NSDL Primer On Personal Finance

NSDL Primer
on Personal Finance
Guiding you through the maze of numbers and
financial decisions
NSDL Primer on Personal Finance

This manual will help you take control of your finances, from opening a
savings bank account, managing tax and operating in a capital market. Written
as a step-by-step guide for every stage of your life, it will lead you through a
NSDL Primer
complex, jargon-packed world, detailing how you can keep your finances fitin
a digital era.
The guide offers unbiased, jargon-free suggestions that will help you at every
stage of life: from the first job up till your retirement. Which is why, it’s the
must-have guide for everyone in your family. Each of the 11 topics in this
on
NSDL Primer on Personal Finance will help you:
• grasp the format with detailed working of financial instruments Personal Finance
• get started Your step-by-step guide to wealth creation
• find out tax implications, if any
• get a handy checklist on what to do
About National Securities Depository Limited (NSDL)

NSDL, established in 1996 is one of the largest Depositories in the world.
NSDL pioneered the concept of dematerialization in India and coined the term
‘demat’ which is now a household term. With its innovative products &
services, NSDL has always been the preferred depository with more than 182
Lakh investors having assets worth more than `175 Lakh Crore accounting for
more than 90% market share. NSDL reaches out to investors with a network of
more than 275 Depository Participants spread across 30,000 service centers
across India.
A special thanks to
‘Outlook Money’
for their valuable input in
writing this book.
NSDL Primer
on
Personal Finance
Your step-by-step guide

to wealth creation
First Edition: November 2019
Copyright © National Securities Depository Limited, Mumbai.
All Rights Reserved
No part of this book may be reproduced, stored in a retrieval

system or transmitted in any form or means electronic, mechanical,
photocopying, recording or otherwise, without prior permission
of National Securities Depository Limited, Mumbai. Printed and
published by National Securities Depository Limited.
Published from National Securities Depository Limited,

Trade World, A Wing, 4th Floor, Kamala Mills Compound,
Lower Parel, Mumbai – 400013.
The information provided herein is solely for creating awareness and

educating people about rules of investment and for their general
understanding. Readers are advised not to act purely on the basis of
information provided herein but also to seek professional advice from
experts before taking any investment decisions. NSDL does not accept
responsibility for any investment decision taken by readers on the
basis of information provided herein. The objective is to keep readers
better informed and help them decide for themselves.
If you find any error or wish to suggest any improvement, please write to
us at [email protected]
The publication is an initiative of National Securities Depository

Limited Investor Protection Fund Trust. Electronic version of this
publication is available on our website: www.nsdl.co.in
ii
Personal Finance is not an enigma and
it is not impossible to understand; it’s
just a subject that many avoid.
Don’t be one of them.
Start now to get smart with MONEY.
iii
Contents
Foreword................................................................................................... VII
Section: 1
1. Personal Finance - What And Why ..........................................................1
2. The Need for Savings..................................................................................9
3. Wealth Creation.........................................................................................17
4. Asset Allocation........................................................................................53
5. Insurance Fundas.....................................................................................65
6. Know About Tax Planning.......................................................................81
7. Prepare For Retirement.........................................................................101
8. Handing Over Your Legacy....................................................................117
Section: 2
1. How To Start Investing? ........................................................................133
2. How To Build and Monitor A Portfolio?................................................145
3. How To Seek Help From Financial Regulators? ................................153

References ..............................................................................................164
v
With Compliments from:
NSDL Primer
on
Personal Finance
vi
Foreword
We often say ‘Happiness is more important than money’. Nothing

can be more true. But in our uncertain lives, there may come a
time when a little money can actually ensure happiness does not
disappear altogether. Precisely why it is extremely important to
have your personal finance in order, so that come rainy days, you
can actually put up your feet to see off the phase.
So what exactly is personal finance? And why is it so important,

especially in light of the current global economic slowdown?
When we were young, we were taught to save in piggy banks. In

our teenage years, we often saved up from our pocket money to buy
a particular thing of desire. Similar is the case when you enter the
workplace. And like in most spheres of life, early starters would
gain an advantage over the course of time. It is imperative that we
keep aside a certain portion of our salary, earnings, profits and
build up a nest that can actually support us in times of need.
This book will serve as your guide to personal finance, with step-
by-step suggestions on ways to build wealth. Happy Investing!
Mr. G.V.Nageswara Rao

Managing Director & CEO,
National Securities Depository Limited (NSDL)
vii
Chapter 1
Personal Finance -
What and Why
Just earning money is not enough in the 21st century. You

need to smartly manage your money by saving today and
investing for tomorrow.
By practicing personal finance smartly, you will be able to

handle budgeting, banking, insurance, loans, investments,
retirement planning, tax planning and much more.
Personal Finance - The nuts and bolts
All of us would love to be in control of our finances. In this chapter,
you will learn the What and Why of personal finance. This will
Personal Finance - What and Why
help you move a step closer to being good at managing money.
Our lives are incomplete without money. This is the gospel truth.
You can brood over this fact. You may argue that life is bigger than
money. But the sooner you accept it, the easier it becomes to lead a
financially happy life.
Left on its own, money can be a bad master. You may find yourself
working too hard for too little money. This is where personal
finance comes in. It teaches us how to manage money in an
efficient way, even if you earn less. Simply put, personal finance
helps you to become the master and use the money to do your work.
No, you do not need to be super-rich to have a good financial life. In

fact, the amount of money you earn has little to do with in terms of
deciding whether you are an expert in personal finance, or not. It
is all about managing money wisely.
You may be earning `50,000 or `5 lakh a month, but more income is

no guarantee of you managing your finances well. In fact, many
high earners suffer from the same money problems that those with
NSDL PRIMER on Personal Finance
lower incomes have.
Being Bad Is Good

If you think, you are not doing a great job at money management,
congratulations! Surprised that we congratulated you for
accepting that you don’t manage money well? Yes, we did, and for
good reason too. The first step in attaining expertise in personal
finance is to acknowledge the fact that you are not doing it well
enough.
Like in life, solutions in the personal finance field work only if you
accept there is a problem. Acknowledging a problem opens your
2
mind to changes.
But what if you are already good at money management? You can
still continue reading this book. You may find tips and tricks that will
help sharpen your personal finance skills even better. There is
always room for improvement.
What is Personal Finance?

We may not realize that our lives are deeply connected with numbers.
In our childhood, we have to score well to get ahead in life. In sports,
our wins depend on doing things numerically better than our
competitors. At your workplace,
being a performer is all about
doing things quantitatively better
than others. It is about attaining
goals that can be measured. Goals
are important.
Personal finance is about meeting

personal financial goals. Your
financial goals should be clear and
simple. It may be saving money for
overseas vacation with family in 6
months. It may be doing a 30%
down-payment for your dream
house in 12 months when you take the home loan. A financial goal
can also be far away like building a `25 lakh corpus for child’s higher
education, or having a lifelong pension even if you are a private-
sector employee.
In football, one goal rarely ensures a win. In our lives too, there are
always different financial goals that are running simultaneously. It is
never about doing one thing at one time. So, you will have to save for
a foreign trip in a few months, arrange funds for home loan down-
payment and also do something about your child’s future financial
needs. Like a big railway junction, financial goals like trains, criss
cross all the time. It is your job to see everything happens smoothly.
3
The best (and also the worst) thing about financial goals are that they
are about money. So, in essence, achieving these goals depend on your
income, expenses, savings and investments. If you come up with a
good plan that balances these things, you are set for success.
But as you know, it is never easy to make a superb financial plan. If

your income is good, your expenses tend to get out of control. When
you expenses are on a tight leash, you are saving too little to invest.
Very rarely would you find an individual who consistently earns a lot,
and spends very little. In the real world, there will always be financial
constraints. For instance, the month you will get the salary hike will
coincidentally see a big expense. Such things will always happen.
Also, there are your impulse-driven financial decisions that are fueled
by your desires.
To make the most of your income and savings it’s important to avoid
bad decisions. If you can distinguish between good and bad advice
and be disciplined about your decisions, you and your family’s
financial future will always be secure.
Personal finance comprises knowledge about 8 core areas. They are

budgeting, banking, insurance, loans, investments, retirement
planning, taxation and estate planning and will. Through the
If a 25 year old saves and

invests `3500 per month
till retirement, she/he
can build a total corpus
of `1.30 crore if the
annual return is 10%.
Source: https://sipcalculator.in/
4
chapters of this book, we have tried to focus on each of these core
subjects.
Why Learn About Personal Finance?

