Why need for Personal Financial Planning??

Why the need for personal financial planning??

Personal financial planning helps you determine your short & long-term financial goals. It helps to create a tentative plan to meet those goals. The first step in developing your personal financial plan is to meet with a financial advisor.

Ø  Income: It's possible to manage income more effectively through financial planning. Managing income helps you understand how much money you'll need to pay for annual taxes, other household monthly expenditures & balance amount as savings. 

Ø  Cash Flow: Increase cash flows by carefully monitoring & managing your spending patterns & expenses. Tax planning, prudent spending & careful budgeting helps you keep more of your hard earned cash.

Ø  Capital: An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being. 

Ø  Family Security: Providing for your family's financial security is an important part of the financial planning process. Having the proper adequate life insurance coverage (preferably a term policy), medical insurance & home loan coverage policies etc in place can provide peace of mind for you & your loved ones. In case of all policies please maintain adequate files, which is known to spouse or other family members to track in case of any untoward incidents where these needs to be claimed.

Ø  Investment: A proper & flexible financial plan considers your personal circumstances, objectives & risk tolerance. It acts as a guide in helping choose the right types of investments to fit your various needs based on your life cycle, personality & future goals. 

Ø  Standard of Living: The savings created from good planning can prove beneficial in difficult times. You can make sure there is enough investment cover to replace any lost income should a family bread winner become unable to work. 

Ø  Financial Understanding: Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood & results reviewed. Giving you a whole new approach to your budget & improving control over your financial lifestyle. 

Ø  Assets: A nice cushion in the form of assets is desirable e.g. 2nd house, freehold land, gold etc. Many assets currently come with liabilities attached.  It becomes important to determine the real value of an asset i.e. realizable value of asset after setting of attached liabilities. Knowledge of settling or cancelling the liabilities, comes with the understanding of your finances. The overall process helps build assets that don't become a burden in the future. 

Ø  Savings: It used to be called saving for the rainy day. Sudden financial changes can still throw you off track. It is good to have some investments with high liquidity in bank under fixed deposits. Liquidity investments should be able to take care for 6 months in case of loss or income. These investments can be utilized in times of emergency or for educational purposes. 

Ø  Ongoing Advice: Establishing a relationship with your financial advisor who you can trust & relate with is critical to achieving your goals. You should regularly meet your advisor maybe once in 6 months to assess your current financial position & develop & modify you financial plan based on your changed needs.

Why consider ELSS while tax planning in current year

Only a few months or rather 2 months or 62 days remain till you can plan well & invest your hard money to save tax. That's right, if you want to save tax this year, invest in some of the tax saving schemes available in the market. If you do not invest properly in tax saving schemes, TDS will be deducted from your hard-earned money/salary for which you grind every day, for the entire year. This is a heartbreak that most salaried individuals face at the end of every financial year.

Most people who want to save tax, look for a way out from this & take help of different tax savings investment opportunities. Some of the most popular Investment options that most salaried individual look to & how they compare against ELSS. Investment in any tax saving scheme should serve the basic purpose of saving the tax & also at the same time, help in creating wealth for the future with a lower lock-in period. Unfortunately, that is not the case with most of these investments.

Investing in these options achieve a mini-goal of saving tax. But returns on these investments are so low that it hardly is able to reach the inflation levels of our country, let alone beating the inflation rate even after a lock-in period of 5 to 15 years. 

Investing in ELSS Mutual Funds provide you with the opportunity of saving tax upto Rs.46,800/- & also create true wealth in the long run. The returns you get by investing in ELSS is much more than that of other tax saving schemes & also beats the inflation by a fair margin with a lock-in period of just 3 years.

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By looking at the numbers in the below table, it is clear that the only investment that helps you achieve both these goals in the most efficient manner is ELSS.

