Land Vs Flat - What Should Be Your Second Home Investment?

Buying a second home for investment purpose is not only common but appears to be the next logical step for first-home owners. Everyone wants to settle their debt on the first home and move ahead to buy another that can become a dependable income stream. However, such investors seem to be divided when it comes to choosing an apartment vs land as a preferred investment alternative. 

Where land gives ample freedom to the investor to utilise it in numerous ways, restrictions apply in a case of an apartment or flat for its limited use. At the same time, a flat is seen as more secured than a vacant land that is exposed to litigations. 

In an effort to understand the appropriate mode for second-time buyers, we will try to look at the advantages and disadvantages of investing in land vs flat here.

Areas of concern	Land	Flat
Investment Cost	Dependent on proximity of land to main areas, particularly those under development	Varies from locality to locality. Price can be high for gated communities than standalone flats
Recurring Cost	Indirect cost involved in protecting land from illegal encroachment or litigation	Maintenance or society cost is applicable and increases with passing years
Financing	Banks do not offer loan to buy land	Loans are readily available for flats/apartments
Return	Non-disputed land easily appreciates in value	Flat/apartments witness slow growth after certain number of years for their limited life span. Other factors like water availability and road connectivity plays important role in determining value
Source of Income	Rental income is low but myriad of options are available to utilise land	Rental income is high for a ready-to-occupy flat. Flat owners do not have many options to use their investment other than giving it on rent.
Risk	Highly risky as it is exposed to illegal encroachment or litigation	Less risky due to operation of modern laws. However, quality of construction and delay in possession can entail risk
Liquidity	Land is highly liquid due to excessive demand	Flats tend to lose value over a period of time and are not as liquid as land

When Is Land A Better Option?

Buying land makes sense if it is meant to be used for building a self-occupied home or for personal use. If not for personal consumption then a piece of land can also be used for commercial purposes, however, location of land is yet again an important factor to this end. 

When Is Flat/Apartment A Better Alternative?

If the purpose of an investment is solely to hold and resell then flats outweigh land as an investment due to demand for residential properties. Further, depreciation on construction value is minimal during early years post-construction. Over and above this, a flat is a convenient investment option for those who do not have time to look after their property or want regular income stream. 

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.

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

Five Tax Measures This Year To Curb Tax Evasion

Prime Minister Narendra Modi-led government took an unprecedented move towards the end of 2016 to curb tax evasion. The government invalidated Rs 1000 and Rs 500 notes as legal tender, the action termed as ‘Demonetisation.’ It followed a slew of tax measures to curb tax evasion and bring more people within tax ambit.

Few measures that are truly aimed to take a grip on tax evaders are discussed below

1. Amnesty Scheme - The scheme managed to grab highest attention as it stipulates 50% in taxes and surcharges. This comes with the condition of locking-in the quarter of the total wealth in a no-interest bearing scheme for a period of four years. Failure to take advantage of this scheme could mean 85% in penal tax, if revealed in subsequent years. Few financial experts claim that the amnesty scheme will divert more cash into the stock markets as unaccounted cash will convert into legitimate and flow into the system.
2. Digital Push - Government has waived off 15% service tax charged on debit, credit and other cards to promote cashless transactions upto Rs 2,000. This implies lower costs for banks and merchants that can be passed on to the end-customers. The step attempts to motivate more people to switch to digital payments from cash transactions, which will apparently replace the cash economy.
3. Rigid Reporting - Cash deposits aggregating Rs 10 lakh and more in a bank account have no scope of escaping the eyes of Income-tax department following it’s new instructions. Moreover, payment towards credit card dues in excess of Rs 1 lakh cash will also be reported to the department. Alongside this, transactions in stocks, mutual funds and foreign exchange aggregating Rs 10 lakh in value during a financial year are also reportable.
4. New Tax Forms - The income tax department has introduced new tax return forms for people belonging to high income group. Tax-payers with a total income of Rs 50 lakh and more will have to declare their assets, states the new income-tax rule. New reporting columns - ‘Asset and liability at the end of the year’, are introduced in ITR forms. Liability in relation to declared assets will also be made compulsory for the declaring entity.
5. Goods and Services Tax (GST) - The GST is more than likely to become a reality in 2017 as it already got cleared in the parliament last June. Moreover, the GST Council has recently agreed on four slabs - 5%, 12%, 18% and 28% - to structure the tax on various goods and services. Essential commodities like medicines, vegetables, and food grains might not attract any tax.

With these measures the government has successfully tried to plug holes that might have aided unaccounted cash holders to escape the tax scrutiny until now. But, the times ahead are likely to get rougher with more radical tax changes waiting to unfold in financial year 2017.

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.

Financial To-Do Checklist For 2017

New Year usually begins with new resolutions and commitments. But, most of them do not even last a day. Financial goals too run the risk of getting buried under routine chores of life. 

To encourage you not lose track of your financial life, we have compiled a quick monthly financial to-do checklist to help you begin this year on the right foot.

