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Monday, January 31, 2011

Some significant developments of 2010

Significant developments investors need to track as they will have a bearing on market movements in 2011

   The year 2010 has come to an end. Practically, this year was the first year after the world came out of the economic slowdown. This year, investors faced the side effects of some actions taken in the previous years to get the world economy out of the slowdown. The world faced many challenges to maintain the economy on a growth path and prevent it from falling into recession again.

   There have been many desperate moves by regulators and central banks to maintain the economic recovery. As a result, the markets are signing off from this year on a positive note. However, there are many areas of concern still that need to be dealt with tactically, going forward.

   These are some significant developments of 2010 at the domestic and global arenas, and will have an impact on market sentiment in the medium to long terms:

Euro region crisis    

The sovereign debt crisis in Europe which uncovered last year was one of the biggest issues faced by policymakers this year. The crisis is so deep-rooted that it threatened the existence of the Euro currency itself. The European Central Bank along with IMF has created a large fund to support the struggling Euro region nations.

   However, the concern is that this crisis is yet to be fully contained and more European countries are coming into the list. The actions and developments around this entire European debt crisis will be one of the biggest factors to track, going forward, in 2011.

US economy picks up    

In the US, the concern is to maintain the economy on a growth path. The rate of new job creation is quite low and it may impact the economic growth, going forward. The Federal Reserve announced another round of quantitative easing in November to lift the economic activities in the country.

   The economic activities have picked up in US during the current Christmas festival season. However, it would be important to track the various economic parameters (especially the new job numbers) in the US, going forward.

China factor    

The Chinese economy is the fastest-growing economy in the world and has recovered quite quickly from the world economic slowdown. However, there are concerns regarding the sustainability of its economic growth pace, going forward. Inflation is ruling high in China which warrants a tightening in the monetary policy.

   On the other hand, China is having a huge trade surplus and is currently facing a lot of pressure from other countries to appreciate its currency. The China fear has already triggered negative sentiments in the markets in 2010 a couple of times. The China factor would be another important factor to track in the medium to long terms.

FII inflows    

This year, there has been very strong inflow from the foreign institutional investors (FIIs) into emerging markets, including India. The main reason for the strong FII inflows include the soft monetary policies in the developed countries, limited investment opportunities in developed countries, and the fast pace of recovery and growth in the emerging markets. The FIIs inflows were one of the major factors behind the sharp rise in the stock markets in emerging nations.

   FIIs inflows would be another factor which will play a key role in deciding the future direction of the markets.

Inflation and monetary tightening    

The inflation rate was on top of the agenda of financial policymakers in India in 2010. The price escalation which started with food articles and primary articles prices spilled over to other essential items. The Wholesale Price Index (WPI) based inflation rate went up to double digits in the middle of 2010. However, the Reserve Bank of India (RBI) did a good job to bring it back to manageable levels by implementing monetary policy tightening actions.

   The RBI kept a close watch on the economic conditions and increased its policy rates and rations in smaller steps at regular intervals. The inflation rate has come down from its alarming levels. However, it is still ruling much higher than the comfortable range of around 5-6 percent. The progress of inflation and actions from policymakers will be another important factor to watch in 2011.

GDP growth rate    

The domestic GDP has grown at a healthy rate of 8.9 percent for the first half of the current fiscal year. Robust sales were reported by real estate and infrastructure, transport and auto, financing, insurance, and communications sectors. The sustenance of this growth rate would be important to track, going forward, as challenges are rising in terms of a tight monetary policy to contain inflation and continuous rise in commodity prices due to domestic as well as global factors.

PSU disinvestment    

There is a lot of euphoria in the markets around disinvestments in public sector undertakings (PSUs). There have already been a few big ticket public offers (IPOs as well as FPOs) of the PSUs and a few more are expected to come in the near to medium terms.

   The government has done a good job in marketing, timing and floating some of the big ticket PSU offers. The government has raised a decent amount of money which will go a long way in reducing the overall fiscal deficit.

Commodity price movements    

The action in commodity prices is another important factor which requires proper attention as it impacts the overall economic policy of a country. The prices of commodities saw a steady rise this year across the board including agricultural commodities, industrial metals as well as energy commodities.

   The main reason for this price rise is higher demand resulted by increasing demand of consumption as well as from hedging and speculation due to uncertainty in global stock markets.

Currency fluctuations    

Cross currency movements and currency volatility is another important factor which impacts the performance of businesses in the current globalised world. In 2010, there was a lot of volatility in the currency markets, mainly due to economic uncertainties in the world.

   Analysts believe the currency markets will remain volatile with a lot of cross currency movements in the short to medium terms.


Book profits from investments and move them to debt

Some strategies to book profits in equity and invest them in debt instruments

   Stock markets are consolidating at all-time high levels and analysts believe a break-out from current range can be expected next month. The market movement henceforth will largely depend on global developments. Investors are advised to review their portfolio and do some fine-tuning in terms of profit booking, part-profit booking, cut loss, shifting equity positions or re-balancing from equity to debt instruments.

   Domestic economic growth is healthy and the long term markets outlook remains positive. Foreign institutional investors (FIIs) are also positive on emerging markets in general. However, the markets are already trading at quite high levels and investment in equities is high risk due to global uncertainties. Following the monetary policy tightening from RBI, interest rates have gone up and debt-based investment instruments is quite attractive for capital preservation, low investment risk, good interest returns and capital appreciation if interest rates go down in future. Investors with low risk profile can reduce exposure in equities and re-balance by investing in debt-based instruments and commodities. Here are some options to diversify your investment portfolio:

Bank deposit    

The basic feature of bank deposits is safety of principal amount, easy liquidation of deposits and accumulation of regular interest. Interest rates on bank fixed deposits are on a rise after the RBI's decision to tighten the monetary policy. People should look for bank deposits for their short-term investment requirements.

Debt fund    

These instruments are very good options for risk averse investors. These funds invest in debt-based funds and government bonds and therefore provide principal protection with decent return. These funds come without any lock-in period, provide quick liquidation and are handy for people looking to invest with short- to medium-term perspective without any risk.

Liquid fund    

Liquid funds are good for investors to park their funds for the short term. Liquid funds invest the corpus mainly in money market instruments, short-term corporate deposits and treasury. Liquid funds are quite useful in terms of funds withdrawal and usually liquidate the funds on very short notice.

   Returns from bank fixed deposits are taxable depending on the tax bracket of the investor, which considerably pulls down the actual returns, whereas, dividends from liquid funds are tax free in the hands of investor.