Investment Nature	Expected Returns	Lock-In Period
National Pension Scheme (NPS)	12-14%	Till Retirement
Unit Linked Insurance Plans (ULIP’s)	According to Plan	5 Years
Public Providend Fund (PPF)	7-8%	15 Years
Sukanya Samriddhi Yogana	8-9%	N.A.
National Savings Certificate (NSC’s)	7-8%	8 Years
Senior Citizen Savings Scheme	8-9%	5 Years
Bank Fixed Deposits	6-7.50%	5 Years
Life Insurance	According to Plan	3 Years
Equity Linked Savings Scheme (ELSS)	12-15%	3 Years

Stock-Picking Strategies: Value Investing

Value Investing is one of the best known stock-picking methods. In the 1930's Benjamin Graham & David Dodd, finance professors at Columbia University laid out what many consider to be the framework for value investing. The concept is actually very simple, find companies trading below their inherent worth.

The value investor looks for stocks with strong fundamentals including earnings,  dividends, book value & cash flow - that are selling at a bargain price, given their quality. The value investor seeks companies that seem to be incorrectly valued (undervalued) by the market & therefore have the potential to increase in share price when the market corrects its error in valuation.

Value, Not Junk!
Before we get too far into the discussion of value investing, let's get one thing straight. Value investing doesn't mean just buying any stock that declines & therefore seems "cheap" in price. Value investors have to do their homework & be confident that they are picking a company that is cheap given its high quality.

It's important to distinguish the difference between a value company & a company that simply has a declining price. Say for the past year Company A has been trading at about Rs.25 per share but suddenly drops to Rs.10 per share. This does not automatically mean that the company is selling at a bargain. All we know is that the company is less expensive now than it was last year. The drop in price could be a result of the market responding to a fundamental problem in the company. To be a real bargain, this company must have fundamentals healthy enough to imply it is worth more than Rs.10 - value investing always compares current share price to intrinsic value not to historic share prices.

Value Investing at Work :
One of the greatest investors of all time, Warren Buffett, has proven that value investing can work. His value strategy took the stock of Berkshire Hathaway, his holding company, from $12 a share in 1967 to $70,900 in 2002. The company beat the S&P 500's performance by about 13.02% on average annually! Although Buffett does not strictly categorize himself as a value investor, many of his most successful investments were made on the basis of value investing principles. (See Warren Buffett: How He Does It.)

Buying a Business, not a Stock :
We should emphasize that the value investing mentality sees a stock as the vehicle by which a person becomes an owner of a company. To a value investor profits are made by investing in quality companies, not by trading. Because their method is about determining the worth of the underlying asset, value investors pay no mind to the external factors affecting a company, such as market volatility or day-to-day price fluctuations. These factors are not inherent to the company & therefore are not seen to have any effect on the value of the business in the long run.

Contradictions :
While the efficient market hypothesis (EMH) claims that prices are always reflecting all relevant information & therefore are already showing the intrinsic worth of companies, value investing relies on a premise that opposes that theory. Value investors bank on the EMH being true only in some academic wonderland. They look for times of inefficiency, when the market assigns an incorrect price to a stock.

Value investors also disagree with the principle that high beta (also known as volatility, or standard deviation) necessarily translates into a risky investment. A company with an intrinsic value of Rs.20 per share but is trading at Rs.15 would be, as we know, an attractive investment to value investors. If the share price dropped to Rs.10 per share, the company would experience an increase in beta, which conventionally represents an increase in risk. If, however, the value investor still maintained that the intrinsic value was Rs.20 per share, he would see this declining price as an even better bargain. The better the bargain, the lesser the risk. A high beta does not scare off value investors. As long as they are confident in their intrinsic valuation, an increase in downside volatility may be a good thing.

Screening for Value Stocks :
Now that we have a solid understanding of what value investing is & what it is not, let's get into some of the qualities of value stocks.

Qualitative aspects of value stocks: 

1. Where are value stocks found? - 
• Everywhere. Value stocks can be found trading on the  NYSE, Nasdaq, AMEX,  over the counter, on the FTSE, Nikkei & so on.
2. a) In what industries are value stocks located? - 
• Value stocks can be located in any industry, including energy, finance & even technology (contrary to popular belief).
3. b) In what industries are value stocks most often located? - 
• Although value stocks can be located anywhere, they are often located in industries that have recently fallen on hard times, or are currently facing market overreaction to a piece of news affecting the industry in the short term. For example, the auto industry's cyclical nature allows for periods of undervaluation of companies such as Ford or GM.
4. Can value companies be those that have just reached new lows? - 
• Definitely, although we must re-emphasize that the "cheapness" of a company is relative to intrinsic value. A company that has just hit a new 12-month low or is at half of a 12-month high may warrant further investigation.

