Investing in International Mutual Funds: Overview, Benefits & Risk Factors

This post is written by Mr. Santanu Debnath, who runs a Multi-Niche Blog –

Are you investing in Mutual funds regularly? Have you heard about International mutual funds?

If yes, then do you know why you should start investing today? If you are a regular follower of any personal finance blog or a stock market news channel, then you might have noticed everyday analysis of stock markets of various countries like Dow Jones of United States, Brazil Bovespa Stock Index, Canada S&P/TSX 60 etc. Now, one can invest on those markets as well with the help of International Mutual funds.

In this article I will share a basic overview of international mutual fund, why one should invest on such funds and what are the other facts one should know before investing in such funds.

What is International Mutual Fund

If you know the definition of Mutual fund, then the meaning of International fund is also very simple. In this fund the accumulated money will be in stock markets of other countries like USA, Brazil etc.

International mutual funds are the portfolio of equities, bonds, and money market securities traded in foreign market. Because of the diversification they offer, these funds are gaining more and more popularity.


Why one should invest in International Mutual Fund

India is a developing nation which is currently attracting many foreign investors. There are many such countries in the world, where one can invest via overseas funds and get a good exposure.

There are many benefits associated with them; like introduction to emerging markets, commodities boom, or business cycle of different markets.

If you understand the meaning of portfolio diversification, then these funds will add huge value to your portfolio. Whenever your domestic market is down, other markets may perform better and in this way your net asset will stay positive in the long run.

According to last one year’s data, the top 10 international mutual funds has shown huge returns ranging from 26% to 50%.

Investment Benefits

There are various benefits of investment in international mutual fund. If chosen wisely, your return from these are much higher compared to domestic markets.

Better Returns than other MFs: An international mutual fund provides much better returns than any other type of MFs. To avail better returns, you can have few foreign funds from different international markets.

Growth of your Principal Amount: Foreign fund investment can expand or grow your initial capital to a great extent. In case of international MF, you can choose between funds of various overseas markets. So chances are more that your amount will grow significantly.

Better Investment Portfolio: Foreign funds are mainly ideal for those investors who want a diversified investment portfolio. To get optimal returns from investment in foreign mutual funds, Investment in those funds should not have much link with the domestic market.

Risk of Investment

Besides general mutual fund knowledge, one must know few more facts before investing in these Mutual Funds.

Although by investing in Mutual funds, one actually minimizes the tension of tracking individual company’s track record; still people can’t track those companies which are based outside India. In case of International mutual fund, you may find it difficult to get information how the companies linked with those funds are performing, are there any regulatory or change in business plan happening etc. So the upcoming markets can be affected with the economical and political changes of those countries.

I believe, almost everyone invest in mutual funds after analyzing the track records of that fund. As international mutual funds are new in Indian market, you may not find enough historical data for few of them.

In stock market, any crucial news related to a company play a huge role. You might have noticed that before declaration of national election result or any company’s new policies or budget; market reacts either in a positive or negative way. As the time zone of international market is completely different from ours, there will be a risk of missing such timely updates.

Fluctuations in the currency rate of different countries can affect your investment very significantly, as it is very difficult to know the financial stability of any country. This thing completely depends up on how the local currency is trading with the international currency. E.g. if you invest in any USA based fund and you have received a return now then definitely it is better compared to what you would have received 2 years back.

Anyway, these points may not be applicable for an investor who invests for a long term point of view, rather tracking the fund performance on a regular basis.

Income tax rules on International Mutual funds

The tax liabilities will be similar to debt mutual funds only. Means a long term capital gain tax will be applicable as per below rules:

  • Without Indexation – 10% tax on capital gains
  • With Indexation – 20% tax on capital gains

Examples of International Mutual Funds

So what are the foreign funds available now? Below are examples of few mutual funds that are available currently in the international market.

  • ICICI Prudential US Bluechip Equity Fund
  • DSP BlackRock US Flexible Equity Fund
  • Mirae Asset India-China Consumption Fund
  • DWS Global Thematic Offshore Fund Growth
  • JPMorgan JF Asean Equity Off-shore


To conclude the article, I will say that international mutual fund will open new investment options in mutual fund segment which will provide more diversification as well as a better return. To make wise investment decision, one should do a detailed research about the international market that they consider to include in their investment portfolio.