Gold and silver    

The investment outlook of the overall commodities looks quite good due to uncertainty at global level. However, small investors should concentrate their commodities exposure to precious metals like gold and silver. Both of them have given very good returns in the recent past and their outlook for short- to medium-term is quite good.

   You can invest in gold or silver through ETF or purchase of physical gold/silver coins from reliable shops and outlets. Exchange-traded funds (ETFs) are much like mutual funds with gold/silver as the underlying asset. Various well-known mutual fund houses manage gold and silver-based funds. The units of these funds are very easily tradable in the market, making it quite easy to invest, track and liquidate the investments.


New changes for Mutual fund Investing

Investors need to be aware of changing rules before they invest in mutual funds

   Mutual fund investors need to be aware of changes taking place in mutual fund investing as compliance is mandatory in the areas of 'know your customer' (KYC), third party payments and multiple bank account registration.

KYC compliance    

The threshold for KYC compliance for all individual investors has been changed from Rs 50,000 to nil with effect from January 1, 2011. Hence, KYC compliance is a prerequisite for individuals to invest in Mutual Funds irrespective of the size of the investment. The Association of Mutual Funds in India (AMFI), along with all mutual funds, has made arrangements with CDSL Ventures Ltd (CVL) to undertake a centralised record keeping of KYC documents.

   On completing a one-time process of common standard KYC with CVL, investors can transact across multiple mutual funds without having to repeatedly submit documents with each mutual fund.

   If you are not KYC compliant, apply for KYC compliance by submitting the KYC form duly filled in the required details along with the relevant supporting documents to the nearest Point of Service (POS).

Documents to be submitted:

Photo PAN card Proof of address (latest telephone or electricity bill, passport, bank account statement, voter ID, driving license etc)
Passport size photograph

Third party payment

Investments or subscriptions made through third party payments will not be accepted. Mutual funds have to ensure that third party payment instruments are not used for mutual fund subscriptions.

These exceptions are subject to submission of requisite documents:

Payment by parents, grandparents or related persons on behalf of a minor as gift for a value not exceeding Rs 50,000

Payment by employer on behalf of employee under systematic investment plan through payroll deduction Custodian on behalf of a foreign institutional investor (FII) or a client

When a payment is from a bank account other than that of the beneficiary investor, it is referred to as a 'third party payment'.

Multiple bank accounts registration

Most mutual funds now offer investors the facility to register multiple bank accounts in their folios to receive redemption and dividend proceeds. The individual and Hindu Undivided Family (HUF) investors will be allowed to register up to five bank accounts and non-individual investors will be allowed to register up to 10 bank accounts.

   Multiple Bank Registration Forms will allow investors to:

Part A -

register multiple bank accounts

Part B -

register default bank account

Part C -

delete registered bank account A unit holder can choose any one of the registered bank accounts as default bank account for receiving redemption/dividend proceeds. However, in case a unit holder does not specify the default bank account, the Fund shall designate one of the registered bank accounts as default bank account. The registered bank accounts may also be used for verification of payins (i.e. receiving of subscription funds) to ensure that a third party payment is not used for mutual fund subscription.

Documents required for registration or change of bank mandate:

A cancelled original or self-attested copy of cheque leaf with the account number and name of the account holder printed on the face of the cheque
Certificate from the bank, a bank account statement, or a copy of the bank passbook

   A new bank account can only be registered using the designated 'Multiple Bank Account Registration Form'. The proceeds of any redemption or dividend will be sent only to a bank account that is already registered and validated in the folio at the time of redemption or dividend transaction processing.


Countless life Insurance policies for Too Little Cover!!!!

All those countless life policies may not secure the future of your near and dear ones. Read on to find out why


   WITH March 31, 2011 drawing closer, the tax-saving season is once again upon us. It's that time of the year when insurance agents and distributors of financial products start chasing potential customers with a renewed vigour. They coax customers to buy products that are eligible for deductions under Section 80C of the I-T Act.

   Their enthusiasm often succeeds in pushing gullible investors into buying something that they would have otherwise bought after much deliberation. However, these last-minute choices are the ones that often come to haunt them later. This is particularly applicable to Ulips, which have been the best-sellers during the season, thanks to insurance agents pushing them for lucrative commissions. Whether the trend will continue next year remains to be seen, given the cap on Ulip charges imposed by the Insurance and Regulatory Development Authority (Irda). Nevertheless, it will not be surprising if people continue to fall prey to the so-far successful insurance-investment-tax-saving pitch. Often, they do not realise that apart from entailing huge charges, Ulips, like any other life policy, are long-term contracts for which they have to pay recurring premiums. Ulips start yielding desired returns only after around 10 years as a large chunk of charges are deducted from the premium amount in the initial years. Also, unlike other investment options, life insurance products do not provide easy exit options. So avoid buying a Ulip in a jiffy or for saving on taxes.

Too Much Too Soon:

Consequently, most policyholders are saddled with multiple policies entailing a huge premium outgo that at times runs into lakhs of rupees. And yet, many find that even the combined life cover offered by these policies falls far short of their requirement. Take for instance the case of a 35-year-old individual whose ideal protection cover is 20 lakh. If he has two Ulips requiring annual premiums of . 50,000 each, the total cover could amount to only 10 lakh (the minimum cover which most Ulips would typically offer or 10 times the annual premium).

   It is a difficult situation to deal with, and could call for eliminating the bad apples (which could mean letting go of certain benefits) and replacing them with good ones (leading to additional costs). But, you must take into account several factors before arriving at a decision. Here's a guide to managing the tough situation.

Getting Started:

To know whether your portfolio is low on life insurance despite being overloaded with Ulips or endowment policies, you first need to ascertain your ideal protection cover. The requirement for a person's insurance cover for his/her dependents is governed by one basic consideration — what is the amount of wealth available for the dependents in case anything untoward were to happen to the life assured compared to the present value of future expenses of the dependent family. And how do you calculate the available wealth? Simply deduct the value of your liabilities from that of assets (including existing policies). Your assets, however, should not include your self-occupied house, as it is not capable of generating income. Liabilities would include your housing loan, credit card outstanding, any personal loan and so on which would be needed to be paid by your dependents in your absence.

