Money Matters

By :
Senthill,Murugesh,Hameed,Prakash,Poovannan,Durga
 Agenda
? Basics
? Section 80C

? HRA Objective
? LTA and Medical Exemptions of the
? PF and Pension session
? Tax Calculations

? Tax Slab and example

? Power of Investing Early

? Understanding Equity and Debt

? Investments Options

? What is Insurance

? Insurance Options

? 4 most important things To make you understand

basic concept of Investments
and Taxation
 Basics
You declare your Investments

Your tax liabilities are calculated and

TDS is cut and paid to Govt

Then you invest declared

amount as declared and your actual
tax is calculated at the end

Finally
if your Tax = TDS , you do nothing
if Tax > TDS , you pay to govt
if Tax < TDS , govt (do not) pays to you
 Section 80C
Govt says that if you invest in any product covered
under Sec 80C,C, you do not pay tax on that amount
. subject to limit of Rs 1.2 Lac .

Under Sec 80
80CC

- Mutual Funds (ELSS)

- PPF and EPF
- 5 yrs Fixed Deposits
- ULIPS / ULPP
- NSC
- Life Insurance Premiums
- Home Loan Principle amount
 HRA
HRA you can claim is minimum of
- The actual amount of HRA received.
- 40%
% of salary (basic component + dearness allowance). This
increases to 50%
% if you are renting out the house in metros
(Delhi, Mumbai, Chennai or Kolkata).
-Rent paid minus 10% % of Salary (basic component + dearness
allowance)
Ex:
-HRA Received Rs3200 ,
-40% of Basic is Rs 4000 ( Say Basic is Rs 10000 )
- Rent paid - 10% of Salary is Rs 7000 (Rs8000 – Rs 1000)
Now We can claim tax Exemption for Rs3200
Rs which is
minimum in the above 3
LTA and Medical Reimbursment

LTA
? Limit of Rs 50,000 per year
? It can be claimed 2 times in 4 yrs block
? Block is decided by Govt , the current block is 2010-2013
2010 .
? You must be on leave while travelling

Medical Bills

? Limit of Rs 15,000 per year

? Doctors Visit fees and Medical Bills
 PF and Pension
While calculating the Pension Scheme employer should pay 8.33%
of basic (limit is upto Rs.6500/ ie Rs.541/-)
Rs.541/ not more than that rest
will goes to PF.

For eg. if the employees is getting Basic salary of Rs.8000/-

Rs.8000/ Rs.541/-
(8.33%) will goes to pension scheme and Rs.419/-
Rs.419/ will goes to PF,
however employer has to contribute 12% of basic, whatever be the
amount.

Basic Rs8000
12% of basic Rs960
Pension scheme ->8.33%
>8.33% of Rs6500(MAX) - Rs541
Remaining Rs960 - Rs541 = Rs419
PF Amount -> Rs419
 Calculating Tax

Exemptions
- HRA
- Gratuity
Taxable Salary - LTA
- Medical Bills
= - Transport Exemption (800
( 800 pm)
Gross Salary - Interest for Home Loan (sec 24 24))
- Others
–
Exemptions Deductions
- Investments under Sec 80
80CC
– - Medical Insurance Premium (80(80D)
D)
Deductions - Education Loan Interest (80
(80E)
E)
- Donations (80
(80G)
G)
- Medical for Handicapped Dependent
- Others
 Tax Slab and Example
Example
Tax Slab
Taxable Salary = 6.4 Lacs
Upto 1.6 Lacs : No tax
Upto 1.6 lacs = 0
1.6 lacs – 5 lacs : 10%
From 1.6 – 5.0 = 34,000 (10% of 3.4 Lacs)
5.0 – 8 lacs : 20%
From 5.0 – 6.4 = 28,000 (20% of 1.4 Lacs)
8 lacs + : 30%
Total = 62,000
Exemption Limit
Men = 1.6 lacs
Women = 1.9 lacs
Senior Citizens = 2.4 lacs
 Power of Early Investing

"Compound interest is the eighth wonder of the world.

He who understands it, earns it ... he who doesn't ... pays it.”
Vignesh starts investing Anil is late and
3,000 per month at starts investing 6,000
25 till 60 when he is 35 till 60

Investment : 12.6 lacs Investment : 18 lacs

Corpus : 1.95 crore Corpus : 1.15 Crore
 Understanding Equity and Debt
Equity Debt

- Risky - Fixed Returns

- Excellent Return in long run - For ShortTerm
Risk goes down in Long Run
- Shares and Mutual Funds - Bank FD , Govt Bonds,
Liquid Funds
 Investment Options
Equity Diversified Mutual Funds: Track Record High Returns over long term ,
Extremelly tax efficient .

Balanced Mutual Funds : For people who want to take less risk than Diversified
Mutual Funds .

ULIPs : Only for Long Term investors and smart people who can use switching
at right time with discipline and under the importance of Asset Allocation .

PPF : Very Important for long term , 100%

% secure debt portfolio . Can not be
used in Legal proceeding too .

Pension Plans (ULPP's) : Can be used for Retirement . Same structure as ULIPS
for Investments .

Fixed Deposits : You know in advance the return you are going to get .

NSC/KVP/RBI Bonds/Endowment Plans : I am not excited with these

 What is Insurance

Why
- Cover Life and Health risk
- Security to Family

Why Not
- For Investment
- Only for Tax Savings (should not be the primary reason) .

