Buying ULIP's? First Read this...

Unit Linked Insurance Plans are good options for those who look out for the returns with the insurance. ULIPs offer fairly good returns over a period of time as all investments give returns if the holding period is long.

For a layman, the source of knowledge of these Insurance plans can be advertisements, personal contacts. But generally the plans are purchased from company through the insurance agents/advisors. These agents/advisors use various tricks to sell the plans to the customer who generally is taken by the sweet schemes offered by the insurance companies.

Let’s first understand what are ULIP’s and how they work. Unit linked insurance plans ULIP’s are combination of insurance policy and investment portfolio. As in case of a normal policy in ULIP’s as well a stipulated sum is required to be paid on specified intervals varying from monthly, quaterly, half yearly and yearly. Now contrary to normal insurance plans where the whole amount is meant for the insurance purpose only, here the portion of premium amount is kept aside for the insurance purpose and rest is invested in market under the guidance of portfolio mangers. The corpus is invested in market and units are allotted to the customer as in case of the mutual fund. Regular NAV is published on the basis of which the value of the units is decided and return is calculated or it can be said that this is the value which is paid in case of any unfortunate happening or maturity of the policy. The catch here is the charges of managing the fund is to be borne by customer on continuing basis which are too high than normal investments one can make in normal market. These charges are nothing but the income of the insurance company from which a big sum is paid to agent as commission.

The charges includes mortality charge for the insurance, policy administration Charge and fund management charge for managing the fund. The ULIP’s gives option to customer to remain invested in Equity market, Debt market, Guilt Edged securities and varied combinations of these. Also, here switching is allowed for movement of funds to from one portfolio to another. But the free number of switching are limited depending on the insurance company after that again a charge is levied on the amount of fund switched.

Agent’s usually say that the customer do not need to pay any premium after three years in ULIP’s and the policy will still be alive for the remaining tenure opted by the customers. Advisors sometimes even say that the premiums already paid by customer will itself start generating the returns from which the premiums of the next years will be paid. One should not fall prey to these tricks instead should ask for the written premium payment schedules which shows the premium amount to be each year and how that amount is going to be amortised over the insurance policy and investment in the market.

All Ulips generally come with an option known as a 'cover continuance' option. This option has to be opted at the time of starting the policy. The option ensures the continuation of the policy in case due to some reason the individual is unable to continue paying premiums after paying premiums for the first three years.

It is an option built into the policy to cater those who face a financial deficit few years into the insurance policy and are not able to keep paying the premium in the years to come.

Insurance advisors, always make best use of this opportunity, use this continuance option as selling point, They sell the ULIP’s by saying that customer need not require to pay any premiums after three years. Resulting to which the customer who is capable of paying the premiums after three years also stops paying.

Now this is not really in their best interests. Now after the new guidelines issued by Insurance Regulatory Authority of India reviving a ULIP will become very costly.

The main reason why agents misguide customers is the amount of commission being paid to them which is higher in first three years and less thereafter. Agents eye a sale of new policy to customer in the fourth year.

In the first year of the policy upto 70% is deducted from the premium paid by the customer as various charges and a huge sum is paid to agents.

Other than this, if individuals stop paying premiums after three years also increases the risk of the policy being terminated. The individual may have stopped paying the premium but that does not stop the insurance company from deducting other charges like the mortality charge, fund management charge, policy administration charge, etc. These charges are usually recovered by cancelling units that the individual has accumulated over a period of time.

A policy on which premium is no longer being paid can continue till the value of the investment is greater than one year's premium. If it falls below the one year's premium then the policy is ended and the amount returned to the individual.

The other reason is that most individuals do not like policies in which they are locked in for long periods of time. Hence, the easier way to sell them a Ulip is by telling them that they need to pay a premium only for three years.

