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With increasing inflation rate every year and cost of medical expenses growing high, it’s essential to protect ourselves from sudden financial loss and therefore Health Insurance has now become an integral part along with life insurance. Choosing the right health insurance company again becomes a very important aspect. Let’s understand a few aspects of health insurance. 

Table of Contents
·         1 What is Health Insurance?
·         2 What is No Claim Bonus?

What is Health Insurance?

Health Insurance is a protection that gives us a cushion against all unforeseen and unwanted health hazards. Health Insurance Plans reimburses many expenses like surgeon’s fees, doctors’ fees, in- house treatments, hospitalization, fees for surgeries, advanced treatments, injuries, etc. Health insurance plan guards the insured by cashless hospitalization at a network hospital and also compensate the cost suffered against a premium. Additionally, one can avail of the tax emption under section 80(D) for health insurance policies. To have health insurance from a renowned company with recognized track records is very crucial.

What is No Claim Bonus?

No claim bonus (NCB) in health insurance is extra money which is added in the sum insured for every claim-free year. It is a return or reward that an insurer gives to the policyholder or the insured for nil claims. The company has two types of No claim bonuses which are:
  1. Discount on Premium:
    The name itself suggests a monetary benefit in terms of bonus is given to the insured at the time of renewal
  2. Cumulative Benefit:
    This is an annual increase in the Sum Insured when there is no claim in a year. The standard percentage of increase which is followed is 5%.

 No Claim Bonus and its features

  1. Cumulative Bonus:
    The percentage of bonus which is a minimum of 5% gets accumulated in one year which is claim-free. This has a cumulative effect in the subsequent claim-free years and is permitted to accrue for a maximum period of 5 years to 10 years.
  2. Effect on Sum Insured:
    The cumulative bonus can be functional for  3 years to the sum insured which again helps the insured at the time of renewal of the policy within the due date.
  3. Increased Sum Insured:
    Since there is a cumulative effect on the sum insured in case of no claim, hence there is an increase in the sum insured every year which varies between 10%-50%.
  4. Bonus Expiry:
    It is very important for the insured to renew the policy on time. Any miss in renewal will lead to the expiry of the accumulated bonus amount.
  5. Multiple Policies:
    If an insured has two health plans, and the claim is made from one plan, the no claim bonus facility will be applicable for the policy where the claim was not made. 

No Claim Bonus and its advantages

At the beginning of the article, we spoke about Inflation which is a continuous upsurge in the price level of goods and services in any economy over a certain period. The inflation rate is soaring sky high and is about 10%-12% in the present scenario. This increased rate of inflation has majorly affected the cost of medical and hospitalization expenses. And to combat this, a considerable amount of no claim bonus is of great use. We know that one must compare various health insurance policies before applying for the same. No Claim Bonus is one of the critical deciding factors to consider before choosing and buying any health insurance policy.

No Claim Bonus -When it is offered

A No Claim bonus is usually given by the insurer at the time of the renewal; however, Insurers also offer No Claim bonus throughout the polity term as well. There is a rise in the sum insured through bonus which has a cumulative effect. A No Claim Bonus is applicable under the following conditions:
  1. The No Claim Bonus turns into a discount factor on the amount of premium, provided policy is renewed within 30 days of the renewal date.
  2. In case, there is a low-value claim made by the policyholder, a portion of the total sum that is being set aside for the bonus is subtracted proportionally to the entire size of the claim.
  3. The policyholder can get a rebate on the premium if he has a record of the low claim made.
  4. In case, an insured wants to move on to another health insurance company, then the accrued no claim bonus also gets moved along with the policy. This gives total flexibility to the insured to move from one health insurance company to the other.

Effect on No Claim Bonus in case of any claim

We will see an example below here to understand clearly what happens when there is a claim and how it affects the sum insured.
Mr Bose has bought a health insurance policy with Rs 1 lakh as the sum insured and the rate of rising in the sum due to no claim bonus is 10%. Mr Bose has maintained himself and his family well and he has not made any claims for 10 consecutive years. This has resulted in having an extra amount of 
Rs 10000 per year and in 10 years and the amount stands at Rs 100000. The sum insured will be finally Rs 200000. Mr Bose claimed on 11th year, the sum insured will be reduced by 10% of Rs 200000 and will be deducted from the sum insured and hence the new sum insured will be Rs 180000. Therefore, Mr Bose loses out by that amount.
From the above discussion, we can conclude that No Claim Bonus is a very important aspect that needs to be considered before applying for any health insurance plans.