We live in a world where instant gratification is the norm. People
around us want to experience things now, right now. They don’t want
any delay be in a train journey, food delivery or when it comes to
investments. Learning takes time. But what if you do not learn? The
answer is easy - you will end up making mistakes. The cost of those
mistakes can be very expensive in terms of your financial health.
Below we outline 4 reasons why you should learn about

personal finance.
1. To Be Financially
Literate - India is home to a
billion people. A growing
populace is educationally
literate. But the high number of
financial scams and victims
tells us that financially our
knowledge levels are poor.
We understand concepts like

return and profit, but do we know that return comes together with
risk? Unfortunately, literacy and financial literacy are not the one
and same thing. Financial literacy is about making informed and
effective decisions with all of financial resources.
For making successful use of financial services like banking,

insurance, mutual funds or stocks, you need to understand the basics
of managing money. Personal finance knowledge is essential for
enabling people to make the right financial choices.
2. To Live Within Your Means - We dream of a big car, a

palatial house, annual overseas vacations, expensive clothes and
shoes. Our dreams are as big as the sky. There is nothing 5
particularly wrong in dreaming about a good life. Aspirations maketh
a man! The problem starts when we want to ensure all our dreams
become reality today. In a world driven by money, living within your
means is important.
Every decision must be weighed and its pros and cons should be
studied. For the average middle-class family, affordability is a big
factor. If you do not live within your limits and let your emotions rule,
you will be forced to borrow. Loans are your future income that you
have borrowed today. Loans may help you bridge financial gaps, but
they have to be repaid, hence creating a future liability.
Once you gain knowledge about personal finance, you will naturally
try to live a life that suits your income and expenses. Additionally, you
will become disciplined in your money management since you would
understand financial matters much better.
3. To Save And Invest - Savings and investments are an integral

part of our personal finance. Merely earning money cannot solve
problems. As a country, we have been big savers. Unfortunately, a lot
of those savings are stored in idle assets like gold and non-financial
assets like real estate.
Some of us, till today, prefer to ‘invest’ in savings account of banks.

Keeping money in savings account is saving, but it is not the best
investment. Why? This is because the returns generated from savings
bank account are very low. If you consider inflation, the returns can
drop to zero. Money kept locked in gold and real estate
used to generate returns decades ago,

but today they are a shadow of
themselves.
Many people do not understand the

difference between saving and
investing. As a result, they are forced to
live with poor returns even though
6 there are good alternatives available at
Between 2009 and 2019,
the average annual return
from domestic mutual
funds was between 13.5%
and 24%.
Source: https://www.valueresearchonline.
com/cat_index_returns.asp
their finger-tips. Personal finance knowledge arms you with the skills
to save and invest properly as per your financial goals. It gives you
ideas about how much should you save, which investment options to
consider and look at returns after adjusting for taxes and inflation.
4. To Understand Taxes - Do you know that your bank deposit

interest income is taxed? Do you know that the tax you will pay on FD
interest income will be taxed as per your income tax slab? This means
if you fall in the highest tax slab of 30%, your FD interest income will
be added to your income and taxed at the same rate. Many people do
not know the effect of taxes on their investments. As a result, when
they have to face tax later, they realize their mistakes. By then, it is
often too late.
While we understand profit, we hardly realize that profit will be taxed

as per applicable rules. You can also save tax by making various
investments. For instance, Section 80C of The Income Tax Act allows
every individual the opportunity to lower their taxable income by up to
`1.5 lakh. By using this investment opportunity, you can lower your
tax bill. Taxes are incurred for a wide range of transactions including
selling home.
Personal finance knowledge will empower you with the ability to

understand taxes and benefit from various taxation rules. Saving your
money from unnecessary taxes will help you grow your wealth faster.
7
Important
Points
to
Remember
from
this chapter
Personal finance is financial management done by

individuals.
It is easy to learn how to budget, spend, save and invest
money over time.
Dream big, but take small steps consistently to make dreams
come true.
Our financial lives are about meeting short, medium and
long term goals within the deadline.
Proper personal finance knowledge helps you make
informed choices.
It is important to learn about risks so that you can earn
returns.
Saving and investing is as important as earning income.
Focus and discipline can help everybody achieve personal

finance success.
Making mistakes and learning from them will result in
wastage of time and money.
Do not forget the effect of inflation and taxes on your
financial plans.
8
Chapter 2
The Need For Savings
If you save `50 per day from the age of 20, by the time you
are 75 you would save `10 lakh. If you saved `100 daily,
this amount becomes `20 lakh.
None of us can predict the future. Saving money can help

you become financially secure. You can use the safety
net in case of an emergency. Begin your journey into the
world of savings today.
The importance of saving money
Do not save what is left after spending; instead spend what is left
after saving. This is a famous quote but very few people practice it in
reality. Saving see ms really difficult when compared to earnings. In
this chapter, you will learn about saving, the many ways you can save
and about the different avenues for savings.
All of us know the joy of getting salary. There is no feeling better in

the world especially when your salary gets credited to your bank
account. Once the money is in, unfortunately the race to finish it
begins. By the end of the month, a few hundred rupees are left. This
is how the average month of a middle class begins and ends. Saving
used to be one of our economy’s strong points a few years ago. But,
the massive wave of consumption has meant that savings is only an
after-thought. The focus on spending has taken our eyes off savings.
This needs to change.
Since all of us put so much effort and hard work in our daily work, we
appreciate income. Income allows us to fund our dreams, and take
care of our immediate goals. But, what if some expenses surely
happen in the future? Do you wait till the future date to get the money
10 or act now?
Do remember that there is no guarantee that you will have income
when you need the money, for instance, when your daughter is about
to get married, or your family wants to go to Goa for a vacation. This
is the fundamental reason why people save in the first place. Saving
ensures money earned today is kept aside for tomorrow.
What Is saving?
Saving is money that is not spent. It is as simple as that. Let us for
example assume you earn `56,000 per month from all sources,
including salary. If your expenses are `39,000 per month, your saving
every month should be `56,000 minus `39,000 = `17,000.
Saving can also be generated by reducing expenses. Taking the

above example, if your income is `56,000 but your expenses have
risen to `52,000, then your normal saving would be `4,000 a month.
Now if you are able to reduce your spending by `6,000 i.e. your
expenses would drop to `46,000, and then your saving will grow to
`10,000 a month.
You can also argue that saving can be increased by boosting your
income. True, you can save more by earning more. However, do
remember that earning more is not an easy option. You can control
your expenses easily, but increasing your salary is not in your hands.
Only your boss/employer can give you a raise. You can do some part-
India’s gross savings

rate was 36.8% in 2008
and it has fallen to
29.7% in 2017.
Source: https://www.ceicdata.com/en/
indicator/india/gross-savings-rate
11
time job or generate business income to increase income, but that
will involve spending more time.
How To Save
Ravi spent `5000 at the restaurant after giving a treat to his
colleagues. He was happy that he had got the much-awaited

promotion. Spending `5000 was easy. He just took out his debit
card, swiped it on the card machine that the waiter had brought to
the table and the transaction was done. If spending is so easy, can
saving be simple too? Yes, saving can be trouble-free if you know
how to go about it.
Below are 6 tips that will help you generate savings.
1. Establish your budget - Make a budget for every month on

the last day of the previous month. For example, your budget plan
for August must be made on the last day of July. Write down how
much would be spent on restaurants, groceries, utilities,
entertainment and personal care. Don’t wait for the end of the
month to review. Instead, monitor how the plan is working every
week. This would help you to keep track of expenses and avoid
spending more, resulting in savings.
2. Budget with cash and envelopes - If you have trouble

with spending, try the age-old system of envelope budget system.

