ICICI Prudential Life Insurance uses Service calls to churn ULIPs/ULPPs

I have been recently receiving “service”calls from ICICI Prudential Life Insurance Company informing me that their Relationship Manager wants to meet me to discuss about my existing policies with them.  After couple of calls, I yielded to their request to meet the Relationship Manager with the condition that it shouldn’t be a sales call.  They agreed and their Relationship Manager met me yesterday morning.

A short introduction about my investment in ICICI Prudential Life Insurance.  I hold ICICI Prudential Lifetime Pension plan with an annual subscription of Rs10,000 for the last 9 years. 

The first question he asked on seeing me was if I am software professional.  I said no. I don’t know if they are soft targets.  

The meeting, a service call, started with the mention by the RM that I should stop paying the premiums on my existing policy and should invest in a new policy.  The beautiful reason given by the RM was that they have launched a new equity fund where the NAV would be only Rs10 per unit compared to my scheme where the NAV would be Rs78 per unit.  I couldn’t believe what he was saying the first time because this lower NAV is one of the oldest tricks in the market place and I didn’t think ICICI Prudential would do this after so many years.  But he further emphasized that I will get more units by taking a new plan.  This is an outrageous suggestion because if the equity markets perform well, the NAVs would move irrespective of the current value. 

Then RM told me that the new “Maximiser” fund option would have portfolio changes every 15 days compared to portfolio changes in my old “Maximiser” fund, which has 30 days.  This is again totally wrong information.  Here, what he is talking about his portfolio disclosure and portfolio changes.  The poor guy doesn’t understand this difference and tries hard to sell this as a unique feature of the scheme.

I told him politely that I am not keen on that idea and happy continuing with my existing policy.  He tried hard to sell me this idea of lower NAV and frequent portfolio changes but after sometime I had to cut him short.   When you stop premiums on the old policy and take up a new policy, then you end up paying lot more charges.  ULIP/ULPPs being front loaded products would be able to produce returns only when you stick on to them for longer tenures.

What really annoyed me is that ICICI Prudential Life uses a service calls as an alibi to meet their old clients and encourage them to churn products.  This is nothing new in Insurance industry but this happening in an era where mis-selling of financial products by financial product distributors are being looked upon very seriously by the regulators. 

Secondly, the level of understanding the Relationship Manager has with regard to his own company’s products are poor.  He could never understand how the equity market and returns function. 

I am not sure how many thousands of gullible investors have fallen prey to this gimmick of lower NAV and therefore higher units and switched to newer plans.  This is an outright fraud.  I know about ICICI Prudential Life because I own a policy with them but there may be many other people like this in the market.

This brings me to an important point of the need for understanding financial markets and how your investments work.  You need to spend time and energy to understand them or you should consult a reliable Financial Planner/Advisor before buying these kinds of products.  

Gold – Are you a bull or a bear?

Gold has corrected big time over the last 2 trading days and giving shivers to gold bulls.  Is it the end of the bull run in Gold is the common question in the minds of investors?  

What should investors do now? It depends on the nature of the gold holdings one has.  If it is held for consumption purposes, then there is nothing to panic.  Continue to enjoy wearing that necklace or bangles and it is possible that you can now wear it at least now without the fear of being robbed, due to sliding gold prices!! 

Jokes apart, but, if you have been buying gold as an investment asset and that do overdoing it, then you seem to have a problem.   The stress is again on overdoing it.  If you have balanced portfolio allocation, then this price fall should not make you lose sleep. 

If you are somebody who has no exposure to gold at all, then you may use this price correction to start buying like me.  Remember to use the Systematic Investment Plan route in buying gold now, if at all, you are buying. 

This price correction like corrections in other markets, reinforces, the key fact that asset allocation is the most important thing in portfolio construction. 

If you have limited your gold exposure to, say, a maximum of 10-15% of your portfolio size, then this 10% correction doesn’t make any big impact.  Your portfolio value would have gone down by say a maximum of 1.5%.  This 1.5% erosion in portfolio value is not a show stopper in anybody’s portfolio. 

But at the same time, if somebody has say 60% of their investment in gold, then this 10% correction in prices should have dented the portfolio to an extent of 6% or so.  Some may lose sleep on this.  

