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We’re days away from the end of the financial year. There’s little time left to plan investments and save taxes. If you’ve clicked through to this article, it’s likely that you’ve fallen short on your tax-saving goals. 
 
You’re probably looking for a quick fix. You need to make an investment, save your taxes under Section 80 C, generate handsome returns—and you need to do all this without getting out of bed. 
 
Worry not. Here’s an option for you: buy some ELSS mutual funds. 
 
Introduction 
Equity Linked Savings Schemes – ELSS – are diversified equity mutual funds. Your capital is invested in a variety of equity options in the stock market, allowing you to earn market-linked returns on your investments. 
 
Where To Buy 
Mutual funds can be bought from fund house branches, bank branches, agents, and distributors. Since you’re looking for a quick way out of your quagmire, you should go online. In this, you have two options: buy funds directly from the fund house website, or buy them from an online distributor. 
 
What To Buy 
There’s a plethora of ELSS mutual funds, and it’s not easy to decide which one to pick. Most fund houses offer at least one ELSS fund. There are plenty of mutual fund research and analysis websites that offer data on ELSS funds. You can access this data, look at parameters such as long-term returns, research rankings, management fees, investment objectives, etc. Ideally, you should consult experts before making this investment. 
 
How Much To Buy 
Like all mutual funds, ELSS funds can be bought as SIPs or lump sums. Since you’re looking to do a one-time investment to urgently save tax, you should be aware of your investment shortfall and invest up to that limit. You’re allowed to invest to save up to Rs. 1.5 lakh under Section 80 C through one or many of the investment options available, including ELSS funds. 
 
Risks 
ELSS funds are equity investments. Which means that your investment is subject to market risks and you should read all scheme documents carefully before investing. As markets rise and fall, so will your investment value. 
 
Returns 
That said, over the long term, ELSS funds have out-performed most small savings scheme such as PPF. As per the CRISIL - AMFI ELSS Fund Performance Index in December 2016, the ELSS fund category as a whole has generated annual returns of 3.35% in the last year, 16.64% in the preceding three years, 17.71% in five years, and 10.61% in 10 years. In case you find the markets tanking, stay calm, remain invested, and reap long-term, tax-free returns. 
 
Lock-In 
ELSS funds have a lock-in of three years. It means you cannot redeem units whose tenure has been less than three years. This has one significant benefit, which is… 
 
Taxation 
Returns from ELSS funds are tax-free. ELSS funds are equity investments. Equity investments with a tenure longer than one year qualify as long-term investments, and therefore become exempt from capital gains tax. Since ELSS funds have a three-year lock-in, they are automatically tax-exempt. 
 
 
(The writer is CEO, BankBazaar.com)

Forgot to save taxes? Don’t panic. Here’s an investment option for you

If you have been repaying a home loan, you would have noticed the gradual lowering of interest rates over the last couple of years. Home loan interest rates are the lowest they’ve been in the last several years. And with the effects of the demonetisation process, banks led another round of rate cuts, which brought the lowest home loan rate on offer to 8.35%. 
 
The RBI did not reduce lending rates in the last two monetary policy reviews. The central bank thus signaled that interest rates may have bottomed out, with little chance of another cut happening in the near future. The ICICI CEO Chanda Kochhar said as much recently. “A large part of the lending rates cut has already happened,” she told CNBC-TV18. “An immediate cut is unlikely.” 
 
What This Means For Home Owners 
 
As someone paying EMIs towards your loan, you have broadly two choices. One – you’re not happy with the rate of interest you’re paying. You want to pay a lower interest rate which is in alignment with prevailing rates. 
 
Two – you’re happy with the rate you’re paying, and you want to make the most of this bottoming out. 
 
Let’s take a look at your options in both these scenarios. 
 
Option 1: Move To An MCLR-Linked Loan 
 
If you feel your home loan interest rate doesn’t align with the general lowering of interest rates, you can consider transferring to another loan with a lower rate. There are two ways you can do this. 
 
The first is by approaching your current lending institution and asking for transfer to an MCLR-linked loan. These MCLR-linked loans, which came into force from April 1, 2016, are more responsive to RBI’s rate cuts, and mention fixed intervals at which they will revise their rates as per the prevailing market conditions. Transferring your loan with your current lending institution will not entail any processing fees and charges. 
 
