Shiv’s financial plan for someone with assets worth a crore

A couple of days ago the Economic Times published an article by Shiv, and it is a different kind of article in the sense that it was really a financial plan that Shiv made for Mr. Gopalan who is 47 years old, married with a child, and has assets of about Rs. 1 crore.

I thought this was a very good article go gain ideas about how to go about your own financial plan and the type of things to consider.

The thing that struck me most about this was how Mr. Gopalan or anyone reacts when they say they have assets of Rs. 1 crore which is not a trivial amount, and then hear from the planner that well, you need to do a lot better.

If you see the article, then the recommendation to diversify is really obvious, but I was a bit surprised to see that even with these assets, and what looked like a modest level of expenses, they weren’t on track to meet their goals, and will have to make a few changes to achieve what look like fairly simple goals that perhaps every family has.

You can read the whole article here:  Family finances: Gopalans need to diversify to get financial plan back on track

Details on the Rajiv Gandhi Equity Savings Scheme

The Finance Minister recently approved the operational features of the Rajiv Gandhi Equity Savings Scheme (RGESS), and I felt it was a surprisingly complicated scheme which really doesn’t offer any great benefit to investors.

Who is eligible for RGESS?

The intent of this scheme is to bring new people into equities and that means if you have ever bought any shares or traded in derivatives then you are ineligible for the tax benefits under this scheme.

They are going to look at new investors on the basis of the PAN number so you are only eligible in this scheme if there have been no prior equity or derivative transactions in the Demat account linked to your PAN number.

Your taxable income should also be less than Rs. 10 lakhs in order to be eligible for this scheme. If your taxable income is more than that then you don’t qualify for this scheme.

How do you get the tax RGESS benefit?

In order to get the tax benefit, you have to invest in one or more of the following:

  1. Stocks listed under the BSE 100 or the CNX 100
  2. PSUs that are categorized as Maharatnas, Navratnas or Miniratnas
  3. FPO of PSUs mentioned above.
  4. IPO of PSUs whose turnover is not less than Rs. 4,000 crores in the last three financial years.
  5. ETFs and mutual funds who have RGESS securities as their underlying.

The maximum that you can invest for the purpose of this tax benefit is Rs. 50,000 and you can do so in installments in the financial year.

What is the tax benefit under RGESS?

You get to deduct half of the money invested under RGESS from your taxable income and thereby reduce your tax liability. So, if you invested Rs. 50,000 in eligible securities under this scheme then you can deduct half of that – Rs. 25,000 from your taxable income, and if your tax rate is 20% then you save Rs. 5,000 (20% of Rs. 25,000) from your taxes.

Is there a lock in period under RGESS?

There is a three year lock in period under RGESS which is further broken out into an initial blanket lock in period of 1 years which means you can’t trade in your RGESS securities within one year of claiming the tax benefit.

After the initial one year, you can trade in your securities provided you maintain a certain investment level. This investment level is dependent on the value of your shares at the time of the sale.

So, say you invested Rs. 50,000 at the beginning, and at the time of the first sale, the value of your investment is still Rs. 50,000 then you will need to show investments worth Rs. 50,000 in 270 days out of the 365 or 366 calendar days.

However, if your investment was worth only Rs. 25,000 when you initiated the sale then this is the amount you will need to maintain for the 270 days.

If your investment appreciated and is now worth Rs. 1,00,000 then you will only need to maintain investments worth Rs. 50,000 to be compliant with the scheme.

If you fail to do any of this then the tax benefit will be withdrawn however I’m not quite sure how they are going to implement this or even the initial blanket lock in period for that matter.

As you can see this is a fairly complicated scheme which won’t be useful for many people and wherever applicable will offer limited benefits. I’ll be really surprised if it does well.

How can NRIs receive rental income on Indian property?

A few days ago Raj left the following comment:

Raj October 1, 2012 at 8:10 pm [edit]

Hi Manshu,
Came across your website while trying to do some research and I was wondering if I could trouble you for some advice
I currently live in the UK and the father lives in India and looks after some familial property in India.
He has now come to an age that he will need to be looked after and he’s planning to come and live with me.

I was looking to open a bank account which me and my brother (who lives in the US) can manage it online from abroad and primarily deal with funds coming from tenants and also if necessary transfer some money from the UK or from the US if any property maintenance is needed.

