Ask Financial Planning Questions




Financial Planning is an art of fulfilling ones goals. It is a typical experience when one is doing it for himself or his loved one. If you are doing it and need an answer to a particular query you may search the questions mentioned below. If you are still not able to get the solution do ask me through the below comments section.

Financial Planning Questions

  • What is the tax liability on selling property?
  • Can you provide details regarding Education Loan?
  • How much pension I will get after retirement?
  • Which is best secured investment for retirement planning?
  • What client’s can expect from financial planning?

Income Tax on sell of House Property

Question: My father is retired from Central Government job and is a senior citizen. He sold his house recently for Rs.40 lakh. What is the total tax liability on him? If he does not invest this amount for some time, can he deposit it in his saving bank account?

In real estate investment, you are liable to pay capital gains tax based on your period of holding. If your father sold the house after three years of purchase, he will have to pay long term capital gain tax at rate 20% with indexation benefit. However, if the period of holding is below three years, short term capital gain tax will apply and the gain will be added to his income. Hence, based on the year your father purchased the house calculate the gains he has made which will give you the total tax liability on him.

But tax liability on property investment can be saved by investing the amount under two schemes. If you buy another property (not land) within two years or construct within three years of selling the house, you will not be liable to pay any capital gain tax. Subsequently you can also invest in capital gain bonds, with maximum limit of Rs 50 lakh per person per year. However, if you intend to do any of these after few months, the amount realized should be deposited in a capital gain deposit scheme account in any nationalized bank for a stipulated time.

Education Loan

Question: I want to take education loan for my child’s higher education. Can you please advise what factors to look into before going for it?

Before going to bank for checking the loan formalities, I would advise you to zero in on the course and Institution where you are seeking admission of your child. Check on the fee structure and placement record. Compare the fees vis a vis the expected salary following the course completion. All this information would be helpful to understand how easily the loan will be repaid and also if it worth taking loan for such kind of Institution for your child admission. Banks don’t ask for any security for loan up toRs 4 lakh but will do there due diligence. If loan amount would be more than 4 lakh but less than 7.5 lakhs than bank will ask for a 3rd party guarantor or co-loaner and if loan is more than 7.5 lakhs than you have to submit collateral of the equal amount of loan. It is also advisable to serve the interest in the moratorium period as this will help in reduction of interest rate to be charged by bank.

EPF (Employee Provident Fund) & Pension

Question: I am a Central Govt. employee. I joined service on 04/09/2010. From October, 2010  from my salary a sum of Rs. 1475/- is deducted by my employer towards EPF. My date of birth is 31/08/1974. How much amount I will get after my retirement and also how much pension I can get per month after 60 years. Please clarify.

Employee Provident Fund is a defined contribution scheme and one of the best tools to accumulate corpus for your retirement. With a discipline investment it compounds your money at a pre -defined interest rate. You have 24 years for your retirement. If I assume your income grows constantly at 8% p.a. (although it is 9% as on today, but may increase or decrease in future) till your retirement, you will be able to accumulate a surplus of Rs 57 lakh only from EPF contribution. Through this corpus you can buy annuity/pension from any life insurance companies in India. The pension will be at the rate prevailing during your purchase of annuity. If I assume rate of 6%, which is the current rate of annuity, you will receive a pension of approximate Rs 28000 monthly. However, insurance companies have different options for annuity like joint pension, pension for a defined period, pension for you with return of purchase price to nominee and others. The amount of pension varies in all the options. You will have to choose any one option at the time of buying annuity from the company.

Best investment for retirement

Question: My income per month is Rs. 25000/- approx. I want to invest Rs. 7000/- to Rs. 10000/- per month upto retirement age for my benefit. Please let me know the best secured investment idea for best return. Besides this I want to invest another Rs. 1000/- to Rs. 2000/- in every year due to getting DA / increment. Waiting for your comments.

There is nothing called “best secured or ideal investment”. Any investment decision you make should align with your goals to achieve. There are various investment options available to an investor but each one has its risk and return as per the time horizon for investment.

Retirement is a long term commitment and probably the most neglected goal by individuals. Since there is a good amount of retired life to live, there is always a need of higher corpus to be accumulated. The primary reason for this is the longevity of your life and expenses you bear post retirement. Hence the investment should be made in such instruments which can not only beat inflation but are capable of generating higher returns with maximum utilization of your resources.

