What should I know about e-insurance Accounts

Hemant Beniwal
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7
What should I know about e-insurance Accounts

The IRDA has announced that from October 1, 2016, all insurance policies fulfilling certain criteria laid down have to be issued in electronic format. Policies that are being renewed and satisfying the criteria will also have to be in electronic format.

e-insurance Accounts

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This means a person insured or wishing to be insured needs to have an e-insurance account. It is similar to the demat account that is used to keep financial securities. You can keep your insurance policies in electronic format in your e-insurance account.

Insurance policies that satisfy any of the following criteria will have to be in e-insurance format –

Sum Assured

  • Pure Term policies, General Insurance Policies (except motor insurance), personal accident and domestic travel policies with a sum assured equal to or greater than Rs. 10,00,000.
  • Individual Health Policies with a sum assured equal to or greater than Rs. 5,00,000.
  • ULIP, Endowment, Term Plans with Return on Premium with a sum assured equal to or greater than Rs. 1,00,000. 
  • All motor insurance policies and overseas policies irrespective of premium paid.

Premium

  • Pure Term policies, ULIP, Endowment, Term Plans with Return on Premium, Pension Policies, Annuities and Individual Health Policies with premium equal to or more than Rs. 10,000 (Premium can be single or annual).
  • General Insurance Policies (except motor insurance) and personal accident and domestic travel policies with premium equal to or more than Rs. 5,000 (Premium can be single or annual).
  • All motor insurance policies and overseas policies irrespective of premium paid.
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Process to open an e-insurance account 

You can visit the websites of any of the following 4 institutions which are insurance repositories to  open an e-insurance account –

CAMS – http://www.camsrepository.com/appln_download.aspx

KARVY – http://www.kinrep.com/

NSDL – https://nironline.ndml.in/NIR/onlineEiaApplicationHome.html

CDSL – https://epic.cirl.co.in/cdslir/eiaaccountdirect.do

You will have to download the form from any of the websites or fill online. You need a PAN card or Aadhaar card to have an e-insurance account. You should attach self-attested KYC documents and submit the same to one of the above-mentioned institutions. Alternatively, you can visit the  e-insurance portal and submit a request for the account to be online. You can take  printouts, attach the relevant documents and send it to the office address of any of the above-mentioned companies.Other information required are bank details, cancelled cheque and details of an authorized representative who can act on your behalf. This person is not necessarily the nominee. This person only manages the account.

The account is free of cost. It takes about 7 working days to open an account. You will get a login ID and password to operate your e-insurance account. Once the KYC is done, all your policies get converted into the electronic format. Since the insurance policies are in the electronic format, the insurer may then destroy paper copies of policy documents.

It seems to be beneficial to all parties concerned

Insured – All the policies will be stored in 1 repository, in one place which makes it convenient. New policies can be easily purchased without the need to give the same information repeatedly. Renewal of policies becomes easier. There will be no dangers like misplacing or theft of policy documents.  All transactions can be done online as it will be connected to online bank accounts.

Insurer – The insurer saves costs in the form of lesser paperwork. The insurer need not have a wide network to process policies. Cost savings can be translated into lower premium.

Insurance Repositories – The repositories earn service fees for maintaining the policies in electronic format.

Buying a policy online is different from an e-insurance account. Currently many insurers offer the option to buy a policy online. An e-insurance account is an online repository for all your insurance policies.

Digital insurance will be beneficial and convenient. The only challenge is that people will need to be digitally literate to manage their accounts. But just like demat accounts are widely accepted, it might only be a matter of time before people start accepting and understanding the benefits of e-insurance accounts.

If you already have an e-insurance account or initiated the process – must share your experience.

7 Career Mistakes to Avoid

Hemant Beniwal
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7
7 Career Mistakes to Avoid

You need to have a strategy to manage your career so that you become successful. There are many people as skilled as you or as educated as you and as hardworking as you if not more. So it is important to take the right steps to have a successful career and it is equally important to not make typical career mistakes.

I am not an expert on this topic but giving you food for thought & an opportunity in the comment section to discuss.

7 Career Mistakes to Avoid

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Read – You are your most Valuable ASSET

7 career mistakes that you should avoid

1) I am going to do only so much

Sure, your job has a description and there is a set of tasks that you have to do or are responsible for. But if you cannot accept work outside the boundaries of your profile or complain when you have to do extra work, superiors and peers will stop giving you tasks beyond the routine ones. You may miss out on opportunities and will be seen as someone who does not want to work hard. If you only do the minimum that is required from you, you are making a mistake. You have to take up jobs and tasks depending on where you want to be 2 years down the line so that your career is set on the right path.

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I am also giving you a totally different viewpoint from what I have mentioned in the last few lines – if you will say YES to everything, you may not be able to finish the task which was part of your job profile or people will start taking you for granted.  🙂

Read – Impact of Career Instability on Financial Planning

2) Losing Sight of your career

Sometimes we get so engrossed in our daily job, we lose track of our careers. We might be doing tasks for a long time that may not help our career in the long run. In some cases, we shift jobs or take assignments based on salary or location but these might be lucrative now but not in the long run. When we take up projects in our job, we should assess how they will help our career. You can check by asking these questions –

  • Will it give me a chance to get a promotion next year?
  • Will it help me to learn skills that I need to get to the higher designation?
  • Will the opportunity enable me to learn new things or be a stepping stone for my growth?

Read – Midlife Crises & its financial impact

3) I know everything

You might be a highly qualified and smart person. But in the workplace, you are a cog in the wheel and you should constantly update yourself, your skills and improve your resume with different types of tasks and responsibilities so that you are one step ahead. You should be prepared professionally and personally to get to a higher rung in the career ladder. If you are unprepared and you get a promotion, you will not do well and this can hurt your career.

