SBI TAX SAVINGS SCHEME, 2006

SBI Tax savings scheme is a pure debt product and a tax savings fixed deposit scheme. This deposit scheme comes under tax exemption in the 80C.

The useful features of this financial product are :

1) If you are an individual or as a Hindu undivided family, having Income tax Permanent Account Number you can avail this financial product and claim tax exemption under 80C.

2) Minimum Deposit amount : Rs. 1,000/- or multiples thereof and Maximum Deposit Rs. 1,00,000/- in a year.

3) Tenure minimum: 5 years - Maximum: 10 years.

4) Rate of interest as published or reviewed by SBI time to time.

5) You can not encash this, before the specified term as the instrument is tax exempted under 80C.

The best part of this scheme is you can park lump sum amount in a safe place and enjoy tax benefit for invested amount. But this financial product attracts TDS which will ultimately affect your final return value. So, you need to submit 15G / 15H form before the tax assessment of that year. If you are a salaried person then there could be a chance that your income is above the minimal taxable income, and in that case you will be taxed the TDS. So, for those individual it is better to park the money into other safe debt product. We can discuss about them in later point of time.

Index Fund : A good choice for beginner's Financial planning

If you are a new investor in stock market, one of the better & safe bet in long term could be investing in Index based funds. As a new investor there are few obstacles one face. one of them is selecting the correct Mutual fund for one's portfolio. Then you need to track the MF regularly to assess it's performance over time, and if necessary, you need to switch to some other funds. All these are required for actively managed funds, as you can not predict a actively managed fund's return with it's peers or benchmark index. But index based funds are passively maintained funds, and they try to broadly follow the return pattern of the index category they follow. So, in long term if the benchmark index performs well, you can be rest assured the index fund gives you a similar return percentage.

But if you are a pro in the market, then better to go for actively managed funds, as in long term actively managed funds returns better than index based ones.

Few advantages of index based funds over other Mutual funds :

1) Expense ratio is on lower side, than actively managed funds. Because these funds do not require high paying fund managers / stock analysts to pick / drop a certain scrip. The fund is passively managed and the performance computation is rather straight forward.

2) There is generally no possibility of change of the fund's investment approach or investment styles. For actively managed funds there is a possibility of investment approach change, which can be a problem with certain investors as they pick a certain fund considering it's style / approach. If something changes latter on, it might hurt the investor's choice.

3) Generally index funds holds better, when the market is falling down. Actively managed funds tend to fall more during market down turn than index based funds.

UCO Sowbhagya RD Scheme – A product worth looking

UCO bank started a new flexible recurring deposit product 'UCO Sowbhagya RD Scheme'. This is a unique product for the small investors who are looking for a flexible debt product to invest in.

Salient features of this new scheme:

1) Minimum monthly investment of Rs. 100/- and maximum of 10 lacs in a month.

2) You can increase the month's subscription in a multiple of Rs. 100 if you want to invest more for a particular month.

3) You can deposit money, any number of times per month.

4) Maximum tenure for this scheme is 3 years.

5) You will earn an interest which is same as any fixed deposit scheme of the same tenure in bank.

6) Most importantly as this is a RD scheme, you do not have to pay any TDS on your return.

So, you can always check with the bank's site or directly the branch and think about this product as a good debt option to invest in.

Disclaimer: I do not have any personal interest to promote this product. The above is completely my personal opinion after reviewing this RD product.

Bank asks for investment to open a safe deposit locker - Complain through the BCSBI for remedy.

Recently I faced a lot of pain, when visited a leading private bank in India. I am banking with them for last 6  years. And generally share a good relationship with them. But still when approaching them to open a safe deposit locker for me, they first of all told that all the lockers are occupied. And after that, I followed up several times for last 6 months. After few such visits, they told me I can have one locker if I am ready to invest in lump sum to a insurance product. And I know that, I really do not need and want to invest in such a product. So, I was unable to get a locker.

I think many of us face this particular problem or may be similar issues when banking with some of the leading banks. What could be the remedy? Is there any rights for the banking customers ? Is there any code of banking conducts for different services offered to the customer? I was wondering for couple of months. And then one fine morning I came to know something about BCSBI (Banking Code & Standards Board of India).

This organization has strong directive & appealing mechanism which works seamlessly for the consumers. You can visit the site of BCSBI and get the customer commitment document enforced on the banks. In this directive all the different services (starting from A/C opening to safe deposit lockers and Insurance selling) rules and bank's commitment to provide correct information on services to the customers' is written specifically. So, no bank can officially deny their responsibility. If you feel you are neglected or compromised in any banks (specially private banks) in India, you can check this hand book (Hand book is available in all regional languages and English as well.). And follow up on any complaints in the following order -

1) Try to figure out is there any online grievance addressal mechanism available in the bank's website / net banking facility. If it is there, you can directly put your complaints / query over there mentioning BCSBI guidelines. Do not forget to mention, that the bank is compromising with BCSBI guidelines which should not be.