So, now the obvious question is what he or she should do now? At this moment, there is no clear answer honestly.  The price of gold may recover from here or can fall further accentuated by covering of long positions by gold speculators across the globe.  If you feel you have overweight on Gold currently in your investment portfolio, then you may want to use the rallies to sell in smaller lots.  Just like you are planning to sell,  most of the other gold investors would also be planning as well!! So, to me, this price correction may continue for some more time. 

Let truth be told.  Nobody can predict it with certainty tomorrow’s price!

 You should take this as a reminder to start balancing your portfolio across asset classes.  

A well defined asset allocation is the key to building a solid portfolio in the long run.  

Happy Investing!

FMPs - Alternate Investment to Bank Fixed Deposits

This time of the year, you see lot of FMPs hitting the market.  Wondering what is FMP!

FMP stands for Fixed Maturity Plans offered by Mutual Funds in India.  Mutual Fund houses collect money through an FMP scheme and lend that money to borrowers for a fixed maturity periods or buy commercial papers or bonds which matches with the scheme maturity date.  The FMPs are debt instruments and they dont have any equity exposure at all. Also, the FMPs would invest in rated securities which gives additional comfort as far as the quality of credit instruments held by the FMP scheme.

It is being positioned as an alternative to bank fixed deposits by the fund houses.   Yes, FMPs are an interesting alternative with highly tax efficient structure due to indexation benefits on Capital Gains.  We will see how this beneficial from a tax perspective.

The process works like this.

What happens in a bank fixed deposit?
You invest Rs10000 and receive back Rs11000. The difference between the original investment and the maturity value is treated as interest income and taxed as "interest from other sources" in case of bank deposits.

What happens in a FMP?
Taking the same example above, the amount invested is considered as the cost of purchase of a financial asset, in this case, mutual fund units and the maturity amount is taken as the sale consideration.  So, the difference between the purchase price and the sale consideration is treated as profit on this asset.

Whats the big deal about this?
When it is treated as interest, it gets added to one's taxable income and get taxed at the applicable income tax rates of the individual (in case of bank fixed deposits)

When it is treated as profit, then the Capital Gain provisions kick in for tax calculations.  As you may be aware, Capital Gains have preferential tax treatment and the highest tax rate is 20% which is lower than the 30% tax rate for general income tax calculations.  Also, you get indexation benefit from financial assets held more than 1 year.  The beauty is if it is held across two different financial years, you get double indexation benefit.  For example, you purchase a 390 days FMPs on 10th March 2013 and it will mature on 05th April 2014.  So, in this case, you will get indexation benefit for 2 years, that is, for FY 2013-14 and 2014-15.  This is called double indexation.

Can it replace the Bank Fixed Deposits completely? 

Okay, then the moot question is can it completely replace the Bank Fixed Deposits in one's portfolio.  The simple answer is NO.  

The following are the reasons why you need to maintain a balance between bank fixed deposits and FMPs:

Liquidity:   The liquidity provided by bank fixed deposits are unmatched currently by FMPs . FMPs are close ended instruments which are listed on the stock exchanges but the volumes are not very encouraging.  For that matter, trading in debt instruments in India is still at a very nascent stage putting at little risk the liquidity of FMPs.

No up front disclosure of Interest rates:  Secondly, there is no guaranteed interest rates by the Mutual Fund houses in respect of FMPs.  Bank Fixed Deposits disclose the interest rates up front but in FMPs it can not be disclosed by Fund Houses due to SEBI restrictions on the same.

Opaqueness in FMP scheme holdings:  It is not disclosed by the Fund House prior to your investment where and which instruments they would be subscribing to.  As such, you have to go with the stated objectives in the Key Information Memorandum of the scheme.  But having said that, I would not give too much weightage to this argument because even banks don't disclose where they invest or lend at the time of taking deposits from the investor.

Suitability of FMP:

Who should invest in FMPs?

1.  People who are in the highest tax bracket as it provides tax efficiency

2.  Investors who have adequate bank deposits to meet emergency situations and looking to diversify beyond bank deposits


So are you looking for tax efficient alternative to Bank Fixed Deposits?  Look no further than FMPs.