   To this capital figure, add the present value of the expected income from the earning spouse till retirement. This would be the total present value of the corpus available for your spouse and dependents in case of your demise. While estimating future expenses, you need to incorporate living expenses as well as the cost of any aspirational goals for your children or other imperative goals. The gap between the present value of these future expenses and the available corpus as calculated above would be your balance insurance requirement. If this gap is positive then one need not take any further insurance. You could also consider exiting certain schemes to reduce the cost burden, since insurance (schemes with investment component) rarely proves to be good 'investment'.

The Cleansing Process:

You need to identify the policies that are not likely to help you meet your requirements and initiate the process of sanitising your insurance portfolio. To start with, you should evaluate existing policies and study their cost structures. The pre-September 1 policies will entail comparatively higher costs, though that alone can't be the parameter for surrendering them. Since surrender charges are higher in the initial years, it would be unwise to terminate them. It would depend on when an individual has initiated the policy. If a policyholder has completed three years, then he can evaluate if it makes sense to continue the policy or switch the future cash flows in a new policy, given that charges of Ulips have been rationalised completely now. You can continue to hold on to the earlier policies and make complete withdrawals only when no surrender charge is applicable.

Scout For Cheaper Options:

Once you have shown the door to policies that do not deserve a place in your portfolio, you can look at enhancing your cover at minimal cost. This, however, need not be in the form of topping up the Ulip that you may have chosen to retain. Some Ulips also have the option of increasing the life cover which can also be evaluated in case of a better policy. Any gaps can be made up through term policies. Ideally, you should look at a term cover for the balance amount. You can also look at opting for riders alongside this term policy to enhance the total protection.

   Again, rider benefits, too, require careful scrutiny. Riders, which involve an additional cost, are advisable if the type of risk the life assured faces in his everyday life can be adequately addressed by them. For example, if he commutes by a bike to a great extent, then he can apply for an accidental rider which provides for double of sum assured in case of death by accident or to cover hospitalisation.

   Similarly, if there is a family history of critical illness, which could lead to huge expenditure on treatment and partial/total loss of income, it would be logical to buy a critical illness rider that promises a lump-sum disbursal upon diagnosis of the ailments covered. Financial planners, however, strongly advocate having in place a large basic cover before scouring for such add-ons. Although you can always kick off a damage-control exercise as soon as you realise your folly, it is best to exercise caution at the outset. So, this New Year, when you get calls promising Ulips with 'highest returns with the lowest risk', you would do well to be on your guard.


Stuck with too many policies? Here's how you can deal with the situation

Determine the ideal life insurance that will cover the needs of your dependents

Evaluate your existing policies and identify the ones with high-cost structures

Zero in on the policies that can be eliminated with minimal loss of benefits

The elimination will also depend on the number of completed policy years

Take into account the surrender charges that are applicable and the surrender value of the policy

If you feel it makes sense to persist with a Ulip, you can explore in-built options, if any, to increase the life cover

To make good the deficit in your life cover, you can look at buying term covers which are available at extremely affordable rates

Here are some simple ways to determine your insurance needs:


Determine the amount that will be at the disposal of your dependents in your absence. The total value of your current assets minus your liabilities will help you arrive at the right figure


To this figure, you need to add the present value of your spouse's expected income, if any, till retirement


Next, you need to factor in your future living expenses, including future goals. For example the cost of providing the desired quality of education to your children


The gap between what will be required in the future and what you have at present needs to be bridged by taking an adequate insurance cover


Edelweiss group housing finance makes foray into retail housing finance business



EDELWEISS group, a financial services firm, has entered into retail housing finance business by launching Edelweiss Housing Finance. The company hopes to capture 20 per cent of the Rs 300,000 crore housing finance market over the next five years, it said in a release.

"The housing finance market is expected to double from Rs 150,000 crore to Rs 300,000 crore by financial year 2015. Edelweiss Capital expects to capture about 2 per cent of the Rs 300,000 crore housing finance market over the next five years," said Anil Kothuri, executive vice-president, Edelweiss.

"The gross domestic product (GDP) per capita is about $3,000 on purchasing power parity basis.
This is the stage at which consumption and retail businesses begin to grow exponentially. This will need to be accompanied by a similar increase in retail lending. Retail financing thus offers one of the largest growth opportunities over the next couple of decades," Kothuri said.

As a first step to addressing this growth opportunity, Edelweiss said it is venturing into the retail housing finance business through Edelweiss Housing Finance (EHFL), a subsidiary.

At present, EHFL is based in Mumbai and plans to extend this reach to Delhi before the end of financial year 2011. In financial year 2012, it plans to venture into eight other metros and mini-metros, which together with Mumbai and Delhi represent about 60 per cent of the housing finance market.

This reach will increase to 20 cities by financial year 2013 and will cover 90 per cent of the country's housing finance market. EHFL 's approach to the housing finance business will be based on offering differentiated products and a superior internet-based sales and fulfillment process for applicants said Kothuri.

"Over 250,000 customers already deal with Edelweiss for investments through our wealth management, brokerage and anagram finance businesses. This gives us a ready pool of customers to tap into," Kothuri said.


Mutual Fund Review: Fidelity Tax Advantage

A sturdy fund built with a large-cap and financial sector bias

This fund follows a go anywhere strategy with no market-cap, sector and style bias. However, on close analysis, there is a large-cap bias in the portfolio. The large-cap exposure has ranged from 57 to 70 per cent and has averaged 64 per cent, since the fund's launch. And despite claims of no sector bias, there is preference to the financial services. The 20 per cent allocation to this sector since inception, stood at 27 per cent in September 2010. This has resulted in the fund being a stable performer with an average performance during market rallies and has managed to shield investors during market falls.


Justifying the higher exposure to financial services, Sandeep Kothari, equity fund manager, Fidelity Mutual Fund says, "Financial sector is a good proxy to the overall growth in the economy. But the sector does get impacted by the interest cycle, business cycle and the valuation cycles. Though I like the long-term fundamentals of the sector, we do increase or decrease our exposure to the sector depending on valuations and interest rate cycles." The fund has largely stayed away from metals and construction, missing out on the 2007 and 2009 rally in these sectors. Kothari attributes the absence of metals to high valuations based on balance sheets of some of the larger player. "Construction is a working capital intensive business and understanding the cash flow cycle is essential and we tend to avoid companies with very high net working capital to sales in this sector," he says.