6 good reasons to invest in SIPs

Investment in SIPs are now a days considered safe. As the Mutual funds cater the needs of every kind of investor : be it aggressive or conservative. Also, a thought of portfolio can generate even better returns than that of Investing in Equities only..Let’s see how investment in SIP is better than investing in Equity, primary market:
Fact No. 1: If one want to make profits from Equities, he has to remain invested for a long period. Yes, the returns from Equities are far better than of Debt instruments.
Fact No. 2: In short duration, equity shows very sharp ups and downs, which many of us are not able to tackle with and end up in lesser returns or loss.
Fact No. 3: A lot of risk is involved in Equities which can even extend to losing the entire corpus invested.
Fact No. 4: Investment in equities requires one to be in constant touch with the market and regular updation of the portfolio with the changes.
Fact No. 5: Equity investment requires a lot of analytical power and research.
Fact No. 6: Large amount is required in buying good scrips.

For a layman, Mutual fund is the answer to above problems. One can purchase mutual fund without having a demat account. The investment in Mutual fund can be made in Lump-sum or through Systematic Investment Plan (SIP). Wherein SIP mutual fund can prevent from the pitfalls of equity investment and one can still enjoy the high returns. And it makes all the more sense today when the stock markets are booming.

Dealing with Equity Market is a task of an Expert

The corpus of the Mutual fund is managed by the professionals or experts. And this is the major advantage of investing in Mutual funds. The experts keep a strict vigil over the market and daily developments and make appropriate changes toe ht portfolios by adding new scrips to the fund or selling the underperforming ones, thereby keeping the fund value high. These experts have the expertise to make informed investment by researching company-industry-economy and the aggregate impact. Since these people are related to market, they are always in touch with the market which a common man can’t. Hence investing in Mutual fund saves time and effort of common man yet rewards a handsome return.

Benefit Of Diversification

Another advantage of investing through Mutual funds is that the whole corpus so accumulated is invested in a number of scrips by the fund manager thereby reaping the benefits of large investment though the investor has contributed a small amount For an individual, to invest in a number of good scrips, huge amount is needed, By investing in Mutual Funds an investor can reap the benefits of diversification.

Fair and Well Regulated

The Mutual Fund industry is well regulated both by Securities and Exchange Board of India and Association of mutual funds in India. The regulations issued by these bodies have ensured smooth and transparent market for Mutual Funds in Indian Industry.

SIP Overtaking the Timing

Investment in Mutual Funds through SIP removes the biggest difficulty of timing as to when to enter and when to exit. It also solves the problem of choosing scrip from among the big number to a great extent.

Investment Amount to be decided by investor

Mutual Funds allow investor to invest very small amounts (Rs 500 - Rs 1000) in SIP, whereas equity investment requires a huge amount to be invested. This makes investing easier for us as it does not strain our monthly finances and budget. It thereby becomes the ideal investment route to enter into equity market.

Cost Reduction and Regular investment

SIP requires regular investment over a selected period of time which enables an investor to invest on a regular basis. SIP enables an investor to buy more number of units when market is low and less number when market is high which at the end average outs the cost of purchasing when the markets were high with the lows. This reduces the cost to the investor.

Foreign tax haven base for infra SPVs

The proposed offshore special purpose vehicles (SPV) for funding infrastructure projects, that will utilise a part of the country’s $200-billion foreign exchange reserves, are likely to be set up in a tax haven. The Netherlands, Cyprus and Singapore are among the locations that may be considered once a decision to set up the SPVs is taken. The government is proposing to set up two SPVs.

Call rate slips down further to 1.25%

The overnight inter-bank call money rate fell to 1.25 per cent at the close of trading in the money market today, down from yesterday’s low of 4 per cent. The rate is being pushed close to its low of 1 per cent, touched earlier this month, by a flush of liquidity caused by redemption of bonds on Monday. “Towards the end of the day, there were players in the market to lend around Rs 1,500 crore, but there were no takers,” said a call money dealer with a public sector bank.

