Top Banner

Click here to load reader

IAPM project

Nov 25, 2014




Submitted towards the partial fulfillment of 4TH Semester of MBA- INSURANCE Degree course, for the subject INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT

Submitted by: NIHARIKA SHARMA Roll No. 228 M.B.A. INSURANCE(Sem. IV)


INTRODUCTION: Tax planning is an essential part of financial planning. Efficient tax planning enables to reduce tax liability to the minimum. This is done by legitimately taking advantage of all tax exemptions, deductions rebate and allowances while ensuring that investments are in line with long term goals. Financial Instruments for Tax Saving Tax saving as per Section 80(C) Section 80C provides a list of instruments, which you can invest in for saving tax. One can invest a maximum of Rs 1 lakh in all the following instruments put together so that the entire amount of Rs 1 lakh shall be deducted from the taxable income. Deduction is received for the following investments1. Any life insurance policy or unit-linked insurance plan (ULIP). Lock-in period for ULIPs is 3 to 5 years and the returns vary according to the performance of fund. But if the annual premium exceeds 20% of the sum assured on your policy, then tax benefit will not be received. 2. Any retirement benefit plan which is offered by mutual funds. Examples are Templeton India Pension Plan and UTI Retirement Benefit Plan 3. A Provident Fund, which is covered under the Provident Fund Act. This means investments made through salary deduction in the Employees Provident Fund (EPF) account as also investments directly in the Public Provident Fund (PPF). One can invest up to Rs 70,000 in PPF. Current rate of return on EPF is 8.5% & that on PPF is 8 % 4. Approved superannuation fund. In this the employer, on behalf of employee, does deducts the investment amount from employee s salary. 5. The National Savings Certificates (NSCs). 6. The Equity Linked Savings Scheme (ELSS) that are offered by mutual funds. 7. Certain Pension policies provided by insurance companies where the benefits were earlier available u/s 80CCC. Earlier, a limit of Rs 10,000 was present on such investments; however now that ceiling has been removed. 8. Bank fixed deposits which provide the Section 80C tax benefit. They have a lock-in period of 5 years. 9. Apart from above investments, one can also get a deduction on certain expenses like the principal repayment on home loan and tuition fees paid for childrens education.

BANK SAVINGS 1. Bank Fixed Deposits[Term Deposit] Under a Fixed Deposit Saving Scheme a certain amount of money is deposited in the bank for a given time period with fixed rate of interest. Fixed Deposit Scheme is ideal when one wants to invest money for a longer period of time and get a regular income. It is also safe, liquid and gives high returns. Loan / Overdraft facility is available against bank fixed deposits. Now many banks don t charges for premature withdrawal.

2. Recurring Deposits In a Recurring Bank Deposit Savings Scheme, the investor invests a certain amount in a bank on a monthly basis for a fixed rate of return. There is a fixed tenure, at the end of which the principal sum as well as the interest earned in that period is given to the investor Recurring Deposits provide an element of compulsion to save at higher rates of interest applicable to Term Deposits along with liquidity to access savings at any time.


RBI Bonds/RBI Relief Bonds RBI Bonds have a special provision that allows the investor to save tax. These Bonds are issued by the RBI.The interest is compounded on half-yearly basis. The maturity period of RBI Bonds is 5 years, and the interest received is tax-free in the hands of investor.

POST OFFICE SAVINGS 1. 2. 3. 4. 5. 6. 7. Post Office Time Deposits Post Office Recurring Deposits Post Office Monthly Income Scheme [Post office MIS] National Savings Certificates [NSC] National Savings Scheme [NSS] KisanVikasPatra [KVP] Public Provident Funds [PPF]

OTHER SAVINGS 1. Infrastructure Bonds: Infrastructure bonds are available from ICICI and IDBI in the name of ICICI Safety Bonds & IDBI Flexibonds. They provide tax-saving benefits for the investor under Section 88 of the Income Tax Act, 1961; one can reduce their tax liability up to Rs 16,000 p.a.