Eight reasons to buy health insurance before you turn 30


Eight reasons to buy health insurance before you turn 30

Health Insurance is necessary for every individual, keeping in mind the rising medical costs and spurt of lifestyle diseases amongst Indians. A medical emergency can attack anyone, anytime and impact an individual emotionally and financially. Financial advisors therefore suggest that it is prudent if you to buy a health plan early in life. Here are the top reasons to convince you to make the purchase before turning 30.
1. Buy early for the best price: At 25, a plan with Rs 5 lakh coverage would cost you around Rs 5000, at 35 you'll have to shell out around Rs 6000 and at 45 the cost rises to Rs 8000. So buy it as early as possible to book the policy at the lowest possible premium.
2. Because your employer cover is just not sufficient: With exponential increase in healthcare costs, the need for health insurance cannot be overstated. Check the cost of a week's hospitalized for a regular illness and then compare it with your company's coverage. Most likely you'll be persuaded to buy a cover immediately. Still not sure? Think about when you grow older and might need more frequent medical attention.
3. Because incidence of lifestyle illnesses has increased: Fact is, you don't have to be 60 to need a health insurance. Sedentary lifestyle has led to increased occurrence of lifestyle disorders involving heart, cancer, lung conditions and stroke, claiming younger lives. It is therefore imperative to insure oneself timely. Moreover, health insurance policies offer annual health checks ups to encourage health awareness. Preventive services include counseling,screenings, and vaccines that help you to better manage your health.
4. Because you are a busy executive: Most of us have to travel extensive for work. A health insurance policy that covers emergency medical evacuation along with making available the best healthcare facilities around the world for some common yet critical diseases therefore makes total sense.
5. Buying it early means better financial planning: Buying it early to not only means cheap but makes better financial sense as well. Accidents occur without any warning and an adequate medical cover will ensure that you are covered for emergencies and allow you to invest your hard earned money in long-term investments. Of course you also save tax for paying the premium. Under section 80D, the current ceiling for that is Rs.15,000 annually.
6. Young buyers get a more comprehensive deal: Buying health insurance at a young age ensures there is no scope for preexisting diseases as you will be covered early, and any diseases diagnosed later will be covered automatically.
7. Buying early means you'll enjoy full benefits when you need: When you buy a health plan, you have to serve several waiting periods-for certain surgeries, special treatments, pre-existing illness coverage, etc. If you buy it now, when do not need it immediately, it would mean you would have served the requisite waiting periods and be able to claim all full benefits later.
Also, you can earn loyalty bonus. Most health insurance policies offer a loyalty or- no claim bonus if the customer continues with the same policy year on year.
8. Because it covers much more than just hospitalization: New health plan cover you for day care procedures and OPD, not just serious hospitalization. Even vector borne diseases are covered. Most plans also have maternity benefits, which may be relevant at this stage of life. Also, your new born will be covered from birth without any additional premium.
Depending on your level of cover, a health policy helps you pay for services such as ambulance, day-care procedures in addition to a number of non-hospital related services such as chiropractic, dental, physiotherapy, optical, dietary advice and some alternative therapies like Ayurveda and Homeopathy as well. In case you are looking for a bigger cover for the extended family, there are insurers who will customized the plan for that too.
(The author is the CEO of Max Bupa Health Insurance)