Misellings
- No proper information given
- For meeting sales targets
- No proper products sold because of personal benefits like
commissions.
 Insurance Options
Endowment or Money back Plans
- Safety
- very less returns (5.5 - 6%)%)
- No ability to fight Inflation

Term Insurance
- Only Life Cover provided without Returns
- very cheap premium
- Recommended for everyone

ULIPS
- Long term Products (10+ + yrs)
- Complex a bit and advised for someone who can utilize
the features like Switchings .
Age : 30 yrs
Total Duration : 20 yrs
Cover : 3,00,000 (3 Lacs)
Yearly Premium : 22000
Maturity Amount : 6lacs
Death Benefit : 3 Lacs
Can we achieve the same thing or better with 22,000 per year ?
Lets take a simple Term Insurance + PPF combo
From Religare Aegon, I got that Insurance premium for 30 yrs old for
amount of 10 lacs and duration of 20 yrs is Rs 1800 (after tax) .
So if we pay 1800 out of 22,000 for Insurance , we are left with Rs
20,200 (22,000 – 1800) .
If we invest this Rs 20,200 per year in PPF for 20 yrs , @8% , we
would get 10 Lacs . Which beats ING amount of 6 lacs . Now this is
the safest way of beating it . No questions behind it !! .
With SIP in mutual funds
For a investor who can invest it in Mutual funds through SIP ,
assuming a acceptable 12% % return , it would be around 16 lacs in 20
yrs .
 4 most Important things

Return : Good Risk : Should

and Reasonable cover overall risk
Returns which factors like Life,
can meet your Your Health, any other
financial goals
Financial
Life
Liquidity : This Simplicity : Your
means availibility of overall Financial Life
money anytime you needs to be simple
need it . It should enough for you to
be atleast 3-4 months understand it . Simple
of Expenses is best
What is Portfolio?
Total investments combined are called Portfolio. So if Person ABC has
invested Rs x in shares , Rs y in Insurance , Rs z in PPF and Rs k in
Real Estate , it will combined be his Portfolio.

What makes an Health Portfolio ?

A good and strong portfolio has some strong elements or parameters
which it must meet.

1. Capital Appreciation
2. Liquidity
3. Risk Management
4. Goal Oriented
Capital Appreciation
This is one of the biggest reason to invest. Isn’t it very obvious? Yes ,
it is . But the main point is not just its growth in numbers but its real
worth . We are talking about Post--tax and post inflation returns .

Liquidity
Another important aspect of a good portfolio is that its provide
enough liquidity , so that in case of need , you can get the money.
What is Liquidity ? Liquidity is how fast and easily asset can be sold
and you can get cash
Risk Management
Every portfolio or investment must be to some level insured or
have element of risk management.
-Adequate Insurance to be taken .
- Proper monitoring of performance of investment.
- Getting out early in a bad investment and accepting that you
made a wrong decisions.

Goal Oriented
“A good investment is one which has a purpose”
Each and every investment should be done because of a strong
reason.
Sample Portfolio Analysis.

Sample Portfolio 1
Praveen is a married person earning 40,000 per month. He is the sole
Earner of the family and and has 2 kids . He is not a risk taker and his
portfolio looks like
- 50,000 invested in NSC (opened before 3 years)
- An endowment policy with 10 lacs cover and 40,000 premium for 30
yrs , with maturity benefits.
- 1,40,000 in a Tax saving mutual funds (investment 70k for 2 years for
tax saving)
- Home Loan EMI 10k(Rs 30,00,000)
- Cash : 20,000
- Car Loan 5k ( worth 5,00,000)
- Jewelery worth 80,000
Lets rate his portfolio on all the parameters on the scale of 5 stars

Capital Appreciation : ** (A small portion in Equity , and that too for a

wrong reason of just tax saving , Saving through Endowment policy is
another wrong decision , the returns are too less )

Liquidity : * (None of the assets are Liquid and Cash available is not
enough to meet emergency requirement)

Risk Management : * (No Risk management , What if he dies after 10

days , What if he meets an accident , What if suddenly he requires
1,00,000 , what if he looses his Job)

Goal Oriented : * (The reasons for investment in most of the things

looks like they are for Tax saving , or some one suggested )
Sample Portfolio 2
Jobi is married and has 2 kids and parents who are all dependent on him
, He earns 40,000 per month .

- Long term investments in Tax saving Mutual Funds (Rs 4,000 per
month)
- Term Insurance of Rs 80,00,000 (10
10k to 20k yearly Premium)
http://www.insurancecomparison.net.in/insurancecomparison.aspx
- Health Insurance of each member up to 3,00,000 – 4,00,000 (Family
Floater Policy)
- Yearly Contribution to PPF (Rs 50,,000)
- Invested 1,00,000 in Liquid Funds
- Home loan taken by him and his Wife Jointly (Along with Home Loan
Insurance)
- 30,000 invested in Gold ETF and some good shares.
- Rs 25,000 Cash
Lets rate his portfolio on all the parameters on the scale of 5 stars
Capital Appreciation : **** (Appropriate investment in Equity with
long term view , and some money in Debt)
Liquidity : ***** (Has good amount of money in Liquid funds , Cash
and Gold ETF , which have good liquidity and can provide him Money
quickly in case of requirement)
Risk Management : **** (In case of any type of Eventuality, He is
properly covered. He is protected well against Death , Health Issues ,
Home related issue , Emergency issues)
Goal Oriented : ***** (Most of the investments have strong and valid
reasons . Like Term Insurance is required for Financial Cover , Mutual
funds investment was for Long term Wealth Creation , PPF investment
for Wealth Creation with Debt Route and safe investment , Joint Home
Loan with wife for Tax benefits , Health Cover for Tax benefits and
cover against Health Issues , Gold Investment in ETF because of
Diversification and Liquidity , Cash for instant requirement , Liquid
funds investment for Liquidity along with some returns)
Q&A's

Q&A