4) The company cannot do without me

If you are under the impression that you are the only one who can do your job and the company or project will not be able to deliver without you, you are kidding yourself. The company or project might be under stress if you are not there but you are not irreplaceable. So you have to be professional. You have to be punctual, be a team player, and work efficiently.

Must Read – What information to disclose & hide at office

5) You are unhappy with your job

We all have some complaints about our job. Sometimes there are conditions such that we hate our job. But if you feel miserable going to work every day and do not look forward to even going to your workplace, you need to take some steps to change this. There could be many issues like the work is boring or your boss makes life extremely tough for you etc. You can speak to your immediate superiors or the higher ranked people or the HR team to get a different project or role or even work in a different branch to make things better. If that does not help, you should change your job or take a break. If you do not enjoy your line of work, you should re-skill yourself and try out something different. If you are not happy, you are not going to give your best and this will ultimately affect your salary, promotions, and career.

Read – Money Vs Job Satisfaction

6) Not maintaining professional relationships

Are you someone who thinks you are there just to do your job? Do you think there is no point in maintaining professional relationships? Do you ignore invitations to attend company events or profession-based events? It is not the correct line of thought in today’s workplace dynamics. You have to build a professional network. It helps to be in contact with professionals in your area of work. It helps to know current trends and events and build knowledge. Your professional network should consist of people within your current organization and outside of it. You will be known in the right circle which will definitely help you professionally. We need to have a connect with some people at least so that we can get some direction, guidance, and honest feedback. Even when you leave a job, leave it on cordial terms. It will not help if you remain isolated.

7) Avoiding risks and challenges

If you only do the tasks given to you or avoid taking on new tasks, assignments, or roles, you are not doing your career any favour. If you defer decisions to your boss or peers and always take the safe path and do not try out anything new or out of the box, you will not be rated ahead of your peers.  You might have heard the phrase, ‘no risk no reward’. It is applicable in your career path too.

Your career is an important aspect of your life. It affects your personal life and financial life. It is important that you do the right things professionally and avoid making the above mentioned mistakes so that  your career is on the right track. Must share your views, experiences or concerns in the comment section. 

Should you buy Sovereign Gold Bonds?

Hemant Beniwal
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3
Should you buy Sovereign Gold Bonds?

Should you buy Sovereign Gold Bonds? Today I will not answer this – you should tell me your views, after going through the post. We ran Ask Readers series in 2011-12 – today I am reviving this. Let’s see if you can learn something new by discussing & there’s a chance that you may win something by commenting. Comment & Win Contest will be back in August – rules are same top commentator & best commentator will win a price every month. So keep asking questions & replying. (July & August comments will be combined to choose winner)

Sovereign Gold Bonds

Ask Readers: What’s your view on Gold Prices

Sovereign Gold Bond’s note from BSE India website

Sovereign Gold Bonds are government securities issued by Reserve Bank of India on behalf of the Government of India. They are denominated in grams of gold and can be purchased instead of physical gold.

Investors can buy these bonds through BSE at issue price when RBI announces a fresh sale or they can purchase it immediately through BSE at current price like any other security.

Investors can redeem these bonds for cash upon maturity of the bonds or can sell it on BSE at current prices.

Key Features

  • The bonds bear interest at the rate of 2.75 per cent (fixed rate) per annum on the amount of initial investment. Interest will be credited semi-annually to the bank account of the investor and the last interest will be payable on maturity along with the principal.
  • The bonds will be available both in demat and paper form.
  • The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.
  • The bonds will carry sovereign guarantee both on the capital invested and the interest.
  • The bonds can be used as collateral for loans.
  • No STT or Capital Gains Tax (as per Government of India guidelines)

Advantages of Sovereign Gold Bonds

  •           Superior alternative to holding gold in physical form.

  • Risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest.

  • No issues like making charges and purity in the case of gold in jewellery form.

  • Held in the books of the RBI or in demat form  eliminating risk  of loss of scrip  etc.

Ask Readers: How to save maximum tax

Why Gold Bond Fund is Success but Gold Monetisation Scheme a Failure

The Government of India had launched the Sovereign Gold Bond Fund. It is a scheme where you can buy gold based securities which act as a substitute for investment in physical gold. They are denominated in grams of gold. The rate of interest is pegged at 2.75 percent per annum payable twice a year on the initial value of investment. People found merit in it as you are investing in gold and at the same there are no issues of storage and security. The securities can be traded as well. Redemption of principal and interest amounts is in the form of cash based on the average of gold price of the previous week of the redemption. In the first  set of the gold bond fund issue, people invested over Rs. 240 crores making it a success.

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The Gold Monetization scheme on the other hand targets to utilize the existing gold lying in households, temples and trusts. The government wants the customer to get the gold that he/she owns, get it assessed from a recognised centre and then melt it and give to the bank. In turn, the customer will get a certificate. At the time of redemption, the value of the gold will be returned with interest in monetary terms. The concept is good on paper as there are about 20,000 tonnes of gold in India that is unused. Even if a percentage of that gold is mobilized, the import bill can be reduced significantly. But gold has a lot of emotional value in India. It is not easy for a person to give away inherited gold to be melted and converted to paper. There is a lot of sentimental value attached. The interest rate that the banks planned to give was around 1% which is too low. Many people would rather store the gold than earn such low returns. In many cases, people have just got the gold from the previous generations and there is no proof of ownership. They might get scared to go to the government agencies and declare the gold in fear of being scrutinized, questioned and then getting into taxation issues and decide not to join the gold monetisation scheme. The Government then proposed and increased rate of 2% -2.5% which could provide a boost to investments. We will have to wait for the results.

Till December 1, 2015, only 1 kg of gold was deposited in this scheme which is not a great start.

The features of the gold bond fund and the gold monetisation scheme are quite different. The gold monetisation scheme is not customer oriented and therefore cannot be called successful like the gold fund scheme.