It’s all Kosher and needs to be quite straightforward for both of us to use.

Is there such facilities available in India and if so would you be kind enough to point me in the right direction.
Most banks seems to be interested in opening savings accounts but have been unable to find this information

Many thanks in advance


I think I’ve seen the question about how NRIs should deal with rental incomes earlier as well, and I imagine this must be a fairly common scenario with so many Indians living abroad and owning property in India.

However, as Raj says, most bank staff don’t seem very knowledgeable about this and the few people I asked gave me some conflicting answers as well.

I’m going to share what I found anyway and as usual, comments will help point out any inaccuracy and help further the discussion.

You can receive rental income in NRE and NRO current accounts

The link on NRE and NRO accounts on the FEMA website state that you can receive rental income on current accounts of both types and then repatriate this money as long as you comply with the other rules governing the account.

Here is the relevant text about the NRE account:

Credit of current income like rent, interest, pension, dividend etc. after deduction of tax (IDS) and obtaining CA certificate that the funds are eligible for remittance and applicable tax has been paid/provided for. – RBI circular No. 5 dated 15-7-2002.

This means you can receive rental income as long as tax has been deducted on it and you have obtained a CA certificate stating that tax has been deducted on it.

Here is the relevant text about the NRO account:

NRIs can repatriate their current incomes like rent, dividend, interest, pensions etc. by debit to their NRO Account. They should produce a certificate of Chartered Accountant that the amount is eligible for remittance and applicable taxes have been paid/provided for

This again states that you can repatriate the funds as long as you produce proof in the form of a CA certificate that shows that you have already paid tax on this income.

Shiv found a very useful ET article on this which asks for clarity in repatriation rules and covers a lot more ground than I’ve done in this post.

Finally, I would think that if you were in this situation, you should avail the services of a CA before opening the account so that the CA can acquaint you with the nuances of this transaction, and you would anyway need the CA to get a tax certificate later on so might as well hire one earlier in the process and ask any questions you may have.

EPF e-Passbook – Check Your Employee’s Provident Fund Balance Online

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

India is the second fastest growing economy in the world and despite continued global economic slowdown, India has remained one of the most attractive destinations for the foreign investors and thus has been able to generate enough employment opportunities for our predominantly young working population.

People change jobs, move to newer places and with many other new things, get new EPF accounts also. They either get the previous balances transferred into the new accounts or withdraw the balances completely. Not many people know that withdrawing EPF balance is illegal. But that is not the central point of this post.

Starting July 25th this year, Employees’ Provident Fund Organisation (EPFO) has started providing online information of EPF balances to its active subscribers by issuing them “e-Passbook”. Here is the EPFO Circular (Sample e-Passbook attached) dated July 20th, 2012 carrying announcing the same.

e-Passbook is an online version of an employee’s provident fund records, in which all the transactions are recorded month-wise and date-wise. With the help of this passbook, you can now check your EPF balance online as and when you want to.

Here is what to do to access your EPF e-Passbook:

Step # 1 – Visit the EPFO members’ portal –

Step # 2 – Click on the Register >> button at the bottom of the page or Click here to Register button under the LOGIN box to reach the Registration page.

Step # 3 – On the Registration page, you are required to enter your Mobile number, Date of Birth, Email id, a six-alphabet unique text character and one of the below mentioned eight documents with its unique number and your name as on the document.

  1.  PAN Number
  3. NPR (National Population Register)
  4. Bank Account Number
  5. Voter ID Card
  6. Driving License
  7. Passport Number
  8. Ration Card Number

Once all fields are filled up, click on “GET PIN” button and you will get a four-digit Authorization PIN on your mobile instantly. The message would read like this “To complete your registration on member portal enter PIN: XXXX”

Enter the PIN in the box provided at the bottom of the page besides “Enter Authorization PIN”, tick the “I Agree” box and click on the “Submit” button to complete the registration. On successful registration, you will get a confirmation message on your mobile “Your Registration on Member Portal is successful. Your PAN Number is XXXXXXXXXX and date of birth is XX-XX-XXXX. (date of birth is not required).”

Step # 4 – Once registration is complete, you can enter the members area by selecting your document, entering the document number and your mobile number that you entered on the Registration page and clicking on the “Sign In” button.