Equity as an asset class has proved its sustainability of giving consistent returns with probability of risk reducing if invested for more than 10 years. Hence, it’s advisable to have maximum exposure in this asset class, gradually reducing when you are approaching near your goal. To allocate your investments in right manner it is necessary that you quantify your retirement goal. This means that you should know how much expenses you will have to incur post retirement which will give an estimate of the corpus required at age of retirement. Since, you haven’t disclosed time for your retirement and current expense and liabilities; it will be difficult for me to give any estimation and allocation of your investments. However, assuming you have 15-20 years for your retirement, I will advise you to adopt Mutual Fund Mode and start SIP in well diversified equity funds like HDFC Top200, DSPBR Top 100 equity, Fidelity equity and IDFC Premier Equity Fund. This will generate you the required return and will help you in reaching your goal. You can also consider PPF and NPS which are good tools for generating wealth for your retirement. For more advise on allocation of your visit a Certified Financial Planner and work on your retirement goals.

Financial Planning

Question: What’s involved in financial planning? As a client what should I expect?

On its most fundamental level, Planning acts to eliminate your financial fear: what would happen if you become unemployed or became disabled, or passes away? Planning can’t prevent those things from happening, but it can, within certain tolerances, prevent them from turning into financial disaster. On the upside, I think planning gives you the best possible chance to grow and protect your earnings and assets so that you can live, as nearly as possible, financially worry-free. And so that you can do the things you want for the people you care about & achieve all your financial goals.

You can ask your financial planning & personal finance questions in comment section.

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{ 41 comments… add one }
  • ANIL KUMAR KAPILA June 7, 2011, 2:05 PM

    My question is regarding income tax implications on sale of residential property.The father of my friend had purchased a plot in the name of my friend and constructed a house on it around 25 years back.At that time the cost of land and construction was around Rs one lac.The father of my friend has expired and my friend who is not a income tax payer now wants to sell the house.The present market value of the property is around Rs one crore.My friend does not want to buy another property or bonds.He wants to know whether he can deposit the money which he gets on the sale of the property in his savings account or a new bank account has to be opened for this purpose.He also wants to know how much income tax he has to pay?What will be the difference if the calculation is done without indexation and with indexation?

    • Hemant Beniwal June 9, 2011, 12:35 PM

      Hi Anil,
      My first suggestion is he should reach a CA as transaction proceeds are big. He will be the best person to guide him on the taxation.
      After paying tax he can use that amount according to his wish – depositing in SB or making FD or investing in MF.
      When he will use indexation benefit tax payable will be lower.

      • ANIL KUMAR KAPILA June 9, 2011, 1:02 PM

        Thanks Hemant

  • Manikaran Singal June 7, 2011, 2:36 PM

    Hemant,
    I like your post as always.
    Just to add one more point in quetion no.1….that the property to be purchased for tax saving under long term capital gains should be residential property. ( as you have not written specifically)

    Good Going

  • Rohan Doshi June 7, 2011, 4:46 PM

    Hi Hemant ,

    Is this logic of taxation and indexation also applies to sale of agricultural land ?
    or sell of agricultural land is completely tax free ?

    • Hemant Beniwal June 9, 2011, 1:22 PM

      Hi Rohan,

      Agriculture land in rural area is not covered in definition of Capital asset hence no capital gain is applicable in case of sale of agriculture land in rural area. However capital gain tax is applicable if land is situated in urban area. So it is going to depend where this agriculture land is situated – if in rural area no capital gain tax but it is coming in urban boundaries capital gain tax will be there.

      • Rohan Doshi June 9, 2011, 3:09 PM

        Hi Hemant ,

        Thanks For your reply , it cleard my doubts

        Yes that land comes under rural area… 🙂

  • Premila Vinod June 13, 2011, 10:18 AM

    I am 1971 born and thinking of a good investment plan. May be LIC or any other good one. My requirement is a saving plan where i can invest in single amount (to save tax) which would bear good profit after 10-15 years. Other options (quarterly) are welcome. Tell me something about VPF also.

    • Hemant Beniwal June 16, 2011, 8:48 AM

      Hi Premila,
      Can Indian’s think beyond insurance policies for investment purpose? I seriously doubt – every investor talks about insurance policies even when his purpose is only investment. As you want some instrument where you can invest for one time and also get tax benefit & good returns – my suggestion will be 2 go for equity linked saving scheme(elss) from mutual funds.
      Now coming to VPF (voluntary provident fund) – VPF is similar to EPF where you contribute some amount out of your salary towards special fund. In EPF your employer also matches your contribution & add similar amount. But as VPF is voluntary thing employer not contributes anything but you get all other benefits similar to EPF. It can be a good option for conservative investors plus you also can use this amount for tax saving under section 80 C. While you get a good risk-free return, you should be prepared to have your money locked in, till the time of your retirement. In case you make a premature withdrawal, you will have to pay tax. One more flip side is the way PF records are maintained & transferred once you change the job.