This post is written by Vidya

Ask Readers – What’s your experience with Buying Online term Plan?

Ask Readers – Why insurance claims gets rejected?

So what’s your view about Sovereign Gold Bonds?

Professional Indemnity Insurance for Doctors in India

Hemant Beniwal
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17
Professional Indemnity Insurance for Doctors in India

Why indemnity insurance? Doctors were revered in the olden times in India. But in current times,  due to some doctors’ malpractices or because of some doctors and hospitals trying to get more money by recommending unnecessary medical procedures and medicines, people look at the doctors’ community with distrust. There has been a rise in consumer awareness. Courts are more consumer-friendly now and patients have sued hospitals and doctors malpractice or negligence and the courts have been asking doctors and hospitals to pay for their mistakes.

Professional Indemnity Insurance for Doctors in India

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Read – Financial Planning for Doctors & how it’s different

What is Indemnity Insurance?

The  number of legal cases accusing doctors of negligence have gone up by 400% in the Supreme Court. Doctors are therefore professionals who face the risk of a financial liability in the course of practising their profession. The amount they can be sued for can be really exorbitant. Doctors therefore require special insurance so that they can protect themselves financially and legally when they are sued for negligence, malpractice or mistakes. This special insurance is called professional indemnity cover or medical indemnity insurance. Many insurance companies offer insurance plans to doctors to protect them in their practice. Indemnity insurance for Nurses is equally important.

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Liability Insurance for other Professional

Indemnity insurance is also available for other professionals – lawyers, architects, planners, small businesses, event liability etc. I am not sure if professional indemnity insurance is available for psychologists or real estate agents or labs that conduct health checkups. In case if you don’t find standard policy suitable for your requirement – you can always approach an insurance company as a group for customising a cover for you.

Professional Indemnity Insurance – Features

The professional indemnity insurance policy typically has the following features

Coverage under Professional Indemnity Policy

Usually the professional indemnity insurance provides cover for the following depending on the features of the policy taken-

  • The extent of financial damage for loss caused to victim which is not a result of willful neglect
  • Against unintentional errors and omissions by the doctor, insured qualified employees, insured non-qualified staff and insured partners.
  • The policy will not cover criminal acts, fraudulence, penalties or punitive damages.
  • Cost of defending oneself in the court of law.
  • The plan covers 1 year period.

Compensation from Insurance Company

The policy will pay the sum assured that has been set as a limit as the extent of damage cannot be quantified. The expense over and above the sum assured has to be borne by the doctor. Usually, there is no fixed limit on the indemnity. The cover that one will take depends on factors such as risk, probability of occurrence of events that can make one liable. Here the sum insured is referred to as Limit of Indemnity. This limit is fixed per accident and per policy period. It is called Any One Accident (AOA) limit and Any One Year (AOY) limit respectively. The ratio of AOA limit to AOY limit can be chosen. The AOA limit, which is the maximum amount payable for each accident, should be fixed beforehand. In most policies, the Any One Accident (AOA) limit is restricted to 25% of the Any One Year (AOY) limit. The AOA to AOY ratio depends on the insurance company.

Professional Liability Insurance Exclusions

The insurance policy will not cover penalties, loss of goodwill, personal damages, legal responsibility that cannot be covered under the inherent contract between doctor and patient, medical treatment given for weight loss, plastic surgery, genetic damages and conditions associated with AIDS.

What is Indemnity Insurance

Indemnity Insurance Policy Cost 

Premium of Professional Indemnity Insurance depends on the sum assured, profile of the insured, revenue, jurisdiction and risk involved. Premium for the professional cover is generally around 0.3%-1% of the total sum insured.

Comparison – New India Assurance & ICICI Lombard Indemnity Insurance Cover

Insurance Company New India Assurance ICICI Lombard
Inclusions Legal Liability  that the doctor has to face due to inaccuracy or mistake while offering his/her professional services. Liability caused by legal case by patient/patient kin due to inaccuracy or mistake which has caused damage  in terms of injury, death or disability to the patient.
Coverage The amount insured is determined on the basis of two conditions – per policy tenure and per accident that is Any One Year (AOY) limit and Any One Accident (AOA) limit respectively.

The ratio these two terms can vary from 1:1 to 1:2, 1:3 and 1:4. The Any One Accident (AOA) level is restricted to 25% of the Any One Year (AOY).

 The insurer has to allow two limits of insurance under the policy: Any One – Year (AOY) Any One Accident (AOA) AOA and AOY can  be in the ratio of 1:1 or 1:2.
Premium For an insurance cover for a consulting physician who does not perform surgery, the premium for an insurance policy of Rs. 10,00,000 is Rs. 1140 per year for any ratio AOY and AOA The Premium charged depends on –

1. Risk group of doctor

2. Limits of indemnity selected

3. Ratio of limits. The AOY to AOA ratio can be only 1:1 or 1:2
Exclusions The policy will not pay for claims arising out of contractual responsibilities, loss of goodwill, fines ,penalties, defamation etc. The policy will not cover

– Illegal activities

– Medical procedures related to plastic surgery, HIV/AIDS and weight loss

– Medical treatment given under the influence of drugs

 

Check – 9 most Common Insurance Questions

Importance professional indemnity insurance policy

The public is more aware of their rights and the duties of doctors and know that they will be heard in the court of law if they are wronged. The judicial system is also more empathic to the consumer. This will definitely improve the accountability of doctors. (Read – Financial Advisor are like Doctors & vice versa) But doctors should not be harassed or punished unnecessarily. Professional indemnity cover takes care of the financial liability claim raised by the consumer. The doctor should take care that the sum assured is not very small. It should be renewed regularly and that one is covered both at the time of the event and when the claim is made and is to be paid. If one plans to change the insurer, then events of the past should be taken into consideration. A run-off cover helps in these cases.

If you have already taken or in the process to take professional indemnity policy – please share your experience. If you have any questions regarding liability, rates, policies – feel free to add in the comment section.