No tax sops for port-turned SEZs

The government will not provide any fiscal benefits, duty concessions and exemptions to material needed for operation and maintenance of existing ports converted to SEZs. This forms a part of the latest guidelines for port-based SEZs. It would initially be applicable to existing port-based SEZ facilities like Gujarat`s Adani Port, Balaji Infra Projects in Raigad etc. However, materials used for expanding the existing port or for building additional infrastructure like container facility etc would be eligible for duty concessions and exemptions.

Telecom operators urge Centre to replace all taxes with 6% single levy

Telecom operators have urged the Department of Telecom to bring down all levies imposed by the Central Government on the operators to six per cent of their annual revenues. In a meeting with the Department of Telecom, both GSM and CDMA operators gave a joint presentation highlighting the huge burden on the industry.This comes even as the Prime Minister, Dr Manmohan Singh, recently said that the Government was committed to introduce a single levy on telecom operators.

Ulips to turn costlier after new Irda fiatAdd to Clippings

Prices of unit-linked insurance policies (Ulips) are set to rise, thanks to a clarification issued by Insurance Regulatory Development Authority (Irda) on lapsed policies. Irda has stipulated that if a unit-linked policy lapses during the first three years, the policyholder will be entitled to a surrender value at least from second year onwards, which will become payable only at the end of three years. In case the policyholder expires during the first three years for such lapsed policies, insurers will have to be paid a death benefit that will at least be equal to the fund value.

RBI nixes Essar pledging shares

The Reserve Bank of India (RBI) has rejected Essar Communications’ application to pledge its equity in Hutchison Essar Ltd to Standard Chartered Bank, London, on the ground that the proposal would result in the transfer of equity holding of a resident entity from one non-resident entity to another one. “As the utilisation of the proceeds of the loan taken after pledge of shares would be used for acquisition of more shares, we propose to reject the proposal,” the RBI said in a letter to the Department of Economic Affairs (DEA) on May 21.

Sebi kills ombudsman plan

Sebi has scrapped its proposal to introduce an ombudsman for speedy redressal of investor complaints. The regulator has been of the view that the existing system of addressing investor grievances by stock exchanges is fairly robust and seen to be working well

PIL seeks stay on state`s `illegal` VAT

The implementation of Value Added Tax (VAT) had helped Maharashtra shore up its revenues, like many other states, but now, a PIL is challenging the legal validity of the system in place. Alleging that the system in the state is not in accordance with many provisions of the VAT Act, the PIL, filed by an Aurangabad-based chartered accountant, wants the court to stay the collection of VAT in the state and declare it illegal.

Overarching circular on service tax by mid-June-07

The government would issue a comprehensive circular clarifying ambiguities over nearly 100 services in the service tax net by mid-June, the source of which would be the Central Board of Excise & Customs (CBEC) and not the director-general of service tax, board member PC Jha said on Wednesday. Addressing mediapersons at an Assocham seminar, Mr Jha said, “The government is aware of inconveniences that trade and business have been facing on the service tax front. The comprehensive circular would replace all the present circulars and would enable taxpayers to access all required information in a detailed and simplified manner.” The government has withdrawn 48 circulars issued since 1994 and efforts are on to clarify all issues related to service tax.

Foreign missions exempted

The government has exempted from service tax all services to foreign diplomatic missions and consular posts in India of official use. The relief also covers services extended to diplomatic mission agents and consular officials posted in india. The exemption covers their families too. The decision to exempt diplomatic missions, effective from May 23 this year, came after discussions on the issue between the department of revenue and the Ministry of External Affairs.

Sugar industry seeks excise duty deferral to stay afloat

The beleaguered sugar industry, struggling to come to terms with low realisation and surplus production, has sought deferral of excise duty for a period of two years in a bid to extricate itself from the financial mess it finds itself in. A memorandum seeking such a relief has been submitted by the Indian Sugar Mills Association (ISMA) to the food ministry a few days back. Confirming the development, ISMA secretary-general SL Jain said that the industry is facing an unprecedented situation with sugar prices declining steeply.

