Last minute tax planning done is like gulping a hot cup of coffee in one go

Authored by: Ajit Panicker Nowdays, the clients who belong to the salaried class try to complete their tax planning much on time and even file teir taxes on time. Many believe that they are abreast with the required information about tax planning. But i doubt is that much sufficeint. After having serviced so many clients in my professional life till now what i have largely observed is that, 90% of the employees of even large firms do feel that the last minute tax planning which they do so as to furnish the proofs for the tax declaration done in the beginning of the year is what is tax planning, and this tax planning they assume to be their investment planning.

This article is seriously dedicated to all the salaried employees who file taxes and hence purchase the products which come their way at the last moment.

when you declare the investments in the begiining of the year, almost all the employees try to declare the limits under various sections of the income tax, so as to avail the maximum tax advantage. They do so, so that the tax is not deducted monthly, and once they declare the same at the end of the year with proofs the tax deducted would not be a burden,

But what people do not realise is that, at the fag end of january or february when almost all the corporates ask for the investment proofs , many do not have all the proofs. Because the products which give you tax rebate have not been prrchased.

Then comes the herd of the insurance advisors, mutual fund advisors and whover approaches them or they get hold of someone, the product for tax planning is purchased, without realising that it may not fulfill their financial objectives.

The lesson to be taken here: please plan during the complete year, contact a professional financial planner who plans your cash flows, calculates your net worth, plans your protection, evaluates your existing investments , evaluates your exitsing health cover etc and then designs the plan according to the objective decided together by you and the planner

What is an Ideal Pension Scheme?

Ideal Pension Scheme should include the below and hence avoids the defects of the existing systems. The Ideal Pension Scheme has the following features:

1. It would be fully portable and independent of any employers.

2. Mandatory minimum contribution related to the employee’s salary and possibly age are made into the scheme. These contributions which attract tax relief will typically be made by both the employee and employer. The contribution rates would be set to reflect the pension level desired in retirement which may, for instance, be related to a forecast of salary at retirement. In particular, there should be no incentives in the system for churning customers between different

pension providers,

2 Data on investment returns, salary growth rates, mortality and the volatilities of these would be used

to estimate the value of the fund needed at the target retirement date to purchase the target pension

annuity. Then working backwards an estimate is made of the required contributions into the scheme.

Clearly the later the starting age the higher the contribution rate. Confidence intervals could also be

estimated, indicating the probabilities of different contributions rates delivering the target pension.

3. Individuals would also be required to buy some related pension benefits such as disability benefits (up to a minimum threshold) and would have options for other benefits such as death-in-service benefits and a spouse’s pension.

4. Both the employee and employer would be free to contribute additional voluntary contributions. Contributions in excess of specific employee and employer limits would not attract tax relief, however. There would be parity of treatment with the employer’s own scheme.

5. The investment income and realised capital gains in the fund would accrue with income and capital gains tax relief.

6. The pension age would be flexible and not necessarily linked to actual retirement.



In other words, an individual could draw the pension without actually having retired. However, the individual would be warned about the dangers of retiring too early and drawing a pension before the normal retirement age would ordinarily be restricted to those who had built up sufficiently large pension funds to provide an

adequate standard of living in retirement.

7. Individuals would be required to have converted a mandatory component of their pension into an annuity at retirement. Individuals would be permitted to purchase a deferred annuity before retirement. The mandatory component of the pension would be fully linked to retail price inflation. The pension would be taxable.

8. Part of the pension entitlement (up to a specified limit) could be taken as a lump sum. The lump sum would be taxable.

9. Pension schemes would operate according to a standardised set of deeds, similar to company articles of association.

10. The scheme would be administered by an independent pension scheme administrator, independent of any employers and the investment manager of the fund. This would be necessary to ensure safe custody of the scheme assets.

11. Pension schemes would have an auditor and would be required to submit annual audits.

12. The scheme administrator would ordinarily seek advice from professionals (such as economists, actuaries and pension consultants) on the adequacy of contributions. This is necessary to ensure tax neutrality over the life cycle

13. Pension fund management groups would operate on a similar basis to unit trusts as in

the UK (or mutual funds in the USA). They would collect, pool, and invest contributions on behalf of individuals. In return, the individual would be allocated accumulation units whose transfer values (calculated on the basis of single pricing) are published on a daily basis.

