Query Corner

Print Edition: February 2012

Money Today experts answer all your financial queries.

Anil Rego, CEO, Right Horizons has tackled financial planning issues; Gaurav Garg, MD & CEO, Tata AIG General Insurance has advised on insurance; Anil Kothuri, CEO, Edelweiss Housing Finance, has responded to real estate related queries and Taxspanner.com has answered tax queries.

Financial tips

Q: I've recently inherited a house in Kerala. I do not have my family there currently and with me being settled in Delhi, I am considering selling the property. Does it make sense? If I have to sell the property, what should I invest in to reduce my tax liability? -Rahul Krishnan, New Delhi
A: Since you are selling off a house, if you want to reduce the tax liability, you need to re-invest the amount equivalent of capital gains in another residential property. The rest of the funds you have can be used to diversify your portfolio so that your inheritance is used in the best possible way to profit you.

Of course, it does make sense to sell as it is not feasible to set up a rental income from the property unless you have someone to assist you locally. It is best to deploy the funds for maximum yield.

Q: My grandfather has some old shares, bought beginning the early 1980s. He is no more and since my father is the legal heir, is it possible to find out the details of the shares, such as the name of the companies and number of shares by some means? After my grandfather's demise, these details have not been traceable. He did not leave a will or have a lawyer. -SP Salunke, Nashik
A: You need to trace the physical certificates of the share holding or else it will be impossible to trace them. If the companies are still listed then it is highly likely that he would be receiving some sort of update from the firm (annual report, AGM notice), and you could use these to trace the holding. If he has converted them into demat, then you need to figure out the broker with whom he operated. These companies are likely to have given dividends and any warrants would be useful too. Similarly you can check his bank statements for any dividends.

Q: I want to invest in a gold fund, which can give returns parallel to physical gold. Please suggest some good funds in which I can start an SIP. Is a silver fund available in the market if I want to invest in the white metal? -Sandeep Kumar, Amristar
A: You could use gold savings funds. These invest in Gold ETFs. This will allow for SIPs into gold, which is also a little volatile today. There are also funds that invest in gold mining companies globally and can be partially used by someone willing to take on a higher degree of risk.

You can invest in gold exchange-traded funds but a demat account is mandatory for doing so (most broking houses provide facility for systematic investment in stocks and ETFs). Most gold ETFs provide similar returns, since their underlying instrument is gold-Gold beES and Kotak Gold are among the popular ones.

You can also, with a view to diversify, invest in gold mutual funds-Reliance, HDFC and Kotak could be good options. Gold has already scaled up sharply and has seen correction only in the recent past and you can use such intermediate correction to invest in gold funds.

There is one product from Religare that offers investment in Silver. It is in the form of a PMS (Portfolio Management Service) and they would in turn invest in silver in the commodity futures market. In fact, NSE enables you to buy gold, silver and copper in electronic form, and hold it in a demat account. It may however be advisable for the retail investor to stick to investing in mutual funds or exchange-traded funds.

Financial tips
Q: I have extensive investments in the equity market, with some stocks being in my portfolio for over 10 years. It's worth a substantial amount. I'm 35 years old, married and I want a start a business now. My wife will also be a partner. We have no dependants. Should I go for a loan that covers most of my expenses for funding my venture or sell some of my equity holdings? My portfolio is also my retirement corpus and has very few debt instruments as my job gave me the luxury of investing in relatively risky instruments. -Mahesh Kapasi, Delhi
A: You need to balance your portfolio appropriately and assess the asset allocation. You can dip into your equity holding partially for capital required for your business venture and this again from the perspective of risk reduction. Further, you need to also assess how effectively you can replenish the funds to ensure that it does not affect your retirement.

In fact, you should ideally purchase a property or structured realty product, which can give you a steady means of income to substitute when you start off your business.

However, this might not be the best time to exit from equities from a market timing perspective. You need to also set in a timeline to ensure that the business income is invested appropriately to build a portfolio. Even if you were to avail a loan, it is pertinent to understand the EMI flow and how that would impact your investment.

An ideal situation would be to have a structured property or fixed income investments for steady income and routing this income towards EMI. You will have to find the various alternatives and understand which one works best for you. However, before you embark on this venture, I suggest you do a detailed financial planning so that you are able to take an independent assessment and understand your financial position and risks before you take the plunge.