January 

• Set investment goals for the year by assigning tentative numbers against investments and expenditures. 
• Recheck if investments and premium payments are made in line with the investment declaration submitted to the employer.
• Submit investment proofs to the employer by mid-month. 
• Organise utility and other payments by setting a reminder before due dates.
• Review vacation plans in the beginning itself to make good of any gap that could arise later. Check out fares and hotel rates, in case there is any revision. A portion of monthly savings can be allocated towards this goal to save on last-minute adjustments.

February

• It is critical to revisit your investments and goals to change them in line with the revised taxations rules as per Budget. 
• Ensure to get together all reimbursement invoices like car fuel, medical bills, leave travel allowance (LTA), etc. within the month for claim purposes. 

March 

• Make the fourth and final advance tax payment by 15th of the Month for FY 2016-17. 

April

• New financial year begins that calls for the need to chalk out investment plans as per the revised salary structure.
• Physical gold or gold funds can be bought on the occasion of Akshay Tritiya while taking care that it does not occupy more than 10% of the total portfolio. 

May

• Make the best use of bonus received during the month by repaying a debt or investing it towards a financial goal. 
• Revised ECS mandate for increased investments can be made in this month. 

June

• Time to pay first payment of advance tax by 15th of the month. 
• Review investment performance and rebalance it in line with risk appetite. 

July

• Prepare to file tax returns for FY 2016-17 by 15th itself. This will give ample time to review and file error-free returns. 

August 

• Festivals will begin early this year, therefore, budget planning can start this month.

September

• Payment of the second instalment of the advance tax falls due on 15th of the month. 
• Budget planning for festivals can continue. 

October

• With Diwali around the corner, it’s time to make the most of the festive season sale. Make sure to keep festive spending within budget as far as possible.

November

• Spendings can be minimised during this month following festive months.

December 

• The third instalment of advance tax becomes due on 15th. 
• Review your yearly investment accomplishments during the year end. Do reward yourself if you managed to achieve the stated investment goals for the year. 

The year has ended well financially if you were able to tick off all the financial tasks till December. Pat your back for being on the right track. At this point, you might want to take some time off to welcome New Year afresh. 

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.

Like us at https://www.facebook.com/Inverika/

Make The Most of The Lower Housing Interest Rates

The New Year kicked off on a happy note for home loan borrowers with State Bank of India slashing its lending rate. The bank has cut the marginal cost of funds based lending rate (MCLR) by 0.9% from 8.90% to 8%. As more lenders are likely to follow the suit, here is a quick recapitulation for borrowers who want to make the most of the lower housing interest rates. 

Loans with Banks - Post April 1, 2016, Banks have been asked by the Reserve Bank of India to change from base rate to MCLR. This means that all the new floating rate bank loans disbursed after March 31, 2016, are automatically covered under MCLR. Those who have taken loan before this deadline have the option to either switch to MCLR or continue with the base rate. Since MCLR is a more transparent rating system, therefore, it is advisable to switch to the same. 

Loans with NBFCs or HFCs -MCLR is not applicable for Non-banking financial companies (NBFCs) and Housing Finance Companies (HFCs). These lenders follow a static Retail Prime Lending Rate or base rate and a variable spread to fix applicable interest rate. Home loan borrowers can convert to lower housing interest rates by paying a conversion fee that varies across lenders. On the higher end, the fee can go up to 1% of the outstanding principal amount. 

Cost vs Savings - Before executing the switch or conversion, analyse the costs against savings that you make from reduced interest rate. If the conversion fee is higher than the overall savings on interest outgo then it makes little sense to switch. At the same time, if you are in the final years of repaying your home loan then switching to will negligible impact. This is due to the fact that significant part of interest rate stands paid within the initial loan tenure. 

Here’s a table to illustrate optimal scenarios when switching to lower rates makes sense.  

Home Loan Amount	Existing Interest Rate	Current EMI	New Interest Rate	New EMI	Yearly Savings	Conversion Fee	Case For Switch
30 Lakh	10%	₹ 28,950	9.10%	₹ 27,185	₹ 21,180	₹ 15000	Yes
30 Lakh	9.75%	₹ 28,455	9.10%	₹ 27,185	₹ 15,240	₹ 15000	No
30 Lakh	9.50%	₹ 27,963	9.10%	₹ 27,185	₹ 9,336	₹ 15000	No
30 Lakh	9%	₹ 27,476	9.10%	₹ 27,185	₹ 3,492	₹ 15000	No

Home Loan Balance Transfer - Inconclusive negotiations with existing lenders can be fixed by balance transferring the loan to the new lender. However, the process will be mean starting fresh right from the beginning. Also, this option is best suited for loans that have a residual tenure of 8-10 years. Again analysis of cost vis-a-vis savings needs to be taken care. There has to be a significant gap like 75bps or more to consider this option. 

Home loan accounts for the biggest monthly expenditure of Indian households. A systematic adoption of the above-mentioned steps along with planned prepayments can help you speed up the debt repayment process.

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.

Like us at https://www.facebook.com/Inverika/