International mutual funds are a useful way of reducing the overall risk of one’s portfolio and we can hope that these will be seriously considered by all the investors in coming days. But one should try to follow the thumb rule of 70:30 or 75:25 for domestic & international market from the mutual fund portion of their investment portfolio.

Hope you find this article useful. Share your thoughts and query related to this topic.

Why the taxman may send you a demand notice?

This post is written by Krishna Srinivasan, who is a personal finance blogger writes for Plan Your Investment. 

Have you ever received notice from income tax office?. If you have filed income tax returns with all the details about your income, deductions, etc. and these details are verified by income tax department on random basis. Income Tax department has all the transactions pertaining to your PAN card. Once you have filed income tax returns, they can verify if the details submitted are correct as per your PAN records. If the details are not matching and any discrepancy found, they will send you a notice with details about the discrepancy. There is no need to panic for getting the notice, it is normal for income tax officer to send notice for the clarifications. This article explores when income tax department would send you a notice.

Even if the notice is seeking the payment, there is no reason to panic. Find out why IT Department asking for the payment and under what section they have sent the notice. Because, the notice can be sent for many reasons and if the demand for the payment is not correct as per your data, you can appeal against the notice.

Section 143(1) – Letter of Intimation

The intimation under section 143(1) is sent by the IT Department in response for the tax return filed by the tax payer. The main reason for this notice is intimating the tax payer about the arithmetic mistake while filing the return or  claiming excessive deduction or wrong exemption found while processing the return. By receiving the notice u/s 143(1), one can not conclude that it is a demand notice. As the name suggests, it is a intimation notice to the tax payer about the refund from IT Department or tax payable. This intimation has to be sent before completion of   the assessment year.

If this intimation contains any liability of the tax payment, then assessee  may consider this as the demand notice and make the payment. It is clearly notified by the IT department that this intimation is acknowledgement for the return filing and if there is any calculation error while computing the tax. However, if it provide any pending payment,  assessee has to clear the payment or file the application u/s 154 for the rectification. Do not worry and never try to ignore this notice. It may lead to a fine.

If the net “NET AMOUNT REFUNDABLE” is less than Rs. 100 or “NET AMOUNT DEMAND” is less than Rs. 100, then assessee can ingnore this notice and he thereupon won’t receive the refund or no need to pay the pending due.

Section 143(3) & 147

Notice u/s 143(3) is issued only after the notice from the section 143(2). This section is popular for the income tax scrutiny for an assesse’s income. However, this notice is not sent to assesse immediately after filing the returns. If the evidence provided by an assesse u/s 143(2), then IT Department sends a notice seeking the further scrutiny.

If Assessing Officer (AO) finds any income is escaping from the returns, then they would send a notice u/s 147.

Section 206C – Tax Collected at Source (TCS)

We are aware of the Tax Deducted at Source (TDS) from our salaries and interest income. In the same way, for the certain goods seller has to collect the tax at the time of receiving the money. This is known as Tax Collected at Source (TCS). The specified list of goods are:

  1. Alcoholic Liquor for human consumption (1%)
  2. Tendu Leaves (5%)
  3. Timber obtained under a forest lease (2.5%)
  4. Timber obtained under any other mode (2.5%)
  5. Any other forest products other than Timber. TCS is applicable for the forest products, not the agriculture products. (2.5%)

Note that, TCS also includes many other categories, but I have listed above is only related to the section 201C. TCS has to be collected at the time money received from the buyer in the form of cash or cheque or draft. The TCS rate is ranging from 1% to 5% for various product categories.

Collected tax has to be deposited within one week from the last date of the collection month. The seller has to file a return for every quarter for the income he earned from these transactions. If the seller is failed to pay the collected tax on time, he shall be liable to pay the interest at 15% per annul from the date he collected money and till when he has paid the tax. He would receive a notice from the income tax office under the section 201C for demanding the payment of TCS.

Other Sections

There are few other sections for sending the notice.

  • Section 153A/153 – Related to search and seizure operations
  • Section 201(1) 201(1A) – Failure to deduct tax or deposit deducted tax
  • Section 210(3) – Tax officer believes that advance tax is payable.