Please note that there is no need to create and remember any user id and password. You just have to use your mobile number and the identification proof number to login into the system. Once login is successful, you will see your name on the right hand side of the page.

Step # 5 – You can now download your EPF e-Passbook by clicking on the “DOWNLOAD E PASSBOOK” link on the top of the page. You can edit your mobile number and other details also on this page.

You need to select the state where your establishment/company is covered and then the EPFO office name which is applicable to you. There are a total of 120 state offices of EPFO in 35 states and union territories of India.

In case you do not know the EPFO office under which your company is complying or which is applicable to your account, then you can use either of these establishment search facilities to get the details of the office and also the code number of the company – Search Establishment Code – 1 or Search Establishment Code – 2

Establishments under old Office Code – It is EPFO office code and works state-wise
Establishments under Office – It is EPFO office code and works EPFO office-wise
Show all estt. under this PIN Code – It will show all the companies under the entered Pin Code
Old Office Code – It is EPFO office code and works state-wise
Establishment Code – It is your company’s code

Step # 6 – Once the state EPFO office is selected, you need to enter your EPF Account Number which would look something like this one – GN/GGN/28544/999 or GN/GGN/0028544/000/0000999.

Understand your EPF Account Number

GN is the Region Code.
GGN is the Office Code.
0028544 is the Establishment/Company Code and cannot be greater than 7 digits.
000 is the Extension Code and in most cases it is 000.
0000999 is the Account Number.

Now enter your name exactly as per EPF records, a six-alphabet unique text character and click on the “Get PIN” button to again get the four-digit Authorization PIN on your mobile. You would again receive a PIN on your mobile. The message would read like this “To download Member Passbook from Member Portal please enter PIN XXXX”

Again, enter the PIN in the box provided besides “Enter Authorization PIN”, tick the “I Agree” box and click on the “Get Detail” button to get your required e-Passbook. You will get a link for the passbook to open or save for your reference. You will see month-wise transactions made in your EPF account from the year for which the annual accounts of your company were updated since computerisation of the concerned field office.

But, if you had left the company prior to March 2012, then the information will not show up immediately. In that case, a message will be displayed “Your e-Passbook not available”. You would be required to click on the link “Send request to get your e-Passbook” and then “OK”.

You will get this message “Your e-Passbook request has been accepted. You shall be intimated on SMS when the same is available. You can check back after 3 days.”

If your account is inoperative due to non-receipt of any contribution for more than 36 months or if it is settled or has a negative balance, then the passbook will not be made available online. Whenever you have an active account, you should apply in Form 13 to get the earlier account(s) transferred to the active account.

Some other important points to remember:

This facility at present is available only for the employees for whom the employer has uploaded the Electronic Challan Cum Return for the wage month of May 2012 onwards.

If your organisation is not covered under the EPF Scheme 1952, you will not be able to access this facility.

One mobile number can be used for one registration only. But, you can edit your details subsequently.

A registered member can view only one account details under one establishment. In case you are having more than one account under one establishment, you need to apply for transfer of your old account balance into the new account through Form 13.

One member can view up to a maximum of 10 accounts under different establishments. All of the accounts can be viewed any number of times. You can get your old accounts transferred to the current one by using Form 13.

e-Passbook facility is a welcome move by the EPFO and will facilitate the employees in managing their EPF accounts in a better manner. EPFO should take more such steps to introduce other online services so that people can easily track and consolidate their accounts working anywhere in India.

When will the Sensex touch 25000?

I hope regular readers are surprised by the title of this article because this is not the kind of prediction I ever make, and philosophically, I feel that people should avoid “pundits” who make market predictions.

So, why the title? Because the following comment appeared on the Suggest a Topic page last week.

lalit October 7, 2012 at 10:07 pm [edit]

Will Sensex touch 25000 mark? If yes, when and why?


Short answer:

I don’t know, and if I did, I certainly wouldn’t have wasted time writing a blog.

Long answer:

Shiv told me a few days ago that he’s getting calls from clients asking what they should do in this rally, and people have a feeling that they’ve been left out on the sidelines and what’s the next course of action for them.

For anyone who has spent any amount of time near the markets, you shouldn’t be surprised with these type of questions, and especially the timing of these type of questions. People get interested only when something goes up, and when it’s down, no one is willing to buy anything.