Here is a breakdown of some of the numbers value investors use as rough guides for picking stocks. Keep in mind that these are guidelines, not hard & fast rules. 

1. Share price should be no more than two-thirds of intrinsic worth.
2. Look at companies with P/E ratios at the lowest 10% of all equity securities.
3. PEG should be less than one.
4. Stock price should be no more than tangible book value.
5. There should be no more debt than equity (i.e. D/E ratio < 1).
6. Current assets should be two times current liabilities.
7. Dividend yield should be at least two-thirds of the long-term AAA bond yield.
8. Earnings growth should be at least 7% per annum compounded over the last 10 years.

The P/E and PEG Ratios :
Contrary to popular belief, value investing is not simply about investing in low P/E stocks. It's just that stocks which are undervalued will often reflect this undervaluation through a low P/E ratio, which should simply provide a way to compare companies within the same industry. For example, if the average P/E of the technology consulting industry is 20, a company trading in that industry at 15 times earnings should sound some bells in the heads of value investors. 

Another popular metric for valuing a company's intrinsic value is the PEG ratio, calculated as a stock's P/E ratio divided by its projected year-over-year earnings growth rate. In other words, ratio measures how cheap the stock is while taking into account its earnings growth. If the company's PEG ratio is less than one, it is considered to be undervalued. 

Narrowing It Down Even Further :
One well-known & accepted method of picking value stocks is the net-net method. This method states that if a company is trading at two-thirds of its current assets, no other gauge of worth is necessary. The reasoning behind this is simple, if a company is trading at this level, buyer is essentially getting all permanent assets of the company (including property, equipment, etc) & the company's intangible assets (mainly goodwill, in most cases) for free! Unfortunately, companies trading this low are few and far between. 

The Margin of Safety : 
A discussion of value investing would not be complete without mentioning the use of a margin of safety, a technique which is simple yet very effective. Consider a real-life example of a margin of safety. Say you're planning a pyrotechnics show, which will include flames & explosions. You have concluded with a high degree of certainty that it's perfectly safe to stand 100 feet from the center of the explosions. But to be absolutely sure no one gets hurt, you implement a margin of safety by setting up barriers 125 feet from the explosions. 

This use of a margin of safety works similarly in value investing. It's simply the practice of leaving room for error in your calculations of intrinsic value. A value investor may be fairly confident that a company has an intrinsic value of Rs.30 per share. But in case his or her calculations are a little too optimistic, he or she creates a margin of safety/error by using Rs.26 per share in their scenario analysis. The investor may find that at Rs.15 the company is still an attractive investment, or he or she may find that at Rs.24, company is not attractive enough. If the stock's intrinsic value is lower than the investor estimated, the margin of safety would help prevent this investor from paying too much for the stock. 

Conclusion :
Value investing is not as sexy as some other styles of investing; it relies on a strict screening process. But just remember, there's nothing boring about outperforming the S&P by 13% over a 40-year span! 

(Data as taken from multiple sites for presentation here)

Art Of Cutting Your Losses

One of the most enduring sayings on Wall Street is "Cut your losses short and let your winners run." Sage advice, but many investors still appear to do the opposite, selling stocks after a small gain only to watch them head higher, or holding a stock with a small loss, only to see it worsen.

No one will deliberately buy a stock they believe will go down in price and be worth less than what they paid for it. However, buying stocks that drop in value is inherent to the nature of investing. The objective, therefore, is not to avoid losses, but to minimize the losses. Realizing a capital loss before it gets out of hand separates successful investors from the rest. In this article, we'll help you stand out from the crowd and show you how to identify when you should make your move.