Please feel free to write back to us (venkytuty@gmail.com) if you require any further information on FMPs or help in making investment in FMPs.

Power Finance Corporation - Tax Free Bonds 2012

Power Finance Corporation – Tax Free Bonds – Dec’12                                                  Subscribe

Power Finance Corporation is a “Navaratna” company of Government of India.  It is engaged in the business of lending and advisory services from project conceptualization to post commissioning for clients in the power sector.

Issue Details:

PFC is issuing “Tax Free Bonds” , which are secured, redeemable and non-convertible debentures to an extent of Rs1000 crores, with an option to retain up to Rs4,590 crores of oversubscription. 

Face Value	Rs1000 per Bond	Minimum Application	Rs 5000 or 5 Bonds
Interest Rate	7.69% for 10 years option 7.86% for 15 years option	Mode of Allotment	Dematerialised and Physical Form
Credit Rating	Crisil  - AAA; ICRA – AAA	Listing	Bombay Stock Exchange
Issue Open	14th Dec 2012	Issue Closes	21st Dec2012

Financial Details of PFC:

·         Existing profit making PSU – FY 2011-12 profits of Rs3031.74 crores

·         EPS – Rs23.41 for FY 2011-12

·         Loan Assets at Rs140,819.21 crores as of 30-Sep-2012

·         Consistent growth in loan assets and profits over the last 5 Financial Years

Tax Benefits:

·         Tax Free Bonds – Interest income fully exempt

·         No Wealth Tax applicable

·         Since it is a listed bond, benefits of indexation available in case of sale in stock exchanges

Investment Recommendation:

 The PFC tax free bonds are an attractive investment opportunity for resident individuals who are in the highest tax slab.  With the interest rate expected to move southward from 2013, the tax free rate of 7.69% for 10 years and 7.86% for 15 years is on the higher side. 

This issue has a highest credit rating from Crisil and ICRA indicating sound credit quality and prudent asset recognition norms, which lends a high degree of security to the investors. The listing of the shares on the stock exchanges provides an excellent window for exiting the investment if need arises in the future. 

On the downside, committing funds for a minimum period of 10 years is required.  There is a possibility of interest rates moving against the investor is there, though the chances of it are very low over the next 10 years.   The asset book is skewed towards power sector, which is going through a difficult phase all over India.  The State Electricity Boards which are one of the primary borrowers of PFC is in doldrums across many states in India.  Considering that there is a major reform process initiated in the power sector recently by the Central Government and most of the state electricity loans are guaranteed by the respective state governments, the possibility of default is limited.  But the risk is definitely there.

Verdict:

Considering the overall risk profile of PFC and its good performance over the last several years, we think it is an attractive opportunity to lock-in some money at the current rates.   This is a good quality debt instrument with add on benefits like tax free status, easy liquidity through stock exchange listing. 

Couple of caveats is that you should have exhausted your Provident Fund and Public Provident Fund contribution limits before you are looking at this.  Secondly, you should remain in the tax slab of 30% during the entire tenure of the investment.  That is, it may not be suitable for people who are going to retire in the next few years.

We recommend the investors to go for the ten year option.  Yes, NRIs can also invest in these bonds. 

If you need any assistance in investing in this Bond issue, please feel free to write to me at venkytuty@gmail.com or call me on +91 98415-67379.  

Disclaimer:

This is not an invitation to subscribe to the Tax free bond issue of PFC.  You should consult your personal financial advisor or take your own decision on this investment.  Please read the offer document completely before making any investment decision.

Disclosure:

The author may or may not be investing in this bond issue.  Also, if you decide to invest through us, we may be getting some commission from the product manufacturer. 

Shriram City Union Finance - NCD Issue - Invest

Overview: 
Shriram City Union Finance, a non-banking Finance Company (NBFC) from the Chennai headquartered Shriram Group of Companies is launching a secured Non-Convertible Debenture from 12 Sep 2012.  Shriram City Union Finance plans to collect Rs250 crores with a green-shoe option of another Rs250 crores.  