14. Charges must be kept low and not be frontloaded.4 There should not be a high initial fixed costs that in effect ties an individual to a particular (and possibly inefficient or uncompetitive) organisation providing particular services such as fund management. To this end, pension fund managers should be encouraged to

invest in passive index funds with a consequent reduction in costs or to accept performance-related fees.

15. Pension-scheme members would be provided with full and regular information about their schemes in precisely the same way that shareholders receive information about their companies. The information would cover:

· the status of employee and employer contributions into the scheme;

· the value and type of assets in the pension fund;

· the rates of return generated on the assets;

· the fees or commissions charged by the scheme administrator and pension

fund manager.

· an estimate of the weekly pension that the current value of the assets can

be expected to buy at normal retirement age.

Summary information on scheme structure and performance would be made

publicly available.

16. The pension industry would be supervised by a pensions regulator who would also operate a compensation scheme to compensate scheme members in the event of fraud or malpractice. The compensation scheme would be financed by a levy on all pension schemes. The regulator should also be responsible for implementing a one-stop dispute-resolution system for all privately organised pension schemes (as recently suggested by the (Office of Fair Trading 1997)).

Equity investment - an excellent option to build corpus and achieve the best returns

Authored by: Ajit Panicker

The markets globally have been uncertain from past 4-5 years, coupled with the recession globally. Then countries like US, UK, and many european countries being effected due to sub prime crisis and the recessionary forces. The growth rate was really under the negative quadrant for too long. The political upheavals alongwith economic downturn in middleeast, israel had all contributed to a large extent to make investors largely the retail investors make opinion that in this uncertain market conditions, the equity market should be kept away with. if required one should largely invest in debt market and hence the debt market has been very promising in past 2 years, atleast in india and the subcontinent.

But out of all the investment tools , i feel if one is ready to invest a good amount and want to keep it decently long term for atleast 7 years , EQUITY is the best option. Daily traders would not gain substantially from EQUITY, it is just that they are earning their daily bread and some small gains. But there is an equal chance of all the gains garnered in the past weeks by a washout when the market falls and situation is bearish.



"Siegel is a professor of finance at the Wharton School of the University of Pennsylvania argues that given a sufficiently long period of time, stocks are less risky than bonds, where risk is defined as the standard deviation of annual return. During 1802–2001, the worst 1-year returns for stocks and bonds were -38.6% and -21.9% respectively. However for a holding period of 10-years, the worst performance for stocks and bonds were -4.1% and -5.4%; and for a holding period of 20 years, stocks have always been profitable."



The above situation is obviously being taken in US, but the STOCKS as an option of investment instrument behaves almost alike in all countries across the globe, differing minutely due to political and economic heat or coldness in the country, which is locally dependent.

What i am putting forward as a financial planner is, that there is no time to enter any kind of market, all situations are to be invested or to come out. No one has ever managed to time the market. But yes the decisions to exit or enter has to be judiciously taken alongwith the equity or for that that matter the financial expert.

India's growth in next 20 years lies in investing in equity for long term minimum 7 years and there is no maximum tenure. Equity does not offer you any lock in period, but this lock in period has to be disciplined by your self.

The returns of the equity in indian market



1. Top Diversified equity mutual funds have given compounded annual return of more than 35% per annum for the last 10 years.

2. The annual growth rate of reputed Indian companies is 20-30% p.a.

3. Diversified Equity Mutual funds invest their money in Indian and multinational companies engaged in manufacturing and services industries. The demand for their products will go on increasing every year because of increase in population and increase in purchasing power in India. The value of their shares will go up when companies make more money, In turn the value of investment made by the mutual funds in these companies will also go up. Hence the investor who has invested in these mutual fund would get handsome returns.

4. Your money will be invested by the mutual funds in number of reputed Indian and multinational companies engaged in different industries, hence your risk is reduced as you “do not put all your eggs in one basket”

5. Indian economy is on the growth path according to Indian and international economists

6. Your investment will be handled by highly experienced and qualified mutual fund managers who have excellent track record

Therefore do not turn your back completely from the share market, and invest in equities wisely under the guidance of financial experts and financial planners.