Divide the money into envelopes. This will automatically set a limit
for almost all types of spending. Due to this system, you are less
likely to overspend. Once you start practicing this system, you are
likely to develop more self-control. This will help you save money.
3. Automatic savings - Setting up automatic savings is not just

the easiest but also the most effective way. Ask your employer to
deduct money and put into Voluntary Provident Fund (VPF). You
can use Systematic Investment Plans (SIP) of mutual funds so that
the cash is put out of sight and out of mind. Since there is no human
intervention required, you are likely to forget after a while that
12 automatic savings are happening.
4. Calculate purchases by hours - Want to buy something
fancy or simply due to impulse? Take the price of the item you’re
considering purchasing and divide it by your hourly wage. For
example, if you earn `350 per hour (`61600 per month working for
10 hours a day), find out if the new smartphone costing `18000 is
worth 51 hours of your work. In this way, you can arrive at
rational decisions.
5. Unsubscribe from marketing/deal emails - The

marketing emails from stores and outlets you spend the most
money at can be tempting. They lure you to spend more. But an
easy way to avoid it is by clicking on the unsubscribe link, usually
found at the bottom of the email. The moment you unsubscribe
from those emails, life becomes much easier. If you don’t get to
know about deals, chances are high that you will spend less and
save more.
6. No spend day per week - You spend every day. But do

you earn every day? Salary or income comes once a month. To
have a level-playing field, reserve one day a week when you will
not spend any money. Do things at home. Stay indoors and save
the money you would have spent if you were out with friends or
family.
Every `1000 saved

today can become
`17500 in 30 years. It
assumes a 10% annual
return on investment.
Source: https://www.5paisa.com/
mutual-funds/lumpsum-calc
13
Where to Save?
You have taken steps to curtail expenditure. Now, you want to save.
There are different avenues where you can save money. Do remember
that saving is not investing. In case of saving, you are more
concerned about 100% principal protection rather than return.
Let us look at the 4 traditionally popular ways to save money.
1. Bank savings account - This type of a bank account helps

you save your money regularly or in lump sum. The money saved in
banks is quite safe. When saving, you can make cash deposits or
transfer funds online to your account.
2. Post office account - Apart from banks, many people save

money in post office accounts. At least one transaction of deposit or
withdrawal in three financial years is necessary to keep such post
office savings account active.
14
3. Provident fund - This is an example of forced saving.
Provident Fund (PF) was designed for employee savings aimed at
retirement. However, many people use PF to save money by asking
employer to deduct extra money from their salary and transferring
it to PF. Money in PF, however, cannot be easily taken out. Savings
account of banks and post office are much easier to operate and
liquid in comparison to PF.
4. Small-saving schemes - The Government has floated a

range of small-saving schemes to help small savers. National
Savings Certificate (NSC), Kisan Vikas Patra (KVP) and other
small-saving schemes are available. Like PF, these schemes are not
very liquid, especially because they have a period when money
cannot be withdrawn or transferred. Though small-saving schemes
are popular, the restricted freedom to take out money whenever you
want can be a big dampner.
15
Important
Points
to
Remember
from
this chapter
Try to save first and then spend.

Create a budget and follow it diligently for the rest of the
month.
Save for emergency and for periods when there may be no
income.
Easier to control spending to boost savings.
Use automatic saving route, switch to generic medicines and
cash envelope system to limit spending.
Use a combination of bank and post office savings accounts
to save money regularly.
Choose saving options that give you high liquidity and
withdrawal convenience.
16
Chapter 3
Wealth Creation
Many earn money and save money. But only a handful

are able to create wealth. There is no magic formula or
shortcut for wealth creation. Stay disciplined, focus and
give time.
Find out about to implement ideas and let your money

work as hard as you do. In this chapter, discover how
wealth creation is about giving yourself many options and
choosing the right ones to deliver outcomes.
What is Investing?
A few people stumble into financial security. They are born with a
silver spoon. They get what they want without even asking. But for
most people, the only real way to attain financial security is to save
and invest over a long period of time. There is no two ways about it.
To be financially secure, you will need to have your money work for
Wealth Creation
you. That is the essence of investing.
Imagine you earn `45,000 (take home pay) at the end of the month.
Your household expenses are `40,0000 per month.
Will the savings of `5,000 lying in your bank help you when you have
no income?
If you need `40,000 to survive for a month, you will need to save for 8
months (`5000 x 8 = `40,000)
It is not possible to save for 8 months without earnings for 8 months!
This is where investing comes in. You have to make `5,000 saved per
month today become `40,000 sometime in future. It is possible to
grow your money.
You do not need to a scientist, MBA or genius to invest. You will need
to know a few basics. Then, form a plan. Finally, get ready to stick to
Deposit insurance in India

covers 92% of the total
number of accounts but
only 28% of the total
banking deposits, the
latest central bank data
showed.
18
your plan. While there is no hard and fast guarantee that you’ll make
money from investments you make, following through with an
intelligent plan will enable you to get where you want to be.
Investing a commitment
Investing is simply an act of commitment. You do this in an expectation
to earn
additional income or
profit. Nobody invests
to lose. Legendary
investor Warren
Buffett has an
interesting way of
defining investing. He
calls it the process of
laying out money now
to receive more money
in the future.
There is only one goal

in investing: growing
your money over time.
There is substantial
proof that money
grows when invested
in the right places. For example, mutual funds could've grown your
investment by 23% every year in the last 10 years. This means 1 lakh invested
10 years ago would've become 7.93 lakh today. Similarly, money invested in
bank deposits have grown by 6-8% every year. Money kept in gold has grown
by 6-7% every year.
When you earn your salary or income, there is no commitment to spend

it. Yet, spending takes away a lot of your income because it is easy to
spend. It gives instant gratification. Clothes, entertainment, travel --- all
of them make our present life appear wonderful and enjoyable.
Investing requires prioritizing of our financial future over our present
desires and lifestyle. 19
Investing is a way of setting aside small amounts of money while you
still can. You can be busy with life, but don’t forget to invest.
Investing is a means to a happier ending. It works. Try it.
Investing is different from saving

Saving and investing are used interchangeably. To the common man
Wealth Creation
they seem the same. But, investing and saving are not the same
thing. There is a difference.
Let us understand with an example. Dhanesh earns `65,000 as a

software engineer. At the end of the month, he has `18,000 left in his
bank account. Is `18,000 saving? Yes. If he puts all the money into
stocks and bonds, his `18,000 saving becomes investment. If he keeps
the `18,000 in his bank account, it remains just saving.
Investing starts from saving. As you know by now, saving is setting

aside money you don’t spend now. Saving is money you want to be
able to access quickly with no risk. There are different financial
saving options.
Not all savings are investments. Investing

is buying assets such as stocks, bonds,
mutual funds, gold or real estate. Generally
speaking, any investment can be
categorized as income investment or
growth investment. Let us use an example
to understand this better.
Consider this. If you deposited `2,000 in a

savings account at 4% annual interest, it
would grow to `2,080 a year (before taxes).
The same `2,000 invested in a mutual fund
earning an average 10% a year would grow
to `2200 (before taxes). MF investments
generally grow faster.
20 Making the correct choice between saving or

Compound interest
is the eighth wonder
of the world. He who
understands it,
earns it … he who
doesn’t … pays it
- Albert Einstein
investing will depend on your goal. If just saving works for you, you
should only save. But if saving alone cannot help you, you need to
take the help of investing.
What are Financial Goals?

