Monday, October 24, 2011

Prajna Capital

Prajna Capital

You can build good Credit Score with Student Loan

Posted: 24 Oct 2011 03:27 AM PDT



Students access credit for various reasons, including financing college education and meeting other personal expenses. Credit can lighten the financial load on parents by spreading the cost burden over a longer period. Regular repayment of loans will help you to establish a good credit profile. However, irregular repayments may make it difficult for you to access credit in the future.

GETTING AN EDUCATION LOAN IS EASY

Most banks offer education loans at low interest rates, as prescribed by the Reserve Bank of India. As students, you would be the primary applicant. Typically, an education loan of up to . 4 lakh only requires a parent or guardian to co-sign the agreement; for loans ranging from . 4 lakh to . 7.5 lakh, banks may require you to provide co-obligation of parents together with a suitable thirdparty guarantee.


While for loans above . 7.5 lakh, banks require co-obligation from parents, tangible collateral security and the assignment of your future income.

REPAYMENT

Education loan repayment starts six or 12 months after course completion or after gaining employment, whichever is earlier. The course term is a moratorium, when only the simple interest on the amount disbursed is payable. Let's take the example of Rahul.


Rahul's father was happy to pay the interest during the moratorium. While at college, Rahul applied for a 'free' credit card. However, he did not realise that the only 'free' aspect to the card was the waiver of the joining fees. A credit card can be very expensive form of credit, if a balance is outstanding for some time or the balance is not paid in full and on time, every month.


Rahul only paid the minimum amount due on his credit card each month and saw his outstanding balance increase, to the extent that once he had graduated, his outstanding balance was more than half his annual income from his first job in a large IT company.


Initially, Rahul paid his education loan and credit card repayments monthly and on time, but when he went to the US for a two year project, he let this discipline slip and began to default on his obligations.


He thought that this wouldn't matter too much as he would pay off his debts once he had saved enough money from his stint abroad. Rahul returned from the US six months ago and settled the accumulated and long overdue balance on his credit card and education loan.


He wanted a larger place to stay and with the remaining money saved from his stint in the US, he could afford the down payment but needed a home loan for the balance amount to purchase a property.


To his dismay, the bank refused the loan request based on his credit report, which showed the irregularity in repayments, even though he had no outstanding balance.


He wished he had taken more care about his earlier credit commitments and has vowed to re-establish his credit history by taking out small credit commitments and repaying these on time, thus enhancing his chance of buying his dream home in the future.

HELP IS AT HAND

In case your family income from all sources is less than . 4.5 lakh, you can obtain an income certificate from the state's issuing authority and get a subsidy on the entire interest during the moratorium. In case you find it difficult to get a job, you should promptly alert the bank about the situation. In most cases, banks will take note of your troubles and may extend the moratorium to two years.

CREDIT HISTORY

Banks and NBFCs provide a record of your loan and credit card repayments to credit information companies (CIC) such as Experian. A CIC is an independent organisation that compiles public data, identifies information, credit transactions and payment histories of consumers.


When you apply for a loan, banks have to make sure that you are who you say you are and that you are likely to repay the loan. They will look at the information in your application and will check your credit report from a CIC.


If your report shows that you repay credit on time, this will usually help you get credit at favourable terms.


Thus, it is important to maintain a good credit history.

 

 

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Motor Insurance: Comprehensive insurance covers car occupants and pillion riders

Posted: 23 Oct 2011 11:43 PM PDT

INSURANCE companies have been capitalising on the misperception that a comprehensive motor insurance policy (CIP) does not cover persons travelling in a car or sitting astride the pillion of two-wheelers. Most consumers believe the policy only covers loss or damage to the vehicle and third party accident claims.

When vehicle owners want passengers to be insured, the insurer charges an additional premium, although they get covered, by default, under a CIP. There have been instances when the vehicle owner has been personally held liable to pay compensation to the injured passengers. This because the insurer misled the courts about the scope of a CIP.

This deceit got exposed when the Delhi High Court looked into a judgement passed by Justice JR Midha in the case of Yashpal Luthra & Anr versus United India Insurance Co Ltd & Anr.

Vinod Luthra, 24, was sitting astride the pillion of a motorcycle being driven by his friend, Umed Singh Mateyee. Their bike got hit by an unknown vehicle. Luthra fell down, suffered fatal injuries and died. The bike was covered under a CIP issued by United India Insurance. Luthras parents and widow filed aclaim before the Motor Accident Claims Tribunal (MACT) against the insurer and the vehicle owner.