Reasons Investors Hold Stocks With Large Unrealized Losses
In spite of the logic for cutting losses short, many small investors are still left holding the proverbial bag. They inevitably end up with a number of stock positions with large unrealized capital losses. At best, it's "dead" money; at worst, it drops further in value and never recovers. Typically, investors believe that the reason they have so many large, unrealized losses is because they bought the stock at the wrong time or it was a matter of bad luck. Rarely do they believe it is because of their own behavioral biases.
Let's look at a few of these biases:

• Stocks Always Bounce Back - Don't They? - A glance at a long-term chart of any major stock index will see a line that moves from the lower-left corner to the upper right. The stock market, over any long time period, will always make new highs. Knowing that the stock market will go higher, investors mistakenly assume that their stocks will eventually bounce back. However, a stock index is made up of successful companies. It is an index of winners. Those less successful stocks may have been part of an index at one time, but if they've dropped significantly in value, they will eventually be replaced by more successful companies. The indexes are always being replenished by dropping the losers and replacing them with winners. Looking at the major indexes tends to overstate the resiliency of the average stock, which does not necessarily bounce back. In fact, many companies never regain their past highs and some go bankrupt.

• Investors Do Not Like Admitting They've Made a Mistake - By avoiding selling a stock at a loss, many investors do not have to admit to themselves that they've made a judgment error. Under the false illusion that it is not a loss until the stock is sold, they elect to continue to hold a losing position. In doing so, they avoid the regret of a bad choice. After a stock suffers a loss, many investors plan to hold onto it until it returns to its purchase price. They intend to sell the stock once they recover this paper loss. This means they will break even, and "erase" their mistake. Unfortunately, many of these same stocks will continue to slide.

•  Neglect - When stock portfolios are doing well, investors often tend to them like well-maintained gardens. They show great interest in managing their investments and harvesting the fruits of their labor. However, when their stocks are holding steady or are dropping in value, especially for long time periods, many investors lose interest. As a result, these well-maintained stock portfolios start showing signs of neglect. Rather than weeding out the losers, many investors do nothing at all. Inertia takes over and, instead of pruning their losses, they often let them grow out of control.

• Hope Springs Eternal - Hope is the belief in the possibility of a positive outcome, even though there is some evidence to the contrary. Hope is also one of the primary theological virtues in various religious traditions. Although hope has its place in theology, it does not belong in the cold hard reality of the stock market. In spite of continuing bad news, investors will steadfastly hold onto their losing stocks, based only on the faint hope that they will at least return to the purchase price. The decision to hold is not based on rational analysis or a well-thought-out strategy; and unfortunately, wishing and hoping that a stock will go up does not make it happen.

Often you just have to bite the bullet and sell your stock at a loss before those losses get bigger. The first thing to understand is that hope is not a strategy. An investor has to have a logical reason to hold a losing position. The second point is, what you paid for a stock is irrelevant to its future direction. The stock will go up or down based on forces in the stock market, the stock's underlying fundamentals and its future prospects.
Having a written investment strategy with a set of rules both for buying and selling stocks will provide the discipline to sell stocks before the losses blossom. The strategy could be based on fundamental, technical or quantitative factors. 

• Have Reasons to Sell a Stock - An investor generally has quite a few reasons why he or she bought a stock, but typically no set boundaries for when to sell it. Don't let this happen to you. Set reasons to sell stocks, and sell them when these things occur. The reason could be as simple as: "Sell if bad news is released about corporate developments or a price target."

• Set Stop Losses - Having a stop-loss order on shares that you own, particularly the more volatile stocks, has been a mainstay of advice on this subject. The stop-loss order prevents your emotions from taking over and will limit your losses.

• Would You Buy the Stock Now? - On a regular basis, review every stock you hold and ask yourself the simple question: "If I did not own this stock, would I buy it today?" If the answer is a resounding "No", then it should be sold.

A tax-loss harvesting strategy is used to realize capital losses on a regular basis and provides some discipline against holding losing stocks for extended time periods. To put your stock sales in a more positive light, remember that you receive tax credits that can be used to offset taxes on your capital gains.

Conclusion
Taking corrective action before your losses worsen is always a good strategy. In investing, avoiding losses entirely may not be possible; successful investors accept this and try to minimize their losses rather than avoid them. Selling a stock at a loss and receiving a tax credit is one benefit you will receive. Selling these "dogs" has another advantage too - you will not be reminded of your past mistake every time you look at your investment statement. 