The word ‘goal’ brings to our mind the visual of a goal post and a
football screeching past the goal line into the net. Just like 11
players on a football team work together to score a goal, our
financial goals require coordination.
A financial goal is monetary objective of an individual. It is a

purpose. A financial goal is determined by the future requirement
for money. Retirement can be a financial goal. Saving for child’s
marriage 10 years later could be a financial goal. Saving for making
the down payment of your home loan will qualify to be a financial
goal. Saving money for a foreign trip 7 months later can also be a
financial goal.
Financial goals always exist. Only the smart individuals recognize

the goals. Recognition is half the job done. Once you know your
financial goals, you need to work towards them.
A lot of people don’t acknowledge the importance of managing

financial goals. Naturally, they do not even plan for their
financial goals.
21
Regardless of your age, setting
financial goals is a very important
task.
The secret ingredient to set up

personal financial goals is
Wealth Creation
anticipating your needs. For

instance, if your monthly
expenses would be `50,000 once
you turn 60 years, you will need
to have `60,000 income source at
that time.
Recognizing your aspirations and future needs are 50% job. The
next 50% is setting up a plan to attain that goals.
Time is freely available. But time is hard to find when you need it.
All our financial goals require some time to fructify. This is why it
is important to categorize our financial goals based on the available
time or the time required.
We can categorize goals into 3 main types: short term goals,

medium term goals and long term goals.
Short Term Goals

Short term goals are tasks that can be accomplished in up to 1 year
time. As you can understand, short term goals are something that
you aim for in the near future.
For instance, saving and paying off credit card loan is a short term
goal. Similarly, purchase of household furniture, or minor home
improvements can be examples. Saving for a car/two-wheeler down
payment is also a common one.
Short-term financial goals can also be in form of saving for

vacation, gadgets etc. Short term goals are the easiest and quickest
22 to attain.
Medium Term Goals
Medium term financial goals will be outcomes that can be attained
by giving more than 1 year to about 5 years. As you can see, medium
term goals take longer time than short-term financial goals.
Before setting medium term goals, find out your dreams and desires
in the next few years. These are likely to be the biggest factors that
will guide your saving and investing agenda.
We must remember that medium-term goals can be quite hard to

achieve. This is because they fall between short and long term goals.
Short term goals get a lot of attention since they always seem so
near. Long term goals also get a fair bit of attention because long
term goals like financial security during retirement or child’s higher
education money are extremely important. This virtually leaves us
with a small amount of time and focus for medium term goals.
A good way to constantly track and monitor medium term financial

goals is to write the goals down. Review the progress after every 3
month. This will ensure adequate attention is given. In case you fall
behind, you will have time to get back on track too.
23
Medium term goals give you some time so it is important not to
become totally risk-averse in terms of investment. While short term
goals have less than a year to be accomplished, medium term goals
allow you to strike a balance between risk and reward.
Long term goals

Wealth Creation
Long term financial goals are those which will take more than 5 years
to achieve. They are important for you and possibly for the family.
The time frame is longer in case of long term goals because of a

combination or individually two factors:
1. The financial requirement will emerge after a long time. For

instance, your retirement will happen only after 60 years of age. You
cannot prepone it to 35 years of age.
2. The financial requirement is big so you need to save and invest for
a longer period of time. For instance, if you expect to send your child
for higher education at a cost of `30 lakh and can invest `4000 only
per month, you will need 20 years to accomplish this if the investment
gives you 10% return annually. Even if you double the contribution to
`8000 per month, you will reach `16.5 lakh only in 10 years.
Planning for the long-term to hit your major financial goals will make
the planning and execution systematic and organised. These goals
cannot be compromised at all. Once the time is gone, you will not have
it back.
Long term financial goals, unlike the other two (short term and
medium term), give you the luxury of time. But, therein also lies the
risk. Too much time can compel you to keep delaying the inevitable
when it comes to taking actions to support the goal. Hence, it is
extremely important to be on the right track at all times.
Your retirement planning or child’s higher education cannot wait for

another 5 years when their time will come. Can you imagine working
24 at 65 for another 5 years just because you have not saved enough?
How will you bridge the short-fall of your child’s education
requirement when he/she is ready for studying medicine? An
education loan will only put unnecessary burden on a young mind,
and that too because you as a parent delayed things.
What is Risk Tolerance and How to Find

Yours?
Any investment has two friends - Mr. Risk and Mr. Return. If you
become more friends with Mr. Risk, your investment can get more of
Mr. Return. However, more risk can also mean getting negative
return also, if the time-frame is too short.
This is why every investor, irrespective of their maturity, knowledge

and experience level, needs to know how much risk they are
comfortable with.
What does taking risk mean? Financial pundits will tell you that risk
tolerance is the degree of variability/swings in investment returns
that an investor is willing to withstand. Simplifying it, this means if
you wanted 10% return and got 5% return - how comfortable would
you be with it?
Let’s look at another instance. You set out with an assumption of 20%
annual return, but you get 4% negative return. Will you be
comfortable?
Emerging Markets
Small-Cap Equities will have
Equities higher risk and return
Blue Chip potential
Return %
(Large-Cap) Equities
Investment-grade
Corporate Bonds
Money Market or Goverment Treasuries

will have a lower risk and lower returns
Risk % (Standerd Deviation) 25

It is critical that you have a realistic understanding of your ability
and willingness to bear risk. The ability to tolerate large swings in
the value of your investments will tell you how comfortable you
really are.
It is important to be frank and honest with your fears and worries.

Wealth Creation
You may tell people that you are very risk-taking, but a small swing
in investment return may surprise you negatively. If this trend keeps
on happening, it is important that you accept that your perception
about yourself is not correct.
As a thumb-rule, higher returns come when you take higher risk. If

you take smaller risks, returns should not fluctuate much.
If you take on too much risk, you might panic and sell at the wrong
time. This may defeat the entire purpose of your investments.
If you take on too less risk, you may never reach your desired
financial goal in time. This will, also, defeat the entire purpose of
your investments.
how To Invest?
When figuring out how to invest money, it is always better to start
with the very basics.
These investing basics include what the goal of investing is as well

as where to invest money. We have explained in the previous
sections about goals. We will come to where to invest in a bit.
When you start something new, there BSF always butterflies in the
stomach. There is both joy and fear. The entire experience of how to
invest can vary depending on the investors’ experience.
Investing for beginners - When you invest money for the first
time, you have no track record. This is both good and bad. You do
not have any expectations or burden. Simultaneously, your lack of
26 experience makes you vulnerable to mistakes.
Always remember the golden rule of investing. You are doing an
investment with the belief that the value of that investment will grow
over time. Never forget that investing is not a get-rich-quick route.
Both experienced and inexperienced investors need to stay invested
to see their wealth consistently grow.
With the requisite time and discipline, even small sums of money can
be turned into fortunes over time. It is vital that you select the right
investment or investments.
Investing for experienced - If you have some experience, you

already know how this game works. You may like to think you know
some things, but truthfully every investing journey is unique. Hence,
it is important to have your feet on the ground and not expect
miracles.
The fate of an investment does not change because you have decided
to give it a try. There are thousands of investors selling and buying
the same investment as you are. Having a calm mind and belief helps
the process immensely. A new beginner may get negative surprises.
But, as an experienced campaigner, you know patience pays.
27
Where to Invest?
In this section, we will tell you about various investment avenues
where you can put your money in. Each one has unique
characteristics.
Fixed deposits - Fixed Deposit is the safest investment