The NCD has a 3 year and 5 year option investment option.  The coupon rate for the 3 year investment is 11.5% and the coupon rate for 5 years is 11.75%.  Please note these rates are applicable only for investments less than Rs5 lakhs under the Reserved Resident Individual Category.  The face value of every NCD is Rs1000 and investors can invest in multiples of Rs1000.  

Shriram City Union Finance is an existing profit making company engaged in the business of lending for consumer durables, two-wheelers and small businesses.  The business is concentrated in the four southern states and Maharashtra, which accounts for more than 65% of the branches.  The objective of the issue is to use the proceeds to repay existing loans, expand business and other routine business purposes.  The net interest margins made by Shriram City Union Finance are mouth-watering at more than 7%! 

Credit Rating:  
One of the important points to note in case of these long term debt instruments is how sound their business is.  This is known through the credit rating assigned by the various credit rating agencies employed by the issuer for this purpose.  

The NCD of Shriram City Union Finance has Crisil’s investment grade rating of AA-, which denotes "high degree of safety regarding timely financing of financial obligations".  

Mode of Holding: 
Please note, it is mandatory for all the applicants to apply for these NCDs only in the dematerialised form.  That is, you need a Demat account to apply for this issue.  


Investment Alternatives:
While making each and every investment it is very important to analyse what are the available alternatives.  In this case, the available alternatives are bank deposits and already existing NCDs from Shriram and other companies like Tata Capital, which are listed on the Stock Exchanges. 

Bank deposits currently don't offer similar returns for either 3 or 5 year deposits.  The only advantage they would provide is deposit insurance guarantee for a aggregate sum of Rs1 lakh for every investor.  

Looking at the other option of existing listed NCDs, there are few NCDs which are available at a little higher yield to maturity, like Tata Capital.  But the biggest problem in India is the lack of liquidity in debt segment of stock exchanges.  The average traded volumes are much lower in the region of Rs30 lakhs per day.  You may get a slightly better yield if you are able to pick up existing NCD's from the stock exchanges, but for a layman this would be a tough ask.  

Taxation:
All returns from NCDs are taxable under the "Income from Other Sources" head as per the Income Tax Act.   Therefore, the effective yields on the NCDs would be less compared to the coupon rate what has been mentioned above, depending on the tax slab you are in.  The issuer, Shriram City Union Finance, would not deduct tax at source (TDS) for the NCDs irrespective of the amount invested.  

Investment Recommendation: 
Considering the fact that the deposit rates are moving down and further expected to slide, I believe that this a good opportunity to lock a portion of your fixed income investments at an attractive interest rates. I would suggest that you may use this opportunity and apply for NCDs not exceeding 2% to 5% of your overall portfolio value. (For portfolio sizes which are bigger than Rs30 lakhs).  For others, you may go up to Rs50,000.   
  
As there are no put or call options in this issue, there is no threat of early redemption by the issuer.  

Hope you find this information useful and please do let me know if you require any help in applying for this NCD.   

Update on subscription status:
As of 14th Sept 2012, the issue has been subscribed 0.83 times, that is around Rs206crores out of the total issue size of Rs250 crores.  
Retail subscription less than Rs5 Lakhs - 1.92 times
All other categories have minuscule subcriptions  

Disclaimer:
Please note these are my personal views on this investment and I strongly urge you to check with your Personal Financial Planner before you decide on investing in this NCDs.  The views expressed here are my personal views and no way related to my current, past or future employers.  This post is not a solicitation to invest in Shriram City Union Finance NCDs.    

Who is the real beneficiary of Physical Gold SIPs offered by Jewellery houses?

I have been seeing a frantic rush to buy gold, both in physical and in electronic forms over the last couple of years. It is natural for investors to use gold as an investment avenue when we go through inflationary conditions, as we currently do. Thanks to huge bailouts packages starting from the 2008 bailout of financial institutions to the latest bailout of Greece, there is a huge influx of paper money into the world economy. This in turn drives the erosion in value of various financial assets like stocks, bonds etc., but an asset like Gold is believed to retain value. This is true according to the classical economic theories and validated by our forefathers who bought nothing but gold whenever they had money. From all aspects the clamour for gold has been increasing among the investing community. The price of the gold has also moved up in tandem over the last couple of years.