Financial Planners are your Financial doctors, specialists in the Financial Field

Authored By: Ajit Panicker In past decade and strongly in past few years the banking and the financial markets, the regulations and the investors have all become very active and alert. If i talk about insurance, for about 60 years Life insurance co. Ltd(LIC) was synonymous with insurance until early 2000's when private insurers arrived in india. Mutual funds became a popular in past 15-20 years, and people have now realized its importance for which the moderate risk takers and all those who want to diversify their investments look towards mutual funds as a good investment option. Stocks have always been an option in this country, but many have burned their fingers and even their homes due to less information about the option or due to wrong guidance. Real estate as an investment option has become public in past decade very strongly. But since time immemorial people have kept land as a great investment option, because this particular option in long term gives good return, inspite of it having a number of timely advantages and disadvantages attached to it.

Gold has always been an option suggested and practiced by our grannies, irrespective of belonging to any part of the world, and has been always more in india. Bank deposits, corprate deposits, saving accounts , post office deposits, have all been investment options or savings options been used since a very long time now.

BUT, these all investment products as they are called has been bought either by your own understanding about them or suggested by agents, advisors or bankers. All the people involved in selling these products are motivated to bring fee income to self or the organizations they are working for, with very minimal concern about the investor or the client.

Here comes the FINANCIAL PLANNER as a FINANCIAL DOCTOR, a specialist in the field, to the rescue of the client. He meets the client with the sole objective to make him realize the importance of planning. Carving a chart and the course of action of how to achieve all the short term, mid term and long term goals , with proper risk adjusted, inflation adjusted and tax adjusted returns to the investments made by the clients. He helps the clients decide their objectives, analyses their current investments, the inflows and the outflows of the cash component, the assets and the liabilities, calculates the present net worth and help the client achieve the desired networth.

He treats the client(patient) with all the ill-investments, replaces them with best options with full analysis. Creates an emergency fund, plans for his retirement, plans his estate, plans his taxes, plans his consumptions and savings pattern, lead them to a disciplined financial life. With all these he finally achieves the FINANCIAL Freedom.

Consult a Financial planner, the specialist

Sachin Tendulkar buys Rs 100 crore cover for his 'dream' house

MUMBAI: Having moved into his "dream house", ace cricketer Sachin Tendulkar has now secured his five-story Bandra residence with a staggering Rs 100 crore insurance cover, one of the biggest insurance deals by an individual.


The cricket icon has bought the insurance from a consortium of general insurers, according to industry sources.

"A consortium of general insurance companies has given an insurance cover for the cricketer's home in Bandra for a value consideration of Rs 100 crore," an official of a public sector general insurance company, who wished not to be named, said.

As per the official, all the four state-run GIs along with a private insurer have provided the cover.

" Oriental Insurance Company, United India Insurance, New India Assurance and National Insurance Company are the four government-owned general insurers providing the cover along with a private insurer," the official said, adding the annual premium would be around Rs 40 lakh.

According to another insurance official, the cover has been taken in two parts. While a fire insurance policy has been obtained for Rs 75 crore, an additional cover of Rs 25 crore has been bought for household items like furniture, electronic gadgets and cricket accessories among others.

The fire insurance covers losses from blaze, terror attacks, natural disasters like earthquakes, and burglary among others. The insurance covers the cost of the land, compound walls, besides electrical equipment.

The Tendulkars had moved into the sprawling 6,000 square feet villa in Bandra West in September from a flat that had been allotted to the maestro under sports quota.

"Everyone has a dream of owning a house. I, too, had this dream. I am happy that I was able to fulfil it," Tendulkar had said while moving into his new abode.

The cricketer's residence stands on a plot that earlier housed a dilapidated bungalow, which he had bought for Rs 39 crore in 2007.

The villa has been secured with high-walled fencing to avoid curious onlookers. CCTV cameras and sensors have also been installed.

Insurance that should find a place in your portfolio in any year circle

2012 may see the launch of several innovative products in the life as well as non-life space. While they can be considered, here are covers that should find a place in your portfolio in any year Circle


Term Insurance: Circle of Life Term Insurance Health Insurance Personal Accident Cover Home Insurance Travel Insurance The cheapest, yet most under-sold, form of insurance, it is a must-have in the portfolio of any individual with dependents. Online versions of these covers are even cheaper. It does not offer a maturity benefit, but is in the best position to provide financial security to insured's family in the event of his or her demise.

Health Insurance: Irrespective of whether your employer provides group cover or not, you need to have an independent health policy covering your family. It will stand you in good stead in case of break in employment or upon retirement, when it will be difficult to buy a policy at a reasonable price.

Personal Accident Cover: Now, a term cover and health policy can protect your family and foot your hospital bills. But what if an accident leaves you disabled? That is when a personal accident policy can make good the loss of pay due to absence from work.

