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12
Financial Planning
The Economic Times Wealth, March 30-April 5, 2015
THE MONEY QUESTION
Paper
Work
What should you do if EMI turns out to be too high to service?
Cash investment in
mutual funds
Lata and Gaurav bought a house three
years ago. However, the financial strain
of repaying the housing loan is hurting
them now. One of the reasons why they
are struggling to pay the monthly EMI is
beacuse of a global slowdown, their salaries haven’t risen at the pace they had
anticipated. On the other hand, persistently rising inflation has pushed up their
cost of living. What is the way out for the
couple?
Mutual funds do not usually accept cash.
Investors, however, have the option of
investing in mutual funds by depositing
cash within a limit of `50,000 per investor, per financial year. Only resident individuals, sole proprietorships and minors
(through guardians), who are KYC compliant and have a bank account can make
cash investments.
Mode of application
Cash applications can be made only
in physical form at designated
investor service centres of the
fund houses which are authorised
to accept cash applications.
he EMI as a fixed cash flow commitment every month can pressurize the liquidity of
households. If the EMI is the largest outgo, it
leaves little for other loans such as car loans,
and smaller amounts for other savings and
for spending. The amount of EMI to be paid depends on
and varies with the amount of loan, tenure of loan and
rate of interest. Banks do provide an option to restructure the loan, subject to conditionalities.
The structure of the EMI is such that the interest is recovered in the early years, and the principal is recovered
later. Therefore, increasing the tenor of the loan will reduce the EMI amount, but increase the overall cost of the
loan. The total amount now being repaid will be higher.
If they choose to pre-pay the loan in later years, when
their situation becomes better, they will find that the
amount of principal they have to repay is still high, while
they have paid off a higher interest amount.
Lata and Guarav could consider part pre-payment of
the loan, if they have accumulated surplus funds in the
form of investments or bank deposits. This will bring
down the amount of loan, and therefore the EMI, without impacting the terms of the loan. They have to check
with the bank to see the terms of pre-payment and
whether they are allowed pre-payment more than once,
and in instalments.
They can also switch the loan to another bank and bargain for a reduction in the rate of interest, if the value of
their property has appreciated since the time they took
the loan. They may get better terms since the loan to collateral value will now be smaller. They can use the loan
from the new lender to pre-pay the existing loan. Banks
have internal guidelines on such transfer of loans from
one lender to another. Lata and Gaurav should talk to
their bank to explore all these options for restructuring
their home loan and choose the best option after evluating their situation.
T
Cash collection
facility with banks
The fund house usually ties up with
collecting banks and designated branches
to accept cash. Branches remit the cash
into the fund’s schemes usually by the
next business day.
Procedure
Deposit slips for making cash
investments are obtained from the
specified ISCs. The investor has to fill
the deposit slip with the scheme name
and the amount of cash to be deposited.
The contents of the deposit slip shall be
verified by the officials of such ISCs.
Application
Acknowledged copy of the deposit slip
received from the bank along with the
scheme application form/transaction slip
has to be submitted at the same ISC (ie.
from where the deposit slip was obtained)
for time stamping.
Linking cash to
application
SMART THINGS TO KNOW: Deduction for Health Insurance Premium
1
Investments made
towards payment of
health insurance premiums qualify for a tax
deduction under Section 80D of the Income
Tax Act. The limits
have been increased
for FY 2015-16.
2
Individual assessees can
claim deduction for premiums paid towards
health insurance of self,
spouse, parents and
children. HUF can claim
deduction for insuring
the health of any member of the HUF.
3
The deduction that can
be claimed by an assessee is up to `25,000 for
health insurance premium paid for self, spouse
and dependent children
if under the age of 65
and `30,000 if above
the age of 65 years.
4
5
A further deduction
of `25,000 could be
claimed, for buying
health insurance
policy for parents
of the assessee. It is
`30,000 if either
of the parents is a
senior citizen.
The service tax
paid on the medical insurance
premium is not
allowed as a
deduction.
The content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
Investors must mention their name and
folio/application number on the reverse
of the deposit slip. The payout bank
account details are also required to be
specified in the application form.
Points to note
Payment of proceeds pertaining to
redemptions and dividend, with respect
to cash investments shall be made only
into a bank account.
Payout bank account should be
mentioned in the application form or as
registered in the folio as bank mandate.