Sensing a big business opportunity is the Indian Jewellery community which is now vigorously marketing the systematic investment plan in physical gold. Almost all the jewellers in Chennai have launched schemes where people can invest a specified amount of money and the equivalent amount of gold would be credited to their account at the prevailing rate. The jewellers sweeten this deal by foregoing the traditional making charges and wastage. The jewellers market this scheme by informing the gullible investors that the price at which gold they bought is protected for future price escalations. Their basic assumption is that the "price of gold would continue to raise forever". One of the basic tenets of economics is that nothing can keep raising forever and what goes up has to come down sometime.

There are number of questions which crosses my mind:
1. Lack of regulations: Who regulates these jewellers with regard to these systematic investment plans? The answer is nobody regulates them and nobody independently certifies that the price at which the gold is alloted to investors are in alignment with the market price.
2. Credit worthiness of the jewellers: These systematic investment plans are long term products running for 12-18 months and exposes the investors to default risk. They have nothing else to fall back upon other than the empty guarantees of these jewellers.
3. Price risk: One of the biggest risks is what happens tomorrow if the price of the gold crashes to pre-2008 levels? In my opinion this is one of the biggest risks associated with these schemes. You may ask how it is different if I buy gold today at high prices and subsequently the price goes down? Good question, but the answer is the gold you buy today is a bird in hand compared to these schemes where you just pay the money to the jeweller and expect him to honour the committment after 24 months or so.
4. Lack of transperancy: Normally, for these type of transactions, the seller has to properly hedge their positions in the gold market. But we don't know if these are being properly done by the jewellers on a daily basis. Also, I am afraid they dont mark to market their losses if any and account it in their books of accounts. I think I am sounding too naive to expect our Indian Jewellers to do this prudent accounting. First of all, let them account all their sales!
5. Risk of over-trading in commodities/derivatives exchange: If we assume that the jewellers try to hedge their positions in the derivatives market, then there is a risk of over-trading in the derivatives market by the jewellers. We have seen many instances in the past when the traders have literally lost their shirt by excessively trading on the commodity derivatives market. Very recently, there were press reports of the promoters of KS Oils losing huge money by trading in the palm oil futures.

So, overall there are huge risks assumed by the people who go for this systematic investment plans with jewellers and it is better to avoid them altogether. If you want to buy gold, just buy it over the counter rather than joining a scheme like this.

Personal Finance and pilferage

It is a well known fact that most of us don't manage our personal finance as sincerely as we are expected to do. We become lethargic and leave many a loose ends to be tied in respect of personal finance matters. I got a taste of badly managed Credit Card payments last month when I got hit with a Rs900/- charges on account of delayed payments. This is the second time in the last 3 months after having already paid out close to Rs750/- on an another credit card. I felt terribly miserable because these are hard earned money which is being squandered away. The guilt of letting these things happen lingered on for few days. So I sat down and tried to list down avenues where people lose money on account of charges, fees etc., or where there is personal financial pilferage. (I need to link the article to the heading, hehe!!)

1. Missing credit card due dates: One of the most common reasons among the personal financial pilferage is paying late payment fees and finance charges (interest). Many a times it happens that you have money in your SB account with the same bank but you just failed to drop the cheque or make the online payment on time. The charges are flat ranging from Rs250/- for late payment to finance charges (interest) of more than 36% p.a on the outstanding balance. It is very painful!

2. Failure to maintain minimum average balance: We have multiple bank accounts and at times, we fail to maintain the required minimum balance. We move jobs and with every job, you get a bank account "free". But we never bother about the bank accounts from our previous jobs!! Banks, these days, mercilessly charge a hefty fine for not maintaining minimum average balance. For example, a new-generation private sector bank, charged more than Rs850/- for not maintaining enough balance in the SB account to one of the persons I know.

3. Debit card fees: Nowadays almost all the banks have started charging annual fee of more than Rs100/- towards debit card charges. Almost as a default option, we are provided with a debit card, even if you dont want it. From my personal experience, I use the debit card of only 2 banks but I have debit cards from 5 of my different SB accounts. Here, there is a pilferage of money on account of debit cards which are seldom used. Added to that, is the requirement to safe-keep these cards and not to mention about the confusing password requirements.