Section 80EE: New section In budget to allow increased housing loan deduction

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at

A new section has been introduced in the income tax act i.e. Section 80 EE. This section has been introduced to cater to the need for affordable housing. This section allows for a deduction up to Rs. 100000/- for the AY 2014-15 (i.e. FY 2013-14) to individual assesses for interest payable on their housing loan. Few conditions are required to be satisfied for this section to be applicable.

1)  The loan is sanctioned between the FY 1/4/2013-31/3/2014.

2)  The loan sanctioned does not exceed Rs. 25 Lakh.

3)  The value of residential house does not exceed Rs. 40 Lakhs.

4)  The assessee does not own any other residential house as on the date of sanction of the loan. In other words, this house is supposed to be his self occupied property.

5)  The assessee is a first time home buyer

Where the interest payable is less than Rs. 100000/- for AY 2014 – 15, then the balance amount shall be allowed in AY 2015-16. If a deduction under this section is allowed for any interest, no deduction shall be allowed in respect of such interest under any other provisions of the Act. The benefit under this section is mainly for one time primarily for AY 2014-15 and to a certain extent for AY 2015-16 for balance interest as mentioned above.

Also it is important to note that this deduction is in addition to the deduction of Rs. 150000/- in respect of interest on loans for self occupied property U/s 24(b). This is the current scenario as per the tax laws i.e. there is a maximum deduction of Rs. 150000/- on interest on housing loan for one’s self occupied property.

In my opinion, this new section would benefit the low to medium income section of assesses. It will greatly benefit such people who are first time house buyers as not only do they get a deduction up to Rs. 150000 for interest paid on housing loan but also an additional deduction of Rs. 100000/- from their gross total income as a result of introduction of this section.

It can be said that since the maximum cap of housing loan amount is Rs. 25 lakhs, on an average the yearly interest obligation on such loans amounts to Rs. 2.5 – 2.75 lakh. Thus as a result of this section, an individual can now effectively claim this entire interest expense as a deduction (i.e. 150000/- as per Section 24 (b) + Rs. 100000/- as per Section 80EE) from his gross total income and reduce his tax obligation accordingly.

Tax Planning for the next year for salaried people

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at

People generally believe that when it comes to the Salaried class, there is hardly any hope for tax savings. This observation however, is not entirely true.

The salary that an employee receives is in reality a combination of many types of income that are actually categorized differently according to the Income Tax Act, and your salary constitutes the following things:

  • Basic Salary
  • Different Allowances
  • Different Perquisites (Perks)
  • Other incomes not included in this list such as Commission, incentives, etc.

Most people do not have the knowledge that leaving aside the component of Basic salary, other components in the salary slip such as allowances and perks can enjoy tax exemption, though of course up to a certain limit. In fact, every employee, in consultation with his employer, can make alterations to his pay package so that the benefits from tax gain may be maximized.

Employees should therefore gain some knowledge regarding these simple tax gains and learn how to make use of tax exemption policies related to perks and allowances to gain as much they can instead of unnecessarily paying a high amount of taxes.

Employer’s Contribution to NPS eligible for deduction under 80CCD(2)

Section 80CCD(2) is a new section that not many people know about, and states that any contribution made by the employer towards NPS can be claimed for deduction by the employee. The two key restrictions are that the contribution must be made by the employer, and it can’t exceed 10% of your salary. Some employers like Wipro have already included 80CCD(2) them in their salary structure, so if your employer contributes to NPS then you should take advantage of 80CCD(2) as well.

The good thing about this is that the NPS contribution amount is counted in excess of the amount of INR 1,00,000 as mentioned under Section 80C, 80CCC and 80CCD.

Let’s now discuss the exemptions available with respect to common day to day allowances and perquisites.

HRA (House Rent Allowance):

The amount of HRA that an employee receives enjoys tax exemption up to the following limits

  1. 50 per cent of the employee’s salary when the employee resides in either of the four metropolitan cities, in other cases 40 per cent
  2. Any rent that is more than 10 per cent of the total salary of the employee
  3. Actual amount of HRA received

Transport Allowance:

The amount of transport allowance that an employee spends to get to his workplace from his place of residence enjoys a tax exemption of up to a limit of Rs. 800 per month.