Wealth Creation
avenue depending on where you have invested. FDs help you grow
your savings. They also offer stability and safety of principal amount.
By investing in a FD, you can take control of your investments. You
have reasonable flexibility, assured returns and high stability.
FDs can be done with recognized banks and eligible non-banking
financial companies (NBFCs) which are allowed to collect deposits.
Bank FDs are the more secured in comparison to corporate/NBFC
FDs. FDs require one-time investment. If you want to open new FDs,
you need to invest more separately.
FDs can generate interest income for a wide range of time, from 1
day to 10 years. You can choose your interest payment frequency, i.e.
after a fixed interval or at the end of the tenure (cumulative).
The interest income generated by FDs are taxed at the rate of your
respective income slab.
28
If you take no risks,
you will suffer no
defeats. But if you
take no risks, you
win no victories.
- Richard M. Nixon
Some FDs come with premature withdrawal facility, and some FD

comes with no premature withdrawal facility. The interest rate of
the FDs in the latter basket i.e. no premature withdrawal space, are
typically higher.
FDs are extremely popular investment avenue, because of the

principal and interest protection.
There are some FDs that offer tax-saving facility. Tax Saving fixed
deposits are a good way to get tax deduction under Section 80C of
the Income Tax Act, 1961. You can claim a deduction of up to a
maximum of `1.5 lakh by investing in them. The booking period for
tax saving fixed deposits is a minimum of five years. No partial or
premature withdrawal is allowed.
There are some deposits that give you the benefit of regular
investing. These are called recurring deposits or RDs. A fixed sum
of money is invested in an RD and the interest rate is often similar
to FDs. RDs give you the benefit of regular investing and you can
invest a small amount. All the other features are similar. You can
withdraw money from RDs, after paying a penalty. RDs are often
used by depositors for goal planning, as they allow regular
investments.
29
PPF - The Public Provident Fund (PPF) scheme was started by
the National Savings Organization in 1968 to promote small savings.
It is an extremely popular long-term investment avenue. The avenue
offers an investment option with decent returns together with income
tax benefits under Section 80C.
Wealth Creation
Only an Indian resident citizen can open a PPF account. You can
open only one PPF account. You cannot have two PPF accounts.
Good news is that minors (i.e. below 18 years) can open a PPF
account based on a legal age proof.
A PPF account can be opened in designated bank branches and post

offices by submitting a PF account opening form, along with
photograph, ID proof and address proof. There are some banks that
allow you to open PF account online, if you are an existing bank
customer. In this case, you can open a PPF account online is a few
minutes.
If you prefer the traditional way of banking, you can visit a branch
to open a PPF account.
30
Here is a step by step guide on how to open a PPF account offline:
1. Get an application form from the nearest post office or bank
branch.
2. Fill up the application form and submit it with the required KYC
documents (ID proof and address proof) and passport sized
photograph.
3. The initial deposit required to open a post office PPF account is
`500 and the maximum amount allowed initially is `70,000. The
maximum deposit allowed in a financial year is `1.5 lakh.
Once all the documents are submitted with the initial deposit, the
PPF account applicant will be handed over a passbook for the
PPF account.
The passbook will contain all the details such as the name of the
account holder, PPF account number, branch name, etc.
The major benefits of opening a PPF account are: Risk-free interest

rate in a scheme backed by the Central Government, the interest rate
on PPF is compounded annually, avail deductions up to `1.5 lakh on
investments in the PPF account under Section 80C, loan facility
against balance, low investment amount (as low as `500 a year), long-
term interest guarantee (i.e. 15 years and then unlimited extension
for 5 year blocks) and partial withdrawal facility from the 7th
financial year onwards.
Premature closure of a PPF account is allowed only after the

completion of 5 years. This closure has to be for the purpose of
medical treatment of family members or for the higher education of
the PPF account holder. Do note that the premature closure comes at
an interest rate penalty of 1%. 31
`1.5 lakh invested in
PPF every year for 15
years can build a corpus
of around `43 lakh at
annual interest rate of
Wealth Creation
7.9% (as on July 1, 2019).

The rate of interest is
declared quarterly by
the government.
A PPF account can be transferred free of cost to any other branch,

or any other bank, or Post Office. This is done at the request of the
PPF account holder.
If you do not deposit the minimum requirement of `500 a year in

PPF account, it is deemed inactive.
Lastly, PPF falls under the EEE (Exempt, Exempt, Exempt) tax
basket. This means the investments into the PPF account are
eligible for tax benefits under Section 80C, the total amount
received on maturity and the interest earned is exempt from
income tax. So, you do not pay any tax whatsoever.
Tip - The ideal way to maximize the interest on your PPF account
would be to invest the maximum investible amount in a year at
one go at the beginning of the financial year. PPF accounts follow
an April-to-March year so to earn the maximum interest, you
should deposit the amount before 5th of April every year.
Post office MIS - Another traditionally popular

investment avenue is Post Office Monthly Income Scheme Account
(MIS). You can invest in multiples of `1500. The maximum
investment limit is `4.5 lakh in single account and `9 lakh in joint
32 account. For calculation of share of an individual in joint account,
each joint holder has an equal share in each joint account i.e. 50% for
two holders.
Post Office MIS account can be opened by an individual. Such an

account can be transferred from one post office to another. Any
number of accounts can be opened in any post office but they will be
subject to maximum investment limit by adding the balance in all
such accounts.
A Post Office MIS account can be opened in the name of minor and a
minor of 10 years and above age can open and operate the account.
The maturity period of a Post Office MIS account is 5 years from

1.12.2011.
The interest generated can be drawn through auto credit into

savings account standing at the same post office.
A Post Office MIS account can be prematurely en-cashed after one

year but before 3 years at a discount of 2% of the deposit. If you
en-cash and after 3 years, then the discount becomes of 1% of the
deposit. Discount means deduction from the deposit.
33
Government Securities (G-Secs) -
Government securities are bonds, both short- and long- term, issued
by the Government of India to raise funds for their expenditures.
The government pays a specified coupon or interest rate on these

Wealth Creation
bonds that may be payable annually or semi-annually or for any other

specified frequency. The G-Secs which have a tenure less than a year
are called treasury bills. The G-Secs, which mature after a year, are
called bonds.
G-Secs offer a whole host of advantages as an investment avenue.
There is a Sovereign Guarantee. G-Secs are guaranteed by the

Government of India. Hence, they carry almost zero credit risk.
G-Secs allow you to lock in attractive interest rates for tenures

ranging from 91 days to 40 years. Such long-term interest rate
assurance is unparalleled because even banks FDs offer a maximum
tenure of 10 years.
A person in India is
estimated to spend
one-fifth of the total
wealth accumulated
in his lifetime on his
wedding.
Source: https://www.reliancemoney.co.in/getting-married-in-india-what-does-an-
average-wedding-cost
34
G-Secs have no TDS (Tax Deducted At Source). Like bank FDs,
there will be no tax deduction. Thus, you can pay taxes as per
your income tax slab at the end of the financial year.
G-Secs can be held in demat form, which makes it very convenient
for retail investors.
In 2017, the RBI notified that stock exchanges could act as

aggregators for non-competitive bidding for retail investors to access
G-Secs. Retail investors can buy government securities (G-Secs) with a
minimum investment of `10,000.
Private sector company platforms, banks and NSE platform including

goBid app allow you to invest in G-Secs online. The registration
process is simple and can be done online if you have a demat
account.
For the NSE goBID platform, you must choose your broker with whom
you are registered to facilitate this transaction. Your personal details
and PAN will also be required. Once bought, the bonds will be stored
in your demat account.
To buy a G-Sec, look at the bond’s coupon or interest rate. This is

what you will get annually. Hold the bond until it matures. At
maturity, you will get the face value you paid and any remaining
interest payout. If needed, you may exit the investment before its
maturity also.
Sukanya Samriddhi Yojana (SSY) - This government