(Good Article to read by Ken Hawkins)

ELSS-Tax Savings MF-Why should you invest-Features, Pro's & Con's

Planning your taxes is an integral part of your financial planning. Sec 80C of the Income Tax Act allows you to claim deductions from your taxable income by investing in certain investments. One of the most popular Sec 80C investments is in tax saving mutual funds or Equity Linked Savings Scheme (ELSS). 

For tax purposes, returns from an ELSS scheme are tax free. You can claim upto Rs.1.50 lakh of your ELSS investment as a deduction from your gross total income in a financial year under Sec 80C of the Income Tax Act. This is an equity diversified fund & investors enjoy both the benefits of capital appreciation as well as tax benefits. An ELSS is a diversified equity mutual fund which has a majority of corpus invested in equities. Since it is an equity fund, returns from an ELSS fund reflect returns from equity markets.

Do a thorough research before you invest in an ELSS fund. You must look at the long term performance of the fund before putting your money in it. Remember to look at the fund details like the fund manager’s investment approach, portfolio of the fund, the expense ratio of the fund & how volatile the fund has been in the past. This type of mutual fund has a lock in period of 3 years from the date of investment. This means if you start a Systematic Investment Plan in an ELSS, then each of your investments will be locked in for 3 years from the respective investment date. Investors can exit ELSS by selling it after 3 years.

Similar to other equity funds, ELSS funds have both dividend and growth options. Under the growth scheme investors get a lump sum on the expiry of 3 years in growth schemes. On the other hand, in a dividend scheme investors get a regular dividend income, whenever dividend is declared by the fund, even during the lock-in period.

Compared to traditional tax saving instruments like Public Provident Fund (PPF), National Savings Certificate (NSC) & bank fixed deposits, the lock in period of an ELSS fund is much lower. While ELSS investment is locked in for 3 years, PPF investments are locked in for 15 years, NSC investments are locked in for 6 years & bank fixed deposits eligible for tax deduction are locked in for 5 years. As ELSS is an investment in equity markets & investing in this for a long term can give you better returns compared to other asset classes over long term. You can also opt for SIP investments, which bring about discipline in regular investing. You can also get income from your investment amount in the lock in period if you opt for dividend schemes.

ELSS is not for risk averse investors. As ELSS investments are per se stock market investments, all risks associated with equity investments pertain to ELSS. So you are better off avoiding ELSS if you do not wish to take this risk. Another disadvantage of ELSS is that you cannot withdraw your funds before the maturity date. Other instruments like PPF & bank deposits permit premature withdrawal, subject to certain conditions.

High inflows into ELSS funds are determined by performance of stock market in general. Also, if an investor gets better tax-adjusted returns from other investment avenues like debt, he will prefer to go for this, as risk is lower. But over a long term, ELSS funds are the best tax saving instruments, especially if you are an investor who can take on high risk. The success of this category of mutual fund depends on the tax treatment it receives under the DTC.

With the financial year coming to a close & sentiments towards equity markets turning positive, investments in ELSS are on the rise, which makes a perfect case for one to consider & have this in your basket while working out personal or investment tax planning in current financial year. 