Do you need to Insure your Pet?

Hemant Beniwal
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2
Do you need to Insure your Pet?

A pet is not just a domestic animal for a pet owner, it is a part of the family. Pet owners give love and care to their pets as much as parents would give their children. Therefore just like, we provide insurance cover to our families, we can think about pet insurance too.

Do you need to Insure your Pet?

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Pet insurance India – Why should you insure your pet?

Owning pets is a growing trend in India today. Moreover, many people have exotic animals and breeds as pets. Such pets are expensive to buy and take care of.  It is better to insure them against death or theft so that you are financially secure. It is not easy to get over the loss of the pet but insurance will ensure that you have the financial resources to replace the pet.

Pets live longer thanks to advances in medical treatment and veterinary medicines. At the same time, medical care costs are also rising. An insurance policy that covers medical care will help the pet to stay healthy and also take care of the monetary aspect of medicines and treatments.

Do you need to Insure your Pet? Click to Tweet

Some pets are prone to accidents, they all grow old and some need regular treatments. For example, Labrador dogs need surgical treatments once a while. It is better to have an insurance cover for such pets.

Your pet may bite a third person or attach another person or destroy someone’s property. You might have to pay for the monetary damages incurred. An insurance cover helps you in such matters.

Let’s dive deep into this topic and this post goes into detail about the most commonly asked questions:

What does Pet Insurance mean?

It simply means to take insurance for your pet , so if any emergency will occur towards your pet i.e (injury , health ), you can get it reimbursed by insurance company in the form of claim.

How Much Does Pet Insurance Cost?

  • It will cost us around 5-6% of sum assured depending on breed and age of the pet.

Can I get medical insurance for my dog?

  • Yes, you can. Companies like Bajaj Allianz pet insurance, United India pet insurance

can provide you such covers.

Is it worth it to get pet insurance?

  • Yes because medical cost are increasing as the advancement  increases day by day.

How much a month is pet insurance?

  • If your pet is between 8 weeks to 8 years old, you can take insurance

Which is the best pet insurance?

  • Get a insurance which covers not only health but also covers the third party also, in case your pet bites someone then you can get reimbursement by insurance. And the sum assured of that insurance should not be low as there is no use to pay high premiums  in against of low sum assured.

Is there a waiting period for pet insurance?

  • It  varies from company to company, if they find any disease that they are not covering, you will not able to get cover, but yes, again it depends whether the disease is subject matter to permanent or temporary.

Does Pet Insurance increase with age?

  • Yes as your pet grows older, the premium will increases accordingly, those who have young exotic pets, it is more advisable to take insurance in the young age of that pets.

Does pet health insurance cover vaccinations?

  • It may cover vaccination or you can get it customized by company, subject to policy document of the respective company.

What is an annual deductible for pet insurance?

  • At the time of claim , you only need to bear 20% of the claim amount , the rest would be bear by the company.

What is a lifetime pet insurance policy?

  • Lifetime cover protect the pet against any critical illness and long  term illness. This includes diseases like eczema, arthritis, etc. Policyholder opts for this cover, will receive spa specified amount each year towards the treatment of the pets.

What does accident only pet insurance mean?

  • As its name itself clarify it is going to cover only accident of the pets if not happened due to pet owner’s negligence , you can claim your pet’s  veterinary treatment in the event of any accident.

How soon after getting pet insurance can I claim?

  • Just like Health Insurance, you have to pay out from your pocket first then you can claim it from the company.

Does any pet insurance cover routine visits?

  • It depends on the policy terms you have opted for, you just need to go through the policy document or ask  policy provider for the same.

Can you get pet insurance after the injury?

  • It varies from company to company how they deal pre existing injury. But generally, exclusions are treated as either temporary or permanent.

A pet is not just a domestic animal for a pet owner, it is a part of the family. Pet owners give love and care to their pets as much as parents would give their children. Therefore just like, we provide insurance cover to our families, we can think about pet insurance too.

Which are the pet policies available in India?

Pet insurance is not popular in India. There is low awareness about it among people and many insurance companies do not provide it. You can get pet insurance for an amount between Rs. 2,000 and Rs. 50,000 depending on the breed and the insurance company.

Some insurance companies such as Future Generali provides animal insurance as part of the rural insurance schemes.

New India Assurance

New India has a dog insurance scheme that provides coverage to dogs from 8 weeks old to 8 years old against death due to accident or certain illnesses. The company will bear 80% of the claim amount and Insured will bear 20% of the claim amount. You can get more details here.

Major Exclusions

  1. Common Exclusions : As per Cattle Insurance

  2. Specific Exclusions :

    1. Death due to diseases such as Distemper, Rabies, Viral Hepatitis, Leptospirosis, Viral enteritis. These diseases are covered only if the dogs have been successfully vaccinated and a Veterinary Certificate to that effect is produced.

    2. Diseases contracted prior to and within 15 days of commencement of risk.

    3. Transport, show risk, breeding and whelping risk, third party personal injury unless additional premium is paid

Oriental Insurance

Oriental provides an insurance policy for dogs from 8 weeks to 8 years old. Dogs are covered against death due to accidents and illnesses. For an additional premium, dogs are also covered against loss of litter, theft, personal injury or property damage of third person etc. You can click here for more details.