2. Company Fixed Deposits: Company Fixed Deposits are fixed deposits in companies that earn a fixed rate of return over a period of time. Financial institutions as well as Non-Banking Finance Companies (NBFCs) also accept such kind of deposits


Options in tax-saving investmentsPPF fits all portfolios, except those earning basic pay of over Rs 8.3 lakh yearly.It is that time of the year when your employer will ask for your investment declarations. Most salaried persons will want to invest in tax saving instruments.Among instruments you cannot do without, is Public Provident Fund (PPF) which offers tax-free eight per cent annual returns with no risk, making it a good fit in most portfolios. However, a person can invest maximum of Rs 70,000 each year in PPF. For people in higher income brackets (basic salary of over Rs 8.3 lakh), the employee provident fund (EPF) itself covers the permissible limit of savings, thus investment in other instruments is

not necessary. Other than EPF and PPF, a person needs to look at risk-return parameters of each product that helps him or her save tax. SECTION 80C Equity Linked Savings Scheme (ELSS): This product can help people in all tax brackets to save taxes while giving inflation-adjusted returns. The investor does not need to pay any tax on withdrawal too. ELSS has a lock-in period of three years, the shortest among all tax-saving instruments. Unit-linked insurance plans (Ulips): These products too can provide inflation-adjusted returns and opportunity to create wealth in the long term, as they invest in equities and debt papers. However, you need to keep investing regularly and wait until the maturity, as high upfront charges eat into returns of the older products (issued before Sept. 1, 2010). Even after the recent regulatory changes in Ulips, they are still expensive investment vehicle compared to mutual funds. Other insurance plans: Covering risks is essential for your goals. Buy insurance for actual requirement rather than for saving taxes. That's why opt for a term plan, as oppose to endowment and money back, as the former offers highest risk cover for low premiums. The premiums paid are eligible for deduction under Section 80C. New Pension Scheme (NPS): This is the most recent entrant to the Section 80C instruments. It can be a good option for retirement planning with tax savings. The drawback is that the amount is taxable on withdrawal on maturity. Pension Plans: Contribution in pension plans is allowed as deduction under Section 80CCC. Pension plans can be traditional or unit-linked, or from mutual fund houses. Other products that are covered under Section 80C are national savings certificate, senior citizen savings scheme, 5-year fixed deposits, including accrued interest, tuition fee for two children for full time courses, home loan principal repayment. The combined limit of deductions under Section 80C, 80CCC and 80CCD is Rs 1 lakh.

OTHER INSTRUMENTS Interest on home loans: Interest on home loan is deductible up to Rs 1.5 lakh each year for loans taken after April 1, 1999 under Section 24(i)(vi). If it is a joint loan, both the people can avail of this deduction simultaneously depending on their contribution. Infrastructure Bonds: By investing in these bonds you can avail additional deduction of Rs 20,000 from your income under section 80CCF. The interest earned on these is taxable, which will eat into your returns. Health Insurance: The premiums paid for health insurance of self, spouse and dependent children are deductible from your income up to Rs 15,000 under Section 80D. If you pay premiums for your parents, you can claim a deduction of additional Rs 15,000 or Rs 20,000 if they are over 65. A person can also claim additional deduction on interest component of an educational loan taken for spouse, children or self under Section 80E. For people interested in philanthropy, Section 80G provides for deduction of 50 per cent or 100 per cent of the amount donated.

Tax Saving Schemes The table that follows lists out tax saving schemes that entitle you to a reduction on your taxable income.What this means is that if you have a taxable salary of Rs. 9,00,000 and invest Rs. 1,00,000 in any of these tax saving schemes then your taxable salary gets reduced by 1,00,000, and you pay tax as if you only earned Rs. 8,00,000 in the year.The maximum investment column in this table indicates that the tax benefit ceases to exist for an amount in excess of what s indicated there. So, if you invest more than 70,000 in PPF you will still be entitled to tax benefit on only Rs. 70,000.Also, note that the combination of these options will give you a maximum tax benefit of Rs. 1,00,000, so if you have already bought insurance worth Rs. 1,00,000 investing another Rs. 1,00,000 for ELSS will not get you additional tax saving.The only exception to this is the 80CCF Infrastructure Bonds, which reduce your taxable income by Rs. 20,000 over and above the Rs. 1,00,000 saved by the other options.

S.No. Name 1 Life Insurance Paid Contribution to Provident Fund Investment (National Certificate) in

Maximum Investment Premium 1,00,000

Notes Policy should either be in your name, spouse s name or children s name You can t add the employer s contribution to PF under this head. Post office scheme with guaranteed returns.


Public 70,000