Best Tax Saving Investment option under Sec 80C

Some of  Tax Saving Investment options under Sec 80C are as detailed below:- 

1. ELSS (Equity Linked Savings Scheme) or Tax Saving MF's : Investment in ELSS Fund or Tax Saving Mutual Fund is considered as the best tax saving option. These funds are specially designed to give you dual benefit of saving taxes & getting higher returns on investment. These are tax-saving mutual funds that invest at least 65% of their assets in the stock markets. ELSS funds are best placed to help you earn inflation-beating returns over the long-term because of their equity exposure. Even though these tax-saving mutual funds don’t offer guaranteed returns, the best-performing ones have generated 12-15% returns over the long-term through the power of compounding interest. Additionally, since ELSS funds are equity-oriented funds, all gains on investments held for over one year are levied 10% LTCG (Long Term Capital Gains) tax for the investor.
• Lowest locking period of 3 years
• Delivered historically higher returns than FD, PPF or NPS
• Interest earned is partially taxable
2. Investment in Tax Savings FD's : Tax-saving FD's are like regular fixed deposits but come with a lock-in period of 5 years & tax break under Section 80C on investments of up to Rs 1.5 lakhs.
• Can be opened by Resident Indian individuals
• Fixed Deposits have lock-in period of 5 years
• FD interest rate across different banks ranges from 5.5% to 7.75%
• Minimum investment limit is Rs.1,000
• Interest earned in taxable
3. Investment in PPF (Public Provident Fund) : PPF are long term investments backed by government of India. Deposits made in a PPF account are eligible for tax deductions under Section 80C.
• Can be opened by Resident Indian individuals, salaried and non-salaried individuals. A HUF cannot open a PPF account
• Have a lock-in period of 15 years, but can be further extended by 5 years
• Partial withdrawals are allowed after 7 years
• Current interest rate is declated by GOI is 8.0% p.a.
• Minimum and maximum investment limit is Rs 50 and Rs 1.5 Lakhs respectively
• Interest earned is tax-free
4. Investment in NPS (National Pension Scheme) : NPS is a pension scheme that has been started by the Indian Government to allow the unorganized sector & working professionals to have a pension after retirement. Investments of up to Rs 1.5 Lakhs scan be used to avail tax deductions under Section 80C.
• Can be opened by every Indian citizen between the age of 18 and 60
• Partial withdrawals are allowed after 15 years but under special conditions
• Returns rate on the NPS varies between 12% to 14%
• No limit on maximum contribution
• Employer contributions are tax-free
5. Investments in ULIP's (Unit Linked Insurance Plans) : ULIP's are a mix of insurance & investment. A part of the invested amount in ULIP's is used to provide insurance & the rest of the amount is invested in the stock markets. Investments of up to Rs 1.5 Lakhs in ULIP's are eligible for tax breaks under Section 80C.
• An investor can buy ULIP's for self or spouse or child
• Interest rate varies as it is market linked
• Return rate on the ULIP's varies between 12% to 14%
• No limit on maximum contribution
• Investment and withdrawals & maturity amount are tax-free
6. Investments in Sukanya Samriddhi Yojana : Sukanya Samriddhi Yojana Scheme is one of the most popular schemes by the Government of India. The scheme is aimed at the betterment of girl child in the country.
• Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years
• Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years
• Interest rate on Sukanya Samriddhi Yojana is 8.5%
• Investment is limited to maximum Rs.1.5 Lakhs in a financial year
• Investment and withdrawals & maturity amount are tax-free
7. Premium payments towards Life Insurance : Annual premium paid for life insurance in the name of the taxpayer or the taxpayer’s wife and children is an eligible tax-saving payment under Section 80C. Deduction is valid only if the premium is less than 10% of the sum assured.
8. Repayment towards Home Loan : Repayment of the principal of a loan taken to buy or construct a residential property is eligible for tax deductions under Section 80C. This deduction is also applicable on stamp duty, registration fees & transfer expenses.
9. Payments for Children's School/Tuition Fees : Tuition fee paid for the education of two children is eligible for tax deduction under Section 80C of up to Rs 1.5 Lakhs. The fee can be paid to any school, college, university or educational institute situated in India. The fees have to be for a full-time course only.
10. Investment in NSC's (National Savings Certificates) : NSC's are eligible for tax breaks for the financial year in which they are purchased. 
• Investments of up to Rs 1.5 Lakhs can be made to save taxes under Section 80C
• Can be bought from designated post offices & come with a lock-in period of 5 years 
• Interest is compounded annually but is taxable 
• Current interest rate on NSC is 8.0% (FY 18-19)
11. Investment under Senior Citizens Savings Scheme (SCSS) : SCSS is a scheme exclusively for anyone who is over 60 years old or someone over 55 who have opted for retirement. 
• Scheme has a maturity period of 5 years 
• Current interest rate offered gives 8.6% per annum 
• Investments of up to Rs 1.5 Lakhs can be made to save taxes under Section 80C

Contractual employees to get same PF benefits as permanent employees

The Supreme Court, in a recent judgement, has taken a significant decision, which will benefit contractual employees working in government, semi-govt & private organisation. The top court has said that contractual employees will get same provident fund (PF) benefits as permanent employees.

As a result, contractual employees working in a municipal corporation, zila parishad, railways, LIC, airport authority, metro, govt., semi-govt. offices, local semi-govt. organizations, PSU's will also get PF benefits in line with permanent employees.