Brief Description: This Policy covers Indigenous, Cross bred or Exotic dogs which are Pets, Watch dogs, Sheep dogs and Hunting dogs and provides Insurance against death due to accident and / or diseases during the period of insurance to the dogs. Age: 8 weeks to 8 years. Insured dogs must be suitably identified by one of the following methods: 1) Tattooing, 2) Nose Print, 3) Coloured photograph, 4) In the case of pups, one more colour photo may be taken at 6 to 8 months age. Normal physical identification marks and breed, sex, age etc. should be clearly described in the Veterinary Certificate and Proposal form. The Policy may be extended as per the following sections and the proposer may choose to cover risk under any section(s) by payment of extra premium: Section 1: Death by accident in transit by air, rail, road and water and show risk, Section 2: Death by accidental poisoning, Section 3: Breeding Risk – a) Death by whelping, b) Loss of litter in case the whole litter dies within 14 days after birth, Section 4: Lost or stolen dogs(including burglary or Housebreaking), Section 5: Loss of show entry fees (max. limit Rs.250/-) when the dog registered with the Kennel club is unable to attend the show because of accident or disease, Section 6: Loss of value resultant upon an accident, Section 7: Liability for personal injury and damage to property (including animals, poultries or third parties) up to Rs.5000/-, Section 8: World Wide Transit Clause

When should I not worry about insurance so much?

If your pet is young and healthy or if the pet is not a very exotic animal, you may not want to insure it as pet insurance is quite nascent in India. Of course, as it grows older, the premium will increase. If you are ready to face – if your dog bites someone.

The number of pet owners is increasing rapidly. Moreover, pet owners and veterinarians can potentially be benefited if insurance companies come in the fray to financially help to take care of pets.

Between I don’t like Pets : ) Please share your experience or questions about Pet Insurance in the comment section. 

Let’s look at LTA Rules, Exclusions & Tax Exemption

Hemant Beniwal
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2
Let’s look at LTA Rules, Exclusions & Tax Exemption

Leave Travel Allowance (LTA) is a component of one’s gross salary. If you take leave from office and travel, you can claim LTA amount to the extent used for the journey without it being subject to taxation. If there is any portion of LTA left unclaimed, that amount will be included in your income tax computation.

You can claim LTA twice in a block of 4 calendar years. The current block is 2014-2017 which means you can claim twice between 2014 to 2017.

LTA Leave Travel Allowance

Image courtesy of Idea go at FreeDigitalPhotos.net

 Read – Club Mahindra Membership my biggest financial mistake

LTA Rules –

  • To claim the tax deduction, you have to travel with or without family to any place in India taking leave of work. A Family includes parents, spouse, children (maximum of 2 if they are born after October 1998). You can claim for siblings if they are dependent on you.
  • You can claim the cost of travel only for the trip. Amount paid towards accommodation, food etc. cannot be claimed
  • Your travel by road, rail or air to any destination in India can be covered under LTA. The shortest route will be covered. If you are travelling to different places, you can claim for the journey up to the last destination.

Read – How to save money on Holidays

Leave Travel Allowance you can claim

Leave Travel Allowance in India

  • You can claim LTA tax exemption by submitting the actual bills with a written declaration. In some cases a written declaration that the amount stated has been used for leave travel is allowed though it is best to submit bills. Sometimes the IT department might want to check the original bills, tickets, boarding passes etc. So it is better to submit the originals and keep a copy of the same.
Let's look at LTA Rules, Exclusions & Tax Exemption Click to Tweet
  • If you did not submit any proof or declaration of travel, you will receive LTA as part of your salary and it will be taxed as per the tax slab you fall under.
  • If there are two or more salaried persons in a family, only one of them can claim LTA for one travel. For example, if the husband and wife both earn a salary, they should submit different bills/tickets to claim the exemption.
  • If in the block 2014-2017, you claimed LTA once, the second journey can be carried forward to the next year i.e. 2018 and claim exemption for the same. Please note you can carry it forward to the next year ONLY and not the next block.

Read – Personal Finance Tips from my trip

Some exclusions to keep note of –

  • Overseas travel cannot be considered for LTA claims
  • If your dependent family travels without you, you cannot claim LTA.
  • The travel dates should be during working days and the employee should have a record of leave.
  • LTA claim can be made only once in a year even if you have not exhausted the limit.

LTA Tax Exemption Limit

LTA is a component of your salary that you can use to get some tax exemption. The amount depends on the organization policy and you need to take leave aligned with organizational policies and your work.

This article is written by our “thought leader” Vidya.

Must share if your organisation allow you to claim LTA & are their any limits. Also, share your experience & tips that can be useful for other readers.

ESOP in India – Benefits, Tips, Taxation & Calculator

Hemant Beniwal
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8
ESOP in India – Benefits, Tips, Taxation & Calculator

You must have heard stories of crorepati employees of Infosys or some other big organization – I am talking about 10 years back when salaries were comparatively low. Most of the Indian employees knowingly or unknowingly get benefitted from ESOP in India (Employee Stock Option Plans) even if they don’t understand the power of equities.

Last week I was working with one of our clients on his financial plan review & he shared details about his ESOP in India (which he never considered part of the plan earlier) – we did some calculations & our eyes popped out – based on the current rate (after adjusting cost & all the taxes) benefits were more than 20% of his net worth.

ESOP Tax Calculator india

Read – How to calculate our net worth & why it’s so important

What are ESOPs- definition/meaning 

ESOPs are Employee Stock Option Plans – few call them Employee Stock Ownership Plans in India. When an employee gets ESOPs from the company where he/she works, he/she gets the right to purchase a certain number of shares in the company at a predetermined price after a predetermined period or period… It is generally given as a reward for performance or tenure with the company. It also serves as a motivational tool as once you own stock, you actually own part of the company, and if the company does well the stock value rises. ESOPs also help in retaining employees. Companies give ESOPs in parts & there is a vesting schedule. So today an employee may get 3000 shares which would be given in sets of 1000 over a period of time. Usually, employees have to wait for a certain duration to exercise their right to buy shares. This period is called the vesting period. If the employee does not exercise the option of buying the shares within the vesting period, the options lapse and the employee does not get any rights. IT firms had started this trend but now many companies in different sectors give ESOPs to employees – even the startups are depending on ESOP to attract talent.

