Prajna Capital

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• New Fixed Maturity Plans from HDFC Mututal Funds
• SBI Mutual Fund Launches SBI Debt Fund Series - 180 Days
• Section 54 of the Income Tax Act
• Health Insurance: Cumulative Bonus
• Ensure Hassle-free Claims Settlement - Simple Steps

New Fixed Maturity Plans from HDFC Mututal Funds Posted: 04 Nov 2011 05:08 AM PDT HDFC Mutual Fund has announced the launch of new fund offer (NFO) of HDFC FMP 92D November 2011 (1) & HDFC FMP 370D November 2011 (2). The schemes will open for subscription on November 17, 2011 and close on November 21 & November 22, 2011 for 92 days and 370 days, respectively. These schemes will be listed on National Stock Exchange. ----------------------------------------------------------------- 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 IDFC Mutual Funds Online Invest in UTI Mutual Funds Online Invest in SBI Mutual Funds Online Invest in L&T Mutual Funds Online Invest in Edelweiss Mutual Funds Online

SBI Mutual Fund Launches SBI Debt Fund Series - 180 Days Posted: 04 Nov 2011 04:26 AM PDT SBI Mutual Fund has announced the launch of SBI Debt Fund Series – 180 Days – 23. The new fund offer (NFO) will be open for subscription on November 8, 2011 and close on the same day. The minimum investment amount will be would be Rs. 5000/- and in multiples of Rs. 10/- thereafter. The scheme will have growth as well as dividend options. It will be listed on the Bombay Stock Exchange.   -----------------------------------------------------------------   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 IDFC Mutual Funds Online   Invest in UTI Mutual Funds Online    Invest in SBI Mutual Funds Online   Invest in L&T Mutual Funds Online   Invest in Edelweiss Mutual Funds Online

Section 54 of the Income Tax Act Posted: 04 Nov 2011 02:57 AM PDT The law does not allow clubbing of Section 54 exemptions for reinvestment purposes Having sold an apartment, Mukund Naik preferred to reinvest the money got from the sale, into buying another one. This would ensure that he would get the benefit of Section 54 of the Income Tax Act. It exempts one from capital gains tax incurred on the sale of a residential property held for at least three years. The condition though, is that the person invests, an equivalent amount in another home property. However, let us consider possible variations while re-investing the funds and the tax implications of doing so. RE-INVESTING FUNDS Lets suppose a scenario where the tax payer sells two of his house properties. He now wants to invest the long-term capital gains from the sale of both properties in the third flat? In other words, does the law under Section 54, allow a tax payer to club two exemptions for reinvestment in one property. Now lets consider another scenario. Here, suppose the taxpayer re-invests the capital gains in two properties. However, the cumulative investment amount is more than the total capital gains arising out of the sale of the original two properties. In such a situation, will the exemption still apply? Luckily for taxpayers, the Income tax authorities have given clear rulings for both these possibilities. The Income Tax Appellate Tribunal, Mumbai, answered these questions while dealing with the case of Rajesh Keshav Pillai. Lets go through the background in the case. Pillai had sold two flats, in the same building, during 2005. And his capital gain was Rs 88 lakh in respect of Flat A and Rs 85 lakh for Flat B. He then invested the capital gains in two other flats, at a cost of Rs 81 lakh (Flat C) and Rs 95 lakh (Flat D), respectively. Thus, cumulatively the cost of flats purchased (Rs 1.76 crore) was more than the total capital gains of Rs 1.73 crore. He, then went ahead and claimed the entire capital gains as exempt under the provisions of Section 54. THE RULING The tax officer denied the exemption, saying Section 54 was available only for sale of one house property. It had, he noted, used the word 'a' property, not 'any' property. In other words, the intention was to allow exemption only in respect of one house. So, he allowed exemption of capital gains for Flat A by taking into account the investment into Flat D. The entire capital gains for Flat B were held to be taxable. A dissatisfied Pillai appealed to the Income Tax Appellate Tribunal. No and yes, said the Tribunal. Section 54 did not restrict the number of houses that could be sold to claim exemption. As long as the properties sold were long-term capital assets, the exemption would be available for not just two but more houses sold. With, it added, this catch: The section did restrict, to a single one, the number of houses which could be bought to claim the exemption. If more than one house was sold, the exemption would be available in relation to each sale and the corresponding investment in a new house. Or, in Pillai's case, the investment in Flat D could be claimed against the capital gain for Flat A, while the investment in Flat C could be claimed against the gain of Flat B. As the amount invested in Flat C was lower than the capital gain from Flat B, the balance amount would be taxable as long-term capital gains. The Tribunal refused to admit Pillais' plea for aggregating the capital gains for both houses and exempting the entire gain against the total investment made in two flats. A corollary to this is whether the capital gain from the sale of a single house could be invested in more than one to claim the Section 54 exemption. For this, turn to the case of Sushila Jhaveri. Where, it was decided that exemption from capital gains applies only in respect of investment in one residential house. Thus, if you purchase two more house properties out of the capital gain from the sale of one, there's no exemption for the second house. THE RULE Ø       No restrictions on the number of property sold to claim exemption Ø       Only one property can be bought against each claim THE IMPACT Ø       No exemption on second home, if you purchase two or more properties from capital gains from sale of one If re-invested amount is lower than the incurred capital gains, the balance amount would be taxable.