Supreme Court has stated that the responsibility of paying the PF of employees working on a contractual basis, based on section 6 (2) of ‘Employees Provident Fund and Other Provisions Act 19’, was given in this judgment.

Therefore, it is the responsibility of the employees of the Provident Fund Organization (EPFO), whether it be permanent or contractual, government, sub-government offices, institutions, to ensure that PF contributions are deposited in their accounts.

Worth mentioning here is that many private companies, local self-government organizations, government-sub-government offices employ contractors for various activities. The companies hiring such contractors are called the main owners. These contractors are responsible to deposit the PF amount of their employees to the EPFO ​​office.

New PPF rules changes one should be aware of

• The government has recently announced many changes in PPF rules for benefit of account holders. New PPF rules relate to deposits, loans & premature withdrawals.

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• PPF is one of the most popular small savings schemes offered by GOI & it offers a guaranteed safe return as back by GOI. PPF A/c has a maturity period of 15 years &  govt announces interest rates for each quarter. @ current quarter, PPF fetches interest rate of 7.90% per annum. Interest is calculated for a calendar month on the lowest balance at the credit of an A/c between close of 5th day & end of the month. Interest is credited to account at the end of each financial year i.e. on 31st March.

• Following are the new changes in PPF 

• According to new PPF deposit rules, an account holder can make deposits in multiples of ₹50 any number of times in a financial year, with a maximum of a combined deposit of ₹1.5 lakh a year. Earlier, a maximum of 12 deposits were permitted in a period of 1 year. 

• The government allows premature closure of PPF account only under specific circumstances only after five years after account opening. Under current rules, premature closure is allowed for 
• Treatment of life threatening disease of the account holder, his spouse or dependent children or parents, on production of supporting documents & medical reports confirming such disease from treating medical authority & 
• Higher education of the account holder, or dependent children on production of documents & fee bills in confirmation of admission in a recognised institute of higher education in India or abroad. 
• Now, the government has added one more criteria for premature closure of PPF account: On change in residency status of the account holder on production of copy of passport & visa or income tax return.
• It is to be noted that in case of premature closure of PPF accounts, the account holder gets 1% lower interest than the rate at which interest has been credited to the account. 

• An account holder can take loans from PPF A/c's. Under the new rules, the rates at which the account holder can borrow from his account has been reduced to 1% above the prevailing PPF interest rate, from 2% earlier. In case of death of the account holder, the nominee or legal heir shall be liable to pay interest on the loan availed by the account holder but not repaid before his death. Such amount of due interest shall be adjusted at the time of final closure of the account.

• In addition, Dept of Post, through a notification dated 2nd Dec.'19, has allowed deposit of post office savings account cheque of any amount into your PPF A/c, subject to overall limit, at any non-home post office branch. Earlier limit was ₹25,000. The same rule applies for post office recurring deposit, PPF & Sukanya Samriddhi accounts.

• AII POSB cheques issued by any CBS Post Office, if presented at any CBS Post Office should be treated as at par cheques and should not be sent for clearing. POSB cheque can be accepted at other SOL's or service outlets (without restriction of amount, for credit in POSB/RD/PPF/SSA accounts), subject to the limits, if any, prescribed in the scheme," says the notification.

SIP's-Investment in SIP Demystified

Systematic Investment Plan (SIP's) :-

• Systematic Investment Plan, commonly called an SIP, is a Godsend to those who wish to multiply their wealth intelligently and efficiently, without putting too much of it at stake at any given time.

• An SIP is a specific amount, invested for a continuous period at regular intervals, generally on a monthly basis. Using this method, an investor buys units of a scheme at a pre-decided frequency.

• Simply put, a SIP is nothing but a plan through which a fixed amount of money is invested into a mutual fund scheme at fixed intervals, for a fixed or variable duration of time (depending on the type of plan/fund scheme).

• In SIP's, instructions to increase/decrease the value of the monthly installment, start/stop at predetermined intervals, etc. can also be given.

How does SIP's work :-
The simplest way to understand the basic workings of SIP's is to imagine a child & a piggy bank. The child deposits’ a certain amount at certain intervals & before he knows it, the contents of the piggy bank have built up to a respectable amount.