2) If you are not able to figure out such online grievance addressal system, then try to figure out who is the Nodal regional officer for the BCSBI grievance for that bank. You can either figure it out with website or directly visiting that bank's branch. As per BCSBI guidelines, the name of this nodal officer should be printed and showcased prominently with in the branch. You can send your detailed grievance in the nodal officer's mail id.

3) I think, with these steps your grievance should get a good look and fair trial. If not the case, then you can go to the higher level. But you need at least wait for 30 days to get communicated from the bank's nodal officer.

4) If 30 days are over, you can approach to banking ombudsman for fair trial of the same issue. Directive on how to submit a complain to the banking ombudsman is clearly mentioned in the BCSBI site.

The BCSBI site detail is - http://www.bcsbi.org.in/

And for your information, my grievance was adequately addressed when I lodged a query through this channel  and I was satisfied.

Public Provident Fund ( PPF )- A must have in your long term portfolio.

If you are working in PSU or a reputed pvt company you might have a very good EPF / VPF contribution towards your retirement corpus. But I think still it is wise to go for a PPF a/c investment. In short it gives you very powerful & time tested way to create a good amount of wealth for you. Earlier 70,000 Rs was max limit for investment in one year for an individual. Now that limit is increased to 1,00,000 Rs but the minimum amount for a year remains 500 Rs to continue the account. Now what are the USP of this instrument, that you should opt for a PPF a/c. Let's see one by one -

1) Long term savings instrument, which currently gives you 8% rate of interest. And it unlikely to change in near future.

2) EEE (Exempt, Exempt, Exempt) in tax perspective. Tax benefit during investment in each year. No TDS on interest accrued. And no taxation on final return. Very less number of products today, has such an advantage.

3) Though the lock in period is 15 years, you can get a partial withdrawal from it after completion of 5 years.

4) If someone wants to continue after a period of 15 years, then this can be increased in a block of 5 years.

5) You can use it for your children’s' future finance requirement. In fact you can open a PPF a/c in your child's name and invest money with a tax exemption on that. Though it comes under 80C and if you have your own PPF account, then you can get a maximum up to 1,00,000 Rs tax benefit from two accounts together ( You + your minor child).

So, a PPF account is must in your long term financial planning list.

Child Insurance : Should be a part of your Financial Planning ?

Should you consider Children insurance plan as a good option for your child ? If we look at the Insurance market, we can find a plenty of such insurance plan which gives you a lot of option to get maturity benefit, Money back at different interval, death benefit and other different riders. But we feel, before going for any such plan just think why you really need an insurance product for your child.

We primarily believe insurance plan, is to mitigate the financial risk of an individual's life. Say, for an example if I die tomorrow, what will be the financial impact on my family ? And who will be primarily impacted ? If I am the sole earning member of my family, then the risk is higher with my life. Similarly, think how much your child will be affected in case of you or your spouse's untimely death. Think primarily on the Education / Higher Education of your child. And try to estimate how much it will cost after a certain time ( may be 15 or 20 years from now, considering the inflation rate.).

You need at least this amount of money to be safe guarded for your child, in case of your untimely death. So, our opinion is do not go for a children insurance plan, which primarily gives you a death benefit on the child. Rather insure on your own life. This will be a prudent financial planning for your child. It can be through some children insurance plan, which payout lumpsum incase of untimely death of the parents. Or it could be some form of term assurance plan for the parents.

So, in a nutshell - provide adequate insurance coverage for the earning members of the family. And still if you really want to insure for your child, make sure your child has a adequate Medi-claim coverage. If it is not adequate then increase the limit.

Power Portfolio

There are many fund houses playing in the market and many of them provide unique investment opportunities. But here we try to stick to a very simple principle for a long term financial planning.

1) We want to select funds across different fund house. This generally helps in diversify.

2) When we are trying to select a portfolio of combination of different funds, we try to consider their current sector exposure. For example, if we pick a top performing fund in Large cap segment and that fund is very high on Financial sector. Then we tried to pick the Large & Mid cap segment fund which has a portfolio tilted higher on FMCG / Power / Technology. By this kind of selection we try to minimize the overloading of a particular sector in one's portfolio.

3) We consider only those funds, which give the investor an option of SIP. Because, we think this is the best option for long-term equity investment. As this way, investors need not to time the market. And you can stay invested all the time, without affected by market sentiments.

4) Last but not the least, only the funds with a proven track record are selected in this proposed category. We have looked into their over all risk return pattern and 3 to 5 years return to select them.

5) We consider 3 - 4 funds maximum for this portfolio management, as we consider too many funds in a single portfolio, makes it a little bit difficult to manage & track. As for mutual fund SIP investments, You can not just start investing and forget. You need to check every year at least with their return and overall performance. And if necessary, you need to make change in your portfolio.

Happy Investing !!!

Power Portfolio - I **

Power Portfolio - II **

** These are for illustration purpose. Any investor can select any blend of funds with their own risk. Our research gives us a portfolio of few selected funds. And we try to stick to those when we are analyzing the investment styles. We do not have any personal interest when proposing any particular fund / portfolio of funds (Disclaimer).