Our View

With a large-cap bias, one would expect a tight portfolio of few stocks in this fund; however, the fund diversifies its portfolio with 62 to 91 stocks, and currently has 63 stocks. The fund largely follows a buy and hold strategy with seven stocks, Larsen & Toubro, Reliance Industries, BHEL, HDFC Bank, ICICI Bank, SBI and Infosys Technologies finding a place in the portfolio since inception. The large-cap tilt and higher allocation to the financial services sector makes the fund sturdy, but it also means that investors have to be content with an average performance during market rallies.


Portfolio’s risk-return balancing

Rebalance your portfolio periodically to retain its risk and returns characteristics

   Seasoned investors can vouch for the fact that the key to maintaining a good portfolio mix is periodic portfolio rebalancing. Rebalancing helps in maintaining the portfolio's original risk-return characteristics.

   Asset allocation strategy is crucial to building a strong portfolio. It determines the proportion of any given asset class represented in your portfolio. An older and risk-averse investor has a retirement asset allocation of predominantly fixed income investments. A young and aggressive investor will have the bulk of his money in the stock markets. In a nutshell, a portfolio's asset allocation strategy determines its risk and returns characteristics.

   What happens to the original asset allocation when one asset class yields phenomenal returns while others pale out? As different asset classes give different returns, a portfolio's asset allocation changes considerably with time. It is essential to retain the original risk and returns characteristics of a portfolio. Investors can rebalance by buying and selling portions of their assets in order to regain the weight of each asset class back to its original proportion.

Time to rebalance portfolio    

When should an investor balance his portfolio? The characteristics of the portfolio's assets determine the frequency of rebalancing. If there is a high correlation among the returns of a portfolio's various assets, the performance of assets under the given market conditions will be similar. This significantly reduces the likelihood of the portfolio drifting from target allocation, and hence such a portfolio has little need for rebalancing.

Rebalancing becomes critical under these circumstances:

• It is time to rebalance the portfolio when some of your investments become out of alignment with your goals
• Your portfolio loses its original asset allocation proportion when some asset classes become over-represented
• If your risk profile has changed
• When an asset class makes a significant profit or loss
• Another strategy is to periodically rebalance the portfolio - say once every six months

Strategies to rebalance portfolio    

How can you rebalance your portfolio? There are three strategies for rebalancing a portfolio that has strayed away from the original asset allocation mix. The most common strategy is to sell star performing stocks and reinvest the profits in debt instruments to regain the original equity-to-debt ratio.

   Most investors hesitate to rebalance at a time when the stock markets are yielding lucrative results. Rebalancing is essential to maintain the risk level of your portfolio.

   Another strategy is to weed out under-performers from your stock basket and reinvest the money in bonds or cash. This way, you can also get rid of risky stocks that are worthless.

   If you have surplus money, you can make fresh investments and raise the percentage level of asset classes that have trimmed down.

   Portfolio rebalancing helps maintain an acceptable level of risk, and in times of turbulence, will prevent gross erosion of portfolio value.

Avoid frequent churning    

When implementing a rebalancing strategy, do not forget to factor in time spent, redemption fees and trading costs. These expenses will reduce the returns from the portfolio. Hence, rebalancing too frequently is not advisable.


SHANKAR has invested Rs 5 lakhs in stocks and bonds. Since his risk appetite level is medium, he has invested 50 percent of his money in stocks and 50 percent in bonds. In the bull run, the representation of stocks in the portfolio went up to 70 percent. His original investment of Rs 2.5 lakhs in stocks grew to Rs. 7 lakhs. His investments in bonds moved up marginally to 30 percent at Rs 3 lakhs.

   The portfolio has churned out to be quite risky with excessive exposure to equity. Shankar can sell 20 percent of his stock portfolio that have fared well and use those proceeds to invest in bonds to reset the original equity-debt allocation ratio.

   After rebalancing this way, the equity-to-debt ratio has come back to 50:50 at Rs 5 lakhs each.

   If Shankar hesitates to sell stocks performing well, he can explore investing more money in bonds to regain the original asset proportion.

Consequences of not rebalancing this portfolio    

What happens if Shankar does not rebalance his portfolio? Assuming that during the bull run Shankar's portfolio has an equity exposure of 85 percent, only 15 percent of his portfolio is invested in more stable and less risky debt instruments. Assume after a few months, the stock market bubble bursts and a bear market ensues. The incessant selling in the markets plunges investors into gloom.

   Consider a scenario when the crumbling market pulls down Shankar's equity holdings to peanuts. With his debt exposure already at a dismal 15 percent, Shankar has no safety net to fall back on in these troubled times.


Ideal or Optimal portfolio

Determining if a portfolio is efficient or optimal is subjective. What is good for one investor may not be so for another. An ideal portfolio depends on a persons risk appetite, cash flow requirement, goals, and the investments liquidity and tax efficiency.

Asset allocation: The first step is to decide allocation between asset classes. The demarcation depends on the risk tolerance and time horizon of the goal.

Risk tolerance is willingness to risk losing some or all your money, in exchange for higher potential returns. For example, someone starting out should look at balanced funds or exchange-traded funds. When the investor understands the risk-return associated with equity and debt, he or she could increase or decrease exposure to the asset class.

Asset allocation works only if the investor shifts the gain from one to the other, to maintain the balance.

Investment horizon: Your asset allocation also depends on the tenure of the goal. If you are young and saving for retirement, you can keep higher exposure to equity in the kitty. On the other hand, if you are saving for buying a car in three years, keep the money primarily in debt.

If you have a financial goal with timelines attached like child education, marriage, and so on, it is best to keep money in debt. For longer tenure goals, one can look at equity - the longer the goal, higher the equity exposure. Once three years away from the goal, keep shifting the equity investment to debt. This will help cut the volatility associated with equity.

Building the portfolio: Evaluate the investments you prefer. For a young person, the portfolio can have a mix of stocks, bonds, mutual funds, Public Provident Fund (PPF) and bank fixed deposits. The mix can be tilted more towards stocks or equity-oriented mutual funds.

When investing in stocks directly, do keep some dividend-paying ones. They will help you earn, even if the overall market sentiment may not support growth of the stock for a certain period.

Always go for cheaper investment options. Suppose you want to invest in equity. Most brokers offer lower brokerage cost for online investment as compared to offline. Similarly, in case of mutual funds, though there is no entry load, for some schemes the fund houses charge exit load if you redeem investment before a stipulated time, say six months or a year.

Monitor your assets at regular intervals. You can then evaluate if your investment decision was okay or needs more evaluation.

Look at the tax angle, too. Returns from some investments such as PPF, tax-free bonds and dividend from stocks/mutual funds are exempt from tax.