The insurer defended by contending that a pillion rider could not be termed as third party. Hence, the CIP did not cover the pillion rider. Accepting this, the MACT exonerated the insurer, but held the vehicle owner solely liable to pay the claim, pegged at `453,300. The Luthras appealed to the Delhi high court against this order, urging the insurer also be liable. They also pleaded for increasing the amount awarded by the MACT.

The high court framed the case thus: Whether, under a CIP, the insurer is liable to compensate for the death or injury of a pillion rider or the occupants in acar? This was to be considered in the light of the policy terms and conditions, which provide that, subject to the limits specified, the insurer would indemnify the insured in respect of death of, or bodily injury to, any person, including the passengers. In case the occupants are being carried for hire, the insurer would not be liable. Similarly, if the passenger is an employee (or driver), the insurer would also not be liable.

To determine this issue in accordance with the directives of the Tariff Advisory Committee (TAC) and that of the Insurance Regulatory Development Authority (Irda), the high court considered it necessary to examine officers from the insurance company, TAC and Irda.

The court also examined M A Kharat, general manager of United India Insurance, who admitted the company was liable. Kharat further stated that on 16.11.2009, Irda had issued a circular to all insurers, reiterating that under CIP, they were liable in respect of a pillion rider and the occupants in a car. Kharat admitted to another wrong stand taken by the insurer before the Supreme Court in another matter. He said he would instruct the companys advocate to clarify to the court the correct legal position, thus admitting the liability of the insurer.

The Irda informed the court it had convened a meeting of all public and private insurers, where this issue was discussed, and a consensus reached that insurers were liable for claims of occupants of vehicles and pillion riders under a CIP. So, it was decided, in cases where a contrary plea had been taken, the lawyers and the operating officers would be informed within seven days to correct their stand.

Justice Midha also expressed hope that a large number of pending cases all over the country would come to an end, and the claimants who have been denied compensation shall get their legitimate due.

The impact can be best summed up in the courts observation that a non-issue had been turned into an issue.

Use Beta Method To Control Portfolio’s Volatility

Posted: 23 Oct 2011 09:31 PM PDT

IN volatile market conditions, one needs to be aware of the risk ones portfolio is facing. The simplest way is by calculating the beta of your portfolio.

In financial terms, beta is the measure of your portfolios volatility. A beta of one would indicate your portfolio is not more volatile, nor less than the market as a whole. If your portfolio beta is more than one, then it means your portfolio is more volatile than the market, while less than one indicates it is less volatile.

In these days, a lot of portfolios show losses. This causes investor panic, leading to hasty or sentimental decisions. However, if you believe in stocks, absorb the paper/notional losses without panicking and make your decisions based on hard facts.

One calculates portfolio beta by the weighted average of each individual stocks beta in your portfolio. Portfolio beta is a very important part of making a portfolio, as it takes past records into consideration. It also helps us know how the portfolio would react in relation to a particular benchmark, and if it fits within the clients requirement.

Generally, during bullish times, a high beta is preferred, and one could choose funds or stocks with a higher beta (more than one). While during volatile and uncertain times, or when the markets are bad, a lower beta is better.

While a beta is not the foremost decision on which an investment is made, it is essential. It helps determine how much risk a particular investment carries and how it affects your overall portfolio.

If a client is bullish on a particular stock, sector or asset class, based on the data available, one can calculate how much more exposure the client can take in that investment. Beta allows us to determine how much will a particular investment will affect the overall portfolio beta, and based on how much more risk one is willing to take, we can accordingly allocate the funds.

When one is being swayed more by sentimental market movements, pressure and other hearsay, calculating the beta would help understand the risk one is taking. Company fundamentals and macro and micro economic factors are useful, but portfolio beta is a more personal tool to check how the portfolio is looking vis-à-vis the market as a whole, and base decisions on how comfortable you are with your current portfolio beta.

Claiming Income Tax refund need not be a nightmarish experience

Posted: 23 Oct 2011 07:48 PM PDT


   Have you failed to reporting some tax saving investment to your employer or did you make the investment after submitting your investment declaration to the employer? Then there is a possibility of you being eligible for a tax refund.


A tax refund could be due to the following: tax deduction at source at a rate higher than the actual tax payable; wrong (ie, higher) estimation of income while computing advance tax liability; not reporting all investments to the employer while the employer deducts taxes on salary; and claim of exemption in tax returns.


