Tax harvesting – A way to save taxes on your capital gains!

How to reduce long term capital gains tax
The strategy which reduces your tax which is applicable to your Mutual fund’s long term capital gains is called tax harvesting. So what is tax harvesting and how it is applicable in reducing tax
To understand tax harvesting first have to understand how long term capital gain is taxed.
In 2018 Long term capital gain are reintroduced on equities
According to Rule In a financial year, More than 1 Lakh capital gain is taxed 10%
Therefore if you want to pay less tax or not to pay tax, You should ensure than your capital gain should not build up or cross the tax-free limit and that’s what called Tax harvesting all about
Tax Harvesting is a strategy in which you try to sell your mutual fund investments to book long term capital gain and reinvest in same mutual fund.

Difference between Tax Deduction vs Tax Exemption vs Tax Rebate

We easily understand terms like income or savings, because they are relatable. But, Tax Exemption, Tax Rebate, and Tax Deductions sound tiring and dull, even though these have the potential to reduce our tax burden.
lets under difference between Tax Exemption, Tax rebate, the Tax deduction
Tax Deduction: In simple word, through income tax deduction your gross taxable income become less and due to this deduction you pay less tax. The standard deduction is the first way of tax deduction.
Tax Exemption: Its meaning is you not need to pay Tax on some component of your income ‘
Tax exemption mainly allows salaried people to reduce their taxable income through different allowances like HRA, Travel allowance, LTA, Children education allowance, gratuity.
Tax Rebate: It is your final deduction or like final bargain after-tax exemption and tax deduction claims on your taxable income.

How to make a claim in your health insurance plan?

A health insurance policy comes to your aid in medical emergencies. It pays for the medical costs which you incur in case you or your family member gets hospitalized. The medical expenses can put a financial strain on you and when you have a health insurance plan, this strain can be minimized. That is why it is always recommended to invest in a good health insurance cover for yourself and your family.

While a health insurance plan can promise a good scope of coverage, you need to know the process of making a claim in your policy. Only when you follow the correct claim procedure can your health plan come to your rescue in a medical emergency. Many individuals are unaware of the claim process of health insurance plans and so here is the detailed guide to a health insurance claim process –

Types of health insurance claims

Health insurance claims or of two types – cashless and reimbursement. The cashless claim is when you seek treatments in a hospital which is tied-up with the insurance company. In such cases, the insurance company directly settles your medical bills with the hospital and you don’t incur the associated medical costs. Reimbursement claims, on the other hand, are incurred when you get treated in a non-network hospital. In such cases, you bear the medical expenses yourself and then get the expenses reimbursed from the insurance company.

The process of both these types of claims is mentioned below –

Process of cashless claims

  1. In case of any medical emergency which is covered under your health insurance plan, contact the insurance company to find the list of networked hospitals in your locality. The list can also be checked online on the insurance company’s website.
  2. Fill up a pre-authorization form for cashless treatments and submit it with the insurance company or its TPA (Third Party Administrator). The form is available at the hospital which is tied-up with the insurance company. The form should be filled and submitted within 24 hours of emergency hospitalization. In case of planned hospitalization, the form should be submitted at least 3-4 days before you get hospitalized.
  3. Based on the pre-authorization form, your cashless claim is approved by the insurance company
  4. Once the claim is approved, you would be able to avail cashless treatments at the hospital
  5. After you are discharged, collect all medical bills and reports from the hospital. Fill up a claim form and submit it with all the bills and reports for the full settlement of your claim.

Process of reimbursement claims

  1. If you are treated at a hospital which is not tied-up with your health insurance provider, you would have to pay all the medical bills from your own pockets
  2. Once you are discharged, collect the medical bills, reports and all hospital receipts
  3. Fill up a claim form and submit it with all the medical bills in original
  4. The insurance company would verify your claim and the associated bills and then reimburse you for the medical costs which you have incurred.

Documents required for a valid claim

Whether you avail a cashless claim or get reimbursement, the following documents would have to be submitted to the insurance company –

  1. The claim form, filled and signed
  2. Policy document
  3. Identity proof of the insured who is hospitalized
  4. Medical bills, in original
  5. Hospital reports and bills
  6. Doctor’s prescription which advised hospitalization
  7. Any other document as needed by the insurance company

Nowadays, health insurance companies have simplified their claim settlement process. They promise to settle your claims at the earliest if you follow the proper procedures and submit all the required documents. Especially in case of cashless claims, approvals can be received quickly if you fill and submit the pre-authorization form at the earliest. So, know the claim process of health insurance plans so that you can have a hassle-free claim experience when you suffer a claim.