Optimising the portfolio: An optimal portfolio should have investments youre comfortable with and match your goals tenure. Many investors find this would mean a range of investment options. For example, some consider an optimal strategy to be inclusion of a mixture of stocks, with low, medium and high rates of volatility, several bond issues and a commodity or two. When one type of investment experiences some downturn, the other types provide stability to the portfolio.

Portfolio rebalancing: At times, you don't want to rebalance too often, as you'll have to deal with transaction cost and taxes. It's recommended you rebalance your portfolio at least once a year. Instead of rebalancing based on time, it is better to do so when there is sizeable deviation in the portfolio allocation matrix.

Another strategy that you can use to balance portfolio is to adjust in a gradual manner your portfolio using new funds to buy more of the underperforming assets. This technique may not be adequate for a larger portfolio.

Tax impact: Some strategies to consider on taxes include investing in tax sheltered investments such as PPF, tax free bonds and insurance. These help to minimise capital gains tax liabilities and make use of indexation benefits. Suppose you invest in PPF: your actual yield, computed pre-tax, is around 11.4 per cent for a person in the 30 per cent tax bracket.

Stick to asset allocation, use tax-efficient instruments and invest in line with risk profile

Sunday, January 30, 2011

Here are some options for Investment planning in 2011

   Efficiently planning your investments well ahead ensures threefold benefit. Investment planning helps you save on taxes, build a strong portfolio and enhances future wealth. An individual's investment plan should strive to meet his financial goals in line with his risk appetite.

   There is a wide variety of investment choices, including stocks, bonds, mutual funds, bank deposits, real estate, and futures and options. Apart from these, you may also have a need for an insurance risk cover and retirement savings. Investment planning helps you in arriving at a portfolio mix that meets your financial goals comfortably.

   Your financial needs over the years dictate your investment picks For instance, people who require lump sum funds at periodic intervals within the next 12 months must repose their faith in fixed income instruments such as bonds. On the contrary, those who invest with a long-term perspective look for capital growth through investments in stocks, real estate and mutual funds.

   Here are a few instruments, a mix of which promises both stability and returns from your portfolio:

Systematic investment plan    

Starting a few systematic investment plans (SIPs) for the next year may not be a bad idea. A SIP involves investing a fixed amount at regular intervals rather than investing a lump sum amount. In case of SIPs, when markets fall, investors automatically acquire more units. Similarly, investors acquire lesser units when the market trend is upwards.

   Essentially, the investor buys less when the price is high and buys more when the price is low. Consequently, the average cost per unit drops down over a longer period of time.

   Investors can buy units of diversified equity funds and balanced funds regularly through a SIP.

Monthly income plan    

Consider a monthly income plan (MIP) if you are an investor with a low or moderate risk appetite who requires liquidity. Since they invest 75 to 80 percent in debt instruments and the remaining in equity, MIPs yield better returns than pure debt instruments. The debt portion of investments in a MIP ensures stability while the equity exposure boosts the returns.

   Investors with moderate risk appetite can benefit from these mutual fund schemes. You can also opt for such schemes if you are looking for monthly returns from your investments.

Public Provident Fund    

The maximum amount you can deposit every year is Rs 70,000. With a handsome return of eight percent, this is a lucrative investment opportunity. The amount invested is eligible for deduction under the Rs 1 lakh limit of Section 80C. On maturity, you pay absolutely no tax.

   PPF is recommended for both moderate and low risk investors.

Gold exchange-traded fund    

The yellow metal is an excellent option in the current high inflation scenario. Further, you can mitigate the effect of market volatility by diversifying 5- 10 percent of your money in physical gold or gold exchange-traded fund (ETF). Some invest in units of gold ETFs spread across the year.

   Depending on your target quantity of gold to be purchased in the year, investing at regular intervals also helps you soak in volatility in the price of gold.

Real estate

If you live in a rented accommodation then explore if you can afford your own roof. Apart from tax benefits on loan repayments, an investment in a house appreciates in value over the long term.

Here are some investment options eligible for tax exemption:

Under Section 80C

Employee Provident Fund Public Provident Fund (up to Rs 70,000 per annum) National Savings Certificate 5-year bank fixed deposit Endowment life insurance policy Equity-linked mutual fund saving scheme Unit-linked insurance plan School fees Home loan principal repayment The deduction eligible is up to Rs 1 lakh.

Under Section 80D

Medical insurance for yourself, your spouse, dependant parents and children is eligible for deductions up to Rs 15,000 (and additional Rs 15,000 for your parents' medical insurance) for the premiums paid.

Under Section 80CCF

Investing in specific infrastructure bonds gives an extra deduction of Rs 20,000.

Plan ahead

Procrastinating investments to the last minute lands you with worthless products that do not meet your requirements. Planning well ahead gives you enough time to invest in products that will suit your needs.


Nomination and its Importance

Nomination is important and you should ensure that you have nominated a person who will be entrusted with your funds in the case of your death. If you have not made any nomination, in the event of your death, it will be cumbersome for your legal heirs to take control of your investments. By having a nominee, the amount in your mutual investment gets transferred directly to the nominee in the event of your death and the process is fairly simple with nominee to prove his identity. You can change the nominee as many times as you wish to by filling up the nomination form and changing it from your mother to wife.

Investors to get weekly update of Mutual Fund trade

Registrars Like CAMS, Karvy & Franklin Templeton To Despatch Consolidated Statement Every Week


FROM January, mutual fund investors will get a weekly consolidated statement of their transactions instead of the monthly statement they get currently. The fund industry is finalising an investor database that will help registrars despatch consolidated account statements to investors every week.

   The move is an offshoot of a Sebi suggestion, calling for a central statement processing hub, common for all mutual funds. Once the database is ready, fund registrars, like CAMS, Karvy and Franklin Templeton, will despatch consolidated statement of accounts to investors every week.

   "Investors will get one consolidated statement having transaction details across funds, including scheme or fundwise NAV and even the overall portfolio value. This service is ideal for investors who have more than one investment folios," said a senior official in a registrar.

   According to the official, CAMS, Karvy and Franklin Templeton RTA are already despatching consolidated monthly statements to investors, having their money in schemes managed by 25 asset management companies. The registrar group is expecting non-participating mutual funds to join in when the weekly despatch of consolidated statements commence.

   "By weekly despatch, we mean that if any investor has done any transaction in their fund portfolio, he'll get a statement of his actions and the impact thereof, in a week's time," the official said.