Source :ET

Asset Allocation As Important as Savings


Asset Allocation As Important as Savings

At one time, long, long back, everything went into the piggy bank. Savings meant putting money in the piggy bank. Then came the trusted old fixed deposits, government schemes and gold. The increase in financial literacy saw the advent of mutual funds, PMS products and AIFs. With so many investment opportunities available, it becomes difficult for an investor to choose investments that are best suited for him and that can help in achieving financial goals.
Our investment journey evolves in different ways, with many twists and turns. We have different types of goals, which have varying return requirements in a landscape of changing risk profiles. As investors, if we just invest in one asset class today and then go to sleep, we are likely to wake up to a rude shock tomorrow. Much like our investment journey, the assets that we invest in also have varying risk/return profiles. In order to ensure that we have the maximum probability of meeting our goals, we must focus on “Asset Allocation”.
The what, why and how of asset allocation
What is asset allocation?
As the name implies, asset allocation entails apportioning or distributing portfolio investments across asset classes such as equity, debt, gold, real estate, cash or alternates. Diversification is the basic premise of asset allocation as investable asset classes are decided based on goals and risks and the need to mitigate portfolio volatility. The main goal of asset allocation is to minimise volatility and maximise returns. The process involves assessing your risk/return profile and then investing money in a certain proportion in asset categories that do not respond to the same market forces, in the same way, at the same time. Asset allocation will vary from one investor to another. For example, an aggressive investor can have 75% in equity mutual funds, 20% in fixed income funds and 5% in gold.
Risk/Return Matrix for major Asset Classes
Why is asset allocation important?
Asset allocation can impact an investment portfolio in four key ways:
  • Optimise Returns: Every asset class will generate different returns and react in a dissimilar manner to similar market conditions. Therefore, by spreading investments across asset classes, an investor can optimise portfolio returns.
  • Minimise Risks: Risk in inherent in all investments. However, in some investments the risk is high while in others it is low. Asset allocation ensures that the portfolio is diversified and that portfolio risk is spread across asset classes.
Since, each asset class performs differently in various macro and micro economic environments, it is important for investors to build a diversified portfolio and allocate investments to multiple assets.
Note: BSE returns Calculations do not reflect any dividends paid or any stock spinoffs from original stock.
  1. Alignment with time-horizon: Time horizon of goals and risk profile of the investor, strongly influence the asset allocation decision. A portfolio needs to have a mix of equities, debt and cash to meet both, short-term as well as long-term needs. Asset allocation helps investors strike the balance between investments for the short-term and investments for the long-term.
  2. Minimize taxes: Different asset classes are taxed in different ways. By allocating investments across asset classes, an investor can minimize tax liability.
How do we do asset allocation?
The first step towards asset allocation is to examine one’s finances and understanding risk tolerance and risk appetite. One should look at all aspects of his/her finances while allocating assets. Investors can engage with a financial planner to undertake risk profiling tests which can accurately capture their risk appetite. Next step is to be cognizant of one’s financial goals and liabilities and arrive at a required rate of return to meet financial goals.
Subsequently, one arrives at an asset allocation that would help minimise risk while at the same time optimise returns. Online calculators or financial advisers help investors in arriving at the ideal asset allocation. While an individual investors' investment portfolio would be unique to his risk/return requirements, there are a few general rules of thumbs that one can take guidance from.
The above is only for illustration purpose.
Generally, an investor's ability to absorb risk is inversely proportional with his age. This means that the younger an investor is, the better is his ability to absorb risk. Consequently, investors just starting off on their investment journey can allocate a higher proportion of their assets to equities. This diminishes as the investor ages.
Asset allocation, once achieved, should be periodically reviewed and re-aligned, if needed, depending on changing circumstances and needs.

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Mistakes in filing income tax returns that may get you a tax notice


