Financial planning for everyone

Way2Goals
A2 404, ShriRam White House
15th Cross, 6th Main, R.T.Nagar
BangaloreKarnataka 560003
contact@way2goals.com

Financial Education

Our goal at Way2goals is to help readers take well informed decisions before investing in financial products. Here are some links to many educational sites.

How to insure your bank deposit?
Income Tax Rates for year 2010-2011
What are Fixed Maturity Plans ( FMPs )?
Term Insurance - a purest form of insurance

How to insure your bank deposit?

Check with the bank if it is insured with Deposit Insurance and Credit Guarantee Corporation (DICGC).

Insured commercial banks

Insured statewise cooperative Banks

De registered co-operative Banks

If it is, each depositor in a bank is insured maximum of Rs. 1 lakh inclusive of principal and the accrued interest. All the Deposits savings, Fixed, current and recurring collectively kept in different branches of of one bank will be aggregated and maximum insurance cover of Rs. 1 lakh is paid, as all these accounts will be considered as the accounts held in the same capacity and in same right. Putting money in different branches of one bank will not protect your money of more than 1 lakh. Then how do we safeguard our deposit? Is there a way to secure your money of more than Rs. 1 lakh. Yes.

For e.g. Ramesh and Sudha have two children, Kartik and Veena. How is it possible to secure your money in one bank? You can open accounts with different combinations. In case children are minor, check with the bank.

First holder	Second holder	Savings a/c	Fixed Deposit	Current a/c	Total Deposits Rs.	Deposits Insured Rs.
Ramesh	Sudha	10000	50000	20000	80000	80000
Sudha	Ramesh	5000	200000	5000	210000	100000
Ramesh	Kartik	5000	30000	5000	40000	40000
Ramesh	Veena	2000	100000	5000	107000	100000
Sudha	Kartik	1000	5000		6000	6000
Sudha	Veena	2000		10000	12000	12000
Kartik	Ramesh			5000	5000	5000
Kartik	Ramesh	2000	1000		3000	3000
Veena	Ramesh	10000	100000	5000	115000	100000
Veena	Sudha	5000	80000	20000	105000	100000

For more information and detail check with RBI. http://www.rbi.org.in/scripts/FAQView.aspx?Id=64

One more way of securing your deposit is open accounts in different banks. If you have accounts in different banks, then the deposit insurance coverage will be Rs. 1 lakh in each of the bank.

Income Tax Rates for year 2010-2011

Income Slabs	Senior Citizens	Resident Women/ Female	Others
Upto Rs 1,60,000	Nil	Nil	Nil
Rs 1,60,001 to Rs 5,00,000	10% of income above Rs.2,40,000	10% of income above Rs.1,90,000	10% of income above Rs.1,60,000
Rs.5,00,001 to Rs.8,00,000	Rs.26,000 + 20% of income above Rs.5,00,000	Rs.31,000 + 20% of income above Rs.5,00,000	Rs.34,000 + 20% of income above Rs.5,00,000
Above Rs 8,00,000	Rs.86,000 + 30% of income above Rs.8,00,000	Rs.91,000 + 30% of income above Rs.8,00,000	Rs.94,000 + 30% of income above Rs.8,00,000

Education cess is 2% of total tax payable, Secondary & Higher Education Cess is 1% of Total tax payable and surcharge is NIL

What are Fixed Maturity Plans ( FMPs )?

Fixed Maturity Plans are close ended mutual funds. They invest in Government securities and company debt. They typically don’t have an equity component unless you choose to invest in a FMP which has a limited equity component. They are tax efficient and give better yield than bank FDs.

How are Fixed Maturity Plans different from bank Fixed Deposits (FDs)?

Both are debt instruments. Bank fixed deposits (FDs) are deposits in bank debt instruments. Fixed Maturity Plans (FMPs) are deposits in debt instruments managed by mutual funds . They invest in Government backed securities and corporate fixed deposits.

Do Fixed Maturity Plans give better returns than bank FDs?

Yes. If you invest in FMPs more than a year, you get the benefit of indexation. That is how the post tax returns are much better than bank FDs. Here is an interesting article which explains how it is really tax efficient and better than bank FDs .

What is the risk involved in investing in Fixed Maturity Plans (FMPs) vs. bank Fixed Deposits (FDs)?

When you invest in banks, you know beforehand what will be the maturity value of your investment, where as in FMPs they give estimated rate of return. Though they don’t guarantee the exact rate of return, it will be close to the estimated rate of return. So even though there is risk involved, it is minimal.

How to reduce the risk involved in Fixed Maturity Plans (FMPs)?

One way to reduce the risk is you can make sure that the FMP investment is in AAA rated securities. That way the risk is less and returns are better.

Term Insurance

Term insurance is a purest form of insurance. It is a policy where if the person dies, family gets the assured money. If the person survives the term, no money back for either the person or the family. This is exactly like buying vehicle insurance. In case of accident the person is paid for the damage of the vehicle. Otherwise the person does not get anything. But still we can’t run a vehicle without insurance. So to your family term insurance is a must. The younger you are, cheaper the premium. If the term is longer you save more money. There are some policies where you get back the premium paid at the end of the term. But you will have to pay higher premium for that. We often hear the saying, “Buy term and invest the difference”. Buying wrong insurance does damage to your financial plan. So shop around before buying term insurance, you can save upto 25%.

Read this article on Term Insurance

The Myfiway - a Goal driven investment planning seminar held at Karnataka State Cricket Association Bangalore, on Jan 10th 2010, was a grand success. Take a look at the report and photos