Read: Mutual Funds Vs Direct Equity – Aam Aadmi’s Question

How does an employee benefit from ESOPs?

An employee can create wealth from ESOPs if the timing (luck) is right and the company does well. ESOPs should be exercised when the ESOP value is at a lower price than the market value of the shares on that day. (to save tax but there are other factors that should be considered before exercising)

ESOP in India - Benefits, Tips, Taxation & Calculator Click to Tweet

ESOP gain but Zero Risk Strategy

An employee wants to take zero-risk – he can exercise when company share is trading at a premium. If the employee sells the shares at the right time, he/she can make a neat profit – For example, if an employee gets 300 shares at Rs. 100 per share and the vesting period is 1 year, he/she can exercise the option of buying the shares after 1 year. It is advantageous if the employee exercises the option when the market value is greater than Rs.100 at that time. Suppose the market value is Rs.150 at that time, the employee can get the shares at Rs. 30000 and sell it at Rs. 45000, (Rs.150 x 300). He can make a profit of Rs. 15000. (there will be tax involved in this strategy – 30% perquisite tax & 15% short term capital gain — approximately  4500 + 2250 — still a decent net gain of Rs 8250) Employees do not have any risk as they pay money only when they exercise the option. If the market price of the shares is high, they can take the shares and sell getting high profits. They have the option to not take the ESOPs as well.

Read – 15 types of risk that affect your investments

How do ESOPs help the company?

The company can preserve cash and dilute ownership if required. The company benefits by giving ESOPs to employees. Employees benefit from the increase in the share price, so they will focus on working towards making the company successful.

What are the pros & cons of ESOPs?

ESOPs can be of great value in the long run. For example, when Infosys was really small, it gave a lot of ESOPs to the employees. They all benefitted when it became such a successful company by selling the shares in the market. ESOPs are one of the ways to participate in equities. As an employee, you will know how the company is doing and its growth plans. You can accordingly decide your investment strategy in ESOPs like if you should exercise the option, when to exercise the option and when to sell. (can try)

Companies can give ESOPs to employees when they are short on cash as an incentive. Employees will be more focused on delivering results as they have a stake in the company.

ESOPs may not be suitable for people who do not want to take risks. Sometimes ESOPs may backfire resulting in very less or no value for the employee. If you want liquidity, ESOPs are not the best option as there are many rules regarding when to exercise your options. There are also tax implications that should be considered carefully. (for every Infosys there will be 10 other companies where ESOPs earned Zero profit)

In one of my earlier post, I talked about ESOP –

WHY do we make financial mistakes

Most of the employees who get ESOP or ESPP benefits hold these stocks close to their heart. And in most of the cases I have seen that with time these stocks become their biggest financial asset or biggest equity assets. But I have to ask these people:

  • Is this (your company) the best stock available in the market?
  • Don’t you think you are losing the benefit of diversification?
  • What will happen if your company starts underperforming – you will see tough times in your job as well as your stocks will underperform?
  • And the worst case – what will happen if your company becomes next Satyam or Enron?

Must Read –11 Unusual ways of smart tax planning

What are the tax implications on ESOPs?

– When the options are given by the company, there is no tax.

– When the options get vested, there is no tax.

– When the employee exercises his option of buying the shares, the difference between the market value and exercise value is treated as perquisite and is taxable as per the tax bracket that the employee falls in.

– When the employee sells the shares, the profit is treated as capital gains. If the shares sold within one year, 15% capital gains tax has to be paid just like in the usual purchase and sale of shares. If the stock is sold after 1 year, there is no tax as it is considered as long-term.

– If the employee has ESOP in India of a company that is listed abroad, and sells the shares, short-term capital gains are added to income and one has to pay tax as per the tax slab that he/she falls into.

– If the capital gains are long-term, 10% tax has to be paid without indexation benefit or 20% tax has to be paid with indexation benefit.

ESOP Calculator India

ESOP Tax Calculator India

I have prepared no-frill Employee Stock Option Plans (ESOP) tax calculator India in excel – you can edit & use it according to your need. {you can also send suggestions & updated calculator to me on Hemant (@) tflguide.com – I can add that here}

ESOP Tax Calculator – Download

How are ESOPs different from ESPS and RSUs?

Employee Stock Purchase Scheme (ESPS) allows employees to buy shares at some discount decided by the company as compared to the market price. Shares can be bought by employees via monthly deductions from their salary.

Restrictive Stock Units (RSUs) – When the employer gives RSUs, the employee gets the shares free of cost provided some conditions are met like a vesting period, employment time-frame, etc. RSUs are gaining popularity in recent times.

Hope this article clarifies your doubts about ESOP in India. In the comment section – please share your experience with ESOPs & if you have any questions…

Top Lessons from Financial Planners’ Conference in US

Hemant Beniwal
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3
Top Lessons from Financial Planners’ Conference in US

Everybody has something that they would love to do if they didn’t have to work – except for a fortunate few who absolutely adore their work itself. First, find out what it is that really motivates you the most and drives you to want financial freedom. In some cases, it’s money – really. It took me more than 50 words to share the message but Mitch Anthony explains this beautifully in just 10 words.