Home Insurance: A natural or manmade calamity can destroy your house built with your savings. With no (or damaged) house and a home loan to repay, only home insurance can come to your rescue. Hence, don't ignore your home loan contract.

LIC lays claim to no.1 spot in settlements

MUMBAI: Life Insurance Corporation remained well ahead of private rivals in living up to the purpose of insurance by settling 97.03% of claims in 2010-11, helping the state-run giant retain its market dominance even a decade after its monopoly ended.


Settlement of claims at LIC rose from 96.54% in 2009-10, the Insurance Regulatory and Development Authority said in its annual report. For the private sector, where the premia on policies are lower than for LIC, the claims-to-settlement ratio was 86.04%, up from 84.87% in 2009-10.

Higher the ratio of settlement to claims, the more customer-friendly a company is. The regulator does not provide statistics for individual private firms.

"Insurers should take all steps to ensure the incidence of claim repudiation is reduced to the barest minimum," the regulator said in its annual report. "For this to happen, they should adopt measures to explain to the parties upfront the exact coverage and exclusions."

LIC, which controls nearly three-fourths of the market, scored on another front: its repudiation of claims declined to just 1% in FY11, from 1.21% a year earlier. The remaining claims are under dispute. For private life insurers, repudiation rose to 8.90% of claims from 7.61% in FY10.

Settlement of claims is the key factor that decides customer satisfaction and a company's profitability. While genuine claims are usually settled by both private insurers and LIC, private players see more disputes. Stricter due diligence means more fake claims are detected at private companies, while LIC is relatively lax in rejecting fake claims, reducing its profitability.

"Insurance is not what you sell, but deliver," said AK Dasgupta, MD, LIC. "People trust LIC because of our strong claims settlement record. They know we have the ability because of our balance sheet and intention. People need insurance for two reasons - uncertainty and good return."

In 2010-11, life insurance companies settled 8.13 lakh claims on individual policies, with a total payout of Rs 7,595 crore. As many as 17,350 claims amounting to 336 crore were repudiated.

New motor insurance pool a welcome reform

The insurance regulator's move to reform the motor insurance pool to settle accident claims of victims is welcome. It will make general insurers manage these claims better and improve the health of the sector.


The reform entails dismantling the existing third-party motor pool, an arrangement where general insurers share motor accident claims according to their market share, whether or not they write motor business. From the next fiscal year, the existing pool will be replaced with a new one called declined risk pool, wherein insurers will share claims only on vehicles that are considered unfit to be insured.

This makes sense as insurance companies will have the freedom to choose risks that they want to keep on their books and cede ones that they do not want to. Safeguards are in place to protect policyholders' interests when insurers cherry-pick motor policies. An insurer cannot refuse to write a third-party motor policy and the rules say any refusal will be seen as a violation of the insurance law.

The safeguard is logical, considering that it is mandatory for every vehicle owner to buy a third-party cover. The premium will be fixed according to actuarial calculations. This is welcome, provided premiums keep pace with the actual cost of claims. That is a huge problem in motor insurance because there is no limit on the compensation or even the time for lodging claims. This must change, else, consumers will have to pay more.

Compensation awarded to road accident victims should be formula-based, with a cap on the amount and a time limit for filing a claim. This will ensure quick settlement of claims and reduce litigation. Irda has said that the current pooling system has led to an alarming depletion of capital for the industry.

This is untenable as insurers need capital to grow, meet their solvency needs and the ability to pay claims. The claims management has been inefficient and there are leakages in claims settlement. Proper audits of motor claims are a must to prevent leakages. Irda has taken the first step, but more reforms must follow to have a vibrant general insurance industry. Alongside, road and vehicle safety standards must improve.

2012: Smart ways to save tax & take advantage of DTC

Over the next 90 days, millions of Indian taxpayers will wrap up their tax planning for 2011-12. Unlike in the past, this year's tax planning will be quite different as not only have the rules changed, but many of the goal posts have also shifted.


The biggest change is that the favourite tax-saving instrument of risk-averse investors has now become market-linked. The Public Provident Fund (PPF) will give returns that are 25 basis points above the benchmark yield of the 10-year government bond.

Then there is the Direct Taxes Code that may come into effect from April this year. There is also a small, but significant, change for senior citizens.

