Money Today experts resolve your personal finance queries -
Q. I had taken a personal loan of Rs 11 lakh at a rate of 16% in March 2013. I have repaid Rs 2 lakh through EMIs and Rs 7 lakh in three ad-hoc payments. Now, there is an outstanding principal of Rs 2 lakh and interest of Rs 1.5 lakh. Should I close the loan by taking Rs 3.5 lakh from my savings account? -Pranay Jain, Mumbai
A. The interest earned on a savings accounts is a lot lower than the interest paid for a personal loan. Also, the high EMI will have an adverse impact on your savings. Thus, we recommend you to close the loan by using the proceeds from the savings account. Once the loan is closed off, you can use the saved EMI to build your savings account again.
Q. I am a 29-year-old lawyer and wish to start investing in mutual funds. I have saved about Rs 2 lakh over the past three years and now plan to channel the money into mutual funds. However, everyone I spoke to advised me against investing a lumpsum amount in MFs. Why is it so? Also, I have a low-risk appetite and plan to invest another Rs 5,000 per month in mutual funds via SIPs. What kind of funds should I look at? -Pramod Sahni, Delhi
A. Considering that you have a low-risk appetite, we recommend you to invest in a mix of debt avenues (debt mutual funds, PPF, Post Office Savings Scheme etc) and equity funds. Debt schemes may not yield high returns, but have lower risks as compared to equity funds. It is not advisable to invest lumpsum in equity markets because of market volatility. Also, when you invest regularly over a period of time via SIPs, you benefit from the rupee cost averaging. The amount into equity funds can be done through a systematic investment which means you invest the money into a debt fund and then it undergoes a periodic transfer into an equity fund. Ideally, you can use a large-cap fund and if you want to further lower the risk, you can invest into a balanced fund. You can invest your monthly surplus into large-cap funds like HDFC Top 200 and ICICI Pru Focused Bluechip. You can also invest into balanced funds like HDFC Balanced. Once you attain a better understanding of the markets, you can consider investing a larger share in equity funds.
Q. I am 28 years old and earn about Rs 6 lakh per annum. Please suggest a good term plan as I don't wish to mix investment and insurance. Can I buy an online policy, since the premium is lower than offline plans? Also, does a higher premium mean faster claim settlement? How does one decide which online policy to buy? -Shankar Sharma, e-mail
A. Term plans are pure protection plans which provide financial protection against the death of an earning member of the family. The thumb rule says your cover should be at least ten times your annual income, plus outstanding debts. Over the years, term plans have become more affordable due to improved mortality experiences by life insurers and the incoming of online term plans. While selecting a life insurer, you should check its track record in terms of claims settlement ratio, outstanding claims ratio and consumer complaint incidences. These should be available as a part of the disclosures on the company websites. What you could also consider buying along with your base policy is an accidental death benefit or even permanent disability rider for extra protection.
Q. I bought a life insurance policy from LIC but soon realised that the premium is a lot higher than its online counterparts. I have already paid the premium for this year, but plan to discontinue it from next year. Should I buy a Ulip instead of a term plan? What factors should I consider before making the decision? - Jai Panda, Kolkata
A. Term plan and Ulip serve different purposes. While the former is a pure protection plan which provide for financial protection against death, the latter can be used for long-term savings and protection and achieving stage-based goals. You will first need to decide what your need is and only then take a decision. Ideally, one should first buy protection via term plans. The cover should be at least ten times your annual income. If the offline covers seem expensive, you can buy online term plans which are equally safe. After you have bought a term plan, you can consider buying Ulips. Also, remember that Ulips are market-linked products and hence should match your risk-taking ability.
Q. I am 45 years old and earn Rs 1.2 lakh a month, while my wife earns about Rs 80,000 a month. Both of us want to buy a term plan. We are looking at buying a house worth about Rs 40 lakh in the next four years. Should we buy additional cover in lieu of the upcoming home loan, or instead buy a home loan protection cover? Also, how do we decide the size of our covers? -Vijay Shinde, Nashik
A. The thumb rule says you should have a minimum cover of ten times your annual income. However, my suggestion would be to talk to a financial advisor who can do a need analysis and suggest an exact cover after going through all your assets and liabilities. If you are sure about the loan amount, you can take the extra cover right away since the premium keeps changing with age. Home loan protection is also a good option as the loan amount is clubbed with the home loan EMI when you buy the house, so you have a clear picture of the monthly outgo.
Q. I have taken a housing loan and am paying the EMI from my savings account. However, the property has been purchased in my wife's name. Can I avail of tax benefits on the principal and interest payments? -Vijay Purohit, Patna
A. No, to avail tax benefit on the principal and interest amount paid on housing loan, you should be the owner of the property. However, you would get the tax benefit through clubbing of income because you have contributed 100% towards the purchase of the house.
Q. I am a 32-year-old professional and have had an individual insurance plan for the past six years. I am planning to get married next month. My fiancé, who is 29 years old, does not have an insurance cover. She has diabetes and high blood pressure. Should I continue with my individual cover, and ask her to buy another individual cover or should we buy a family floate r policy, since we plan to have kids in the near future? -Chandra Bhushan, Gurgaon
A. Since your fiancé has diabetes and high blood pressure, you should consider buying a health insurance policy that specifically covers her for healthcare expenses related to these conditions. Over the past year or so, some customised disease-specific products that cover diabetes and hypertension have been launched in the market. Apollo Munich's Energy is one such disease management plan that not only helps mitigate medical expenses like maternity but also helps manage conditions such as diabetes.
Q. I work for the central government and hence, most of my medical bills are taken care of. Do I need to buy a health insurance cover? I am 36 years old and my family consists of me, my wife (36) and two kids (15 and 11). I earn about Rs 60,000 a month and live in Delhi? -RN Patel, Delhi
A. We recommend you buy a family floater health insurance policy for your entire family to counter any unforeseen medical emergencies. Given the ages of all your family members and your income and location, a cover of Rs 5-7 lakh should be adequate.
Q. I invested about Rs 50,000 in the National Pension System. What is the limit for investment in the NPS and can I claim a rebate on it? If I invest more than the limit, can my wife get incometax rebate on this amount. -Balwinder Bedi, Chandigarh
A. There is no upper limit regarding investments in the National Pension System but tax benefit can be claimed up to 10% of your basic salary under Section 80CCD(1) towards such investment. It may be noted that 80CCD(1) comes under the overall deduction of Rs 1.5 lakh under section 80C. Your wife cannot claim the deduction of such additional amount of investment in NPS. However, if your employer deducts contribution up to 10% of basic salary and deposits in your NPS accounts like EPF, then you can avail additional deduction under Section 80CCD(2) which is over and above Rs 1.5 lakh under section 80C.
Anil Rego, CEO, Right Horizons, has tackled financial planning; Antony Jacob, CEO, Apollo Munich Health Insurance, has answered health insurance queries; Rajesh Sud, CEO and Managing Director, Max Life Insurance, takes on life insurance queries & Sudhir Kaushik, Co-founder and CFO, Taxspanner.com, has provided tax solutions.