Most companies require employees to declare at the beginning of the financial year their proposed investments for tax exemptions/deductions. House rent and leave travel allowances are the common exemptions that can be claimed, while interest on housing loan, investments in PPF, NSC, ELSS, life insurance premiums, home loan principal repayment, stamp duty/registration fee, and long-term infrastructure bonds come under common deductions. Other deductions include medical insurance premium (section 80D), interest on education loan (section 80E), maintenance of disabled dependent (section 80DD), etc.
"Some employees fail to make the declaration, while some may give the details but fail to provide the relevant documentary proof within the time frame prescribed by the employer. In either case, employees can claim tax exemptions/deductions only while filing tax returns. This results in a tax refund.

 

The deduction on interest on the housing loan, based on the provisional certificate obtained from the housing finance company/bank during the financial year, is reflected in Form 16. For FY 2010-11, since the rates were on the rise, the final certificate would show a higher amount of interest for those who took loan on a variable rate. This, too, can be a reason for a tax refund claim. In the case of retired individuals/senior citizens, banks deduct income-tax at source if they fail to furnish declaration in Form 15G/15H for non-deduction of tax on their interest income. Further, if PAN is not provided, the deduction rate goes up to 20% from 10%. For non-residents, banks often deduct taxes at 30.9% (or lower as per India's tax treaty with the country they reside in) on the interest earned by NRO accounts. Even tenants of non-resident landlords deduct income tax at 30.9% on the rent paid. Most nonresidents fall in either the 0% or 10% tax slab as their Indian income is limited. This means, nonresidents often claim refund of the excess tax deducted.


Some individuals pay advance tax on the capital gains they expect during the year. This can be adjusted against any capital loss they may incur later in the year. The amount of capital gain could also be lower due to indexation, deductions u/s 54/54EC/54F, incorrect cost calculation etc.

Eligibility For Tax Refund

Taxpayers should first calculate their final tax liability in accordance with the tax slabs applicable to them. If the total tax liability is less than the taxes paid or deducted during the year, they would be eligible for a tax refund.


Ensure tax exemptions and/or deductions are mentioned correctly. In the case of a home loan, for instance, ensure the amount on the final certificate from the housing finance company is the same as in the provisional certificate you submitted to the employer.

Calculating Tax Refund

For calculating refund, you have to calculate taxes on income after applying the applicable income tax rates. Once you arrive at the total tax payable, deduct all the tax deducted at source and advance taxes and self assessment tax paid (if any). The balance (if negative) is the refund amount.

Rejection Of Tax Refund

The most common reason is incorrect calculation of tax payable by the taxpayer. Refund can also be rejected if the amount shown as TDS in the returns does not match with the details in the database of the income-tax department. If you have mentioned the PAN or assessment year wrongly, then, unless corrective action is taken, the refund claim will be rejected.

Tracking Refund

If you filed returns online, visit tin.tin.nsdl.com/oltas/refundstatuslogin.html to know the refund status. Enter your PAN, select the assessment year and click submit to get the details. You can also send an email to itro@sbi.co.in or refunds@incometaxindia.gov.in for refundrelated queries. If you have filed the returns through a chartered accountant, you can check the refund status by contacting the SBI helpdesk or the aaykar sampark. It would be advisable to follow up with the assessing officer of the jurisdiction where the return was filed to get the correct status.

Processing Time For Refund

E-filing results in quicker refunds. Taxpayers should mention the correct bank account number if they want the refund cheque to be deposited in their account. If a taxpayer wants the refund directly credited to the bank account, then he/she should provide the MICR of the bank's branch as well.

 
If you opt to receive the refund by way of cheque, ensure that you mention your permanent address in the tax return form. Else, in case you change the address before receiving the refund, the refund cheque would be returned undelivered to the I-T department. If the cheque is invalid/expired by the time it reaches you, intimate the jurisdictional office and send the cheque back to the refund banker for re-issue.


In cases of e-filing, the refund is received within two to seven months. For offline returns, it often takes anywhere between one and two years. In case you haven't received your tax refund, file an application with the grievance cell or the income-tax ombudsman. The taxpayer should visit the tax office for follow-up action on the refund and enquire about the reasons for it not being processed. The taxpayer may also approach the assessing officer ('AO') concerned, with necessary documents. However, if no action is taken by the AO, the taxpayer can write to the jurisdictional chief commissioner with copies of the letter/s written to the assessing officer and with a copy of the tax return filed.

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Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 
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