Health Insurance: Cumulative Bonus Posted: 04 Nov 2011 12:06 AM PDT The concept works on the same lines as the no-claim bonus on your car insurance. Policyholders who haven't made any claim in a year, can use the bonus to their benefit the following year. Companies could either offer an increase in the sum insured or discount on the premium payable, or a combination of both. Most insurers offer a five per cent increase in the policyholder's sum insured. So, a policyholder with asum assured of `5lakh, will get an extended cover of `25,000 the following year. A claim-free third year will see him earning another five per cent extra cover on his base sum insured, taking the total to `5.5 lakh. Instead of an increase in the sum insured, insurers may also offer a discount in the following year's premium. So, policy holders paying `1lakh as annual premium will get a discount of `5,000. Some companies offer a discount in the first five years and an increase in the sum insured from the sixth year onwards. What is the maximum cumulative bonus given? Unlike motor insurance, there are no year-wise, fixed, cumulative bonus slabs the insurers follow. Though it varies, the maximum bonus given is up to 50 per cent. What happens if I make a claim in any of the years? Most insurers nullify any on-going cumulative bonus in such cases, with the policyholder's sum insured reverting to the original amount. If the company is offering discounts as bonus, you will have to pay the standard premiums applicable. However, some companies have relaxed their rules. They reduce the discount, rather than completely doing away with it. So, if you were eligible for a 20 per cent discount, you would only get 10 per cent. In case the policyholder opts for an increase in his sum insured, accumulation of bonus for both the amounts will be done separately. Say, he has a sum assured of `3lakh, on which he enjoys 10 per cent bonus in the second year. If he increases his sum assured to `5lakh in the second year, his bonus for 3lakh and `2lakh would be calculated separately. If I shift my health insurer, can I transfer the bonus accumulated? Though it is possible to transfer one's accumulated bonus, it will depend on what type of bonus (increase in sum insured or discount in premiums) the new company offers. Insurers may also impose certain conditions — allowing full transfer up to 45 years of age, but only 50 per cent for those above 45 years. Policyholders need to consider these conditions before making the shift.

Ensure Hassle-free Claims Settlement - Simple Steps Posted: 03 Nov 2011 07:49 PM PDT Every day, we come across many complaints about the agony being faced by customers in trying to claim money from life insurance companies. Normally, a life insurer's endeavour is to settle all genuine claims at the earliest. Some basic care taken at the time of applying for the policies can go a long way in ensuring smooth claim settlement irrespective of the company the person deals with. First and foremost is the selection of the right product. The customer needs to evaluate his/her requirement and the cash flows he/she needs to commit to keep the policy, and hence the benefits, in force. There is no point in taking a product that promises great benefits, but whose premium the customer cannot afford. If the premium is not paid regularly, the customer risks losing the primary benefit of the insurance cover. There has been an instance where on a pension policy with a lock-in of three years, a claim was lodged because the money was needed for a marriage, even though the life assured was still alive! While choosing an insurance company, do not decide on the claim settlement record shown by a sales person. Claim payment record is a factor of vintage and the customer base the company has. Typically, in a new company, almost all the claims will be an early claim as all of them would be within 1-2 years of commencement, which will necessarily force the insurance company to investigate each case. Whereas, for a company which has been in existence for more than 5-6 years, there will be lesser number of cases going for investigation and, thereby, a better claim payment ratio. Therefore, the key for a successful claim settlement is in proper disclosure of facts rather than the vintage of the company. Having decided to go in for the right product, go through the proposal form carefully and ensure that it is filled up properly and that all known facts are disclosed. It is always better to fill up the form yourself rather than relying on an agent. The general apprehension in the market is that disclosure of common conditions like diabetes, BP, asthma, etc, would result in an adverse evaluation while the company processes a case in underwriting. On the contrary, insurance companies have loading for various conditions and occupations' risk and the customer can still benefit to enjoy full coverage on paying the little extra premium. A wrong disclosure or nondisclosure results in rejection of a claim at a later point. The irony is that the wrong/non-declaration at the time of filling up the proposal actually make the claimant rather than the policy owner run from pillar to post and feel dejected at the end of the day since the claim gets repudiated. Avail of the nomination facility and nominate near relatives only. Avoid nominating others as far as possible. If the nominee is a minor, add an appointee who can receive the claim money during the minority of the nominee. Update/modify the nominee in case of events like marriage of the life assured or death of the nominee, etc. Having bought a product, please go through the policy docket carefully. The entire terms and conditions and also the copies of documents submitted with the proposal form should be examined to ascertain that every thing is in order. Any anomaly noticed should be immediately brought to the notice of the insurance company. Another important point to be noted is to keep the family members/beneficiary informed about the policies, including where the documents concerned are stored, etc. Since insurance is a long-term contract, people tend to lose track of important documents, including policy documents. Keep paying premiums regularly. It is necessary to keep the policy in force, in order to obtain the full benefits of the policy in case of the unfortunate event. Insurer understands the need of the beneficiary to obtain the claim amount at the earliest. Normally, the insurer will try to settle a claim within a week of receiving all the relevant documents, if the policy has run for a minimum of three years. However, to protect the interests of the other existing policyholders, the insurer declines claims where material information is not disclosed/incorrectly stated by the proposer at the time of application. To identify such policies, the insurer investigates the "early" claims — claims that occur before the completion of three years from the inception of the policy. As these investigations require time and effort in obtaining the information, there may be a delay in the settlement of claim; the delay sometimes could even be for months. Before submitting the claim, ensure that the insurer is informed immediately about the unfortunate event for which the claim is being made. Give the correct policy number and mention other policy details if necessary. Also ensure that all the relevant information and documents are made available to the insurer, particularly in case of accidental death. To summarise, while you are applying for any life insurance plan, the application form should have the necessary disclosure from your end and it should provide the desired returns to meet your future needs and it should also match your present capacity to pay. You can rest assured that life insurers will have to certainly pay all genuine claims wherein the policy owner has disclosed all material facts necessary for the insurance contract.

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