The second is by transferring your loan to another lending institution offering a more competitive rate. You can compare various loan products online before settling on the one best suited to your requirement. Transferring to another lender means having to pay processing fees and a pre-closure penalty which is usually a percentage of your loan balance. Before you take this option, do carefully evaluate your long-term net savings from the transfer while also taking into account the costs of transfer. 
 
Option 2: Stay With Your Loan, And Pre-Pay On It 
 
Let’s say you’re satisfied with where your loan interest rate is. With the markets signaling a bottoming out of interest rates, you have a great window for pre-payment. When the interest rates are low, you have the chance to repay a part of your loan at a cheaper rate, thus reducing your long-term interest outgo, thus reducing the overall cost of the loan. 
 
Let’s try and understand this with an example. Let’s say you have taken a home loan five years ago. You borrowed Rs. 50 lakh at 10%. You have paid 60 EMIs. And now you want to make your pre-payment. When you pre-pay with a low interest rate, you make greater progress in reducing your loan balance. Here’s how. 
 
 
 
As you can see, by pre-paying at a lower interest rate, the borrower secured an additional savings of Rs. 433,874.97, helping us understand that pre-paying when interest rates are low help make greater impact with reducing the loan balance. 
 
With interest rates trending at a low, it’s time for you to take stock of your home loan and take decisions that would hopefully help you save lakhs of rupees in the long term. For clarity, approach your lender for interest and savings calculations, or go DIY and figure out these sums yourself. If you do choose to transfer your loan, pick a loan product after a thorough analysis of transfer costs and long-term savings. 
 
(The writer is CEO, BankBazaar.com)

Do you have a home loan? Here’s how to make the most of low interest rates

It’s that time of the year when people run around, searching for ways to save tax. In this matter, Section 80 C of the Income Tax Act gets the most amount of attention from investors, as it allows tax exemption through some popular investment instruments. Premiums paid for life insurance policies, investments in Equity Linked Saving Schemes (ELSS), five-year fixed deposits, National Savings Certificates (NSC), Public Provident Fund (PPF) and investment in Sukanya Samriddhi Yojana are some such instruments. 
 
Among these, ELSS has the potential to beat the long-term returns from all other investment options. It also allows you to save tax up to Rs. 1.5 lakh under Section 80 C. Let’s understand what ELSS is and what are the associated benefits through this article. 
 
What is ELSS? 
Equity Linked Saving Schemes (ELSS) are open-ended mutual funds with at least 65% exposure to equity. Although there’s a high degree of risk involved in this investment, it is beaten down in the long run. The returns earned through ELSS funds have outperformed other investment instruments in the long run. 
 
According to the CRISIL - AMFI ELSS Fund Performance Index in December 2016, ELSS funds as a mutual fund category have returned 3.35% in the last year, 16.64% in three years, 17.71% in the last five and 10.61% in 10 years. 
 
The minimum investment in ELSS has to be Rs. 500, while there’s no limit on the maximum amount you can put in. ELSS comes with a lock-in period of three years and withdrawal cannot be done before the completion of the stipulated period. On completion of the stipulated period, you can either redeem your scheme or continue with it. Returns from ELSS is tax-free on completion of a year. 
 
Why is ELSS your best long-term bet? 
ELSS has proven to be beneficial in terms of saving tax and yielding returns. Following are the benefits of ELSS: 
 
• ELSS allows you to claim tax deduction of up to Rs. 1.5 Lakh under Section 80C of the Income Tax Act. The proceeds on redemption of the scheme after three years of lock-in is also completely tax free. 
 
• Compared to PPFs, NSC and fixed deposits, the lock-in period associated with ELSS is relatively shorter, indicating more liquidity. 
 
• The highest ranked ELSS funds have provided a CAGR of around 20% in the last five years – far more than options such as PPF and NSC which can provide returns in the range of 8-9%. Not just that, your ELSS returns are tax-free. 
 
• This scheme is highly affordable, as the minimum amount you can invest is only Rs. 500. If you don’t have a lump sum amount, you can even invest through Systematic Investment Plans (SIPs), depositing a small amount every month. 
 
• There is no fixed maturity period. Investors can stay invested as long as they want. 
 
• Investors earn dividends even during the lock in period and it is tax free. 
 