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Coronavirus & Your Mutual Fund Investments

Coronavirus has everyone worried. It’s potential social and economic impact has rattled global markets and things are getting scarier every day. While we are worried about our health, to some extent we are worried about our money too.
Since the outbreak of Coronavirus, the markets saw sharp corrections, and the selling pressure will continue for some more time. But, this is not the first time! During previous pandemics too, markets fell sharply only to emerge stronger than ever before.
what should you do?
keep calm and before you redeem your investments, take a pause and think in 5-7 years down the time, you wouldn’t even remember this phase, just like past pandemics. At the same time don’t go overboard with investing. Let your asset allocation dictate how much or if you should invest. Crashes and all-time highs will happen in the future too so use this time to be ready for whatever happens in your investment journey.

4 Reasons Why Personal Health Insurance is Important? Should You Rely only on Group Health Insurance

Why should I buy a health insurance policy when my company is giving me that benefit. This is one of the most common answers given by working professionals. And to be fair they have a valid point. But relying only on the group health cover might not be the smartest idea.

Life’s journey is not always as smooth as we want it to be. Unexpected events or disasters can and do happen, it might come at any time from any direction, and if you are not well prepared, it may leave you at a financial wreck.

So how do you make sure you are well prepared for any eventuality in your life?

The straightforward answer is — Insurance.

Should you opt for floater funds?

Debt Funds are a conservative investor’s delight. They have two important factors – safety and stability which many investors look out for while investing their hard-earned money. There are 16 variants of these schemes which helps investors choose a scheme as per their needs and financial goals. In this article, we will talk about a relatively unknown debt scheme – Floater Funds.

Portfolio composition of Floater Funds

SEBI defines Floater Funds as open-ended debt mutual funds which predominantly invest in floating-rate instruments. Minimum 65% of the total assets are invested in bonds or instruments with variable rates. Fund houses can allocate the balance funds towards fixed-income generating instruments. 

Floater Fund schemes seek to capitalize on the interest rate fluctuations and generate superior returns for the investors. The key difference between these funds and other debt funds is that while other debt funds have a specific interest rate (coupon rate), floater funds have a variable interest rate. The rate for floater funds changes in relation to the market interest rate.

Key characteristics of floater funds

Risk

A floater fund is characterized as a scheme with limited risk. The high concentration of good quality debt instruments helps to mitigate (or at least minimize) the investment risk.

  1. Investment Tenure

There are two types of floater funds:

  • Short-Term

These floater funds invest majorly in short-term, highly liquid debt instruments. For instance, treasury bills, government securities, etc. The tenure of these funds tends to be below one year.

  • Long-Term

Long-term floater funds usually invest in debt funds for the long term duration such as corporate bonds, debentures, etc.

  1. Returns

Floater Fund investments have the potential to generate superior returns than other debt funds for the long term. While the principal investment remains secure, the market fluctuations help in generating higher returns. Especially in a rising market, these funds become a lucrative investment alternative.

  1. Taxation

Gains from floater fund investments are taxed as long-term capital gains when the floater fund investments are held for a minimum period of three years. Long-term capital gains tax rate is 20% after taking into consideration the indexation benefits. Short-term capital gains (if the holding period is less than three years) is added to your overall income and taxed as per the applicable income tax slabs.

Impact of interest rate fluctuations on floater fund investments

The ROI of floater funds depends heavily on fluctuations in market interest rates. One of the main causes of rate fluctuations is the changes made in the Repo Rate. Repo Rate is the rate at which RBI lends money to financial institutions such as the public sector and commercial banks. When RBI increases the Repo Rate, it leads to a rise in the returns generated by government bonds and other such zero risk instruments. This, in turn, increases the yield of debt funds for the long term which invest in such instruments including floater funds.

Is floater funds risk-free?

Contrary to popular belief, floater fund investments are not devoid of all risks. While it is true that they are less risky (when compared to pure equity funds), they are not zero risk investment options. In fact, no floater fund investment can be completely risk-free. If you want to invest in floater funds, you should analyze the securities held by the fund to determine the quality of the portfolio. Higher is the quality of the securities, lesser is the risk for your floater fund investment. 

Top-performing floater funds in India

Here is a list of the best floater funds available in India:

  1. ICICI Prudential Floating Interest Fund
  2. Aditya Birla Sun Life Floating Rate Fund
  3. Nippon India Floating Rate Fund
  4. HDFC Floating Rate Debt Fund
  5. Franklin India Floating Rate Fund
  6. UTI Floater Fund

Final Words

Floater Funds are a good choice for investors who have low to limited risk appetite. They are a stable alternative with the potential to generate good returns. So if you are someone who was shying away from the world of mutual funds because of the risks, you can give these schemes a shot.

Mutual Fund Review: HDFC Midcap Opportunities Fund | Mid-cap Fund Analysis 2019 | Should you invest?

Mutual Fund Review: HDFC Midcap Opportunities Fund
The midcap fund is much risky vs large-cap fund due to more volatile
but over the long run, they are a seriously good instrument for wealth creation
HDFC Midcap Opportunities Fund is a huge fund, the single fund represent almost 1
out every 3 rupees that get invested in the mid-cap category
HDFC Midcap Opportunities Fund grows 700% from last 5 years, therefore HDFC Midcap Opportunities Fund is one of the fastest-growing mid-cap funds

What is Public Provident Fund (PPF) and its benefits

What is Public Provident Fund (PPF) and its benefits
PPF or Public Provident Fund is one of the most popular mediums used by taxpayers to save tax under Section 80c.