   "Post-July, after Sebi's directive to send consolidated statements, we've been sending deal details only once in a month. Weekly statements will help active fund investors keep a tighter tab on their fund portfolios," the official added.

   According to mutual fund officials, consolidated statements will help people who have invested in multiple fund schemes. In the absence of consolidated statements, the investor will receive individual statements from every fund he has invested. Consolidated statements will cut down the number of statements to just one. The consolidated statement will have scheme-wise transaction details and also net portfolio value. This move will reduce the paperwork and to some extent, even the cost for AMCs.

   The cost of sending consolidated statements will be borne by fund houses; it will be calculated on the basis of transactions effected by the investor. Fund houses expect the charge to be around . 5-6 per active client for every month. SIP investors will get consolidated accounts once in every three months. The statement will be mailed to investors in a paper-andenvelope format, sources said.

   "This is a good move, but it will hit our marketing campaigns badly," said the marketing head of bank-promoted fund house. "The statement of accounts, which fund houses mail to investors once a year, is a carrier of our print ad campaigns. Consolidated statements, which include details of other fund houses, will not have any advertisement or promotional material," the fund marketer said.


Individual Mediclaim Policy

Individual Mediclaim policy is the plain vanilla mediclaim or health insurance policy for an individual. This kind of policy aids in securing individual expenses acquired due to any kind of medical emergency such as injury or a disease.

Missed the income tax return (ITR) filing deadline of 31st July?

What happens if you missed the deadline of 31st July to file income tax returns?  While an assessee has paid advance tax and TDS (ideally) by 31st March of every year, 31st July is the last date for filing income tax returns (ITR) as set by the Income Tax department. Let us see what happens if you miss the deadline and what penalties you might end up paying.

Before we look at the repercussions, let us quickly see how the years are referenced in income tax lingo. 2009-2010 is called the Previous Year (PY) as that is the year in which you earned your income while 2010-2011 is called the Assessment Year (AY) as you are assessing your income in 2010-2011 for the Previous Year 2009-2010. Right through this article, we will use PY and AY to mean 2009-2010 and 2010-2011 respectively.

If you missed the income tax return (ITR) filing deadline of 31st July, the income tax department gives a reprieve by allowing you to file it after 31st July without any penalty if and only if you file before March 31st 2011 and you have no tax liability to pay to the government. This means that you have all the 12 months of the Assessment Year to file your returns provided your tax liability is zero.

After the first year is over, you have to pay penalties to the tune of Rs 5,000/-. So for this Previous Year, if you do not file income tax returns by 31st March 2011, you will pay a flat penalty of Rs 5,000/-. This penalty can be waived if you have a genuine reason for not having filed your ITR.

So, in case of zero tax liability:

  • income tax can be paid till end of the Assessment Year with no penalty
  • income tax can be paid beyond Assessment Year with a penalty of Rs 5,000/-

What happens if you have a tax liability and have missed the income tax return filing deadline?

In such a case, you will have to  pay 1% per month on the amount of  liability starting from August. So, from August 2010, you will pay a penalty of 1% per month on your liability till the time you file your returns. Obviously, if you have a liability and are filing your ITR after the Assessment Year is over, you will pay 1% per month and Rs 5000/- as penalty.

So, in case of tax liability:

  • income tax can be paid with a penalty of 1% per month on the outstanding tax liability
  • income tax can be paid till end of the Assessment Year with no penalty (of Rs 5,000/-)
  • income tax can be paid beyond Assessment Year with a penalty of Rs 5,000/-

Other caveats you need to be aware of if you are filing your ITR after the deadline of  31st July : 

Be aware of:

  • You cannot carry over/forward losses that you have incurred in this year.
  • In case of refund, interest will be calculated from the date you filed your return instead of 1st April.
  • You will not be allowed to revise your return in case of mistake in original return.
  • In fact, the returns can be filed within two years. So for this Previous Year (2009-2010), you have time till 31st  March 2012 to file your returns subject to penalties and some benefits that you lose. If you do not file within these 2 years, you might not be allowed to file it at all.

The conclusion is that, you are better off dead than to be late to file your income tax returns. Jokes apart, the benefits of filing your ITR are more than not. So, don't delay this important task for later. Do it now. Death and the taxman cometh! Both are inevitable.


Understanding health insurance

The term health insurance is a type of insurance which grants you cover against ever rising medical care costs or expenses, beginning from diseases to grave accidental injuries. Health insurance is a critical monetary product that is a must for every individual irrespective of his or her age, sex or religious specification. It aids you in obtaining the first class treatment without muddling your head much over the financial costs involved.


Benefits of health insurance

Our lives cannot be predicted; hence health insurance helps to make it secure and protected from handling mammoth financial hammering. It not only helps you in dealing with severe emergencies effectively, but it also beneficial in dealing with disability and custodial needs.

Health insurance as a concept is new in India; however it is catching up speedily. Its responsiveness has been massive in the last couple of years. This is due to the response to the series of qualms, worries and suspicions people have observed in current times such as terror attacks and so on.

In brief, a health insurance is a contract signed between an individual and an insurance company.

One must note in advance, the amount and type of health care expenses that will be covered under a health plan. Based on the terms and condition of a health insurance policy, it covers major and at times all part of medical expenses which includes medications, nursing expenses and doctor's consultation charges. Treatment can be obtained from any authorized hospital or medical organization across India.

Health insurance in India can be purchased in two available formats: individual and group plans. In an individual policy, he or she is himself or herself the owner of the policy, whereas in group policy, the guarantor or the sponsor purchases the policy and the beneficiaries covered under it are labeled as its members. 


The need of health or medical insurance

Looking at the sky mounting expenses now a day's, health insurance is a must. A simple appointment with your doctor is capable of shelling big bucks from your pocket, it is then that health insurance comes in handy.

Convoluted medical treatment expenses combined along with modern sedentary lifestyle patterns could binge into your savings which for all obvious reasons is meant for your future. For peaceful, secure and healthy lives of you and your family, it is always advisable to buy a well suited health insurance plan. Right from the food we consume to the air we inhale to our daily stressful activities, having a right health insurance plan is imperative.

At some time or the other, we all have met people who wonder that if they buy a Health insurance policy, it is certain for them to get ill. However, let us face the fact. We all need a health insurance plan in order to cover a small appendix operation cost which is more than Rs. 25,000, when compared to the year 2000, when it was close to just about Rs. 10,000. The cost of any sort of treatment is likely to shoot, without giving a prior notice to general public in advance.