Drawing the boundary between cross-border tax planning & evasion

IN MID-September last year, senior revenue department officials spent two days in Seoul with their counterparts from 34 countries brainstorming on how to counter cross-border tax evasion, including outright tax frauds. As a taxman will admit, when it comes to curbing the rising trend among individuals and businesses to use off-shore accounts to launder money, there is no quick fix solution. Tax authorities worldwide are trying to address the challenges arising from firms establishing shell companies or off-shore trusts in tax havens to escape paying tax on their income or assets.

Scope of section 9(1)(ii)

C.I.T & Another Vs. Reading & Bates Exploration Co.
07/07/2004(2005) 278 ITR 47(Uttaranchal)
Decision:Held by hon'ble court that since the off period followed the on period and that since assessee had to undergo training during the off period, it was clear that all that had a nexus with the services he rendered in India. Hence,salary paid during off period outside India will be taxable u/s 9(1)(ii)

Prudential norms on Income recognition, Asset Classification and Provisioning pertaining to Advances

RBI Circular DBOD No. BP.BC.76-21.04.048-2006-07 dated 12 April 2007
Prudential norms on Income recognition, Asset Classification and Provisioning pertaining to Advances
The RBI has directed all scheduled commercial banks that in case of infrastructure projects to be financed by them, the date of completion of the project is to be clearly spelt out at the time of financial closure of the project and if the date of commencement of commercial production extended beyond a period of one year after the date of completion of the project, as originally envisaged, the account should be treated as sub-standard.

I-T department probing tax evasion through duplicate PANs

Delhi : The income tax department is probing tax evasion cases done through duplicate permanent account numbers (PANs), including over 100 cases detected by the Delhi Police. The sources said the I-T department has obtained information from Delhi Police authorities about detection of over 100 PAN cards of different people of multiple identities and further investigations are in progress.

New Income Tax Forms for returns for the assessment year 2007-2008

New `forms` of worry

Delhi : The new income-tax forms notified by the Central Board of Direct Taxes (CBDT) recently are meant for the current assessment year — 2007-08. The draft forms were published in the last week of April and the basic thrust of the new tax forms are (i) annexure-less filing of tax returns; and (ii) compatibility to electronic filing method. However, hassle-free assessment may be difficult, as the new forms have a fair share of ambiguities and inconsistencies.

Investors to Feel more Confident and Safe

ICAI in favour of rotating audit firms for efficiency

Delhi : Investors can soon feel more confident that the audit which companies are required to do under the law is less prone to human errors. The regulator of accounting profession now wants audit firms to rotate after every few years the partner within the firm who verifies a client’s books for certification. The core governing team of Institute of Chartered Accountants of India (ICAI), the accounting and auditing regulator, will examine a new auditing standard proposing this in July. This is based on the international auditing standard on quality control. Companies, however, need not rotate the audit firm per se.

Modifications Brought To ECB (External Commercial Borrowings) Policy

The Government has brought out modifications in its policy on External Commercial Borrowing (ECB) with a view to modulating the capital inflows through this route.
The following are the modifications carried out in the policy:
(i) As per the extant ECB policy, utilisation of ECB proceeds for real-estate is not permitted. However, the term 'real-estate' excludes development of integrated townships. It has now been decided to withdraw the exemption accorded to the 'development of integrated township' as a permissible end-use of ECB.
(ii) In view of the upgradation of the country's sovereign credit ratings existing all-in-cost ceilings are revised as follows: Average Maturity Period All-in-Cost ceilings over 6 Month LIBOR Existing New 3 years and up to 5 years 200 basis points p.a. 150 basis points p.a. and for More than 5 years 350 basis points p.a. 250 basis points p.a.

The changes will apply to ECBs both under the automatic route and the approval route.
These amendments in ECB policy will come into force on the date of Notification of Regulations and directions issued by the RBI in this regard under the Foreign Exchange Management Act, 1999 (FEMA).