4. Multiple demat accounts and charges associated with that: Many start investing in equities or should I say trading in equities these days. When they lose money trading stocks, the most common thing is to open a new account to try their luck rather than stopping the activity of trading in stocks. In these scenarios, you end up with multiple demat accounts. The downside of multiple demat accounts is the various charges which gets attracted to the demat accounts, like, the annual maintenance charges, monthly depository participant charges even if there is no activity in your demat account. In addition, few subscribe to the SMS alerts and recommendations from the brokers, which results in a monthly charge as well.

5. Annual credit card fees: Nowadays, most of the credit cards are free of annual charges. But still we at times find ourselves paying the annual charges to the card issuing company in respect of some old cards. This is definitely an avoidable expenditure particularly in current scenario. But the point you should note is that if you are currently holding a card which charges annual fees, please ensure that it is properly surrendered. Otherwise, the card issuer would charge you the fees which remains unpaid and you end up being negatively impacted on the credit score.

6. Maintaining excessive balance in SB accounts: It is just the opposite of not maintaining enough balance on your SB accounts. Many people maintain excess or excessive liquidity in their SB accounts. This excessive liquidity maintenance in SB acocunts directly results in lost opportunity and financial pilferage. I have found this phenomenon more among the middle-aged people, who feel very insecure if they dont have a sizeable bank account balance for no apparent reason. Your SB account earns just 3.5% p.a whereas liquid funds and short term funds earns more than 7.5% these days.

The most often repeated reason for poor handling of the personal finance is the lack of a tracking mechanism, I never got the bill for my credit card or there was no heads up given. There are number of avenues which are available for tracking your personal finance starting with an excel sheet. I can also write of other options for tracking the personal finance online, which will come as a separate post in the coming days.

Till then, be cautious on your personal finance and you are losing money as you read this even without you realising it!!

PS: I managed to get the late payment and finance charges of Rs900/- waived with my card issuing company. If you ask for waiver, many a times, you get it. But my luck didn't work with the earlier one of Rs750/- where I worked for few years!!

Rising inflation and negative return on assets

I was reading through a report of Sharekhan which said that the inflation for the month of January 2010 stood at 8.56%, whereas the 10 year yield on G-Sec stood at 7.90%. Going by these numbers, the interest income I earn on the deposit is lower than the inflation. That is, I am losing money as I earn!!! For that matter, the inflation percentage quoted is that of Wholesale price index and we all know where the consumer prices are going. A typical example, we bought rice at Rs35 per kg yesterday as against Rs22 a year ago. It is more than 50% inflation. Now with the recent increase in the Petrol and diesel prices after the budget and the proposed removal of subsidy on the fertilizer prices, the prices of essential commodities are going to go only one way, up!! We need to learn to live with higher inflation.

The rising inflation makes me shudder what would happen to savings and the retirement corpus. Would fixed deposits and bonds help you in retaining the value of your savings? The answer is a clear no. We need to identify avenues where you can deploy your money and where the returns outpace the inflation? Are there any asset classes which can help you do that? Yes, the obvious answer emerged is to invest in equities and real estate from an individual perspective. The other option would be park a limited portion of the funds in Gold, as a store of value. Remember, Equities, real estate and Gold, as asset classes have their own inherent risks.

So how would these asset classes help in beating inflation? In case of equities, if the rising price levels are to continue, the sales and profits of the listed companies should also improve in that proportion and the share market should reward these companies in the form of capital appreciation. Historically that has been case. But the fact of the matter is finding high quality equity which would continue to grow and deliver for you. You always get a feeling that equities have been fairly priced and there is no room for further appreciation. You don’t know when to invest. Take the case of current global economic scenario. It is definitely not that encouraging. The in-famous SPIG (Spain, Portugal, Ireland and Greece) countries are facing default threat on their sovereign debt. If that happens there would be definitely another round of sell-off across asset classes in the world markets. When would that happen or would it not happen? Nobody has a clear idea about this. From past data and it has been seen that there is no better way than investing in a systematic manner. To put it simply, keep investing a fixed amount every month in equities either directly or through Mutual Funds. It would take care of the rising or falling trends in the market place and even out in the longer time horizon.