Public Provident Fund Features:

Risk-return equation

The interest rate for Jan -Mar 2020: 7.9%

Low risk and one of the safest investment

Investment limit is yearly 500 to 1.5 Lakh

In PPF it is mandatory to invest yearly in PPF for 15 Years

Lock-In the period of PPF is 15 Years

Partial withdrawal option for selective reasons from 7th year

Tax benefits: PPF is only a tax saving option which qualifies EEE(exempt, exempt, exempt)

Means your investment get three benefits :

1: No tax on the invested amount under section 80C

2: No tax on returns from PPF

3: No tax on the maturity amount

How the National Pension System gives you an added tax benefit

The Government of India has launched various savings and investment schemes which help you to save and create a financial corpus and also get tax benefits. The National Pension System (NPS) is one such saving scheme which allows you to create a corpus for your retired life. Let’s understand what this scheme is all about and the tax benefits that it promises –

What is the National Pension System (NPS)?

The NPS scheme is a market-linked saving scheme wherein you can invest and create a retirement corpus. The investments that you make into the scheme are invested in the market as per your investment preference. Thereafter, when you retire, you can use the funds accumulated under the scheme to fund your retirement.

Investment into the NPS scheme

Resident Indians, as well as NRIs, can invest in the NPS scheme if they are aged between 18 and 60 years. You can invest in the scheme through authorized banks and non-banking financial companies. Both online and offline investments into the National Pension System are allowed. An application form needs to be filled and submitted along with the following documents –

  • Proof of identity
  • Proof of address
  • Proof of age

There are two types of investment accounts under the NPS scheme. One is the Tier I account which is compulsory in nature and the other is the Tier II account which is voluntary. The minimum annual investment in the Tier I account is INR 1000, wherein each contribution needs to be a minimum of INR 500. For the Tier II account, however, the minimum investment is INR 250.

Withdrawal and maturity of the NPS scheme

Partial withdrawals from Tier I account are allowed only on specific instances like marriage, medical emergencies, buying a home or if you are unemployed for 60 days or more. Tier II account, on the other hand, is flexible and you can withdraw from the account any time that you want. Partial withdrawals are allowed from the third year of opening the account. A maximum of 25% of the balance can be withdrawn at once. If you withdraw from the scheme fully, 20% of the fund value would be given in lump sum while the remaining 80% would have to be used to avail annuity incomes.

The NPS scheme matures when you attain 60 years of age. You can postpone the maturity date by 10 years and avail the corpus at 70 years of age. On maturity of the scheme, 60% of the corpus would be allowed to be availed in a lump sum while from the remaining 40% you would be paid annuities.

Tax benefits of National Pension System

The National Pension System is favoured by investors for the tax benefits that it provides. You can avail the following tax deductions under the scheme –

  • Salaried employees can invest up to 10% of their basic salary (including dearness allowance) towards the NPS scheme and claim a deduction under Section 80 CCD (1) of the Income Tax Act, 1961. For self-employed individuals, investments up to 10% of the annual income would be allowed as a deduction. The maximum limit of deduction is INR 1.5 lakhs which includes deductions under Section 80C
  • If the employer contributes 10% of the basic salary of the employee (including dearness allowance), such contribution would be allowed as a deduction under Section 80 CCD (2). This deduction is also available to salaried employees under the new tax regime where other deductions are disallowed.
  • Contribution to the NPS scheme, up to INR 50,000, can be availed as an additional deduction under Section 80 CCD (1B). This deduction would be allowed in addition to the deduction of INR 1.5 lakhs under Section 80C
  • 60% of the corpus which you receive in a lump sum on maturity would be tax-free in your hands. Moreover, if you close the scheme before maturity, 20% of the corpus which you receive in a lump sum would also be tax-free
  • Similarly, partial withdrawals of up to 25% of the fund value are completely tax-free.

Thus, the National Pension System is quite beneficial in terms of the tax advantages it provides. The investments allow you additional deductions under Section 80 CCD (1B) and even if you choose the new tax regime mentioned in the Union Budget 2020, you would be able to claim a deduction under Section 80 CCD (2) if your employer contributes to the NPS scheme on your behalf. Given the tax benefits, you should invest in the NPS scheme and build yourself a market-linked retirement corpus while saving tax at the same time.

How much term life insurance do I need?

Life Insurance: Term life insurance is the simplest, most effective way to secure your family’s future. It ensures your family can take care of themselves in case anything happens to you. However, to ensure this happens properly, you need to have the right cover.
5 Steps to calculate the term insurance coverage :
1: Factors in your dependent’s monthly expenses
2: Factor in the liabilities
3: Include life event and goals
4: Factor in retirements corpus for your spouse
5: Factor in your age and wealth

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