In the same way, a systematic investment plan deposits a certain amount of money, which investor wishes, at certain fixed intervals of time, which could be a week, a month, an annual quarter, etc., and allows this amount to build up over time.
The biggest difference between the piggy bank and the SIP, however, is the fact that SIP's don’t just keep the money aside for you, but also invest that money into profitable businesses & give you a share of the earnings.
Also, with every periodic investment, the amount being reinvested keeps growing larger - which means that returns on the investments grow larger as well.
It’s up to the investor to decide whether he/she wishes to receive these investment returns in a periodic format, or as a lump sum at the end of the SIP’s tenure, when the investment matures.

How to start investing in SIP online:

• Investing in mutual funds through SIP online is faster, easier, & more efficient than the traditional way.
• The online SIP investment route doesn’t require a ton of paperwork or frequent trips to an office for signatures.
• Investors simply register with their email ID and phone number and submit digital copies of ID/address proof online.
• A secure account is then created and the investor can pick & choose the ideal fund.
• Traditionally, SIP investments required a large amount of paperwork & frequent trips to fund house, bank, or AMC etc.
• Today, SIP's can be started within a couple of hours in an entirely paperless & fully secure online environment.

To get started, one must meet the eligibility criteria to invest in SIP's in India, which is as follows:

• The investor must be an Indian Resident, Non-Resident Indian (NRI's), or Person of Indian Origin (PIO) who resides abroad on a full repatriation basis.
• The investor must be over the age of 18.
• The investor must own a bank account with the requisite funds.
• The investor must be sure that the SIP installment amount will be readily available before the investment date

PPF-Benefits & Workings of PPF (Public Provident Fund)

1. Safety & Risk Free Guaranteed Returns

• As PPF is backed by Indian Government it offers guaranteed, risk free returns as well as complete capital protection. (Officially, the scheme is governed by the Government Savings Banks Act, 1873)
• The money in the PPF is credited to the National Small Savings Fund (NSSF) which is maintained & utilised by the Government of India.
• The interest on the PPF is also paid by the Government. This makes it safer than bank interest as well because bank fixed deposits are only insured up to Rs 1 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

2. PPF Investments bring Tax Benefits 

• Contributions to the PPF are tax deductible up to Rs 1.5 lakh per annum under Section 80 C of the Income Tax Act, 1961. 
• The interest on the PPF is exempt from tax and the maturity amount is also exempt from tax. 
• PPF has an Exempt-Exempt-Exempt (EEE) model of taxation.

3. PPF Interest Earnings

• Interest rate on PPF deposit is not fixed. Govt. revises interest rates every quarter, depending on the yields of Govt. bonds. Interest is compounded annually & credited at the end financial year.
• The PPF interest rate has historically been around 7.6% to 8%. It tends to move slightly higher or lower depending on the overall interest rate scenario in the economy.
• The PPF rate for July-September was 7.9% & for January–June 2019 was also at 8%. It was/is higher than the corresponding fixed deposit (FD) rates in many a banks.

4. Loan Against PPF

• A PPF subscriber is allowed to take a loan from his PPF A/c from the 3rd financial year onwards. 
• This loan facility against the PPF A/c is available only till the end of 6th financial year.
• The maximum tenure of such a loan is 36 months. 
• The maximum amount of loan that can be availed against PPF accounts is 25% of the balance at the end of 2nd financial year preceding the year in which the loan was applied for.
• The interest rate payable on loan taken against PPF account is 2% higher than the prevailing interest rate on PPF account.

5. PPF A/c Validity & Extensions

• Partial withdrawals can be made from the expiry of 5th financial year after the year in which A/c is opened.
• Only one partial withdrawal is allowed per financial year. 
• Maximum amount that can be withdrawn per financial year is the lower of following:
• 50% of the account balance as at the end of the financial year, preceding the current year, or
• 50% of the account balance as at the end of the 4th financial year, preceding the current year

6. PPF A/c Validity & Extensions

• PPF A/c matures in 15 years (Lock in period of 15 Years) after which subscribers can retain the A/c without making any further contribution.
• Balance in the A/c continues to earn interest till A/c is closed.