I believe this is a good time to to think about what you will do when the market falls next.

That’s usually my approach, I’m a regular equity investor, but I’ve pared down my investments in the past few months, and I’m building up cash so that I can take advantage of the next downturn. This does’t mean I expect the market to go down any time soon, just that I feel it won’t be a one way journey where if you don’t invest now, you will never be able to invest at these prices (I  have not stopped completely because I know I can be wrong). I’ve never bought that argument.

In my opinion, having a plan on what you will do when the market falls next is going to be a lot more useful than trying to find out when will Sensex hit 25,000. Before you look for answers, you need to ensure that you’re asking the right question.

How to reduce your tax outgo by investing in mutual funds?

This is a guest post by Manikaran Singal is a Certified Financial Planner and runs a personal finance blog

Mutual funds are that investment vehicle which helps in investing across various asset classes like equity, debt, and gold through professional management. You are wrong if you say that you invest in mutual funds since you don’t invest in mutual funds, you invest through mutual funds. The type of asset which a particular fund is investing in defines the category like Equity, Debt Mutual fund, Gold Mutual fund etc.

You may invest in any asset class directly if you think you have expertise in it or you may select mutual funds route. Direct investment products include purchasing shares through demat accounts, buying NCDs, investing in Public Provident Fund, Endowment LIC policies, National savings certificate etc. and for short to medium term – bank savings account, bank fixed deposits, Corporate fixed deposit etc., buying gold in the form of jewellery or coins/bricks etc.

Selecting mutual funds for investing has its own advantage like professional management, diversification, economies of scale etc. but besides all this there’s the major advantage it has is of taxation.

Let’s first understand Taxation in Mutual funds

Mutual funds generate 2 types of income – dividends and capital gain.

Capital Gains

When the holding period in a particular mutual fund is one year or less and you book some gain/loss in this period then that would be called as Short term capital gain/loss and if the holding period is more than 1 year than it will be called as Long term capital gain/loss. When there’s loss, no question arises for taxation, besides setting it off.  But gains will be taxed differently with different category of fund.

Tax rates (2012-13)

Long term Capital Gains (units held for more than 12 months)

Individual/HUF NRI*
Equity Oriented schemes NIL NIL
Other than equity schemes 10% without Indexation or 20% with Indexation whichever is Lower +3% cess 10% without Indexation or 20% with Indexation whichever is Lower +3% cess
Without Indexation =10.30% =10.30%
With Indexation =20.60% =20.60%


Short Term Capital Gain (units held for less than 12 months)

Individual/HUF NRI*
Equity Oriented scheme 15%+3% cess 15%+3% cess
=15.45% =15.45%
Other than equity scheme 30%#+3% cess 30%#+3% cess
=30.90% =30.90%

# assuming Investors falls in highest tax bracket

  • NRIs will be subjected to TDS in case of Long/Short term capital gain.



Unlike interest in debt investments which is completely taxable (with few exceptions), dividend in debt Mutual funds are tax free in the hands of investor. But yes, they are subjected to Dividend distribution tax which fund house pays at their end. Dividends in equity Mutual funds are tax free.

Dividend tax rates

Individual/HUF NRI
Equity Mutual funds NIL NIL
Other than equity Mutual funds NIL NIL


Dividend distribution Tax

Individual/HUF NRI
Equity Mutual funds NIL NIL
Debt Schemes 12.5%+5%surcharge+3%cess 12.5%+5%surcharge+3%cess
=13.519% =13.519%
Money market/Liquid schemes 25%+5%Surcharge+3% cess 25%+5%Surcharge+3% cess
=27.038% =27.038%


You all must know that the interest rates in most of the debt investment options have been deregulated by the government. Gone are the days when you receive fix rate of interest in PPF for complete tenure. Almost all Post office savings rate will be reviewed and announced every year. And even in savings account which used to give 4% fixed rate has been deregulated. The decision is left to the market forces which will decide the interest rate. Now it becomes inevitable for the investor to optimise the overall return to look for other suitable investment options. And you won’t find a better alternative to mutual fund investments. If you understand the various types of mutual funds, it’s working structure and which fund to be used and when you can generate a good tax efficient return.

