Ramesh Lohani: I want to invest in the equity market, but after the introduction of the long term capital gains (LTCG) tax on equities, I am slightly hesitant as my returns will attract tax. Should I opt for a unit linked insurance plan (ULIP) instead?
Brijesh Parnami, Executive Director and CEO of Essel Wealth Services, replies:
Post the introduction of the LTCG tax on stocks and equities, ULIPs have certainly gained tax advantage. Here is a quick comparison between mutual funds (MFs) and ULIPs.
Taxability: Here, ULIPs score higher compared to MFs. As per the revised tax norms, wherever an MF invests in equities, it will be taxable while returns on ULIPs are non-taxable as ULIPs are insurance products.
Fund management cost: Expense ratios are very low in MFs compared to ULIPs. Plus, there is no mortality or fund management fee. However, some new ULIP products available online also have very low charges.
Returns: MFs are consistently delivering better returns, there is no entry load and low expenses ratios have a significant impact on returns in the long term.
Flexibility: MF investors can switch or stop investing if the fund does not perform well, but ULIPs do not offer that flexibility.
Transparency: As MFs are widely tracked by several agencies, investors can take a look at their portfolios and find out their allocation to sectors, market segments and even individual stocks. ULIPs, too, offer the same information, it is not so widely tracked and very few investors would know who all are the best-performing ULIP funds.
Liquidity: You can exit mutual funds whenever you like, but ULIPs have a five-year lock-in period.
Mohit Kumar: My father took an education loan of `6 lakh in 2014 for my MBA and kept paying the interest during the moratorium and the EMI since then. Also, he has been claiming an income tax deduction for the same. Now, I want to pay the EMI on my own. Can I get any tax benefit on this loan?
Archit Gupta, Founder and CEO of ClearTax, replies:
Any interest paid during a particular year on loan availed by an individual taxpayer to pursue higher education for himself or any of his relatives can be claimed as a deduction. In such cases, relatives happen to be children. However, the deduction is only available to the taxpayer in whose name the loan has been raised. As your father has taken this loan, only he is eligible to claim the interest as a deduction. Even when you start repaying it, you cannot claim the deduction under Section 80E.
Rajesh Sinha: I am investing `10,000 a month via SIP in four mutual funds. I want to increase the amount by `2,000. Should I select a new fund or increase the investment amount in the existing funds? In how many funds should one invest?
Dhaval Kapadia, Director, Portfolio Specialist, at Morningstar Investment Adviser India, replies:
One of the key determinants of a portfolio's long-term performance, in terms of risk and returns, is its asset allocation, or the mix of equity, debt, gold and so on, and their weights within the portfolio. Suitable asset allocation is typically based on one's investment horizon, risk appetite and investment goals. As each asset type has different risk-return characteristics, combining them helps diversify portfolio risks. These assets can be bifurcated further; for example, equity funds could be largely classified as large-cap, mid-cap, small-cap and multicap, all of which have different risk-return characteristics. Hence, you can invest in funds from each category, but the proportion will depend upon your risk profile and investment time horizon. Debt funds can also be added to your portfolio to harness the benefits of diversification further.
Archit Goswami: I purchased a traditional insurance plan in February 2013 for a term of 15 years and the annual premium payable is `15,000. I paid the first four premiums and then stopped payment. Is it possible to get my money back from the insurance company? If not, is it worth reviving the policy? What are my options?
Mahavir Chopra, Director, Health, Life and Strategic Initiatives, Coverfox.com, replies:
Please contact your agent and see what can be done. In my opinion, if you to wish to discontinue the policy, you can either surrender it or make your policy paid-up. Whether to withdraw or to revive it, will depend on your overall financial plan.
Sushant Mahto: I am a 45-year-old married man and we have a 12-year-old son. I have not purchased any health cover so far as my current employer provides a group health insurance of `3 lakh. Now, I want to get a good family cover for around `12,000. Could get a family health plan worth `7.5 lakh.
Yashish Dahiya, Co-founder and CEO of PolicyBazaar.com, replies:
You have taken the right decision. Going by your budget, you may buy Universal Sompo-Individual Privilege Plan. You can also increase the budget by 30-40 per cent to get more options. A few good plans in the premium range of `18,000 are Aditya Birla-Active Assure Diamond Plan and Religare Care Health Insurance Plan. Another option is a super top-up plan that covers all family members. It is not only affordable, but you can also convert it to a full-fledged health insurance plan whenever you want, especially in the absence of an employer-provided cover.
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