Rent free furnished or unfurnished accommodation:

When an employer provides his employee with rent free furnishes or unfurnished accommodation it is considered a perk and employees can enjoy exemption from taxes up to the following limits

  1. If the said accommodation is in a city, the population of which exceeds 25 lakh, the tax exemption can be 15 per cent of the salary
  2. If the said accommodation is provided in a city, the population of which is less than 25 lakh but more than 10 lakh, it is 10 per cent of the salary amount
  3. If the said accommodation is provided in any other place with a population that is less than 10 lakh it is 7.5 per cent f the total salary

In the event of the furniture too being made available by the employer, 10 per cent of the employee’s salary is assumed to be the value of the furniture when the furniture is owned, and in the case of hire, the actual hire charges that the employer pays is considered.

The amount contributed by an employer as premium paid towards the group insurance schemes of the staff members or towards recreational amenities, including services provided by clubs etc. for the benefit employees is always considered to be under the Tax Exempt category.


The above information has been relayed so that employees understand the various ways through which they can save on the taxes they pay. With the help of these different exemptions, employees can alter their existing salary structure in such a way that the optimum tax benefits can be availed by employees. Employees can try to confine the allowances within the limits set for exemption while the individual’s tax plans can also be prepared in relation to the valuation of the perks or perquisites.

Employees should always ensure that the exemption limits set under 80C and 80D are always used to their maximum potential too.

Family Floater Health Insurance in India

Even in this age and time, families and the support system is relevant to us Indians. I was speaking to a friend in the US, and he said that it’s only we Indians who move from being dependant to our parents to being independent and then again being dependant to our children, in one lifecycle.

Like our peculiar culture, Health Insurance in India has a peculiar home-grown plan, the Family Floater health insurance plan.

Family Floater as the name goes is an insurance policy covering an entire family in a single cover amount that “floats” amongst all the family members.

If a family of 4 is covered under a floater of Rs. 5 Lakhs. All or any member can use the Rs. 5 Lakhs annual cover till the cover completely exhausts.

Pros and Cons of Family Floater Health Insurance:

Pro: The primary reasons why floaters are popular and are preferred over individual coverage plans are that they are more cost effective. The family floater concept works under a simple belief that though all members are under risk of hospitalization, not all members would fall ill in a given year. This results in unused individual cover for that member.  At the same time, there could be one large hospitalization for one of the members. For instance, buying a Rs. 3 Lakh individual cover may not have effective long term use in a family of 4, as much as a Rs. 10 Lakh cover spread across all the 4 members.

Another advantage of a family floater is that if there is any kind of limits or cappings on hospital room charges, you enjoy better benefits on a floater cover, than in the individual plans. For instance a Rs 3 Lakh individual cover for a couple gives them a Rs. 3000 room in Oriental Individual Mediclaim for each of them. If they buy a Rs. 5 Lakh floater cover, their room eligibility moves up to Rs. 5000 per day per room. Same is the case with Max Bupa, Religare, Star Health and some other plans.

Con: The major negative of a Floater is the risk of one of the members swiping out the entire cover, leaving the others uncovered. (However, this issue has been addressed through restore/recharge plans discussed below)

How to calculate health insurance coverage for floater plans?

  1. Calculate the cover you want individually, taking healthcare inflation into consideration. Read my blog post on Health Insurance planning for retirement
  2. Make it a floater by adding additional sum insured for family members as follows:

Young – Less than 40 years: Calculate the minimum individual cover you want, and add an ad hoc 50% additional cover for your wife, plus 25% for each child.

Not Young – Above 40 years: Calculate the minimum individual cover you want, and add 75% for your spouse. Add 25% for each child below 25 years.

Old – Above 60 Years: Calculate the minimum individual cover you want, and add 100% for your spouse. Add 25% for each child below 25 years. Note, family Floaters become very tricky as you grow above 60 years, especially when there are ailments that you are suffering from. Do speak to a unbiased health insurance advisor before you take the call.

Types of Family Floaters:

Extended Family Covers:

Most of the family floater plans cover only Self, Spouse and Kids, but there are some special plans which cover more members. Oriental Happy Family Floater provides for covering Parents and Parents-in-Law, while Max Bupa’s Family First has options to cover 13 relationships, which include parents, in-laws, grandparents, daughter-in-law, grandchildren etc.

Individual/Floater Combination:

Max Bupa’s Family First plan provides a combination cover for all family members. Here each family member has an individual cover, and a separate floater is available for all members covered in the plan. This plan ensures that every member is insulated with an individual cover, at the same time in times of need have the option of dipping into the family pool too.