• The scheme forces you to stay invested at least for a period of three years without any interruptions. Moreover, if you opt for SIPs, you indulge in a more disciplined saving habit which ensures high capital growth. 
• 
ELSS and other instruments that allow exemptions under Section 80C 
 
Here is a comparative analysis of ELSS and other popular investment instruments:

Looking to save tax? Give an ELSS fund a chance – For tax savings & wealth creation

A term insurance plan is the most basic of all life insurance plans. It covers the insured for a fixed tenure and if he were to meet an untimely death during the tenure, his dependents are paid a sum assured that can take care of their long-term financial requirements. 
 
The best thing, or perhaps the USP, of a term insurance plan is that it comes cheap in comparison to other forms of life insurance. With this plan, you can opt for high levels of coverage at amazingly low premiums. A salaried, 30-year-old male with no tobacco habit and earning Rs. 500,000 annually can avail a 30-year term plan of Rs. 50 lakh for annual premiums starting at Rs. 4200. 
 
As the plan provides you the opportunity to choose a high sum assured affordably, it promises financial security for your family. 
 
A term plan should thus form an integral part of your financial portfolio. But when it comes to choosing the best term plan, with all their add-ons and riders and features, even the financially literates find themselves in a fix. 
 
If you’re looking for clarity on what to seek while buying a term plan, here are some instructions. 
 
Choose the right coverage level 
 
When it comes to buying a term insurance plan, don’t be stingy. An optimal level of coverage should be taken if you want your family’s financial security in the truest sense of the word. Experts recommend various methods for computing the ideal Sum Assured. These methods include: 
 
o Human Life Value (HLV) method: This method estimates the economic value of your life based on your age, income and expenses. The simplest way to calculate HLV is to discount the aggregate value of expected income throughout your working life. For instance, if you contribute Rs.10 lakhs annually and are expected to work for 10 more years, the HLV would be the discounted value of Rs.1 crore. 
o Income replacement method: this method simply seeks to replace your income. In the above example, the income replacement method would yield the optimal coverage amount to Rs.1 crore. 
o Income multiplier method – this is the simplest process wherein the optimal coverage is computed by multiplying the annual income by a factor which ranges from 5-20 depending on your age. 
 
Use the methods to ascertain the correct coverage required and opt for it. 
 
Choose a plan with the best riders – both optional and inbuilt 
Riders are additional coverage features which increase the scope of coverage under a life insurance plan. Term plans today allow you the option of attaching various riders for a comprehensive coverage. In fact, some riders are also inbuilt in the plan itself. Some popular riders are: 
o Accidental Death and Disability Rider – this rider pays an additional benefit if you face an accidental death or disability (weather temporary or permanent) during the plan term. 
o Critical illness rider – this rider pays an additional benefit if you are diagnosed with any critical illness covered by the rider 
o Premium waiver rider – this rider waives off the premiums required for the remaining duration of the plan in case you suffer an accidental disability or terminal illness 
o Terminal illness rider – if you suffer from a terminal illness during the policy period, this rider pays out part or whole of the sum assured 
o Monthly income add-on – This pays out a monthly income to the nominee over and above the sum assured. The monthly income is a small, fixed percentage of the sum assured and is provided for a fixed number of years. It also has an increasing income option where the income increases by a fixed percentage at the end of every year for which the income is offered. 
 
For comprehensive coverage, choose a plan with relevant riders and add-ons. 
 
Choose the highest allowable term 
Term plans pay the death benefit only if death occurs during the chosen term of the plan. As such, to ensure that you enjoy an extended coverage, choose a plan which covers you the longest. How long a coverage you get depends on two things: your age, and the tenure allowed under your policy. Typically, term plans are sold to individuals between the age of 18 and 65, and the maturity age of the typical term policy can be 75-80 years. For example, if you were a 55 year old, you may get a term plan for only 20 years. But if you were 35 years old, your coverage may go on for 40 years. If you have financial dependents, you must select a term that’s long enough to cover their long-term interests. For example, if you have a young child, you may want to cover yourself till at least your child becomes financially independent. 
 
Where to buy a term plan 
You can buy term plans through agents or insurance branches, or even through the websites of insurance providers. However, a smart way to buy your plan would be through online aggregators where you can compare products from multiple providers across several parameters such as premium costs, features, claim settlement ratios, riders, benefits and so on. This would help you make an informed decision about what you need to buy, and you can also complete your paperwork through the aggregators. 
 