  • Dipankar June 16, 2011, 7:45 AM

    brilliant posts….

    I have a question for you which you might like to add and answer….

    I have decided to invest in health insurance, term insurance, mutual funds for long term wealth creation, putting money in PPF.

    I have assumed certain % inflation as well to calculate how much i would need for my retirement savings, child education, marriage, etc and I can do reverse calculation to find out how much i need to invest month on month to generate that amount…say in 15, 20, 25 years…

    now my question to you is why do i need the services of a financial planner?

    • Hemant Beniwal June 16, 2011, 8:22 AM

      Hi Dipankar,
      Do you think Financial Planner is a Calculator – if yes, you are seriously mistaken. Let me first correct you – health insurance & term insurance are not investments but are expenses.
      Do you need a Financial Planner depends on answers of these queries. Ask Yourself…… Do I have enough for retirement? Am I paying more taxes? Am I working on a budget? How can I repay my loans? How can I protect my assets? How will I pay for my child’s education? Should I invest now or wait for stable market? How do I minimize my investment risk? Are my investments beating inflation? Why should I start investing? Is the stock market too risky? How to investment in a fluctuating market? When can I retire? How can I achieve my financial goals? Is my portfolio diverse enough? Am I saving enough? And many more such questions but more important is all these things are interrelated in some sense but still having success in one field will not mean a successful financial life. Also ask yourself Do You Have Time & Ability To Plan? Typically caught up in our day-to- day work, you can afford very little time for financial planning. Moreover, with lack of ability to interpret and use financial information, financial decisions just do not figure in our list of priorities.
      Financial Planner can bring discipline & give proper direction to your financial life. If you still think financial planner is a calculator – use this software & enjoy your financial life
      http://www.tflguide.com/2011/04/franklin-templeton-family-solutions.html

      • ANIL KUMAR KAPILA June 16, 2011, 6:03 PM

        Hi Hemant
        It is quite clear that most of the people who ask you questions have absolutely no idea about investment.I am surprised how so many are confusing insurance with investment.Aggressive selling of ULIPs is definitely taking its toll.It is going to take a lot of effort before the people can understand the concept of financial planning.

  • AU SIDDIQUI July 14, 2011, 11:09 PM

    I and my wife are salaried and both invest 70000 per year in PPF and claim 80C deduction. We have a 5 year old daughter.I wish to open a PPF account for her and invest in it.What is the amount that can be maximally invested in the minors PPF account.I wish to invest 1 lac per year in the minor’s PPF account.What is the rate of interest for the child’s account

    What is the procedure when she reaches age 18. Does she have to reopen another account or continuse with the same PPF account
    thanks

    • Hemant Beniwal July 24, 2011, 9:56 PM

      Hi Siddiqui,
      Maximum is 70000 (you + Minor) – so you can’t invest say 70000 in each account.
      Once she obtain the major status – you convert the same account in major. (no need to start a new account)

  • Nikkhil July 19, 2011, 6:36 PM

    Hello TFL,
    I travel a lot daily and recently i was asked to buy a accidental claim policy. I have also read articles on internet that suggest the same. I am 33 of age with no identified illness or disability. Could you please suggest a accidental policy. I am looking at sum assured of 15lakhs

    • Hemant Beniwal July 24, 2011, 9:54 PM

      Hi Nikkhil,
      Will write something on accidental policy very soon.

  • Sona September 9, 2011, 2:13 PM

    I have employer insurance from oriental for 4.5 lakh. In addition to that I want to buy a floater policy for myself and my father for 10 lakh. Can this be done and is this valid to buy insurance from same company where your employer also gave insurance and even if it covers same people. My father is yet not covered in the employer insurance.
    Moreover, in case my claim is 13 lakhs in future will i get reimbursement from boht

  • Rajeshwari R November 24, 2011, 7:25 PM

    Hi, I wanted to know which are the best Infrastructure bonds available and which are open now in this month, to invest for the year 2011-2012. I want to invest in Infrastructure bonds to avail tax benefit.

  • Latha December 14, 2011, 4:28 PM

    Hi Hemant,

    I am expecting the article on ABC of infrastructure bonds soon.

  • Sourav Mallick February 1, 2012, 4:34 PM

    Sir, I have purchased one ULIP product of Max New York Insurance i.e. “Smart Assure- Dynamic plan”and the premium is Rs.25000/- per year. Now i have paid the 3rd annual premium and found that the value of fund is much less than the amount i have invested.
    My question is that, if I want to stop paying the premium from now onwards what will be the consequences?