Restore/Recharge Options:

As mentioned earlier, floaters have a drawback, where one member or one event can completely wipe out the cover for the remaining members. Restore or Recharge feature provides an excellent feature, where if the health insurance cover exhausts during a particular year, and there is another treatment required in the same year which is unrelated to the earlier claims, the plan provides 100% additional coverage. Some plans like Apollo Optima Restore and Star Comprehensive provide this 100% restore only on complete exhaustion of the coverage in the particular year, whereas Religare Care offers an improved restore option, where the recharge of sum insured triggers for even sum insured falling short in a particular claim.

Some points to note, before you sign-up:

  1. Some Family Floaters have a maximum renewal age, after which they convert into Individual mediclaim policies. Ensure you are aware of this clause before you sign-up.
  2. Family Floater policies require all your family members to be mandatorily covered. In most policies, you cannot buy a policy for your wife, without covering yourself, unless you prove that you are already covered through another health insurance plan.
  3. If any of your family members are above the age of 50 or have a higher risk of falling ill, it is advised that you go for a considerably higher cover, or go for a separate top-up or critical illness health insurance for such members.
  4. As mentioned earlier, keeping healthcare inflation in mind, review and upgrade your coverage by a minimum Rs. 2 Lakhs every 2 years.

Mahavir Chopra is the Head – Personal Lines & eBusiness at, a specialist health insurance advisory service for Individuals, Families and Corporates. Know more about Medimanage’s free advisory services here. Read his blogs on health insurance here

Income Tax on Gifts from NRIs and Relatives in India

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at

Generally, gifts are not regarded as Income chargeable to tax. However by virtue of Section 56(2) any sum of money exceeding Rs. 50000 received without consideration by an individual or an HUF from any person is chargeable to tax as income under other sources subject to exclusions as below:

  1. Receipts on occasion of marriage of the individual
  2. Receipts under a will or inheritance
  3. Receipts received from a relative.

Since 1/10/2009, Section 56(2) has been amended and the scope of gifts and will include even immovable properties or any other property besides sums of money under its ambit.

Gifts that are not taxable at all are those that are received from relatives. Relatives are defined by the following relationships of the individual:

  1. Parents
  2. Parents siblings and their spouse
  3. Siblings
  4. Spouse of siblings
  5. Daughter and son
  6. Spouse of daughter and son
  7. Spouse
  8. Spouse’s parents
  9. Spouse’s siblings and their respective spouse.

Even NRIs are covered as long as they fall in the category of relatives. Therefore an individual Indian resident can receive a tax free gift from an NRI as long as he/she is that individuals relative. Any amount can be received as a gift from a relative. Also the purpose for which the gift is received from a relative is inconsequential as it is completely tax free. Thus a gift received can be used for any purpose ranging from purchasing shares to buying property to even simply keeping it with the bank.

Note on gifting on immovable properties

There is a valuation aspect involved in gifting of immovable properties:-

  1. If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 50000/-, stamp duty value will be taken
  2. If the property is gifted for a consideration, then the actual value of the property will be taken

In case of other properties:

  1. If gifted without consideration and fair market value exceeds 50000, then the fair market value will be taken as the final value
  2. If gifted for a consideration and the FMV less consideration is greater than 50000, then the FMV less consideration amount will be taken as the value of the gift.

As mentioned earlier NRIs can also give gifts to resident Indians. Therefore, It is important to understand the meaning of an NRI as per the IT act.

An individual will be treated as a non resident in India in any previous year if he fulfils any of the following two conditions:

  1. he/she is NOT in India in that year for period or periods amounting in all to 182 days or more, or
  2. Having within the four years preceding that year NOT been in India for a period or periods amounting in all to 365 days or more, and has NOT been in India for 60 days or more in that year.

Capital gain exemptions – what are they applicable on and how are they applied?

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at

Capital Gains on assets are a result of a higher sale consideration than the cost of acquisition of the assets.

Short term capital gains are taxable at 15% in case of shares and equity oriented mutual funds and at 30% (maximum marginal rate) in case of other taxable assets.

On the other hand, long term capital gains on shares and equity oriented mutual funds are exempt from tax and are taxable at 20% in case of other assets such as flat, building, gold, art etc.

The Income tax act has come out with certain exemptions from taxable long term capital gains.

