Understanding Suitability and Features of New-Age Savings Bank Account For You

Banks have innovated with their age-old offering - ‘Savings bank account’ to meet the growing banking needs of people. Unlike before, a savings account is bundled with several other features in a bid to give a little extra to the account holders. 

Image Courtsey: By The Co-operative (The Co-operative Bank - Ealing) [CC BY 2.0 via Wikimedia Commons

Let’s understand the function and features of the new-age savings account and their suitability for people belonging to different age group and income. 

Regular Savings Account  

This one is offered by all banks and requires a holder to maintain a ‘minimum monthly average balance’ at all times, failing which, the account will attract a penalty. Minimum monthly average balance can be anywhere between Rs 2,500 to Rs 10,000, depending on the policies of the banks. Interest between 4% and 6% can be earned on deposits under this account. Bank provides ATM, phone and internet banking for a nominal charge. 

Key Points

• Deposits up to Rs 1 lakh (including interest earned) in all commercial banks are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC)
• Suitable for anyone who does not have an existing bank account
• Recommended that funds over and above minimum average quarterly balance should be invested in better alternative investment vehicles such as liquid funds to earn better returns.

Sweep-in Savings Bank Account
The account combines the features of both savings bank and fixed deposits. A pre-fixed limit is set for this account and any money over and above the pre-fixed limit is converted into a fixed deposit for a period of one year. If the amount in bank account falls below pre-fixed limit then the exact amount is automatically drawn from fixed deposit to level up the deficit. The plus point is that the holder does not lose interest over the complete fixed deposit but only on the amount swept out towards fulfilling pre-fixed amount. 

Key Points

• Suitable for people managing small businesses or profession
• Better substitute to overdraft facility that stipulates a fixed amount versus flexible amount allowed under this mode
• Relatively higher returns than a regular savings account

Privilege Savings Bank Account

Banks offer an array of dedicated services in exchange of a higher minimum monthly average balance. Privilege account holders are given priority in all of their banking needs ranging from credit cards to service requests. Banks even waive off certain charges such as annual rentals, demand draft, NEFT, etc for its privileged customers. 

Key Points

• Suitable for those who transact at banks frequently and seek priority
• Banks also offer personalised investment advice to its privilege customers
• Non-maintenance of monthly average balance attracts penalty

Senior Citizen Savings Bank Account

Banks operate senior citizen savings account for people above age 60 years. Monthly average balance requirements are relaxed to a certain extent for these accounts alongside queue less banking transactions for holders. 

Key Points

• Separate counter for senior citizens under this account
• Better alternative to regular accounts for senior citizens
• Charges for few services waived-off

Quick Takeaway

Your choice of savings account should depend on the extent of your banking requirements and the costs involved. Like if you are uncertain about what-to-do with the idle funds lying in your account then sweep-in facility might work for you. But if you actively invest then there is no point in keeping your funds in fixed deposit when a better alternative is available to you. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.

Key Income Tax Rule Changes To Look Out For In FY 2017-18

Budget 2017 is already out and it’s time to understand its impact on income tax outgo for individuals during the upcoming financial year 2017-18. 

CC Image Courtsey of TaxCredits.net on Flickr

1) Marginal change in income tax slab - The finance minister announced reduced tax rate of 5% for taxpayers falling in the lowest tax bracket of up to Rs. 5 lakh. Earlier a tax rate of 10% was applicable on this slab. Let’s see how this income tax rule change will benefit tax payers of different slabs.

	FY2016-17	Tax Burden	FY2017-18	Tax Burden
0 - 2.5 Lakh	0%	Nil	0%	Nil
2.5 - 5.0 Lakh	10%	25,000	5%	12,500
5.0-10.0 Lakh	20%	25,000 + 20% of income over 5 Lakh	20%	12,500 + 20% of of income over 5 Lakh
10.0 Lakh & Above	30%	1,25,000 + 30% of income over 10 lakh	30%	1,12,500 + 30% of income over 10 Lakh

The total reduction in tax outgo for tax payers will be to the tune of Rs 12,500. At the same time, 10% and 15% surcharge is applicable for individuals with annual income above Rs 50 Lakh and Rs 1 Crore respectively. 

2) TDS on home rent payments - New guidelines make it compulsory for Individuals and HUF to deduct 5% TDS on rent payments that exceed Rs 50,000 per month. 