scheme aims to securing a bright future for the girl child in India.
This is done by facilitating the parents of a girl child in building a
fund for the proper education and marriage expenses of their child.
The beneficiary of this scheme can be any girl child who is a resident
Indian, from the time of opening the account and till the time of
maturity or closure. Parents or legal guardian of a girl child who has
not attained the age of 10 years can easily open the account.
35
India has emerged
as the second lowest
among 34 countries
providing retirement
income systems with
Wealth Creation
good benefits
according to a study.
Source: https://economictimes.indiatimes.com/wealth/personal-finance-news/
india-ranked-second-last-in-pension-benefits-study/articleshow/66319057.cms
The guardian is allowed to deposit the amount and operate the

account. Do note that the account has to be mandatorily operated by
the girl child after she attains 18 years age.
There will be only one account per girl child. Also, accounts can be
opened for a maximum of two girl children in one family, including
those adopted.
The SSY account can be opened in any post office or authorized

branch of bank.
A minimum of `250 and a maximum of `1.5 lakh can be invested

every financial year. The investment tenure is up to 15 years.
You should remember that no interest will be payable after the

completion of tenure of the SSY, i.e. 21 years from account opening.
Premature closure of SSY account is allowed. The reasons for

premature closure include if the child either becomes a non-resident
or a non-citizen of India.
Withdrawal from SSY account is allowed for purposes of higher

education if the girl child has either attained 18 years, or she has
completed 10th standard of school. The withdrawal is allowed for
36 meeting the actual fee or other charges required at the time of
admission. Withdrawal has a maximum limit of 50% of the balance in
the SSY at the end of the previous financial year.
The SSY has been provided with certain tax benefits like investments
made in the SSY scheme are eligible for deductions under Section
80C, interest that accrues against this account is exempt from tax,
and the proceeds received upon maturity/withdrawal are exempt
from income tax.
Sovereign Gold Bonds - One of the latest investment

innovations is SGBs or Sovereign Gold Bonds. The Sovereign Gold
Bond Scheme was launched by the government in November 2015.
Investing in gold is much easier and more convenient now with SGBs.
As an investor, you can earn an assured interest rate (2.5% per
annum at present). You also eliminate risk and cost of storage. The
redemption is linked to the gold price prevailing at the time of
redemption. Also, SGBs are exempt from the capital gains tax, if held
till maturity.
Its features include the tenure of 8 years with an option to exit from
the 5th year. A holding certificate is issued towards investment in
bonds. The customers will be issued a certificate of holding on the
date of issuance of the SGB. Certificate of holding can be collected
37
from the branches or is sent directly to e-mail ID from RBI, if the
e-mail ID is provided in the application form. Certain banks offer the
convenience of SGB investing online.
An even better option is to subscribe and hold the SGB in demat form.
For this, the applicant has to mention the details of DP ID and DP
Wealth Creation
Client ID in the application form.
Under the scheme, the issues are made open for subscription in
tranches by RBI in consultation with the government. The RBI
notifies the terms and conditions for the scheme from time to time.
The subscription for SGB will be open as per a calendar. The rate of
SGB interest is declared by RBI before every new tranche by issuing
a press release.
As per RBI instructions, every application must be accompanied by

the ‘PAN’ issued by the Income Tax Department to the investor.
Know-your-customer (KYC) norms are the same as that for purchase
of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN
or Passport will be required during application time.
Atal Pension Yojana - This is a pension scheme mainly

aimed at the unorganized sector. There is an option of getting a fixed
pension of `1000, `2000, `3000, `4000, or `5000 on attaining the age
of 60.
The pension corpus is created from your contributions that are
invested in different assets. The collected amount under the scheme is
managed by the Pension Fund Regulatory and Development Authority
of India (PFRDA).
The pension is determined based on the individual’s age and the

contribution amount.
The contributor’s spouse can stake claim to the pension upon the
contributor’s death. Upon the death of both the contributor and his/
her spouse, their nominee will be given the accumulated corpus.
38
India’s list of millionaires
has more than doubled
in the last 10 years. The
country will have
950,000 millionaires by
2027, up almost 190%
from 330,000 last year, a
recent report says.
Source: https://qz.com/india/1316124/india-will-have-nearly-a-million-
millionaires-by-2027/
If the contributor dies before completing 60 years of age, the spouse

is also given an option to exit the scheme and claim the corpus.
Otherwise, they can continue the scheme for the remaining period.
Interestingly, the government makes a co-contribution of 50% of the

total contribution, or `1000 per annum to all eligible subscribers
who had joined between June 2015 and December 2015. The
government co-contribution is for a period of 5 years up to 2019-20.
Only those subscribers will get co-contribution who are not part of
any other statutory social security schemes, or are paying income
tax.
An Atal Pension Yojana subscriber has to be an Indian citizen

between the age of 18-40, and has to make contributions for a
minimum of 20 years. All the top banks provide the scheme. You can
visit any of these bank branches to start your APY investment
journey. You can initiate the opening process online as well.
APY is an automatic investment scheme. All your periodic

contributions will be debited automatically from your bank account.
Any default on your payments will attract penalty. Default status on 39
your payments for 6 months will lead to APY account being frozen. If
the default continues for 12 months, then the account will be closed
and the remaining amount will be paid back to the subscriber.
Do remember early withdrawal is not entertained in APY. Only in

cases like death or terminal illness, the subscriber or his/her
Wealth Creation
nominee can receive the entire amount back.
National Pension System (NPS) - This is a voluntary

and long-term investment plan for retirement. Like APY, the scheme
is under the purview of the PFRDA.
The NPS is open to employees from the public and private sectors.
The scheme is self-funded pension system. NPS subscribers invest in
the pension account at regular intervals. After retirement, the
subscribers can take out a certain percentage of the corpus while the
remaining amount will come to you as monthly pension.
A portion of the NPS investment goes to equities/stocks. There is a

cap on equity exposure for the National Pension System. The cap
acts like a stabilizer for the risk-return equation.
You can choose to invest your money in a wide range of options.

The account maintenance costs under NPS are the lowest as
compared to similar pension products available in India, like
retirement plans offered by Insurance companies and mutual funds,
according to PFRDA website.
NPS subscribers have control on the choice of investment made

(Active or Auto Choice) and the Pension funds who manages the
investments. Subscribers can switch from one Pension fund to
another, one investment option to another, subject to certain
regulatory restrictions.
40
Three Life Cycle funds are available under NPS Auto Choice. Under
LC75 – Aggressive Life Cycle Fund, the exposure in Equity
Investments starts with 75% till age 35 and gradually reduces as per
the age of the subscriber. Under LC50- Moderate Life Cycle Fund, the
exposure in Equity Investments starts with 50% till age 35 and
gradually reduces as per the age of the subscriber. Under LC 25-
Conservative life cycle fund, the exposure in Equity Investments
starts with 25% till age 35 and gradually reduces as per the age of
the subscriber.
Individuals who are employed and contributing to NPS would

enjoy tax benefits on their own contributions and their
employer’s contribution as under: -
(a) Employee’s own contribution - Eligible for a tax deduction up to

10% of Salary (Basic + DA) under Section 80 CCD (1) within the
overall ceiling of `1.50 lakh under Sec 80 CCE.
(b) Employer’s contribution – The employee is eligible for tax

deduction up to 10% of Salary (Basic + DA) contributed by employer
under Sec 80 CCD(2) over and above the limit of `1.50 lakh provided
under Sec 80 CCE.
Self-employed NPS subscribers are eligible for a tax deduction up to