  • Gaurav Kumar March 3, 2012, 3:27 PM

    Hi Hemant,
    On a monthly basis I want to invest(RISK FREE) a portion my income for my future cash needs (such as buying a vehicle, going on a vacation). I am anticipating future cash need will occur after a period of 2 year, could be more could be less . I understand RD is one of my option, but because there is locking period and I will charged 1% if i have to make pre-mature withdrawal. Another option is SIP in ICICI prudential regular saving fund. Please suggest if second option(ICICI pru regular saving fund) is a good replacement of RD. Or please suggest if there is any other financial product that fulfill my needs.

    • Hemant Beniwal March 5, 2012, 8:20 AM

      Hi Gaurav,
      Looking at your time horizon you can think of ICICI pru regular saving fund – it is a relatively new fund in income fund category but looking at ICICI past experience with debt funds you can consider this. But only caveat is that it is not risk free. Its average maturity is close to 1.5 years which make is susceptible to Interest rate risk. There is negative relation between price of bond & interest rates – if interest rate will increase price of bond will go down & vice versa. So if you would like to reduce your risk further, you should go for Short Term Funds like DSPBR Short Term or ICICI Pru Short Term.

  • Bhajan Basnet March 9, 2012, 12:14 AM

    hello sir
    i have one lack rupees at this moment i would like to invest it somewhere secured
    for short term would you please suggest me

  • Pravinchandra June 3, 2012, 6:04 PM

    I am already retired.I have savings available with me.How should I invest my savings.I need Rs. 40,000 for my monthly expenses.I do not have any other source of Income.

  • Navin June 4, 2012, 12:33 PM

    Hi Hemant,

    I am 28 years Old and married. I have a daughter who is one year old. I currently have started SIP’s for 2000 each in the following three funds

    ICICI Focussed Bluchip Equity
    HDFC Prudence
    BSL’95 Fund

    Apart from this I am conributing regularly to PPF. I am looking at investing in NPS.

    Can you pls advise if taking the NPS route for retirement is Ok or should I look at pension plans offered by AMC’s..

    • Hemant Beniwal June 10, 2012, 7:22 PM

      Hi Navin,
      NPS is a good option but still there are couple of limitation – will suggest you to wait till Direct Tax Code.

  • M.Saroj December 3, 2012, 11:49 AM

    Dear Sir,
    Will you please provide me the Jeevan Anand policy premium chart for 10 years and 15 years period for the following age group.
    DOB 09.06.1952
    DOB 19.01.1958 (For my wife)
    We are ready to pay 60k per annum.
    Is it wise to go for Jeevan Anand policy or
    Shall we go for any other investment ?

    • Vikas December 3, 2012, 10:10 PM

      Dear Saroj,

      Before buying any financial product, understand your requirement first. Traditional Plans have higher charges associated and so the net returns is quite low. Even a PPF produces higher net yield due to its tax free nature.

      In such case you should look at combination of products which best matches your need.

  • Kevin December 26, 2012, 11:23 PM

    Hi,
    I am 26 and currently my salary is 27k per month..i just want to save my money to buy a house after 5 yr..so wat can i do??????..pls give me ur suggestion.

    • Vikas June 11, 2013, 11:37 PM

      Hi Kevin,

      Buying a house is a major decisions and its always wiser to start planning early.However, there are other goals which needs to be taken care of as they too need long term investing. You should evaluate the cost of the house which you desire to buy. This will give you an estimation of the total money you require and how much you can accumulate in 5 years by investing. But do read this which will help you in taking a wise decision-

      http://www.tflguide.com/2012/12/can-i-afford-a-house-at-current-prices.html

  • Kiran June 11, 2013, 3:44 PM

    Hi,
    I’m having two plot/site loans which are at present and tenure is 5 years. I’m paying Rs.17K for both plots. My take home is Rs.65K and i plan to build a home on a plot which is given by my father-in-law in about 4 years. Kindly suggest me an investment/savings plan to my needs.

    thanks and Regards,
    Kiran

  • jafar ahmad lone February 18, 2014, 6:43 PM

    If a person have a life insurance cover of one crore who and his/her nominee died at the same time arter that they have their childrens and grandchildrens ,will their family members get the benefits of the same policy or not, if not why

    • Vikas March 4, 2014, 9:56 PM

      Jafar,

      In case all nominee and policyholder die at same time, the insurance proceeds will go to the legal heirs as per Will, if there is. If there is no Will the rule of Succession will apply.

  • vishakha January 12, 2015, 9:33 PM

    I am 36 yrs old i want to invest Rs. 800 per month for 5 lakhs for money back insurance pl. suggested to me which plan is useful for me

  • Chittaranjan P February 19, 2015, 3:49 PM

    How to take tax advantage on second home loan which is not occupied by me.

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