Mistakes in filing income tax returns that may get you a tax notice 

Some common mistakes that taxpayers often make while filing income tax returns are listed below. These errors could result in problems or a tax notice for the tax payers later on. Consequently, it is best to avoid them.
Here are some of the mistakes that are often made by the taxpayers.
1. Filing ITR using the wrong form
As per tax laws, an individual is required to report all sources of income and file the income tax return using the correct form applicable to him. If he files his tax return, using a wrong ITR form, then his filed return will be treated as ‘defective’ and he will be asked to file a revised ITR using correct form.
“In this case, the taxpayer will get some time to rectify the mistake. A rectified return (in response to notice u/s 139(9)) must be filed within 15 days from the date of receipt of the intimation under section 139(9). This time limit may be extended by the assessing officer on an application by the assessee. If the defect is not rectified within the time limit, then the assessing officer will treat it as an invalid return. In other word, it is same as not filing a return at all. Moreover, the person may face all the penalties related to not filing of ITR in addition to payment of interest u/s 234A for the delay in filing the tax return” says Chetan Chandak, Head of Tax Research, H&R Block, India.
2. Not reporting interest incomes
One should report all the interest incomes received or accrued due to him in the previous financial year (for which the return is being filed) while filing his tax returns. Individuals generally forget to report interest earned from savings bank account, fixed deposits, recurring deposits, etc. under the head ‘Income from other sources’.
While interest received or accrued on fixed and recurring deposits are fully taxable, one can claim tax relief on interest earned from the savings bank account upto a certain limit. Section 80TTA of the Income Tax Act provides that interest upto Rs 10,000 can be deducted from the total interest earned in a year from bank and post office savings account after arriving at the gross total income. “Further if they have a saving account with any Post office then interest from such account is exempt up to Rs. 3500 (in individual account) and Rs. 7000 (in a joint account) under section 10(15)(i). This is in addition to 80TTA deduction” says Chandak.
3. Not filing income tax returns
Many people don’t file their income tax returns because they have long term capital gains which are tax-exempt and without this their gross total income is below the tax-exempt income level.
However, as per recent amendments in section 139 (1) of the Act, if your exempted long term capital gains along with gross total income exceeds the minimum exemption level, you are required to file your income tax return.
For instance, let us assume that in a financial year your gross total income is Rs 1 lakh and long term exempted capital gains is Rs 2 lakh. Earlier you were not required to file income tax return as your total income was below the minimum exemption limit of Rs 2.5 lakh.
Now due to the recent amendment in tax laws, you are required to file ITR as your gross total income plus long term capital gains (Rs 1 lakh + Rs 2 lakh > Rs. 2.5 lakh) exceeds the minimum exemption limit.
4. Not clubbing incomes
As per the rules of clubbing of Income, a taxpayer is required to add income of specified persons (minor children, spouse, son’s spouse, etc.) to his own income and the tax payable by him is calculated on the total of this these two incomes. This is mostly the case when the income of minor child is added to the income of his/her parent. Section 60 to 64 of the Income Tax Act specifies the provision of clubbing of incomes. “In the case where minor’s income gets clubbed with that of any parent, he/she can claim exemption up to Rs. 1,500 under section 10(32). In case if you miss reporting this income (of minor child) you may have to pay the tax due, along with interest and you may even be subjected to a penalty of 50% for under reporting or 200% for mis-reporting of your income (up to A.Y. 2016-17 this penalty was 100-300% of the taxes avoided)”, says Chandak.
5. Not reporting income from the last job
If you have switched jobs in a financial year then income from your previous job must be reported while filing income tax return along with income from the current job. If any income (from previous job) is not reported, then a discrepancy is bound to reflect in your TDS certificates, Form 16 and Form 26AS. This is bound to bring you taxman to your door. “Again the penalties are same as not clubbing of income”, says Chandak.
6. Not reporting tax free incomes
As a taxpayer, you are duty bound to report all your income even if some is tax free. Interest earned from provident fund or/and tax-free bonds in a financial year must be reported in your ITR. However, you can claim exemption on these under various sections of the Income Tax Act. These exempt incomes are to be reported in the ‘Exempt Income’ schedule of the ITR.
7. Not reporting all bank accounts
From the assessment year 2015-16, a taxpayer is required to report all the bank accounts held by him in previous year in his/her income tax return. Earlier you were only required to mention a single bank account in which you wished to receive credit of the income tax refund if any. However, now only dormant accounts are excluded from requirement of reporting in the ITR.
Chandak here adds, “Further for A.Y. 2017-18 you also need to mention the details of cash deposited in your bank accounts during the demonetisation period of 09/11/16 to 30/12/16 if the aggregate cash deposited in all your accounts exceeds Rs. 2 lakh for that period. Failing to report details of bank account may be considered as furnishing of incorrect particulars and may attract consequent penalties or even prosecution if it is established that certain income has escaped the taxes due to such non-reporting”.
8. Not declaring deemed rent/expected rent
If you own another house apart from a self-occupied house and it is lying vacant, then you should report the expected rent in your gross total income. “This may result in some tax payable as the notional rental gets added to your income and non -reporting may lead to penalties as stated above. But in cases where there is interest payable on the housing loan for the said property it can result in some tax savings. But this benefit of interest set-off of loss from house property has been capped at Rs. 2 lakh starting 1st April 2017”, says Chandak.
9. Failing to revise your income
If you have discovered any error once tax filing has been completed, then you must rectify your mistake. You must file the revised return to rectify your mistake. Current income tax laws allow you two years to file the revised returns. However, from the financial year 2017-18, a taxpayer will get only one year after the end of the relevant financial year.
“It is always recommended that once the error is detected taxpayer rectify the mistake within time, pay the due taxes with interest to avoid any penalty for under reporting or mis-reporting. Also if you have missed claiming any deduction or exemption you can enhance your tax refunds by filing the revised returns”, says Chandak. 

Increase your SIP investments in mutual funds

Increase your SIP investments in mutual funds

Appraisal season is here. Many salaried persons have already finalised how they would spend the extra money that would accompany a salary hike. However, some financial advisors are reaching out to their clients to increase their investments to achieve their financial goals without any trouble.

“Increment season is the best time for investors to go through their portfolio to check if the funds are performing as per their goals. More important they can analyse if they need to invest more towards any long term goal and allocate a portion of their increment towards it,” says Ankita Tanna Narsey, Founder, Oaktree Financial Advisors.

