Money Today experts answer financial queries of its readers related to banking, insurance, tax, investment and real estate.INVESTING Q: Do you need a demat account to invest in the Rajiv Gandhi Equity Scheme proposed in this union budget? What are the details of the scheme and is it a good investment for someone with a fairly high risk appetite? From when can I invest through this scheme? -JP Solanki, MumbaiA: The Rajiv Gandhi Equity Scheme is an instrument that has been included in this budget to provide opportunities for tax deduction.
The nuances of this scheme are not yet available and hence it would be premature to comment on the risk appetite, mode of investment and so on. In all probability, physical investment will be possible as well to ensure that it caters to a wide spectrum of investors.
Investments between 1 April 2012 and 31 March 2013 will qualify for deduction for assessment year 2013-14.
Q: I recently read an article that said that dividend yield funds, which perform just as well as diversified equity funds, are less volatile when markets are down. Would this mean that a dividend yield fund (growth) is a better fund for the core portfolio as compared with diversified equity (growth)? I am planning to invest through SIPs. I already have investments in some stocks and real estate while insurance and provident fund covers tax saving. -Rajiv Anand, e-mailA: Dividend yield funds are defensive by nature. They tend to perform well when markets are volatile and trading with a negative bias. You can add dividend yield stocks in your portfolio. However, one should not have too many funds with the same investment philosophy in the portfolio. We suggest you have a mix of both diversified equity and dividend yield funds.
Q: I have been told that investing in a mutual fund is just as difficult as investing in stocks as I have to do just as much research to find a good fund with so many options available. While looking at data I've found many terms I do not understand. I've heard standard deviation and Sharpe Ratio provide information about performance. Could you explain these terms? -Rahul P George, ThiruvananthapuramA:
Sharpe Ratio tells us if a portfolio's returns are a result of smart investments or excess risk. This is useful because even though a fund has higher returns than its peers, it is only a good investment if the returns do not come with too much additional risk. The greater a portfolio's Sharpe Ratio, the better its risk-adjusted performance has been.
Standard deviation is a statistical measurement of historical volatility. For example, a volatile stock will have a higher deviation while it will be low for a stable blue-chip stock. A large dispersion tells us how much the return on the fund deviates from expected normal returns.
Investing in funds is a lot simpler than stocks, especially if you stick to diversified equity funds and use a systematic investment plan (i.e. investing on a monthly basis). You can get information from online portals, such as morningstar.com or valueresearchonline.com, which analyse funds. However, you need to understand that you have to be willing to wait a reasonable time (3-5 years) to profit, just as in the case of investing in stock.
TAXATION Q: I have sold shares and the following are the details (April 2012): a gain of Rs 15,000 for a holding period of, a gain of Rs 25,000 for a holding period of 15 months. I wish to know what tax rates are applicable on these capital gains and which schedule would these gains have to be shown in ITR-2?-Shishir Mishra, e-mailA: There will be short term capital gain on the shares held for 9months, and if they are traded on the recognised stock exchange then the gain of Rs. 15000 will charged to tax @15%. There will be a long term capital gain for the shares held for 15 months and the long term capital gain is exempt from income tax. Capital gains should be shown in CG schedule in ITR 2.
Q: I have borrowed Rs 30,000 from my friend, who runs an NGO. However, my friend has now requested that I return the money as a donation to his organisation rather than repay the money to him personally. Any donation to the NGO run my friend is eligible for a deduction under 80G. Under the circumstances, is it possible to claim the deduction under Section 80G? Is it possible that I might be breaking the law if I do pay him back the money as a donation? -Praful Sarkar , KolkataA: You can claim deduction under Section 80G if the NGO is registered under section 80G of the Income Tax Act. Please note that the loan from your friend and donations will have to be treated separately. If you do not repay the loan apart from the donation it should be added to your income, if the total amount received by you exceeds Rs 50,000 during one financial year from one or more persons other than a relative.