3) Loss on let out property - Until now, loss from let out house property was allowed to be set off against income from salary without any restriction. This means that even a loss of Rs 3,00,000 from let-out house property was allowed to be set against income from salary while filing returns. But, Budget 2017 changes this income tax rule as it caps the amount to Rs 2 lakh. Unadjusted losses from this head can be carried forward and set off against ‘income from house property’ in subsequent assessment years till eight years.  

4) Rebate under Section 87A - Individuals with income below Rs 5 lakh were eligible for tax rebate up to Rs 5,000. Now the income eligibility for rebate under this section stands reduced to Rs 3,00,000. Also, the rebate is capped to Rs 2,500 from Rs 5,000 for income between Rs 2.5 lakh and Rs 3.5 lakh. The rebate, when combined with the new lower tax rate for tax slab up to 5 Lakh, will mean zero tax liability for those earning up to Rs 3 Lakh.

5) Time limit for income tax revision - The government has reduced the time limit for revision of income tax returns by one year. This implies that revisions for income tax filed for FY 2016-17 can be revised until March 31, 2018, unlike the previously allowed time limit till March 31, 2019. 

6) Penalty for delay in filing income tax returns - A mandatory fee is applicable for late filing of income tax returns after the due date of July 31st each year. A fee of Rs 5,000 will be levied on those filling return till December 31st and Rs 10,000 for fillings till March 31st of the assessment year. The late fee limit is capped at Rs 1,000 for individuals with income up to Rs. 5 Lakh. 

7) Holding period of immovable property - As of now, an immovable property qualifies to be a long-term asset only after completion of 3 years from the date of acquisition. However, in a bid to provide relief to property owners, the government has now reduced the time period to two years.

Above points are few of the key changes introduced in the budget this year and should help you to plan your taxation accordingly. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more.

Simple Ways To Evaluate Mutual Fund Performance

We all invest with certain goals in our mind and believe that the chosen mutual fund scheme will perform in line with the expectations. But, it is not necessary that every single investment will fetch returns that we seek and could even fall out of line. It is one of the reasons why periodic reviews are recommended and considered as the vital part of the entire investing process. 

Also, evaluation of mutual fund performance should not be restricted to just its own historical track record but with other metrics that can bring out a clear picture. In this piece, we will discuss ways to evaluate a mutual fund’s performance and ensure that the underperforming one’s are weeded out of a portfolio at the earliest.

Performance against benchmark

Each of the mutual fund schemes specifies a benchmark, which is commonly an index that serves as a standard for evaluating scheme’s performance. Commonly, benchmarks are widely known indices such as Nifty, BSE Sensex and Crisil Short Term Bond Index, Blended Index etc for debt or hybrid funds. Thus, it is one of the easiest ways to confirm if a mutual fund scheme is performing as compared to its benchmark. If a scheme consistently beats its benchmark then its performing and vice-versa.

Performance against peers

Comparing schemes against benchmarks alone is not good enough as its ranking among peers is also an important aspect. For this, an investor has to look at the category average returns and compare the standing of the scheme in question. For example a blue chip fund will have to fare reasonably against other similar schemes offered by other fund houses. If a scheme constantly lags behind its peers by a substantial margin then it should be considered to be replaced from the portfolio.

Short-term vs long-term

Decision to exit or retain a mutual fund scheme should follow a careful evaluation of it over a reasonable period of time. Usually, short-term hiccups should not bother investors but if the trend continues for a longer duration then a decision on the same becomes imminent. In general, an equity scheme should be evaluated for a period more than one year to three years to draw out any conclusion.

Other things matter

Apart from the above points, there are other factors that could significantly drag a fund’s performance. For example, change of fund manager could impact a scheme as it entails change of investing style and strategy. In such cases, investors should retain caution and assess the performance of fund carefully. At other times, funds tend to underperform when they grow too big in size to manage. Under such circumstances, it is prudent to exit the fund and look for alternatives.

Conclusion

A lot of reasoning is required to gauge a mutual fund’s scheme performance and it cannot be simply tossed away from a portfolio just because it is underperforming. It is best to approach a qualified investment advisor to take stock of things if the review process seems daunting to one, particularly beginners with relatively less knowledge about the functioning of mutual fund.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

Visit www.facebook.com/Inverika to learn more