Understanding How Mutual funds generate returns

Banks and AMCs (Asset management Companies) or as popularly called as Mutual fund houses both are very important elements of Indian Financial services industry. Both are in the business of mobilising the savings and investments of retail and corporate sector and diverting the same into various short and long term investments. Banks are mainly into lending business so you may say that they deal only in Debt Instruments, but Mutual funds are into investments so they deal with all assets like Equity, Debt, and Gold etc.

This is explained to make you understand that difference in return of 2 product of same style is because of management and inherent expenses.

Tax efficiency through Mutual funds

  1. Liquid/ Ultra Short term  funds Vs. Saving account:

Returns in Liquid/ultra short term fund will always be more than the saving bank rates. The difference in the management and expenses as explained above can easily be pointed out from the fact that some banks are offering rates of 6-7% while many are still on the old rates. It may also be a business compulsion. But in Mutual funds there’s a CAP on overall expenses. That’s why they generate the same returns from short term debt market and distribute among its investors after deducting the expenses. Besides return the major advantage is also of taxation. If you park your funds in saving account whatever interest you will get (above Rs 10,000/-) in a particular year will be added in in your total income and taxed accordingly, but if you invest in Ultra short term/ Money manager funds then you may opt for dividend reinvestment option and reduce your tax outgo. Current account holders don’t get any interest in their account, so they can also use this to the full.

2.     Fixed Maturity plans Vs. Bank Fixed deposit:

Interest on bank Fixed deposit is fully taxable , but if you invest in Mutual funds FMPs then the maximum tax that you have to pay on the gain is 10.30%. (Read : Bank deposits Vs debt funds)

3.     Long term debt funds vs. PPF:

Now when PPF has been handed over to market forces, your portfolio requires active management and a combination of PPF and long term debt products. When interest rates starts falling PPF rates will go down but your long term debt investments will help you generate more by playing with duration due to the inverse relation between interest and bond prices. And more returns can be set off with the indexation benefit and thus less tax.

4.     Mutual funds MIP vs. Senior Citizen Plan/ Post Office MIP

You may also reduce considerable on your tax payment by diversifying your regular return fully taxable investments into Mutual funds MIP and taking dividend payment option and advantage of Dividend distribution tax.

5.     Gold ETF Vs.  Physical gold

Besides offering advantage of Liquidity, Authenticity, affordability etc. gold ETF has its tax advantages also. Profits from gold ETFs are taxed as Short /Long term capital gain just like debt mutual funds, whereas profit out of Physical gold comes in long term capital gain only after 3 years of holding. Paper gold also does not attract Wealth Tax.

Mutual funds are very tax efficient products. But it should be used with caution and under some guidance. Wrong product chosen at wrong time and without giving reason to your investment has the potential to destroy your savings and overall returns. So sit with your planner/advisor, decide onto your goals and requirements and design the required portfolio.

Are NRE FDs better than FMPs for NRIs?

In a prior post I compared FMPs (Fixed Maturity Plans) with bank fixed deposits, and said that if you are in the higher tax bracket, the tax advantage of FMPs tilt the balance in their favor somewhat (if you can live with the uncertainty).

That’s true for domestic investors but what about NRIs?

Allwyn left the following comment on the Suggest a Topic page a few days ago:

allwyn September 4, 2012 at 12:59 am [edit]

Could you pls. explain the advantages/disadvantages of FDs(presently int. rates of over 9% tax free) over FMP/Debt funds for NRI’s

Thanks in advance


This is an interesting question, and in my mind since it’s only the tax advantage that makes you think of FMPs over fixed deposits for domestic investors, you need to look at the tax angle to answer this question for NRIs as well.

For close to a year now, NRE fixed deposits are tax free, and this was one step by RBI to arrest the Rupee slide. This means that NRE fixed deposits are currently better than NRO fixed deposits, and they are an obvious competitor to NRI investments in FMPs.

I didn’t know how FMPs are taxed for NRIs but this DSP BLACKROCK page on NRI taxation states that NRIs will be taxed at their applicable assessee rate in case of short term capital gains, and will be taxed at 10% without indexation or 20% with indexation for long term capital gains on non – equity mutual funds.

Since most FMPs are slightly over a year to make them count under long term capital gains, this means that most of the time your NRI FMPs will taxed at 10% whereas the returns from your NRE fixed deposits are tax free.