Q: I claim tax benefit on a home loan and HRA as I work in a different city. I intend to take a second home loan jointly with my wife in the city where I work. Can I claim tax rebate on the second loan and claim HRA on the same by paying 50% rent to my wife? - A Tripathi, New DelhiA: You can avail tax benefit on the second house against actual rental income or notional rent. As per law, if you own two houses, you can claim only one as self-occupied and the other will be considered rented even if it is vacant. The notional rent on the second house will be added to your income and will be taxed as per the applicable tax slab. However, you will be allowed to deduct the interest on the home loan from the notional rent. You cannot claim HRA on second home if it is in your wife's name.
INSURANCE Q: I already have a health insurance policy for which I get a deduction of Rs 15,000 under section 80D. Will I still be eligible to claim an additional deduction of Rs 5,000 under the new preventive health check-up section? -Deepungsu Pandit, GuwahatiA: Until the Budget announcement, a deduction of up to Rs 15,000 was available in a financial year on health insurance premiums under Section 80D. For a senior citizen, the benefit was Rs 20,000. Further, you could claim an additional benefit ofRs 15,000 if you were paying premiums on behalf of your parents and an additional Rs 20,000 could be claimed if parents are senior citizens.
Now, as per new rules, in addition to the above, Rs 5,000 claimed towards health checkups will also be included in 80D deduction. Hence, if you are already claiming the entire Rs 15,000 under Section 80D on account of your health insurance premium, no additional deduction can be claimed for health checkups.
Q: I want health coverage for my parents as well as my father-in-law and mother-in-law. With respect to their age, the coverage requirement is high, a minimum of Rs 5 lakh for each. Would it be better to buy individual covers or put them all under a floater-cover scheme?-Gautam Marat, e-mailA: The sum insured amount of Rs 5 lakh per person is adequate to take care of most medical emergencies. Having said that, it is important to revisit the sum insured at regular intervals to hedge against medical inflation.
Most health insurance policies come with a maximum entry age and it would be advisable for the customers to buy a new policy or port an existing policy well ahead. Consider features such as lifelong renewals, no-claim based load on premium at renewal and zero sub-limits for hassle free coverage.
You may also include all of them under one floater policy but do ensure that the combined sum insured is adequate (Rs 10 lakh or more). However, it would be better to take an individual policy at old age as there is no risk of one or more persons using up the entire sum insured and leaving others without coverage for the year.
Q: My father, turning 65 next year, was covered under a family floater plan I bought two years ago. But 65 years is the maximum renewability age under this plan. Is there something I can do to extend the cover? How will the premium be affected? -Vinod Sethi, New DelhiA: Your father should immediately port his existing policy to an insurer of choice providing the benefit of lifelong renewal. This would be his best option right now. Of course, you may continue with your existing policy or you too can consider the option of porting to a floater health plan where you can get the benefit of life-long renewal. As the premium of a floater policy is dependent on health condition of the oldest member covered, your insurer (or new insurer) can best help you understand the impact on premium in both cases.
BANKING Q: I had a credit card and was unable to clear my dues on time on a few occasions. However, I have cleared all my outstanding dues with the credit card company, wherein they agreed to waive off a certain component of the interest amount. How will it affect my CIBIL scores and will it impact me if I apply for a loan or another credit card? -Dharam Singh, e-mailA: CIBIL is an initiative that aids exchange of information between banks and financial institutions. In case you have entered into a settlement agreement with a bank, the status will be updated accordingly on your CIBIL record. Every bank has its own parameters for processing loan or credit cards. Depending upon their policies bank's may or may not use the settlement history as a decision parameter to sanction a loan or issue a credit card.
Q: I had a credit card linked to my salary account. At the time of application, the credit card company executive had promised a 'lifetime free' card. However, my account statement shows that I have been charged an annual fee from the second year. What should I do to address the issue? -Prabhu D, e-mailA: The annual fee is usually charged towards the maintenance of your account. The cardholder is told of these charges at the application stage. The fee is taken only after the receipt of a signed declaration along with the application form. Take up the matter with your card issuer and get them to investigate your case. The executive might have 'mis-sold' the card or there might have been stipulations that you missed.
Anil Rego, Chief Executive Officer, Right Horizons has tackled financial planning issues; Antony Jacob, Chief Executive Officer, Appollo Munich, has advised on insurance, Kadambi Narahari, Chief Executive Officer, SBI Cards, has replied to banking questions and Taxspanner.com has answered tax queries. Log on to www.moneytoday.in to submit your questions.