According to advisors, when you plan for a goal that is 20 years away, say, your child’s higher education or marriage, you make your calculations based on certain assumptions like rate of inflation, return on investment, etc. However, you may realize later that the actual annual inflation is much higher or the actual return on your investment is lower. Annual salary hike gives investors a good opportunity to increase investments to rectify such anomalies, say advisors.

Increment season also offers an opportunity to plan and add new goals. “In case of birth of a child, you may want to add more goals to your existing ones. You may do it at this time of the year and utilize the extra salary towards it,” says Pramod Sharma, Partner, Citrine Financial Advisors.

Won’t your expenses also increase every year along with your salary? Not necessarily, say advisors. That is why these advisors advocate extra savings and SIPs with every salary hike. “Suppose when your salary is 100 rupees, you are spending 60 rupees and saving the rest. If your salary increases by 20 per cent to Rs 120, your expenses need not go up by 20 per cent. This is because Rs 60 is already covering your fixed expenses,” says Sharma.

Most financial advisors ask investors to aim at least 10 per cent increase in their SIP amount every year after a salary hike. “It is better to end up accumulating more than required sum than ending up with a lower sum,” says Sharma.

Increasing your mutual fund SIP even by a small amount will help you to make more money in the long run, say advisors. For instance, if you are investing Rs 1,000 per month for 20 years, you will accumulate Rs 9.99 lakh at 12 per cent rate of return. But, if you top up your monthly SIP by 10 per cent every year, you will end up with a sum of Rs 19.89 lakh.

What if there are no increments or if the hike is not up to mark? Well, try to figure out if you can cut down your expenses, say advisors. “It is purely an investor’s call whether his pocket allows that extra investment. We can help investors find out if he can save more by avoiding unnecessary expenses. Otherwise there is no option,” says Narsey. No hikes certainly act as a deterrent to the planning, she adds. 

Source : ET

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All you need to know about 16 new debt mutual fund


All you need to know about 16 new debt mutual fund

The Securities and Exchange Board of India has directed mutual fund houses to recategorise
all their schemes in the new and distinct categories specified by the board. In
the debt space there are 16 new categories under which the fund houses will be aligning
their existing and new schemes. This move by the regulator is intended to bring uniformity
in the practice of categorizing schemes across mutual funds.

Several mutual fund houses have started changing the attributes of their schemes, while
others are merging schemes to comply by the new regulations. Sebi released its order to
standardize the scheme categories and characteristics of each category in October, 2017.
Here are the new debt categories and what kind of assets they will invest:

Overnight funds: These open-ended debt schemes will invest in overnight securities.
Investment in overnight securities with a maturity of one day.

Liquid funds: These schemes will invest in debt and money market securities with a maturity of up to 91 days.

Ultra short duration funds: These open ended ultra-short term debt schemes will invest in instruments with a maturity between three months and six months.

Low duration fund: These open-ended debt schemes will invest in instruments with a duration between six months and 12 months.

Money market funds: These open-ended debt schemes will invest in money market instruments with a maturity of up to one year.

Short duration funds: These open-ended debt schemes will invest in instruments with a duration between one year and three years.

Medium duration funds: These open ended debt schemes will invest in instruments with a duration between three years and four years.

Medium to long duration funds: These open-ended debt schemes will invest in instruments with a duration between four years and seven years.

Long duration funds: These open-ended debt schemes will invest in instruments with a duration of greater than seven years.

Dynamic bonds: These open-ended debt schemes will invest across durations.

Corporate bond funds: These open-ended debt schemes will predominantly invest in highest-rated corporate bonds. These schemes should invest at least 80 per cent of total assets in corporate bonds, only in highest-rated instruments.

Credit risk funds: These open-ended debt schemes will invest in below highest-rated corporate bonds. They should invest at least 65 per cent of the total assets in corporate bonds.

Banking and PSU funds: These open-ended debt schemes will predominantly invest (80 per cent of assets) in debt instruments of banks, public sector undertakings and public financial institutions.

Gilt funds: These are open-ended debt schemes will invest in government securities across maturity. These schemes should invest a minimum of 80 per cent of its total assets in G-secs.

Gilt fund with 10-year constant duration: these open-ended debt schemes will invest in government securities with a constant maturity of 10 years. These schemes should invest at least 80 per cent of the total assets in G-secs.

Floater funds: These open-ended debt schemes will mostly invest in floating rate instruments. These schemes will invest at least 65 percent of the total asses in floating rate instruments.

 Source :Economic Times

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