I think in general it is easier to open a NRE fixed deposit than it is to buy a FMP for NRIs, so that’s another thing in their favor along with the fact that you know before hand how much your fixed deposit will earn.

If the tax situation for NRIs change as far as FMPs are concerned then this might be worth a re-look but until then I can’t think of a good reason to favor FMPs instead of FDs for NRIs.

This post was from the Suggest a Topic page.

How To Review Your ULIP Investments Before Surrendering

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

Do you belong to a group of those people who bought a life insurance policy a few years back expecting it to deliver good returns and are regretting your decision since then cursing the sales executive who sold you a useless policy as the returns have not met your expectations?

If yes, then I’m sure you must have thought of doing something with your policy – either surrendering it or stop paying further premiums for it or consulting a financial advisor to discuss other alternatives before taking a final decision. Whatever you have done since then, I hope this article will help you in making further progress in the right direction.

First of all, there might be different reasons for different investors to explore the option of discontinuing their life insurance policies. Some of them are:

1. Unsatisfactory performance of the current life policy, as it was initially sold to you by a sales executive/relationship manager showing a very rosy picture or you bought it with a very little understanding

2. Not making financial sense to you anymore, as you have become more financially literate now and with better understanding of the markets and the products you have a view that ULIPs are not for you

3. ULIPs are too complicated for you to continue, as you don’t understand the various kind of charges involved in it, where your money is getting invested and other things involved in ULIPs

4. Availability of better investment options like mutual funds, gold or real estate and you have a shorter term horizon to invest

Options available to you

  • Surrender the policy and withdraw the whole of the Surrender Value or Fund Value
  • Stop paying further premiums, withdraw majority of the invested amount, keep the policy running and enjoy the life cover. This option is available only with old ULIPs.
  • Get the policy fully paid-up (in case of traditional policies)
  • Do a self-assessment (be your financial advisor for your investment)
  • Keep paying the premiums as you are convinced ULIPs outperform Mutual Funds in the longer run.

Before we move any further, we first need to understand the various charges attracted by these ULIPs. You can check these charges applicable to your ULIP in the “Sales Benefit Illustration” or the product brochures. A sales benefit illustration illustrates various charges, year by year, for the term of the plan so that you know where your money is exactly going, how much money is deducted as charges and what is finally getting invested. Here is the link to check a sample of a sales benefit illustration:

1. Premium Allocation Charges – These charges account for the initial expenses incurred by the company in issuing the policy e.g. cost of underwriting, medical tests and expenses related to distributor/agent fees. These are deducted upfront from the premium either annually, half-yearly, quarterly or monthly depending on the frequency of the premiums.

2. Mortality Charges – These charges refer to that part of the premium which goes towards the death benefit and are recovered by cancellation of units on a monthly basis.

3. Policy Administration Charges – As the name suggests, these are administrative charges and are recovered by cancellation of units on a monthly basis.

4. Fund Management Charges – These are the charges incurred to manage the investment portion of your premium and vary from fund to fund depending on the percentage of equity component in the fund.

5. Surrender Charges: These charges are deducted for premature surrender/termination of a policy and are capped at 15% from September 1, 2010.

Surrender Value: It is the sum of money an insurance company will pay to the policyholder in the event he/she voluntarily terminates or surrenders the policy before its maturity or the insured event occurring. In other words, it is the amount payable to the policyholder should he/she decide to discontinue the policy and encash it. This cash value is the savings component of most permanent life insurance policies, particularly whole life insurance policies. This is also known as ‘cash value’ and ‘policyholder’s equity’. The life cover provided by a life insurance policy ends with its surrender as it effects a termination of the contract between the insured and the insurer. Surrender Value = Fund Value – Surrender Charges

Fund Value: The value of the investment portion of your life insurance policy is known as Fund Value. Till the time surrender charges are applicable in ULIPs, surrender value is calculated by deducting the surrender charges from the fund value. Fund Value is paid in full once the surrender charges cease to exist, usually 5 years in new ULIPs. Fund Value = Total no. of units under the policy * NAV of the fund chosen

Let us also take a look at the rules that have been there before and after an important date in the history of ULIPs.

