Money Today experts answer your personal finance queries -
INVESTINGQ. I have been investing a little every month in the equity market for a couple of years. Now, I want to invest in gold funds to diversify and hedge against risk. What would be the best way to do it? Should I invest in Gold ETFs or gold FoFs (fund of funds)? - Vayu Chandra, New DelhiA. If you
want to invest in only gold units (as gold ETF prices are linked to physical gold prices) and are willing to bear the cost of a demat account, you can choose gold ETF as an option for investment. If you are not an active equity investor, but do want to have investments in funds or want to take advantage of the value cost averaging facility through Swing STP (or Value STP) and are not planning to redeem the fund units in physical form, then the Gold FOF option should be your best bet.
Q. I have been hearing the term 'defensive trading' being thrown about a bit these days. What does it refer to? Is this something a retail investor should be paying attention to? I have about 60% of my investments in stocks, but mostly blue chips that I have been holding onto for at least four years. - Raghu Shankar, e-mailA. Defensive trading is a method of portfolio allocation aimed at risk-adjusted returns. When you take a position, you should know your exits. If something negative starts to happen, you should be prepared to get out. It is a good strategy as it reduces chances of capital erosion in steep market falls even though it means lower returns compared with aggressive strategies.
Long-term investment in
equity does offer better returns but look at the risk associated with it as well. You can reduce the risk taken by a portfolio through different investment options such as mutual funds-lower risk compared with direct exposure to equity, or gold and bonds-inversely related to equities.
Q. I invested in a mutual fund scheme in December 2011. The NAV of the fund has gone up since then and I have made a decent profit on my investment. If I want to redeem it now, what are the different charges that may be deducted from the fund value? -Krishna Devaraja, MumbaiA. Mutual funds
basically levy two major redemption charges - exit load and security transaction tax (STT). However, STT is only applicable for equity schemes. Exit load is dependant on the fund scheme. Currently, most equity funds charge a 1% exit load if the fund is redeemed before the holding period of 365 days and no charge is levied if the holding period is over 365 days. STT for an equity scheme is 0.1% of redemption value. For debt mutual funds, exit load varies based on the type of the scheme and asset management company.
Q. My wife and I wish to invest in stocks using cash from both our salaries. Can a stock be owned by more than one individual? Or can we be joint holders of a demat account and divide the shares between us? What would be the tax implications if we sell (partly or wholly) the shares we own? -Kamal bharadwaj, e-mailA. A stock cannot be owned by more than one individual. However, a demat account can be opened with joint holders. A demat account can have maximum three account holders (one main holder and two joint holders). Even so, individual trading accounts are needed for trading stocks. You would be purchasing and selling shares through your account, with the tax being paid by the owner of the share.
INSURANCEQ. I will be visiting the US for about four months. I have a personal accident cover and a health policy. Do these provide me protection abroad or do I need a separate travel insurance policy? Also, if I do have to extend my stay, can I get the travel cover extended? -Deveesh Samantaray, KolkataA. The personal accident policy would cover medical expenses even if you have an accident abroad. However, the health policy (mediclaim) covers medical expenses only in India. Hence, it is advisable to purchase a separate travel policy. This will cover medical expenses while you are abroad and emergency benefits such as baggage loss or delay, loss of passport and personal liability are also covered. Most insurers have a reputed service providers abroad.
Q. I have a family floater cover under which my son was also covered. He has now started working and has a group health policy from his employer. Will it be a good decision to drop him from the floater cover? Will this reduce the premium? -Mahesh Arora, New Delhi
A. Dropping your son from the family floater plan is not advisable as the group cover is valid only as long as he is employed in that firm. When he is changing jobs or if he wants to take a break, he will not be covered by a health policy. Second, more often than not, employee group cover alters-in terms of exclusions, inclusions and members covered- as the insurance firm renews its contract with an organisation. Hence, it is recommended that he should continue to be covered in the floater policy along with the cover provided by his employer.
Q. I own a Maruti Zen, which I bought 12 years back. Is it necessary for the vehicle to pass a fitness test if I renew the car insurance policy before the current contract expires? Also, the depreciated value is low. So, I plan to avail of only compulsory third-party cover. Is it prudent to drop own-damages cover? -Varun Diwedi, e-mailA. The registration of private cars throughout India is valid for 15 years by paying one-time tax when you buy the vehicle. It has to be re-registered and tax paid after 15 years. Even if the depreciated value is low, there is a possibility of theft or damage and so comprehensive insurance is better.
Q. I am 57 and have a five-year-old health insurance policy with a sum insured of Rs 3 lakh. I made a claim last year and realised that I would need a bigger cover in future since healthcare costs are only going to rise. Is it possible to enhance the cover size of my existing policy to Rs 5 lakh or do I need to buy a separate plan? Also, is portability an option in case my insurer refuses to offer a bigger cover? -Krishnadev Devarakonda, HyderabadA. You can either consider a new, higher sum insured health policy or you could choose to purchase a top-up policy. A top-up policy is a supplemental health cover, also referred to as an add-on policy, that provides coverage of hospitalisation costs. As these top-up policies come with a deductible, they are cheaper than standard health insurance policies. What that means is that in case of hospitalisation, costs that are over and above your existing Rs 3 lakh cover will be taken care of by the top-up. In case your insurer refuses to increase the sum insured, you can look at porting your policy. Also, it is advisable to be insured with a provider offering life-long coverage.
**Anil Rego, CEO, Right Horizons has tackled financial planning issues; Gaurav D Garg, MD & CEO, Tata AIG General Insurance, and Antony Jacob, CEO, Apollo Munich Health Insurance, have answered insurance queries.**
