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Money Today experts resolve your financial dilemmas
     Print Edition: August 2013

Money Today experts answer personal finance queries -

INVESTING

Q. I have invested in ICICI Prudential Mutual Fund's US Equity Fund (launched last year). I want to know if depreciation of the rupee is enough reason for me to redeem my investments or should I stay longer as experts say the US economy will continue to do well in the future? -Manjunath Mishra, email

A. You will benefit from the depreciation of the rupee with respect to the dollar only if your holdings are in dollar denomination. You have invested through ICICI Mutual Fund and, hence, your holdings are in the rupee. However, the benefit of change in value of the currency can be passed on to the investor if the fund sells some, or all, of its holdings. Further, you should invest in equity-linked instruments only if you can stay with it for at least three years. So, we recommend you continue to hold ICICI's US Equity Fund.

Q. I've been holding Infosys and TCS stocks for the past couple of years. Of late, the stocks have been through some volatility. Stock experts have already said that the IT sector is no longer a defensive sector. Since I have substantial exposure to these stocks (up to 20% of my portfolio), do you think it's time for me to shift, if not all, at least a part of it to other stocks or another asset class. I usually hold stocks for 5 years or more. -Asif Khan, Delhi

A. Investing in the IT sector can be capped between 10-15%, which is also the sector's weight in the index. Considering the various business models within the IT sector, we recommend you diversify your investments. You can consider reducing exposure to Infosys and add other IT stocks, such as HCL Tech or Tech Mahindra.

Q. I have been looking for real estate investment opportunities in tier II cities. However, I realised that property (land) prices have gone up 15-20 times in the past 5-7 years even in non-metro areas. Do you think it's wise to invest in smaller cities, where the prices have jumped as much as in the metros over the years or should I still stick to the metros for investment? -Harish Sinha, Gurgaon

A. Investment in real estate depends on various factors. Real estate markets do not have a formal structure like the equity or mutual funds sector. Growth in real estate prices in tier II cities is high as there are more opportunities for development as compared with metros. However, the volatility of the prices in tier II cities will also be higher than metros. Investing in either will depend on your investment objective, tenure of investment and availability of funds, i.e. whether you hope to gain from capital appreciation, rental income or if you want a second house. If you are looking for a longterm investment (between 7-10 years), then buying in tier II cities is a good bet.

Q. I have invested in a corporate fixed deposti (FD), from which I receive interest every year. The rate of interest for the FD is 12%. However, I have not found a good re-investment option as interest rates have fallen across all fixed-income investments. What would my options be? I do not require the money immediately and, so, can stay invested for a relatively long period. -Suresh Mahajan, Noida

A. Considering that your investment tenure is relatively long, you can either invest in an equity mutual fund (via an STP or systematic transfer plan) or a debt fund. If your investment objective is to get high returns and you're willing to take some risk, you could invest in a large-cap equity mutual fund (again, through an STP). Conversly, if you are averse to risk, invest in a debt fund with a long maturity period as these yield good returns when interest rates fall. Alternatively, corporate bonds are available with cumulative interest rates. These would also make prudent investments.

Q. I have to invest Rs 50,000 in this financial year to save on tax. I don't have any investments or even insurance (my employer provides mediclaim) right now. What investments should I choose? Apart from this amount, I can also invest about Rs 5,000 every month. Where should I invest this amount? I have no dependants, I'm only 27 and earn about Rs 4.5 lakh per annum. -NI Samuel, New Delhi

A. The investments that qualify for tax savings as per Section 80C are, public provident fund, life insurance (on premium), equity-linked saving scheme (ELSS), National Saving Certificate (NSC)-with lock-in period of six years, tax-saving fixed deposits in banks-lock-in period of five years, post office time deposit-lock-in of 5 years and Ulips.

The maximum amount for which you can claim tax benefit per 80C is Rs 1 lakh. Also consider the Rajiv Gandhi Equity Savings Scheme, which has a tax benefit of 50% per Section 80CCG on a maximum investment of Rs 50,000 if it is your first investment in the equity market. Further, the maximum exemption on medical insurance premium is Rs 15,000 per year. For the monthly surplus of Rs 5,000, consider investing Rs 3,000 in a large-cap mutual fund and Rs 2,000 in a mid-cap fund.