Section 54:- Under this section, an Individual or an HUF (Hindu Undivided Family) can get an exemption on the capital gains earned on residential house property. As per this section, the individual is required to purchase another residential house property within 1 year prior to the sale or within 2 years from the sale of the erstwhile residential house. In case of construction, the new residential house property must be constructed within 3 years from the sale of the original house property.

Section 54F:- As per this section, an individual or an HUF can get capital gains exemptions from assets other than residential house property (exemption for residential house property is covered under section 54). To claim the exemption, an individual or HUF needs to invest the sale proceeds of the old capital asset in another residential property. The timelines remain the same as covered in section 54 i.e. 1 year prior to or within 2 years from, the sale of the capital asset (other than the residential house property). In case of construction of the residential house property, the time limit is 3 years.

Section 54EC:- In this section, any person (not only individual and HUF’s) can get exemption from long term capital gains even if the capital gains are not invested in a residential house property. To gain exemption from capital gains, an individual or an HUF can invest the capital gains amount in NHAI (i.e. National Highway authority of India) or REC (Rural Electrification Corporation) bonds of the Government. The investment limit in these bonds in capped at Rs. 50 lakhs. The time limit to invest in these bonds is 6 months from the date of sale of the original capital asset.

Section 54B:– As per this section, an individual or HUF can get exemption from long term capital gains earned on sale of agriculture land. This pertains to sale of only urban agricultural land as sale of rural agriculture lands are completely exempt from tax. To claim the exemption, the assessee needs to invest the capital gains earned in another urban agricultural land. The time limit for investment is 2 years from the date of sale of the original urban agricultural land.

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.

Plan for Disabled – Jeevan Adhaar and Jeevan Vishwas

Jitendra P.S.Solanki is a CFP and the Founder of JS Financial Advisors, based at Delhi/NCR. A management graduate from IIT Roorkee, he has 10 years of experience in financial services and started his Financial Planning Practice after becoming a CFP in 2010.Along with services on Financial Planning for masses, he has recently started services for families with special children’s in association with professionals from the specific field. Link to page with about special needs financial planning. He blogs at Your Pocket Money.

Plan for Disabled- Jeevan Adhaar & Jeevan Vishwas

In an episode of Satyamev Jayate, the plight of disabled in India was highlighted. It showed how these people are neglected in providing even the basic amenities. Although there are stories where one has fought to regain a common man life in India, the situation is highly critical. At present in India, there are approximately 4-8% of total population disabled as per a world bank report in 2007.

Worldwide life insurance companies also works for the benefit of special needs. Companies like Met Life USA have dedicated advisors who specialize in advising such families. However, India has to go very far. Nevertheless, LIC made a good start in 1996 by launching Jeevan Adhar –a life insurance plan for disabled dependents. Later the company came out with Jeevan Vishwas for the benefits of families not able to take advantage from Jeevan Aadhar. With an objective to provide regular income for meeting the disabled needs, these plans are the only options in our country today.

Here is a brief review of these two products:

Features of the Policies

Type Jeevan Adhar-Whole life Jeevan Vishwas- Endowment Assurance
Who can take Any person between 22-65 years of age Any person between 20-65 years of age
SA Min-50000, Max- No limit Min-50000, Max-No limit
Premium paying term 10,15,20,25,30,35 or till the earlier death. Single premium option is also available The term of the policy or single premium.
Guaranteed Additions Rs 100 per thousand p.a. up to age 65 of life assured or death if earlier Rs 60 per thousand p.a. for term of policy or death if earlier
Variable Additions Terminal Additions are applicable if minimum 10 years premium have been paid. The rates depend on the future experience of the company On the life assured surviving the date of maturity, or on earlierdeath after five years, Loyalty addition, if any may be paid at such rates and on