Looking at the Real estate, with rapid urbanization it would be worthwhile to invest in plots though it is very tedious and time consuming process. You have to identify a location and then keep looking for good properties. It also involves a high percentage of cash transactions (particularly for land transactions) which makes all the more difficult for the salaried class. But what I have seen is that real estate prices have held their own, at least to a limited extent, even in the worst of times. I am not talking about highly priced flats. So the best way forward is to start investing in equity in a Systematic manner either through Mutual Funds or buying high quality individual stocks. Real Estate should be the next best option, if you have the time, money and energy to scout for good properties. Add a flavor of gold (in the form ETF’s) to your portfolio and you are relatively well-placed to face the inflation.

Facebook!

I have been using Orkut for sometime and familiar with it to some extent. Yesterday I have also got into Facebook and still trying to figure out what is it all about. Drop me a line if you can help me in picking up the nuances of Facebook easily.

Delay in getting PF statements

Today I received my PF balance outstanding with the Regional Provident Fund office for the year ending 31 March 2006. Yes, it is 2006!! There is a 2 year delay in getting the yearly statements from the PF office. I believe with computerisation and automation, this delay of 2 years is not acceptable. PF office should do something to speeden up the process to distribute these statements in a more timely manner.

Provident Fund is one of the silent saving mechanisms for salaried class and each one of us would be eager to have an idea of how much is lying in my account, how much interest I have earned in the last year. This is particularly important if you have made voluntary contributions to the Provident Fund account in addition to your statutory contributions. I have tried couple of times with my employer to initiate the Voluntary contribution of PF, but somehow or the other the HR ensures that the deduction doesnt happen. We have a policy of opting for Voluntary PF only at the begining of the financial year, that is, in April every year.

Is this only with the Mumbai RPF Office or it is the same case with other Regional PF offices as well. People in the know please post your comments.

Due dates and relevant forms for tax filing

The due date for filing income tax returns is fast approaching for various kinds of assessess. The following are the various types of Income Tax Return Forms which needs to be used by assessees for filing their return of income for the Assessment Year 2008-09 (Financial year ending 31 March 2008).
ITR 1 - For Individuals having Income from Salary/ Pension/ family pension & Interest
ITR 2 - For Individuals and HUFs not having Income from Business or Profession
ITR 3 - For Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship
ITR 4 - For individuals & HUFs having income from a proprietary business or profession
ITR 5 - For firms, AOPs and BOIs

The due dates for filing return of income is as givine below:

I Where the assessee is a Company - 31st October of the Assessment year.
II Where the assessee is a person other than a company :-
a) where accounts of the assessee are to be Audited or 2.a working partner of a firm whose accounts are required to be audited under the Income Tax Act or any other law - 31st October of the Assessment Year.
b) Where the return has to be filed under the one-by-six criteria - 31st October of the Assessment Year.
c) Any other assessee - 31st July of the Assessment Year
For the salaried employees the due date for filing return of income is 31 July 2008.

Chidambaram's budget gives a salary hike!!

The Chidambaram's budget has been a good one for the middle class. By way of tax cuts, it has given a good salary hike to every one and for people particularly employed in the IT/ITES industry as they are fearing a salary cut due to raising rupee and the US recession. The tax cuts in the form of enlarged income slabs has really helped people to save a substantial sum of money on a monthly basis. If you take a typical middle income family with an income of Rs600,000/- per annum, the tax savings per month would easily amount to Rs4000/- per month. The tax cuts are a pleasant surprise for most of the salaried class and you cant ask for more!! Now they have more money in their hands to spend, which is exactly what Chidambaram wants. He expects that the consumption lead economic activity in India from automobiles to garments would propel the economy to sustain or improve the GDP growth.

This was more evident when I visited the Mega Mart retail showroom at Valasaravakkam yesterday to pick up some shirts. As usual with Mega Mart, there were good discounts on select brands like Arrow and Park Avenue. For Arrow shirts and trousers, they were offering a straight 40% discount and for Park Avenue they were offering 50% discounts when you buy two. I think these are real good bargains!!