Rules governing ULIPs bought before Sept 1, 2010

Lock-in period of 3 years: Policies taken before September 1, 2010 used to have a lock-in period of 3 years only, after which you were allowed to surrender your policy and take away the fund value after getting the surrender charges deducted.

Surrender Charges: Surrender Charges used to continue after the lock-in period of 3 years. In some policies, these charges continue even after 5 years.

Minimum Premiums Payable: Three

Cover Continuance: This feature was available in older ULIPs wherein you were allowed to continue with the policy even after paying premiums only for the first three years. Your money remains invested in your choice of fund option and the mortality charges will be deducted to maintain the life cover. This was due to mis-selling by intermediaries. Life cover continues even after you surrender the policy or stop paying policy premiums.

Charges: Charges are relatively higher.

Rules governing ULIPs launched on or after Sept 1, 2010

Lock-in period of 5 years: The so-called New Ulips, which have been launched on or after September 1, 2010, carry a lock-in period of 5 years i.e. you’ll get the fund value only after 5 years if you’ve paid the premiums for all the 5 years. If you surrender the policy without paying even 5 premiums, then also you’ll get the surrender value only after 5 years but in that case your money will earn only 4% p.a. interest.

Surrender Charges: Surrender Charges cannot be levied after the lock-in period of 5 years if the policy term is 10 years or less and after 6 years if the policy term is more than 10 years. If you surrender after paying only the first premium, the maximum surrender charges as per IRDA can be Rs. 3000 (for premiums up to Rs. 25000) or Rs. 6000 (premium above Rs. 25000).

Minimum Premiums Payable: Five

Cover Continuance: The new ULIPs don’t offer this feature. If you stop paying premiums after the lock-in period, the policy will be discontinued and the value will be returned to you. Life cover ceases once you surrender the policy or stop paying policy premiums. It was one of the best features with the older ULIPs but I fail to understand why it has been removed from the new ULIPs altogether. The agents used it extensively to mis-sell ULIPs by telling their clients that they just need to pay only three premiums and after that they can either withdraw the investment or the life cover will continue even they don’t pay further premiums.

Charges: Charges are relatively lower

What to look for before surrendering your policy – step by step process:

  • Check whether the policy is bought before or after September 1, 2010
  • Check the various charges deducted till date: “Premium Allocation Charges”, “Mortality Charges”, “Policy Administration Charges”, “Fund Management Charges” etc.
  • Check the Surrender Value or Fund Value by making a call to the customer care centre or online logging into your account
  • Check the various charges to be deducted in the forthcoming years and do a self-assessment to decide whether the charges are justifiable for you to continue with the policy
  • Do a background check of the fund manager before you continue with your existing ULIP – who the fund manager is and what is his/her qualification? How long has he/she been in the fund management business and how has been his/her performance history?
  • Compare the performance of the fund vis-a-vis some of the good performing diversified mutual fund schemes over a period of one year, three years, five years and since inception. ULIP returns should be easily available on the company’s website. If the fund is underperforming consistently, you should seriously consider discontinuing the policy.
  • Compare the mortality charges of your ULIP with a good term plan with the same Sum Assured. Newer ULIPs usually carry high mortality charges as they don’t come under the cost caps, which gives insurance companies an opportunity to have a high margin on the mortality cost. It is most likely that the term plan would be offering a cheaper option to cover your life. If that is the case, then I think you should get your ULIP discontinued by encashing the fund value.
  • Take the help of a financial planner in case you are not able to understand the charges or the performance of the funds before taking final decision.

Reasons why you should not surrender your ULIP:

Most of the older ULIPs either carry very high costs in the initial years or have steep surrender charges or both. It is only in the later years that charges become somewhat reasonable and more money gets invested. So it would be a bad idea to surrender ULIPs with high costs in the initial years and a penalty for discontinuance.

There are a few old ULIPs, in which the policies carry surrender charges almost till the end of the policy term. You need to check your policy, the surrender charges involved in it and then decide whether it is worth surrendering or keep the policy till its maturity.

If you have taken one of the old ULIPs, then your life will remain covered even without paying further premiums with the “Cover Continuance” feature. In that case, if the mortality charges of future years are reasonable, then you may stick to your policy and hope the fund is managed in an efficient and professional manner.

As I mentioned earlier, you should not surrender ULIPs if you are convinced ULIPs outperform Mutual Funds in the longer run.