Benefits of a health insurance plan

The benefits of a health insurance policy are multi fold. It not only aids you in getting a suitable treatment keeping your pocket under watch, but it also covers the signs of financial instabilities in the event of long, delayed illnesses.

Benefits of a health insurance policy depend on two factors: the coverage it provides and the policy you choose. Let's explore some of the basic advantages that major health policies provide.

1.    It aids in rendering a safe future by paying a fraction as your medical care costs, which is called as the premium. Depending upon the kind of policy you have opted for, it at times can cover the whole chunk of your medical costs.
2.    It helps in dealing with huge amount of monetary losses and danger of financial breakdown in the cases of costly medications and post-illness care.
3.    It unquestionably gives you a sense of security.
4.    Depending upon the type of widely available policy that you opt for, it aids in covering pre-hospitalization to post-hospitalization bills, for the period of 30 days and 60 days respectively.
5.    It helps in providing a financial security to the family members.
6.    It also takes care of custodial bills and disability.
7.    One can also benefit from the tax benefits on the premium paid under section 80D of the Income Tax Act.
8.    Depending upon the type of policy you claim for, one can also avail discounts on insurance premium which is available on family packages.
9.    The premiums are considerably available at much cheaper costs for younger people.
10.    Domiciliary hospitalization can also be covered.


Saturday, January 29, 2011

Cheques with corrections will not be honoured

The new system will minimise possibility of fraud, increase efficiency and cut costs

   According to the new Reserve Bank of India (RBI) guidelines effective from December 1, 2010, cheque leaves with changes/corrections (with exception of changes / correction on date field duly countersigned) would not be honoured by the banks. Instead, a fresh cheque should be issued. This guideline will be applicable only for cheques cleared under the image-based clearing through Cheque Truncation System (CTS). Presently, the system is operational in Delhi, but will be implemented across India.

However, these guidelines will not be applicable for cheques submitted for:

• MICR Clearing

• Non- MICR clearing

• Over-the-counter collection (for cash payment)

• Direct Collection of cheques outside the Clearing House arrangement

   CTS is based on electronic data/images without physical exchange of instrument. The cheque is scanned and electronically presented for settlement with the clearing house. The technology captures extracted data from the electronic images and ensures cheque validation, technical and signature verifications with minimal manual intervention that brings efficiency, accuracy and automation in the whole cheque-clearing process.

   CTS helps speed up transactions with accuracy, reduces cheque clearing cost and minimises chances of cheque fraud. Reserve Bank of India's has issued regulations against alterations or modifications in cheques. Under the new system, banks will undertake standardisation of cheques that includes paper quality, watermark, VOID pantograph, bank's logo printed in invisible or ultraviolent (UV) ink, cheque's field placements with Optical/Image Character Recognition (OCR/ICR) engines, mandating colours and clutter free backgrounds and prohibiting alterations or corrections of cheques.

   As per the new guidelines, alterations or modifications in cheques will be disallowed (even if a signature has been made at the place of alteration) and banks will dishonour any kind of altered cheques. All banks will have to strictly follow it.

   CTS was piloted in the National Capital Region (NCR) in February 2008. The existing paper-based cheque clearing mode processed an average of about 4.5 million cheques per day during April to December 2009. Banks and clearing houses are faced with challenges such as variable cheque loads on certain days, time consuming manual processes and security or fraud related issues.

   As such, there is a strong need for automation of inward clearance, standardisation and improved security, which CTS brings in.


When health claims can get rejected

Your health insurance policy will not pay for the treatment of all ailments.

   If you have a health insurance policy, you might be aware that it covers certain diseases only after a waiting period of four claim-free years. But do you know that conditions related to genetic disorders are not covered at all? And that claims relating to certain self-inflicted ailments—such as cirrhosis (liver disease) due to excessive intake of alcohol, lung and throat cancer due to tobacco use, and HIV—can also be rejected by an insurance company. All this is explicitly stated in the policy terms and conditions but buyers seldom go through the fine print. Even the agent will not disclose these intricate features of the policy for fear of losing business. An agent will not usually tell the buyer about all the exclusions in the policy.

Congenital diseases

Conditions such as cataract, hernia and sinusitis, which take a few years to develop into a full-blown ailment, are usually covered after a waiting period of 1-2 years. But genetic disorders such as cystic fibrosis, Down's Syndrome, thalassemia and congenital anaemia don't ever get covered. Often a congenital disease is confused with pre-existing diseases, which are covered in most cases after the fourth policy year. If a person is hospitalised due to an illness and it is discovered that it is a congenital disease, the insurance company may deny the claim.

   There are instances when a person may never know that he suffers from a genetic defect. "If one has regularly undergone medical checkups but a pre-existing ailment never showed up in the tests, the courts have held that the cost of treatment of such an ailment has to be paid by the insurance company. Insurers too are lenient if they know that it was a genuine oversight. If the patient genuinely mistook an earlier heart attack to be only a chest pain due to indigestion, we will consider the claim.

Self-inflicted ailments

Another reason why a claim can get rejected is if the ailment has been self-inflicted. At the time of application, one has to declare whether he consumes alcohol or uses tobacco. If a person has stated that he is a teetotaller but ends up in hospital with cirrhosis, the claim may be denied. However, there is a fuzzy line of subjectivity here. Insurance companies deny claims for treatment of cirrhosis in such cases under the exclusion self-injury. But they pay for treatment of cancer even for smokers. The logic is that while in nearly 100% cases the cause of cirrhosis is alcoholism, no such empirical relationship exists between cancer and smoking.

Investigative diagnostics

Similarly, investigative diagnostics are not covered by insurance if there is no proof of treatment. There have been cases where doctors are unable to detect a problem and suggest a battery of tests. Later the tests reports revealed that nothing is wrong. The claims were rejected because the hospitalisation was primarily for diagnostic purposes. Even if the hospitalisation and the tests were prescribed by a qualified doctor, the claim will still be rejected. "The tests may have been conducted because a doctor prescribed them but there is nothing to justify payment. The insurer will pay only for curative treatment. Besides, policies reimburse costs incurred after hospitalisation for up to 90 days. Here too, there is the condition that the 90-day period must commence and end within the policy period.