Conferences are a great way to learn & share our views. This month there was a conference is US organised by NAPFA (The National Association of Personal Financial Advisors) – one of the most reputed Financial Planner association. I haven’t attended that but read amazing messages flashing on Twitter – I decided to share selected meaningful tweets with you. Hope you will enjoy!! (trying to be bit active on twitter – join @hemantbeniwal )

Top Lessons from Financial Planners' Conference in US

Image courtesy of jscreationzs at FreeDigitalPhotos.net

Top Lessons

Vanguard is world biggest ETF management company – founder John Bogle is treated as father of ETF industry. Relying on past performance is really dangerous… check 10 investment mistakes you should avoid

Last Year I read Greg McKeown’s book Essentiaism : The Disciplined Pursuit of Less – also suggested this to couple of clients. Book is about busy vs prodectivitity.. I think these 2 messages will give some idea (Rick Kahler in Financial Planner & famous author – last year Rick visited India & shared his views on Behaviour Finance)

Top Lessons from Financial Planners' Conference in US Click to Tweet

Change – I think biggest chanllenge for everyone in personal & professional life… “He who rejects change is the architect of decay.  The only human institution which rejects progress is the cemetery.” Harold Wilson

Happiness  – read Money Can buy Happiness

Investor Behaviour – I think that’s the key of investor success – read 6 common behaviour mistakes

Fun : )


Mitch Anthony is famous author & Financial Advisors’ coach – he is pioneer in Life Planning & Retirement Planning

I think this applies to the whole world – US is facing elections this years so investors are woried about the outcome & trying to predict result + how that will affect them … read Let’s not believe in predictions

Thanks to Carolyn & others for these tweets

You must have noticed that most of the tweets were not directly linked with finance – there are 2 reasons, I have not added technicals tweets which are not relevent for Indian audience & second US planners are now focussing on Financial + Life planning – which looks to be a future of this profession. I have also talked about the concept in my book “Financial Life Planning” – now avilable on Amazon

Please share your views in the comment section. Your motivation is required to keep us active : )

Mutual Funds Pollution & how to control

Hemant Beniwal
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10
Mutual Funds Pollution & how to control

A mutual fund collects money from different people/institutions and invests in different assets and securities like equities, bonds, cash etc. on behalf of the investors to generate returns. Mutual fund scheme units can be bought at Net Asset Value (NAV) from the Mutual Fund company. There will be a portfolio manager to manage the investment and to ensure that returns are maximised and risks are minimized. The Asset Management company charge management fees & distributor/advisor also earn out of this.

This article is written by one of our clients & I have published it as it is – just added my take at the end of the post.

Mutual Funds Pollution & how to control

Review – ICICI India Opportunities Fund

Mutual fund investments are beneficial for the layman investor as he does not need a big amount in a lump sum to invest and can also benefit from diversification across assets. He also gets the advantage of a professional management of his investments and gains income in the form of capital gains, and dividend.

Mutual Funds Pollution & how to control Click to Tweet

But anything of too much is not great. Consider the following structure (missing many categories) –

Types of Mutual Fund

Read – Types of Mutual Funds in India

MF Pollution

There are further sub-divisions within these as well. In India, there are more than 40 Mutual fund companies and more than 2000 schemes. (Mutual Fund base swell to more than 14 lakh crore in April 2016 – that’s huge, looking at where we were couple of years back) As you can see that there are a lot of mutual funds schemes and a lot of investment by mutual funds. Moreover, mutual funds keep launching new schemes with differentiation or with very little differentiation between schemes to get more market share. Sometimes a mutual fund manager is forced to show product differentiation and ends up choosing stocks that may not give great returns leading to underperformance by the MF Scheme. Some managers play too safe and invest only in Sensex stocks or low–risk assets. This leads to the investor not getting optimum returns in spite of paying for professional management of his fund.

Read – Core & Sattelite – How to construct MF portfolio

Khichdi Portfolios 

The retail investor has too many mutual funds to choose from. Many are just slightly different from the others and some are just duplicates of other schemes. But it is difficult for an investor to choose funds to invest in. Many schemes have similar sounding names and the user is confused which to choose. Sometimes investors end up buying too many MF schemes that have similar objectives either due to non-awareness or mis-selling. Here investor become fund collector. Some investors consider all equity funds or all debt funds as same and invest in any of them without considering all parameters or just consider the performance. This might defeat their investment objective. Some investors buy all new schemes launched with the argument that the NAV is only Rs.10. But that is a wrong way to look at the investment. Many agents/distributors keep trying to sell more and more mutual fund schemes to the investor to confuse them whether it meets their investment objective or not as the agent will definitely earn commission and his objective gets fulfilled.

Read – 5 reasons why not to invest in MF NFO

How to Control

Here are some steps to consider that will help the investor decide which Mutual fund scheme out of the numerous ones available to consider investment in and how much to invest in Mutual funds

  • The investor should have an investment objective for investing in mutual funds. He should know how much to buy to fulfil the asset allocation and investment diversification objectives.
  • The investor should read the scheme documents so that he knows the asset management fees, objective of the scheme, fund management team etc.
  • Once the investment is made, he cannot forget about it. He should keep a watch on the NAV, dividends, investment style of the fund house and fund manager and any important news that might affect the mutual fund. (frequency can be low)
  • The investor has to consider performance in the past (but not the only criteria), portfolio, management team, returns, risk, the cost of investment, investment exit barriers and performance against peers to select the schemes that they have to invest in. These parameters must be considered keeping a time period in mind.
  • It is important to keep an eye on the portfolio of the MF scheme. The liquidity of the portfolio is important. Higher the liquidity, the better it is. The portfolio turnover ratio should also be considered. It indicates the number of times underlying securities are bought and sold. The more times the portfolio is churned, the higher is the ratio which leads to higher cost. It can also lead to volatility and show the confidence of the fund manager in the portfolio.

It is not easy to select the mutual fund schemes to invest in. The investor has to consider qualitative and quantitative parameters to select schemes to invest in. At the same time, the investor community needs to be active to push SEBI and AMFI to have a regulatory framework that protects their interests. SEBI and AMFI have to ensure regulations are framed and followed so that investors are not taken for a ride.

My Take

I agree with most of what is mentioned in the above post regarding mutual fund “population or pollution”. Psychologists have already proved that too many choices or data or information lead to worse decisions or no action at all. Similar is the case when it comes to Mutual Funds. The only way of overcoming is if you can create your own filtering criteria & stick to it in all season. I think mutual funds are also responsible for this habit of launching funds with similar investment styles – in the long term that benefits them as they will be promoting the performer of last few years.