Reasons why you should surrender your ULIP:

There is lack of transparency in almost all sections of their workflow.

Fund managers of almost all ULIPs have failed to deliver and there is no certainty whether they will be able to deliver in the future years also.

Premium Allocation Charges will remain quite high in future years also which eat up a significant portion of your principal investment.

Term plans are the best insurance plans to get your life insured.

It is better to invest in investment avenues like mutual funds, Gold ETFs, PPF etc. or to pay-off any of your loans which carry a higher rate of interest than your ULIPs will deliver.

Documents you need to submit for policy surrender:

  • Policy surrender form – it should be easily available on the company’s website
  • Policy bond
  • A self-attested copy of your ID proof
  • Any cancelled cheque or bank attested bank statement or bank attested passbook copy for fund transfer

I have a personal view that one should never mix his/her investments with insurance. But, if somebody has already done that then the best option is to try not to surrender the policy in a real hurry, keep it alive as long as possible, study all the features and charges of your policy thoroughly and reap the maximum benefits out of it. It is generally advisable that you should wait for a longer period before surrendering your policy, as this will ensure the higher initial charges are spread out. But, if after doing the extensive research, you have decided to surrender the policy, then you should visit the nearest branch office of the company to surrender your policy along with the above mentioned documents.

CIBIL Score – Identity Theft

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

What would you do if you come to know that a bank has sanctioned a loan in your name when you have not actually applied for any? How would you react when you find out that someone has used your name to get a credit card and has run up in couple of lakhs of rupees in charges using it?

Or worse, what if any of your credit card is used for some criminal activity? You would most likely stand clueless and approach the bank in a panic to ask for all the details about it. Most commonly this is a result of something called “Identity Theft” or just “Id Theft”.

Now, what is this Identity Theft? Identity theft occurs when someone uses your personal identification information to apply for a loan or a credit card. If this loan is sanctioned or credit card is issued, the individual has access to those credit facilities against which you would be held liable, if not paid for. Hence, the lender will update this default in your Credit Information Report (CIR) which will severely affect your CIBIL score.

Many a times we are required to provide our self-attested personal identification information in the form of PAN card, passport, driving license, voters id card or other similar documents, say for getting a bank account opened or making some kind of investment. Do we mention the purpose on the Xerox copies of these documents while we hand-over them to the concerned individual? Most of us do not. This careless act of ours leaves a big scope for these fraudsters to misuse our documents in such a way which might make us regret for the rest of our lives.

If you have read the previous CIBIL articles posted here, then you must be aware by now that how important role your clean CIR or CIBIL score plays in the loan application process. It helps you enjoy the benefits of easier and faster processing of loans or credit cards at better rates and/or terms.

How to prevent Identity Theft?

Identity theft can happen with anyone. You cannot simply sit idle and think it is not going to happen to me. Here are some things you can do to safeguard yourself:

1. Never share your credit card numbers and other personal identification information, especially over the phone or while browsing the internet.

2. Many companies ask for more information than they really need. Try filling the application forms yourself and provide only that information which is marked mandatory or which is required for your own convenience.

3. Carry only as many credit cards in your wallet as are absolutely necessary. Keep photocopies of all your cards handy with you so that they can be blocked quite easily in the event your wallet gets stolen.

4. Always deal with only those entities and websites which have been authenticated by service providers like Symantec etc. You can check the website’s legitimacy by clicking on their logo and thereby eliminate the risk of dealing with a clone of the legitimate company designed to collect your personal and financial information.

5. Make sure all your personal information you enter on a website remains strictly confidential. Read the website’s privacy policy to ensure that your personal information won’t be sold to others.

6. Review your CIR and monitor your CIBIL score at least once or twice every year to make sure your credit history accurately reflects your credit usage and activity and no unaccounted credit facility gets extended in your name and no new enquiry gets initiated by any of the banks. If you notice any discrepancy in the report, get in contact with the lender as well as the credit bureau immediately.

7. Make sure nobody, other than you or your close family members, has access to your personal information, identity proofs and address proofs. Keep all of these documents in a secure environment.

Problems can strike anyone at any time and leave a long-term impact. Awareness about some of these problems and taking necessary steps to build a shield against them can minimise their impact. So, I hope, now we all know what we need to do in order to safeguard our identities from getting stolen.