Financial tips

Q: I have a health cover ofRs 4 lakh and want to increase the cover to Rs 6 lakh. Can I increase the sum assured if I port the policy? Also, is it more beneficial to not claim small expenses and get a no-claims bonus instead? -Jaypal Singh Rawat, Pune
A: If you increase the sum assured in the same policy, the waiting periods will apply for the increased amount afresh (in this case for Rs 2 lakh). If you port the policy, the portability benefits will apply only for the original sum assured (in this case for Rs 4 lakh). There will be a fresh waiting period for the increased sum assured. As far as no-claims bonus is concerned, compare the amount of claim with likely loss of no-claims bonus on renewal to decide on claiming. Apart from the bonus, it might also have impact renewal premium.

Q: I was supposed to travel to Europe for the winter break. I had even purchased an insurance policy covering my wife and me. However, our plans stand cancelled as there has been a death in her family. Will the insurer cover the cancellation fees charged by the tour operator? -Akilesh Kumar, Faizabad
A: If the policy that you had purchased had a 'trip cancellation benefit', then any charges that were levied on the insured on account of the cancellation are reimbursable by the insurance company. Most companies define a family member in specific relationships, hence if the deceased family member was covered as per the definition in the policy, you can claim for trip cancellation.

Q: My daughter recently got her learner's licence and has been driving my car since then. The car is in my wife's name and so is the insurance policy. Can I get her designated as the second driver in the policy? In case of a claim, that is if another car is hit and damaged while she is driving, will the insurer cover the loss incurred under third party cover?-Shruti Kumble, e-mail
A: Motor policies cover such risk if the vehicle is being driven by a person who holds a valid driving licence and that includes learners' licence. However, a person holding learners licence must comply with rule 3 of the Central Motor Vehicle Rules 1989 i.e. she must be accompanied by an instructor who has a driving license and the instructor must be in a position to control or stop the car and there must be a 'L(earners)' board painted or affixed on the vehicle.

Financial tips

Q: I am a non-resident Indian. I sold my agricultural property, which I had owned for 7 years, and am planning to purchase a semi-commercial plot with that money. Do I have to pay capital gains tax on the property sold? If yes, can I save on the capital gain's tax? -Harshita Jagwani, Ghaziabad
A: Yes, there will be long-term capital gain and it will be taxed at 20%. If you buy the semi-commercial plot, it will not help you save capital gain tax. You need to purchase agricultural land equal to the capital gain amount to save tax or keep the money in public sector bank (capital gains saving scheme) before due date or actual filing of income tax returns. Also, you cannot sell the agricultural land newly acquired within three years of buying it as the capital gain exemption will be withdrawn if you do so.

Q: After booking a flat under construction, and paying 20% of the cost, can I make direct payment to the owner in installments before opting for a loan? -Ami Singh, e-mail
A: You can pay your share of the cost of the flat to the builder and then opt for a home loan to cover the remaining installments. If it is a second sale, i.e. if the flat is purchased from someone who bought it from the builder, then it is advisable to take a home loan and close the transaction. Any additional funds can be used to prepay the loan.

Financial tips

Q: How is long-term capital gain and short-term capital loss on sale of shares taxed during the same financial year? -Mumun Loadha, Goa
A: As per income tax laws, short term capital loss can be set off against both long-term and short-term capital gain, whereas long-term capital loss can be set off against long-term capital gain only. Assuming, the long-term capital gain is on listed securities on which STT has been paid, this long-term gain will not be taxable, whereas the short-term capital gain on shares is taxable.

Because long-term capital gain on shares is exempt, short-term capital loss will be carried forward to future years and it will be adjusted against short-term capital gains and long-term capital gain, other than listed shares.

Q: I live in a rented house for which I pay Rs 8,000 per month. Can a retired employee avail tax deduction on rent like a government employee? -Jagmohan Govind, Bareilly
A: Yes, a deduction of up to Rs 2,000 per month can be availed under section 80GG if you do not own any house or property. For availing rent deduction under house rent allowance (HRA), one should be receiving HRA as part of salary from employer. In case of a pensioner, HRA is not a component of the pension and so it cannot be claimed under salary.

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