20 % of gross income under Sec 80 CCD (1) within the overall ceiling
of `1.50 lakh under Sec 80 CCE.
Subscriber is allowed deduction in addition to the deduction allowed

under Sec. 80CCD(1) for additional contribution in his NPS account
subject to maximum investment of Rs.50,000/- under Sec. 80CCD
1(B).
On retirement at the age of 60, the NPS subscriber needs to buy an

annuity with minimum 40% of the accumulated wealth. The
remaining 60% is paid as a lump sum. In case the total corpus is less
41
than `2 lakh, the subscriber can withdraw the entire amount.
In terms of early withdrawal and exit, if you have been investing in
NPS for at least 3 years, you can withdraw up to 25% for certain
specified purposes. These include children’s wedding or higher
studies, building/buying a house or medical treatment of self/family
etc.
Wealth Creation
Do note that a NPS subscriber can make a withdrawal for up to 3

times (with a gap of 5 years) in the entire tenure.
There are two primary account types under the NPS – Tier I and
TierII. Tier I is the retirement account which gets a host of tax
breaks, whereas Tier II is a voluntary account which allows NPS
subscribers to invest and take out money anytime. You can invest
in a Tier II account only if you have an active Tier I account
Mutual Funds - A mutual fund offers investors the opportunity

to pool their money with other investors. Together, this pool of
money is managed by fund managers, who take the decision to buy
and sell on investors’ behalf. Mutual funds invest in stocks,
NSDL has enabled

holding of mutual fund
units [represented by
Statement of Account] in
dematerialised form for
its demat account
holders. You can use
your existing demat
accounts for converting
your mutual fund units
into dematerialised form.
42
bonds or other securities,
in line with the fund
objective. You can do
regular or one-time
investments in mutual
funds. In return for your
investment, you get a
certain number of mutual
fund units that can be
redeemed (sold back to
the AMC) in future. Do
remember that mutual
funds cannot offer any
assured or guaranteed
returns to investors. All
the returns are linked to underlying assets such as shares, bonds etc.
Mutual fund schemes are run by asset management companies or
AMCs. In India, there are more than 40 AMCs who managing investors’
assets worth over `27 lakh crore.
In October 2017, regulator SEBI announced that mutual fund schemes

would be broadly classified in the following groups:
1. Equity Schemes
2. Debt Schemes
3. Hybrid Schemes
4. Solution Oriented Schemes
5. Other Schemes
Let us take a quick look.

1. Equity schemes/funds - These funds invest in stocks or
shares. Equity funds aim to grow faster than fixed income funds.
This is why equity funds contain higher risk. This means, at least in
the short-term, you could lose money. You can choose from different
types of equity funds that invest in large-cap stocks, mid-cap stocks,
small-cap stocks, or combinations of these. There are equity funds
that focus on themes like consumption, or a sector like banking. 43
There are over a dozen equity fund categories. The recommended
tenure for investment in equity funds is 3 years or more.
Gains from equity funds are taxed in a certain way. Long term capital
gains (LTCG) tax is charged at 10% (plus surcharge, if applicable and
cess) without indexation if the MF units were held for more than 12
Wealth Creation
months. Short term capital gains (STCG) tax is imposed at 15% (plus
surcharge, if applicable and cess) if the MF units were held for less
than 12 months. Do remember that capital gain accrued up to January
31st 2018 is exempt from LTCG tax in respect of units acquired before
January 31, 2018 and redeemed on or after April 1, 2018. Investor does
not pay any tax on dividends but a Dividend Distribution Tax (DDT) is
deducted at source at the rate of 11.648% (10% + 12% surcharge + 4%
Health and education cess).
2. Debt/fixed income schemes/funds - These funds invest in

debt/fixed income securities. These funds aim to give stable returns
and give preservation of capital more focus. Hence, debt/fixed income
funds contain lower risk than equity funds. This means the chances of
losing money is minimum. You can choose from different types of
equity funds that invest in either government debt, private sector debt
etc. There are over a dozen debt fund categories. The recommended
tenure for debt funds is up to 1 year. Gains from debt funds are taxed
in a certain way.
Mutual funds were

created to make
investing easy, so
consumers wouldn’t
have to be burdened
with picking
individual stocks.
- Scott Cook
44
There are 4,114
companies whose
shares are available
for trading as on
September 9, 2019.
Long term capital gains (LTCG) tax is charged at 20% (plus

surcharge, if applicable and cess) with indexation if the MF units
were held for more than 36 months.
Short term capital gains (STCG) tax is charged at the income tax
slab rate if MF units were held for less than 36 months. Investor does
not pay any tax on dividends but a Dividend Distribution Tax (DDT)
is deducted at source at 29.12% ( 25% + 12% surcharge + 4% Health
and education cess) for individuals. In case of an investor being NRI,
LTCG tax are chargeable at 10% (plus surcharge, if applicable and
cess) without indexation relating to units redeemed from unlisted
schemes.
3. Hybrid schemes/funds - These funds invest in both equity

and debt/fixed income securities. The allocation mix depends on the
specific fund objective. Hybrid funds aim to give the growth benefit of
stocks, while the stability aspect is brought by exposure to debt
securities. In terms of risk and return, hybrid funds fall somewhere
in the middle of equity funds and debt funds. Hybrid funds are
suitable for first time investors who have previously been exposed
to debt funds, but are ready to take some more risk. The
recommended tenure for hybrid funds, often referred to as balanced
funds, is 3 years or more.
Gains from hybrid funds are taxed as per their equity allocation. If
the net equity exposure is 65%, they are taxed like equity funds. If 45
the net equity exposure is less than 65%, those hybrid funds are taxed
like debt funds.
4. Solution-oriented schemes - These include the schemes like

childcare/gift or retirement schemes. Earlier these schemes were
considered as regular equity or balanced schemes. With the 2017 SEBI
Wealth Creation
circular, these are classified under the solution-oriented schemes.

These are open-ended schemes which have a minimum lock-in period
of 5 years.
These types of solution-oriented schemes are particularly helpful for

the investors who are willing to create their retirement and children’s
education or marriage corpus with mutual funds but lack in selection
of mutual funds or cannot rebalance investment. These funds are
more attractive in terms of returns and investment than that of the
plans offered by the insurance companies.
On the liquidity front, these solution-oriented schemes score less than

that of the other equity schemes due to the compulsory 5 year lock-in
period. It is good for the investors who can maintain the discipline and
the cushion to save the goal from bad decisions in the times of
volatility.
5. Other schemes - The other schemes/funds have been further

divided into following two sub-categories i.e. index funds and fund of
funds.
Different modes of mF investment

Let us understand the different ways you can invest money in mutual
funds. There are broadly 3 ways.
1. Lump sum - It is a one-time investment. Many prefer to do lump

sum investing because there is no recurring liability. Lump sum
investments are good if you can time your investment well. Otherwise,
it should be avoided. Due to lack of planning, many investors are forced
to invest in this way to meet a deadline. Go for this route only if you
46 have a higher risk tolerance.
2. Systematic Investment
Plan (SIP) - This is a better
option for retail investors since it
averages the cost of investment. Do
note that SIP allows you to break
one big amount into smaller pieces.
This takes away the focus on
timing the market. This is because
you are buying at different points
in time. Any restrictions on
investment, however, apply to each
SIP installment. If you want automated and worry-free investing,
continue SIP-ing.
3. Systematic Transfer Plan (STP) - Generally, one starts

with a STP when there is a lump sum to invest. Like a SIP, a STP
helps spread investments over a period of time to average the
purchase cost. This method rules out the risk of getting into the
market at its peak. With an STP, an investor can invest a lump sum in
one scheme and transfer a fixed amount regularly to another scheme.
An STP can be done from an equity fund to a debt fund or from a debt
fund to an equity fund. This approach reduces the risk of investments
being hit near the target date i.e. maturity. Move your money well
before the time when you need the money.
Irrespective of the mode of investment mentioned above, investment in