Last year's budget lowered the age limit for senior citizen taxpayers from 65 to 60. It also introduced a new category of very senior citizens above 80 with a big exemption of Rs 5 lakh. Despite these alterations, some fundamental principles of tax planning remain unchanged.

Your tax planning should still be guided by your overall financial planning. "Don't go by advertisements because not all tax-saving investments will suit you," says Mumbai-based financial planner Kalpesh Ashar.

Your choice of instruments should depend on how soon you need the money, your expectations of returns and ability to take risk. Let us look at the instruments that different types of investors should have in their tax-saving portfolio this year.

Take the ELSS advantage: For the taxpayers who embraced market risk by investing in equity-linked savings schemes (ELSS), this may be the last year for investing in this category. The DTC has not included ELSS in the list of tax-saving options. These funds have the shortest lock-in period of three years among all Section 80C instruments. So, your funds are not tied up for five years as in fixed deposits (FDs) and National Savings Certificates (NSCs).

"Given the three-year lock-in period and the level at which the markets are now, it is unlikely that an investor will lose money by investing in ELSS," says financial consultant Surya Bhatia.

The low minimum investment in these funds (you can start with as little as Rs 500) makes them an ideal stepping stone for the rookie investor.

However, don't forget that ELSS funds can be risky. So invest systematically rather than in a lump sum. Remember, you have to invest the money before 31 March.

"There is a lot of uncertainty in the market now and it is best to exercise caution and stagger investments in ELSS funds," says Ajit Menon, executive vice-president and head of sales and marketing, DSP BlackRock Mutual Fund.

Investors can also opt for equity exposure through Ulips. Unlike ELSS funds that cannot be touched during the lock-in period, these insurance-cum-investment plans allow policyholders to tweak the equity and debt allocation according to the market conditions. The New Pension Scheme also gives equity exposure, but this is limited to a maximum of 50% of the corpus.

Save extra Rs 9,270 through the PPF this year: The overall limit for investing in the PPF has been raised to Rs 1 lakh now from Rs 70,000 earlier. For someone in the highest tax bracket, this enhanced limit of Rs 30,000 means a potential tax saving of Rs 9,270 a year. "By itself, the PPF is a good long-term investment option, even if it is not done because of tax planning," says Bhatia.

How & why Mukesh Ambani will define India in 2012

Mukesh Ambani

54 years, Chairman & MD, Reliance Industries
Sector: Corporate

Career Milestones:
In 2002, RIL announced the world's biggest gas discovery in KG Basin.

In 2008, he set up the world's largest refinery in Jamnagar.

In 2011, he inked a $7-bn deal with BP even as KG Basin find ran into trouble.

Why him:
Because he has some big-bang diversification plans up his sleeve: Reliance Industries is likely to accumulate a Rs 1.25 lakh crore cash pile by March. Its foray into high-speed internet services, likely to shake up the telecom industry, will become clearer in the coming months. But there are issues that demand Ambani's attention: the oil and gas business is suffering from production challenges and investors are likely to breathe down his neck demanding solutions. And there's the brother question: will Anil be part of his plans?

Hi 2011:
Inked a $7.2-billion deal with British Petroleum for a 30% stake in 23 RIL oil and gas blocks.
Announced entry into insurance by buying out Bharti's stake in the Bharti-Axa joint venture. The deal fell through.
RIL's stock price dropped after fall in gas output from the D6 basin.
Mumbai Indians, Ambani's IPL team, won the Champions League finals.

What next:
2012 is the big year for Ambani's 4G telecom venture, a project that the company has been working on for almost a year. Initial reports indicate that the company is likely to kick-start with low-cost 4G services on tablets. Such a project would require a massive rollout and capital expenditure. Market analysts don't rule out a foray in the financial services space through an acquisition or two.

Mukesh is a Bollywood fan and has a huge collection of movies. But he does not plan to enter the movie business like brother Anil Ambani.

Who else: Gautam Adani
49 years, Chairman, Adani Group
2012 will test one of India's fastest-growing conglomerate's ability to grow at a robust pace. The past year was a mixed bag for the Adani Group. In May, it spent $2 billion for a 99-year lease of Abbot Port in Queensland, Australia. A couple of months later, Adani Enterprises was named in the Karnataka Lokayukta report on illegal mining in the state, a charge the company has denied. Since then, its port expansion plans have also hit speed-bumps as security clearances have been delayed. Since the beginning of 2011, the group's m-cap has plunged by more than 60%. Will 2012 be bounce-back time?