such terms as may be declared by the Corporation

Benefits On death of life assured 20% of NCO (SA+Guaranteed Bonus+Terminal Bonus if any) is paid as a lumpsum and rest 80% is utilized to pay annuity for 15 years and life thereafter, based  on the age of handicapped dependent On maturity of policy 20% of NCO (SA+Guaranteed Bonus+Terminal Bonus if any) is paid as a lump-sum and rest 80% is utilized to pay annuity as per the chosen options, based  on the age of handicapped dependent
Supplementary/Extra Benefits These are the optional benefits that can be added to the basic plan for extra protection/option.  An additional premium is required to be paid for these benefits These are the optional benefits that can be added to the basic plan for extra protection/option.  An additional premium is required to be paid for these benefits
Surrender Value No SV Guaranteed or Special SV as applicable in endowment plans
To whom benefits Is payable The benefit is payable to the nominee under the policy. The nominee can be either the handicapped dependent or any other person or trust. Proceeds from the policy has to be utilized  for the benefit of the handicapped dependent The benefit is payable to the nominee under the policy. The nominee can be either the handicapped dependent or any other person or trust. Proceeds from the policy has to be utilized  for the benefit of the handicapped dependent
Income tax benefit Under section 80DD of IT act Under section 80C of IT act
Is disability certificate required Yes-from govt. hospital Only  parents declaration is required
Special Provisions In the event of the handicapped dependent predeceasing the life assured the contract ceases and the life assured will have the option of keeping the policy for a reduced paid up or receive refund of premiums paid In the event of the handicapped dependent predeceasing the life assured the life assured will have the option to surrender the policy or keep it in force by regularly paying the premium and will have the option f taking the benefits in lump-sum or bifurcating it in 20-80 ratio as enumerated above


Why Two Policies?

Initially LIC launched Jeevan Adhar policy but the rules were very stringent. The criteria for disability was under rule 11A of income tax rules, which eventually didn’t catered to the needs of handicapped dependent whose degree of handicap was lower. To bridge this gap the company introduced Jeevan Vishwas where the guardian can provide benefits to their handicapped dependent whose degree of disability does not meet the criteria in Jeevan Adhar.

The Difference

There are many benefits introduced in Jeevan Vishwas in comparison to Jeevan Adhar. Firstly, it has a maturity value which assures the payment within a specified period. Secondly, annuity in Jeevan Vishwas has many options now. One can select on the basis of his/her dependent requirement. However, the guaranteed bonus in Jeevan Vishwas is much lower than Jeevan Adhar policy.


Jeevan Adhar has very high returns when you compare with any traditional plans. However, the age restriction of 65 years to receive guaranteed bonus lowers the return of the policy as you live beyond this term. In Jeevan Vishwas the bonus rates are higher than other traditional plans but lower than Jeevan Adhar.

Here is a snapshot of returns these two policies generate at different stages of life. (Based on Illustration as per LIC website)

Jeevan Aadhar

This is an illustration of a parent of age 35 years having a special child of age 5 years. The premium is Rs 4095 for Rs 1 lakh SA and paid for 15 years.

Age at Death Total Premium Paid (Rs) Guaranteed Additions (Rs) Variable Additions (Rs) IRR
45 40950 190000 0 27%
50 61425 240000 0 15.76%
55 61425 291000 1000 11.74%
65 61425 390000 33000 8.46%
75 61425 400000 140000 6.68%


Jeevan Vishwas

This is an illustration of a parent of age 35 years having a special child of age 5 years. The premium is Rs 4008 for Rs 1 lakh SA and paid for the term of policy or earlier death.

Ageat Death/Maturity Total Premium Paid (Rs) Guaranteed Additions (Rs) Variable Additions (Rs) IRR
45 40080 154000 0 23.64%
50 60120 184000 1000 13.12%
55 80160 214000 10000 9.02%
65 120240 280000 31000 5.58%



There are two major drawbacks in these policies:

  1. Bonus till 65: Jeevan Adhar is a whole life policy and so there is no maturity. The proceeds go to the beneficiary only after the death of the policyholder. There is always a high probability that you may outlive the term of the bonus declaration.
  2. Annuity:  The benefit in both the policy is partly in lump-sum and majorly as annuity. In India the annuity rates has been very low and not inflation indexed. A fixed annuity is a deterrent to the beneficiary since the expenses grows every year. Thus, although annuity is paid for the life time the money received may fall short in the future.

Should Parents of Disabled Dependent Consider

The risk of dying too early is always there but not certain. However, families with disabled dependents look products which can give fixed income to meet the regular needs in their absence. The product suits in the requirement but cannot be entirely relied upon. Combined with a term insurance it can work for the objective since it guarantees a fixed income to the beneficiary.

How to generate retirement income for parents?

This is a guest post written by Manikaran Singal who is a certified financial planner and runs a personal finance blog - Good Moneying.