INSURANCE

Q. I bought a floater health policy two years ago from an agent in Nagpur. The plan also covered my parents. Now, I've shifted to Pune and have got the policy transferred. However, my parents are staying with my brother in Bengaluru. How would this affect claims settlement? The policy documents indicate that the TPA should be in the city or state of residence. -Akshay Karnik, Pune

IRDA, or the Insurance Regulatory Authority of India, has stipulated that insurance companies must offer services on a policy anywhere in India. If you insurer does not have a TPA in Bengaluru, you will have to make a claim for reimbursement as cashless claim settlement will not be possible. This is because insurers might not have a cashless network in all cities.

Q. I'm looking for health Insurance for my father and my aunt (his sister). My father is 67 years old and my aunt is 63 years old. They don't have a history of major illness. Should I buy individual plans for them or will a floater health plan with comprehensive cover work better? I also wanted to know if insurers would cover a brother and sister (both senior citizens) under a floater plan. -Aarati Majumdar, Darjeeling

A. There are insurers with policies that provide coverage for both your father and your aunt. Irrespective of whether it is an individual plan or a family floater plan, ensure that the sum insured is adequate for the city of residence-about Rs 5 lakh for individual and Rs 10 lakh for a floater plan should be ideal considering their age. Also, check for features, benefits, exclusions, inclusions and waiting periods based on their health.

Q. I was the proposer for my parents' health insurance policy for four years. Now, my brother wants to take over. Can he buy the same policy (with continuity benefits) and become the new proposer or will it be considered a new contract? -Abhay Tomar Meerut

A. A change in proposer is possible when the policy is renewed. However, your brother will be allowed to be the new proposer only if he is part of the same plan. If not, it will be treated as a fresh contract and your parents will lose the continuity benefits.

Further, each insurer has its own underwriting policies. So, check the policy documents to ensure that a change in proposer will not affect the continuity benefits.

We suggest that your parents continue with the same policy to take advantage of accrued benefits.

TAXATION

Q. My friend wishes A to gift me money to help with an investment. It won't be a loan. Will this amount be taxable as per my income slab? Is there a limit to the amount that can be gifted from someone who is not a relative? What are the rules if the gift is from a relative? -Jayesh Pandya, Puri

A. If you receive gifts of Rs 50,000 or more in a financial year from one or more persons other than a relative, it will be added to your taxable income. For example, if two of your friends gave you Rs 30,000 each as a gift during the financial year 2013-14, then Rs 60,000 will be shown as income from other sources and you will have to pay tax on it as per your slab.

However, any money received from a relative, including foreign currency, is not taxable in India.

Q. I have been inducted in the merchant navy as a navigating officer. I also have non-resident Indian status. Where would I have to pay my taxes? -Vijendra Bansal, Noida

A. Even if you are a non-resident Indian, if you are paid a salary or earn an income from an organisation registered in India, you have to pay taxes in India. However, if the organisation has no connection with India, you are not required to pay taxes here.

Q. I have been invested in the National Savings Scheme (NSS) from 1988. I am now 81 years old and am in the 20% tax bracket and exempted from TDS. Can I draw the money and pay advance tax and TDS, including for NSS withdrawals, when submitting my return in July. I am a retired serviceman. -Hardik Srivastava, Mumbai

A. Since you are a senior citizen, the obligation to pay advance tax is not applicable to you for financial year 2013-14. The deduction of TDS is also not an obligation as the onus to do so is on the deductor. However, while filing your income tax return, you will have to pay the balance tax liability as selfassessment tax.

Q. I bought a house in Mumbai, under construction, and got it registered in March 2008 on full payment. However, I received possession only in August 2012. If I sell the apartment, will I qualify for long-term capital gains tax as the house was registered over three years ago? What are the rules regarding this? -Martin Jose , Mumbai

A. The date of registration is what is relevant when determining holding period for real estate. The date of possession is only relevant when claiming tax deduction for home loan interest. So, as it has been over three years since you got the property registered, gains on sale of it will be considered long-term capital gain.


Anil Rego, CEO, Right Horizons, has tackled financial planning; Antony Jacob, CEO, Apollo Munich Health Insurance, has answered insurance queries; and Sudhir Kaushik, Co-founder and CFO, Taxspanner.com, has provided tax solutions.


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