SEBI asked AMCs in one of the meetings with AMC – they have asked them to share one fund each in 8 most common categories defined by the regulator. This hints that they may be planning to bring some regulation to merge all overlapping schemes. This may sound like this will reduce confusion – theoretically YES. To me, it sounds like a dumb idea from regulator – can someone ask Hindustan Unilever to make only one soap or  Maruti to manufacture one car. I know this is tough but this is the way the world is.

Please share your views in the comment section…

Greater Fool Theory & Indian Real Estate

Hemant Beniwal
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9
Greater Fool Theory & Indian Real Estate

The Greater Fool Theory is an investment belief that says there will be an investor always to buy an asset however overpriced it is. Thus even if the original investor had paid a higher price than was necessary, he would make a profit as “a greater” fool would buy it from him at an even higher price. In most of the asset markets like real estate, equity and gold, the greater fool theory is applicable. Many people buy an asset thinking or rather hoping its value will go higher and they can sell it. This cycle continues leading to inflationary prices – BUBBLES.

Greater Fool Theory

Image courtesy of olovedog at FreeDigitalPhotos.net

Read – Should I buy or rent a house? (2012)

Will the greater fool theory benefit you?

It depends on the type of the market. If there is a bubble in the market (real estate or stock), you can be benefited. You buy  a stock or invest in a property. In a bubble, there can be irrational buying which can lead to rise in the prices and some buyers will be ready to pay a higher price than is the true value of the asset. On the other hand, if it the bubble bursts or investors as a collective realize that the market is overvalued, there will be no buyers. If you were looking for a buyer to pay a higher price, you will not find one. Some investors sell in such a market leading to further devaluation. Your property/stock can lose value quickly in this market. (It’s better to avoid bubbles than playing smart – it’s like “passing the parcel”, you never know what will happen when music stop)

Must Read – Herd Mentality 

The theory can be applicable in different areas

For example, 15-20 years back, working in software companies was considered a lucrative career with a good salary, stock options and overseas assignments. Everyone wanted to become a software engineer and tried every trick in the book to get into Inofsys or TCS. But today, the profession is not so lucrative from a money perspective as there is too much supply compared to demand, companies are trying to right size the staff. Stock options have dwindled and overseas assignments are lesser now or not so attractive. Moreover in the long run, if all engineers work in the software industry, there will be shortage of skilled resources in other industries. They will also suffer consequences of the ‘Greater Fool’ theory.

Greater Fool Theory & Indian Real Estate Click to Tweet

US Housing Market Bubble

2000-05, there was a housing market bubble in the United States, where the real estate prices went up or were artificially made to rise. People bought houses at these high rates thinking there will always be someone to buy it at an even higher rate as the housing market was going through a boom. But then interest rates began to rise and demand for houses reduced. This led to default in payments triggering a real estate collapse. People ended up having real estate that was worth little at that time and owing big loans that were taken to finance the purchase.

Read – 4 Lessons from the real estate bubble in the US (2012)

Indian Real Estate

In India, we view buying property as a source of wealth and income generation. We buy property thinking it will secure our future generations. Till recently the real estate prices were on the rise to the point of being almost unaffordable to people. But in the last 2-3 years, there has been stagnation in real estate prices. Demand has been decreasing. This is because the prices are so high that people are unable to buy at these levels.(or investors feel they will not be able to find Greater Fool) There have been many regulations in place to curb black money getting invested in real estate and the real estate market was dependent on investors to put money in it. Now investors are slowing down or playing the waiting game. There are new norms for lending to real estate sector which also has brought a slowdown in funds getting pumped in real estate.

Read – Indian real estate bubble, will it ever burst (2012)

Data is irrelevant here but still…

Property prices remained relatively same between December 2014 and March 2015. Prices in the Mumbai Metropolitan Region fell by 2.18 percent. Prices in Chennai, Hyderabad and National Capital Region remained flat (Source: Real estate research and rating firm Liases Foras). This is quite different from earlier when real estate prices were only rising. Moreover, the FICCI-Knight Frank Real Estate Sentiment Index for the period January to March 2015 states that only 15% of respondents in its research expected residential sales to increase.

The chart below shows the year on year percentage change in price of housing in India. As you can see, there is a downward trend in the last 2 years.

Indian Real EstateSource: RBI

NEW PROPERTY LAUNCHES
Area Q1 (2013) Q1 (2014) Q1 (2015)
Mumbai 31 22 9
NCR (National Capital Region) 27 20 4
Kolkata 6 5 3

Source: Livemint

This chart shows the number of new launches in the real estate sector in the first quarter of last 3 years and it can be seen that it has reduced significantly across the country.

Read – Can I afford a House? (2012)

I got a question 

I got this comment on “The Art of Thinking Clearly” – it will be great if you can answer..

I am able to readily connect to this article and sub-section “Endowment Effect”.

I have two plots (vacant site) in Bangalore. In one of them, I am constructing the house, by taking home loan from bank. Thinking, should I sell second plot and clear the housing loan or keep it with me to let it grow? If I sell second plot now, may not get much profit. It could barely make break-even of the investment (invested 3 yrs ago). What are your views on this?

Read – Hindsight Bias

What should you do?

If one had bought property a couple of years back hoping to sell it off, he/she will not find a ‘greater’ fool soon as the property market is in the decline phase. (I am the worst timer & predictor of any market) People will not be ready to pay a high price. Experts also believe that it will take a few years now for real estate to regain its original sheen. (not sure but same experts were gung ho few years back) It is concluded by other experts that real estate investment is not as attractive for now and there is a disruption in the market.

My observation (not advice)

The greater fool theory might not be applicable for now here as ‘greater fools’ might not emerge soon and your investment will not appreciate the way it was appreciating in 2004 to 2012 or you will not get returns on investment as expected.

Feel Free to Share your views in the comment section.

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