhere between 5-30 years.
Types of Home Loan
Through a Home Loan, one can purchase or construct a new house/ apartment.
A Home Improvement loan is offered to those who wish to renovate their houses.
A Home Extension loan is for consumers planning to add extra space to their house
such as a new room or a new wing.
A Loan against Property is offered for a individuals seeking loan against an already
existing property
A Land Purchase Loan is provided to consumers buying land as an investment,
maybe to build a house later on and a Balance transfer loan is basically a home loan
to pay off an existing home loan as this enables you to avail a loan with a lower
interest rate.
Costs incurred while applying for home loan
For a Home Loan, the basic registration charges, transfer charges and stamp duty
costs are added to the cost of the home. Some other charges include:
1)
Processing charge or booking fee paid to the lender when you apply for the
loan. It could be fixed or a percentage of the loan amount
2)
Pre-payment penalty if the loan is repaid before the agreed duration, some
lenders may charge a penalty, up to 2% of the amount pre-paid.
3)
Miscellaneous costs there could be a documentation or legal fee, also

known as application fee
EMI (Equated Monthly Installment)

An EMI, equated monthly installment, is the amount of money to be paid to
the bank or lender on a monthly basis. It consists of the principal amount and the
interest on said amount, equally divided by the number of months in the loan
tenure. The EMI is paid on a fixed date of the month until the full amount has been
repaid.
Types of Interest Rates
Fixed Interest Rate:

A fixed interest rate on a loan or mortgage stays at the predetermined rate for the
entire term of the loan. This allows borrowers to plan their future payments. Usually
personal loans and credit cards have fixed interest rates.
Floating Interest Rate:

A floating interest rate fluctuates with the market or along with an index. Floating
rates are usually offered for home loans; the prime lending rate or the base rate is
used as a basis for calculating the floating rate and the interest rate charged is the
prime interest rate/base rate plus a certain spread (as charged by the credit
institution).
3) Auto Loans
An auto loan is basically a loan that you take out in order to purchase a vehicle.
With an auto loan, you are not paying on the depreciation of the vehicle like you do
with a lease. You are paying on the vehicle purchase price plus interest.
There are two types of auto loans
1) Direct - A direct auto loan is where a bank gives the loan directly to a consumer.
2) Indirect - An indirect auto loan is where a car dealership acts as an intermediary
between the bank or financial institution and the consumer.
4) Personal Loans
Personal loans can be used for any personal expenses and dont have a designated
purpose. This makes them an attractive option for people with outstanding debts,
such as credit card debt, who want to reduce their interest rates by transferring
balances. Like other loans, personal loan terms depend on your credit history.

An Overview On Financial Planning, Investments and Loans

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

An Overview On Financial Planning, Investments and Loans

Hochgeladen von

Copyright:

Verfügbare Formate

An Overview on Financial Planning, Investments

Organize their finances

Cash Flow and Budgeting:

Control excessive expense not planned under budget.

Compliance of a budget is extremely important for achievement of financial objectives. If the

Investment Planning Overview:

a) Cash & Cash Equivalent

a) Land & Building

a) Cash & Cash Equivalent:

b) Small Saving Schemes

Post Office Savings Account

Interest Payable, Rates, and Periodicity:

3) Post Office Time Deposit Account:-

Interest Payable, Rates, and Periodicity:

5) National Savings Certificates:Interest Payable, Rates, and Periodicity:

In multiples of INR 1500/-

Salient features including Tax Rebate:

8) Senior Citizens Saving Scheme

Accidental insurance cover of Rs.1 lac

No minimum balance required

Life insurance cover of Rs.30,000/-

Easy Transfer of money across India

Beneficiaries of Government Schemes will get Direct Benefit Transfer in these

Access to Pension, insurance products

Documents required to open an account under Pradhan Mantri Jan-Dhan Yojana

Run by Department of Financial Services, Ministry of Finance

2) Pradhan Mantri Suraksha Bima Yojana

Eligibility: Available to people in age group 18 to 70 years with bank account.

Premium: Rs. 12 per annum.

3) Pradhan Mantri Jeevan Jyoti Bima Yojana

Pradhan Mantri SurakshaPradhan Mantri Jeevan Jyoti

Disability of both eyes, both hands,

Disability of one eye or one limb

Maximum Insurance cover

4) Atal Pension Yojna (APY)

Charges for default

Rs 1 per month for contribution upto Rs. 100 per month.

Rs 5 per month for contribution between Rs 501 to 1000 per month.

Rs 10 per month for contribution beyond Rs 1001 per month.

Discontinuation of payments of contribution amount shall lead to following:

After 6 months account will be frozen.

After 12 months account will be deactivated.

After 24 months account will be closed.

Exiting from Atal Pension Yojna

5) Sukanya Samridi Account

Purpose of Sukanya Samriddhi Account: It is quite evident that Sukanya

Maturity Proceeds to be Paid to Girl Child: On maturity of Sukanya Samriddhi

Flexibility to operate Sukanya Samriddhi Account: Based on past experience,

6) Kisan Vikas Patra (KVP) (Re-introduced)

Liquidity - shares can easily be bought or sold

Dividend tax credit and capital gains tax

Non-diversification risks: A mutual fund aims at eliminating or minimising internal, or

Why do people invest in Mutual Funds?

How does a Mutual Fund work?

Different Types of Mutual Funds?

Open ended funds

Types of Equity Funds

Types of Debt Funds

6) Corporate Bond Funds

Generate income from the debt securities

Maximise the benefits of long term growth from equity securities

Aim for periodic distribution of dividends