Keeping these points in mind, you can choose the best term insurance plan for your family. Remember: your family is important and so you should ensure their financial security even when you won’t be around. A term plan lets you do this, and so it should be chosen wisely.

In the market for a term insurance plan? Here’s what to look for

In the last few months, we’ve seen a real urgency from the <a href="http://www.businessinsider.in/searchresult.cms?query=modi+government&amp;sortorder=effectivedate">Modi government </a>to reduce the Indian economy’s dependence on hard cash. Multiple <a href="http://www.businessinsider.in/searchresult.cms?query=digital+payments&amp;sortorder=effectivedate">digital payment</a> options have surfaced in this time. From retailers to banks, from the common man to the state, everyone has had to familiarise himself with internet or mobile-linked payment systems to get by. 
 
With the 2017 budget, the government has taken digital transacting a notch higher by proposing the addition of 20 lakh Aadhaar-based <a href="http://www.businessinsider.in/searchresult.cms?query=pos+machines&amp;sortorder=effectivedate">Point of Sale (POS) machines</a> by September 2017. An <a href="http://www.businessinsider.in/searchresult.cms?query=aadhar+card&amp;sortorder=effectivedate">Aadhaar card</a> has a unique identification number along with unique biometric data such as your thumbprint which work as a proof of identity and can be used to authenticate transactions settled directly from a user’s Aadhaar-linked bank account. 
 
This is a significant development since there are now over one billion Indians with an Aadhaar ID, and they can now start transacting cashlessly when Aadhaar Pay becomes operational. 
 
How Aadhaar Pay works 
As a customer, you would require three things to carry out a transaction: your Aadhaar card number, your bank account linked to your Aadhaar card, and your fingerprint to authenticate the transaction. 
 
A merchant, on the other hand, would need to install a fingerprint/biometric scanner, a smart phone with the number linked to his bank account, the Aadhaar Pay app on phone, internet/data connection and a bank account to get the payment credited. 
 
The merchant must first install the Aadhaar Pay app on his smart phone and create a registered ID. Thereafter, the smart phone should be linked with the fingerprint scanner. Once the setup is complete, the customer can provide with the name of his bank, Aadhaar number and register his fingerprint on a biometric scanner to authenticate his transaction. 
 
Advantages of Aadhaar Pay 
This is highly effective for people living in rural and semi-urban areas in becoming a part of the banking system. The regions, which were cash-driven due to lack of access to debit and credit cards and e-wallets can now enjoy hassle-free transactions through Aadhaar cards. 
Transactions through Aadhaar do not attract any extra charges unlike debit or credit cards at POS machines. While a POS machine costs more than Rs. 5000, a biometric scanner for Aadhaar Pay can be installed for Rs. 2000 only. 
 
Transactions through Aadhaar Pay are secure since they require your presence and biometric authentication. 
 
There are no annual charges associated with Aadhaar Pay yet unlike debit and credit cards, so you can consider reducing your dependence on plastic money in the future. 
 
Aadhaar Pay Vs POS/Card VS Wallet 
 Customer's requirement Aadhaar Card Number registered with the bank account and fingerprint for biometric validation Debit/Credit Card Smart Phone 
 
Merchant's requirement Biometric Scanner- cost Rs. 2000 (Approx) POS Machine- Cost Rs. 5000 (Approx) Smart Phone with Application 
Charges NIL Up to 1% NIL 
 
Limitation Needs internet connectivity High transaction cost Needs internet connectivity 
 
Limitations 
Aadhaar Pay works only where there is internet connectivity. While it is an effective mode of payment at merchant points, it cannot be used to transfer funds to another account. 
 
If a customer wants his money back after making payment, there’s no way to immediately understand if the money has been credited back to his bank account. 
 
E-wallets Vs Aadhar Pay 
E-wallets require you to carry a smart phone, thus limiting its access to a certain set of people. You need to transfer money from your bank account to load your e-wallet before use, which may not seem user-friendly to many. Aadhaar Pay on the other hand is directly connected to your bank account allowing you to make payment without any limitations. 
 
 
 
However, e-wallets offer you with cash backs and discounts on merchandise through business tie ups, which are missing in case of Aadhaar Pay. 
 
Aadhaar Pay is going to revolutionize digital payments in the near future, and hopefully its arrival would also boost financial inclusion.

Adhil Shetty

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