I spent close to couple of hours and one thing which caught my attention was the constantly increasing crowd in Mega Mart. There was a good influx of crowd during the two hours I spent and when I finally left, the car parking was full, two-wheelers were asked to park in the road outside as 2 wheeler parking was also full. Mind it, this is not a peak season for buying clothes as there are no festivals coming in the near future. Inspite of that, people are visiting outlets like Mega Mart to buy clothes.

The other area where I think the tax savings would flow would be electronic consumables like computers. India has a very low peneteration on home PC's and I believe households would look at buying computers to help their kids sharpen their skills. Telecom would be another major beneficiary due to the higher disposable income.

Watch out http://www.ideas2wealth.blogspot.com/ for knowing how to prudently invest the additional money you have now!!

Free switches in Pension Funds - should use it more pro-actively!!

I have a Unit Linked Pension Plan account with ICICI Prudential where I have chosen the "Maximiser" option. Under this option, 100% of the corpus would go into equity investments. I have been accumulating my nest egg for retirement slowly over the last 3 years. You may have seen in all the Unit Linked Pension Plans, the Insurance company gives you an option to switch between funds, like moving from equity to debt or vice-versa. I have long wondered how these switches across different funds could be useful for investors during the initial years where funds are getting accumulated. I know that closer to your retirement date, you try to move a substantial portion of your accumulated savings to debt fund to protect the capital accumulated.

I guess, we all got an opportunity to exercise this option of switches during the recent market crash. The Nifty was cruising along above 6000 levels in January 2008 in-spite of global markets correcting in a big way. Like most of the investors, I was also feeling uncomfortable with the equity valuations, but did nothing other than speculating when the market would crash. I definitely believed that the valuations are stretched and anytime the market would fall. Knowing this, I did nothing to protect my pension plan accumulations. I just completely ignored the need for protecting my capital accumulated under the pension scheme.

What I should have done during Dec/Jan 2008 was to have moved from equity oriented "Maximiser" option in ICICI Prudential to a debt option. By doing this, I would have avoided a huge erosion in the NAV of my Pension accumulation. This is a good lesson and now I understand the need and importance of having "free switches" in these pension plans.

I need to find out the following in these pension plans:

1. Can partial switch-over of the accumulated units possible? I guess, it should be possible.

2. How the actual process of switch happens?
Though all companies claim free switches, practically insurance companies would have built a cost to the investor by having a entry load into the new scheme.

3. How many days does it take to carry out a free switch?

4. What modes can be used to carry over the switch? Phone, online facility or the time tested hard copy letters?

5. Is there anybody who has done these switches successfully in the past what has been their experience? Did they pre-empt the crash in 2008 and protected their retirement nest egg?

If anybody has more information on the above questions, please post it as your comment.

LIC launches Unit Linked Health Insurance plan

In the morning when I started reading the day's newspaper one advertisement which caught my attention was and advertised of "Unit Linked Health Insurance" Plan from Life Insurance Corporation of India.
LIC is today lauching nationally the Unit Linked Health Insurance plan. I think it is the first time a health insurance plan is launched as a unit linked policy. The policy provides for Hospitalisation Cash benefit and Surgery Benefit. The administration and other charges are little high.

• LIC is planning to invest between 10% to 50% of the insurance premium in equity market.
• 30% of the first year premium would be taken as adminstration and other charges.
• 6% of the premium would be taken from the second year as administration charges.

The details available at this moment are very sketchy.
Came across this blog with some information on this policy. Click here to view further details.

Current issue of Outlook Money

Current issue of the fortnightly magazine "Outlook Money" is a special issue focussing on Insurance Covers. It has detailed analysis of how each and every insurance plan works, which is the cheapest insurance available in respect of term life cover, retirement plans, ULIPs, Children Plan etc., It gives a good idea about insurance and it is a collectors copy. In India, it costs Rs20. I think the current fortnight's copy would be available on the web free after Dec 15.

Click here to access Outlookmoney web edition after Dec 15 or any of the earlier editions. Read and enjoy!!!