Though some standalone health insurance companies such as Apollo Munich do cover maternity costs after four years of continuing with the policy, most health policies do not cover these expenses. Even in the case of Apollo, there is a limit to the expenses under this head. Besides, insurers don't cover pregnancy related complications. But there are some exceptions again. Consider the case of a pregnant woman contracting jaundice. Had she not been carrying, jaundice may not have warranted a hospitalisation. But if it were not for the attack of jaundice, the woman might have normally sailed through her pregnancy without any hospitalisation. As such, if it is clinically established that it is jaundice that led to hospitalisation, cost of such hospitalisation will be paid despite the fact that hospitalisation may not have been warranted for treating jaundice had the patient not been pregnant.

Equipment costs

Medical equipment presents its own complications. The cost of prosthetic and other devices or equipment if implanted internally during a surgical procedure are covered. However, the cost of external aids such as ventilators will not be covered. The logic: Ventilation is merely a process helping ease breathing, not an active line of treatment in itself. However, if a patient is undergoing some active line of treatment and as part of it is also put under ventilation (immediately after a surgery), insurance cannot knock of the cost of ventilation from the admissible claim.


Friday, January 28, 2011

Nomination – How Important is it?

Using the nomination option in mutual funds is very simple and beneficial

   Mutual fund investors should opt for the nomination facility to avoid hassles in case of unforseen events. Though nomination is not essential under the MF rules, it helps avoid inconveniences and hassles in future. With the nomination, fewer documents are required to transmit the investments in the Mutual Fund, should the unfortunate need ever arise. Sometimes, you can nominate up to three persons and indicate their differential shares to the funds.

   To nominate, the account holder(s) must fill up and sign the nomination form along with the signatures and photographs of the nominee and signatures of two witnesses. If the nominee is a minor, then the signature and the photograph of guardian will also be required. This form can be submitted to AMC at the time of initial investment or anytime after the investment is made. The nomination can be changed by the account holder/s anytime, by filling up a new nomination form and submitting the same to the fund house.

   Legally, the immediate family will be entitled to inherit the money in case of the unfortunate death of the investor, though this entails a lot of legal procedures. Nomination helps surviving family members inherit the wealth more easily. The nominee can be any person - related or unrelated. However, only an individual can be a nominee. A nominee should not be a society, trust, body corporate, partnership firm, karta of Hindu Undivided Family (HUF) or a power of attorney holder.

   Further, only individuals holding beneficiary accounts either singly or jointly can make a nomination. Non-individuals including society, trust, body corporate, karta of Hindu Undivided Family, holder of power of attorney cannot nominate. Nomination for joint holders is permitted, however in the event of death of one of the holders, the mutual fund units will be transmitted to the surviving holder's name. In the case of death of all holders, the units will be transmitted to the nominee.

   An NRI can nominate directly, but the power of attorney holder cannot nominate on behalf of the NRI. An NRI can be a nominee, subject to the exchange control regulations in force. A minor cannot nominate though a minor can be a nominee, through his guardian. In such a case, the guardian will sign on behalf of the nominee and in addition to the name and photograph of the nominee, the name, address and the photograph of the guardian must be submitted to the Fund house.

   To claim the funds, the nominee has to produce Identity proof such as ration card, passport, election card, or PAN to the company along with the other requisite documents.

   A small procedural formality can go a long way in making life easy for survivors.


Guaranteed returns only for conservative

Returns on NAV-guaranteed plans are higher than debt products

There are various options to choose from. Birla Sun Life Insurance has launched Platinum Advantage Plan; ICICI Prudential has Pinnacle II; HDFC Standard Life Insurance has Crest, and the latest offering is from ING Life Insurance — Market Shield.

Investors expect to get returns based on the highest NAV in these funds. Suppose the NAV in the first, second and third year is 20, 30 and 40, respectively, the company will offer returns at 40 per cent even if the equity markets undergo a correction thereafter.

Financial advisor, however, ruled against his investing in the product. Reason: the returns from such products are slightly higher than debt products or at best comparable to balanced funds. Guaranteed return products are for investors who have a conservative approach and do not mind sacrificing the upside in lieu of downside protection.

Many investors think that in NAV-guaranteed funds, the insurance company will invest money just like any other Ulip (say 100 per cent in equities) and give back returns based on the highest NAV it achieves during the policy tenure.

In reality, NAV-guaranteed plans are not pure equity products such as other Ulips, which use different funds for wealth creation. To give the returns based on the highest NAV, these funds use an investing strategy where the majority of investments are in debt, and a minority portion in equity. Fund managers of such plans have a free mandate and can move the entire portion of the fund to debt In the last six months, Tata AIG's levy an additional charge for providing the guarantee. This annual charge can vary between 0.1 per cent and 0.5 per cent (ING Market Shield) each year.

Except for ING's Market Shield, way, he/she would get the prevailing returns based on the prevailing NAV.

Most insurance companies had this product even before the Insurance Regulatory and Development Authority, or Irda, changed the structure and charges on all Ulips. In many of the earlier products, if the policyholder passed away, the nominee would get either the fund value or the sum assured depending on which of the two was higher. This feature exists in the new products, as well. Out of the products mentioned earlier, only ICICI Pru Pinnacle II provides sum assured and fund value, if the policyholder passes away.

The structure of this product category allows the fund to protect the capital, while capturing the small upside in the equity market. Someone looking for market-linked returns can look at the regular Ulip policy.

Income Tax Ready Reckoner - Part III



Here's a ready reckoner on how to calculate your tax dues so that you can plan your investments accordingly

B. Calculate Non Sec. 80 C Deductions

  • Medical insurance (Sec 80D) Premiums paid for self, spouse, kids and parents qualify for deduction up to Rs 40,000.
    Tip Consider a family floater plan.
  • Interest on home loan (Sec 24) Maximum deduction of Rs 1.5 lakh as interest payment on home loan for self-occupied property, unlimited for let-out property.
    Tip Rent out second property, even if not for full year.
  • Interest on educational loan (Sec 80E) Entire interest paid on education loan for full-time studies for any graduate or PG course. No benefit on principal repayments. Deduction available in the year when repayment starts and only for eight succeeding assessment years.
    Tip You may take loan even for spouse.
  • Donations (Sec 80G) For donations to funds and charities, 50 or 100 per cent of the donated amount, depending on the charity, is deductible from income. But this shouldn't exceed 10 per cent of the gross total income.
    Tip: Collect all receipts and certificates for donations and the donee.
  • Other non-80C 80DD—Expenses on the medical treatment of a dependent with a disability. Certification by a medical authority is a must. Up to Rs 50,000, or up to Rs 75,000 if the dependant is a person with severe disability.

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