This is a very common question these days among so called “Sandwich Generation” who’s juggling between the different priorities like “to manage between their child’s future and own retirement” and also taking care of the needs of their parents.

Being responsible children everyone wants to support the parents. They have sacrificed their desires, hobbies etc. to give us a secure future, so now is our time to pay back. Even though the topic is all about income generation, since I am a financial planner, I could not stop myself to add on some financial planning touch into it.

There can be 2 situations where the approach can vary while working on this aspect.

1)     When your parents are financially dependent.

2)     Where the parents are financially independent.

You have to follow 3 step approaches to work on this:

  1. Understanding: Making arrangements may not be enough unless that arrangement actually serves the purpose. You have to understand your parents’ requirements. You need to talk to them. Proper communication is very much required for proper planning. I know that subject of money has always been a taboo in our Indian society but this is where the challenge lies. Discuss with them their wishes, hobbies, pending desires, their monthly expenditure etc. If you are staying with them then it may be easy for you to understand the situation but if not then better to improve the communication. Don’t give solutions to them just listen. Listening is the key to proper understanding.

Also this step applies to both the situations mentioned above.

2.     Check out your cash flow situation:

As it is you who have to arrange income for them, so you need to have thorough understanding of your financials. This will help you in figuring out the grey areas where you can make some adjustment for betterment of your parents. You have to dig deep into your cash flows.

A)     Note down each and every expense, your discretionary / Non-discretionary spending.

B)     Family expenses, expenses on self, on child etc.

C)     What expense you are making on your desires and what on your needs.

D)    Insurance premiums of not required policies you are paying just because you don’t want to book the loss or your. So called friend or your banker would feel offended if you discontinue that.

3.     Making arrangements:

When you have figured out the requirement, needs and desires of your parents and also have given financial shape to those, now is the time to make arrangements for your targeted goal. This is because the arrangements required to be made for them has to be from the surplus generated out of your cash flows. At this step we have to consider the two situations mentioned above

a)     When parents are financially dependent.

This situation can be managed partially when you are living along with parents, as most of their basic expenses will get managed within the family expenses. But you have to take care of your parent’s desires and independence also. Along with you have to take care that they should not feel like a burden on you. So adjust your cash flow accordingly and start giving some monthly amount to them. Better to include this “monthly payments to parents” in your non-discretionary expenses option, so your surplus gets accordingly adjusted for your other goals. If the house is in your parent’s name then you may start giving them the monthly rent, this way you may get some tax benefit also. If you have some already accumulated corpus, then you may invest that in post office monthly income scheme, senior citizen saving scheme or bank fixed deposits to generate comfortable, safe and secure monthly income.  You may also buy the immediate annuity plan. Also if at all required you can use products like “Reverse Mortgage” to generate comfortable income for them. Don’t forget to get them adequately insured of health, as this will indirectly help you in saving your savings.


b)     When the Parents are not dependent.

If Parents are independent, getting a decent pension along with interest income, are adequately insured under government sponsored schemes and has no liability as such, then also it does not absolve you from your responsibility. Many times it has been seen that pension may not be enough or may only be enough for the basic expenses. So in this scenario you have to support your parents.


Where parents are independent, many times it has been seen that they are in a habit of distributing the surplus they have in the form of gifts, like giving down payment for car or house, or buying insurance policies in the name of grandchildren etc. Though one should not allow them to do this but all this should be handled tactfully as it should not even hurt there ego. In other words don’t allow them to part with their savings. You may gift them some things of necessity time by time and share with them there responsibility of gifting things to relatives on various occasions like marriage, child Birth, festival etc. Please note that you should not intrude in their privacy and dignity. Start a parent’s welfare fund kitty and keep on putting some amount every month for parent’s welfare and responsibility. Adjust your cash flows accordingly. This fund will help you to manage emergencies in a better manner. You may also gift them a vacation every year.

Please understand that in any financial arrangement, Intention matters more than resources. There are some more aspects to support parents besides generating regular income for them like making bank accounts joint, reviewing of Nominees, being in touch with doctors, getting regular health check-up, arranging a caretaker, a driver , streamlining the financials etc. which is very much required when we are involved in financial planning for parents. But to start with “work on to improving the communication” which is the most important among all.

This post is from the Suggest a Topic page.