MF can be done in two ways. One is to route your investment through
an AMFI registered MF broker called a 'regular plan' and second is to
invest directly in the mutual fund company called the 'direct plan'.
Regular plan involves payment of commission to the distributor and
hence has a slightly lower NAV as compared to the same scheme in
direct plan. One may opt for a direct plan if he/she has the ability to
study and chose the right scheme. For most, taking help from a
registered distributor is a better option.
47
Before investing in mutual fund
All the information related to a particular MF scheme is published

by the mutual fund company concerned in SID i.e. Scheme
Information Document. This document is available on the website of
AMC, AMFI and SEBI.
Wealth Creation
Mutual fund investments are subject to market risks. Please read

all scheme-related documents carefully before investing, say all
mutual fund advertisements. Let us find about the market risks.
Market risks associated with equity investment are changes in

interest rates, foreign exchange risk, and commodity-related risk.
In the case of mutual funds, there are additional risks such as
default risk, reinvestment risk, etc.
Market risks exist in all investments but the key issue is how a fund
manager mitigates these risks without significantly impacting the
performance. So, understanding the role of the fund manager is
extremely critical for you as an investor. Right from selecting the
investments, to re-balancing risk versus return, to monitoring the
portfolio and to formulating the exit strategy, investors should pay a
lot of attention of who is the MF fund manager and their previous
work, if any.
According to the data

provided by the
Association of Mutual
Funds in India (AMFI),
the MF industry managed
to garner `8,231 crore
through SIPs in August
2019.
48
Reading offer document such as SID does convey some additional
aspects. Focus on the fund’s investment objectives. The goal of each
fund should be clearly defined and investors need to accept that the
fund manager will do their best to meet those objectives.
Next, understand and outline the general strategies the fund
managers will implement in a fund. Past performance data listed in
fund documents are of academic use only. As they say, “past
performance is not an indication of future performance”. Lastly,
investors should focus on fees and expenses of owning any fund. For
fees, there are entry loads, exit loads, switching charges, annual
recurring expenses, management fees and investor servicing costs.
Actively managed funds charge more than same-sized passive funds
like index schemes and Exchange Traded Fund (ETFs).
Insurance products -
Broadly speaking, life insurance is often
thought to be for giving financial
protection. Over the years, life
insurance has branched out from
that role. Today, life
insurance can be categorized
as a pure risk coverage plan
i.e. pure insurance, and the
other, which is a combination
of insurance and investment.
There is a whole debate on whether insurance can really be an
investment but we'll go into the merits and demerits of that argument
later. First we'll tell you about different products offered by
insurance companies. Do note that since most of these products offer
insurance and charge for it, they are slightly inferior compared to
pure investment products like mutual funds.
Still, investment products in the insurance segment are extremely

popular thanks to the neighborhood insurance agent. We will learn 49
more about different types of insurance products in Chapter 5.
Direct equity/shares/stocks - Stocks are a type of
financial instrument that gives holders a share of ownership in a
company. Stocks also are called equities. Investors buy stocks for
various reasons. They buy stocks for capital appreciation, which
occurs when a stock rises in price/value. They buy stocks for
dividend payments, which come when the company distributes
some of its earnings/profits to stockholders. Demat is a form of
Wealth Creation
holding or keeping stocks in an electronic form. This is a viable

alternative to holding the securities in paper form. NSDL offers
demat account opening services through its Depository Participants
(DPs). We will explain about this later in the book.
Stocks are an attractive wealth creation opportunity. They are
known to have grown multiple times in a few years, giving a big
boost to shareholders. Stocks can be categorized into a few
segments.
1. Growth stocks - These stocks have earnings growing at a

faster rate than the average. Growth stocks rarely pay dividends.
Investors buy them in the hope of capital appreciation only.
2. Income stocks - These stocks pay dividends consistently.

Investors buy them for the income they generate. Income stocks
belong to mature companies. These are firms with years of track-
record and solid finances.
3. Value stocks - These stocks are attractively priced. They are

cheaper to buy than other stocks. Do note that value stocks may be
growth or income stocks, They are cheap because they have fallen
out of favour with investors for some reason. Investors buy value
stocks in the hope that someday the stock’s price will rebound.
50
Another way to categorize stocks is by the size of the company. The
size of the company is calculated by market capitalization. There
are large-cap, mid-cap, and small-cap stocks. Also, the very lowest
priced stocks, often costing a few paise, are known as penny stocks.
As the size of the company declines, the risks increase.
You have seen other investment avenues and may have experienced
returns. Stocks are different, because they offer investors the greatest
potential for growth. They easily beat inflation. But, stock prices are
not a one-way street. Stock prices move down as well as up. There’s no
guarantee that the company whose stock you have bought will grow.
You can lose money when you invest in stocks. Market fluctuations can
be unnerving to some new investors. This is why it is best to buy
stocks that you know a lot about. Avoid speculation. It is better to be
an investor and learn the tricks, rather than hope for miracles.
Bonds/ Debentures - A bond is a debt security. The bond

issuer is obliged to pay interest (the coupon) to the bondholder.
Unlike shares, bonds offer guaranteed return. Bonds usually have a

defined term, or maturity, after which the bond is redeemed. This
makes the entry and exit time defined. On the other hand, stocks may
be outstanding indefinitely.
Bonds in India are issued by the RBI (on behalf of central government
or state governments). Bonds are floated by private sector companies
as well. Bonds issued by central government carrying sovereign
guarantee are the safest instrument. They carry virtually no risk. This
is also why returns from such bonds are lower. Private sector bonds/
debt carry higher risk and thus promise a slightly higher return. In
growing economies, bond returns (post tax) hardly beat inflation. Yet,
bonds are favoured because of their principal and interest protection
benefits.
51
Important
Points
to
Remember
from
Wealth Creation
this chapter
Knowing and planning to achieve financial goals often leads

to investing
It is not enough to save and create wealth. Investment in right
avenues is more important.
Understanding own risk appetite and risk tolerance are critical
before beginning investments.
There are a plethora of investment avenues. Map your
financial goal and time required to attain it. Invest as per the
financial goal.
Taking too much risk and too little risk are both injurious to
your financial health.
Stocks give the best returns for long-term investors.
Bonds offer protection and stability.
Equity mutual funds are an indirect way of investing in stocks,
where the fund manager does investing on your behalf.
The government has floated a range of pension schemes to
help you lead a pensioned life even if you are in the private
sector employment segment.
Insurance cum investment products offer lower returns than
others, but are popular because of their simplicity and
guaranteed return promise in some offerings.
Small-saving schemes like PPF, Sukanya Samriddhi can be
used to save tax and attain long-term financial goals.
Fixed deposits offer protection of principal and stability of
interest income.
52
Chapter 4
Asset Allocation
When studying for exams, students try to cover the maximum

number of chapters from their course material. This is because
they do not know where the questions will exactly come from.
Unfortunately, when it comes to investments, we fail to do the
same i.e. we do not read all the chapters. Driven by emotions
of greed or fear, we invest all our money in just one asset
like stocks, bank FDs or gold. The lack of asset allocation has
negative effects on wealth creation.
This chapter will answer the fundamental questions like what

is asset allocation, how to lower risk by spreading investments
in different asset classes, and how you can use simple tricks to
allocate assets efficiently.
What is asset class?
An asset class is a group of similar investments. For example,
different types of investment assets are categorized into one asset
class. Bank deposits and debt mutual funds are different products
but they fall into debt/fixed income asset class. This is because they
have similar financial structure and are covered by the same tax
Asset Allocation
laws, among others. In this way, equity mutual funds, unit-linked

insurance plans (ULIPs), and stocks fall into equity/stock asset
class.
Let us have a look at the main asset classes/categories. This will

help you to understand the concept better.
1. Stocks or equities - Equities are shares of ownership in a
company. You as an investor can potentially profit from equities
either through appreciation in the share price or by getting dividends
(quarterly or annual). The main asset class of stocks/equities is often
subdivided into small cap, mid cap, and large cap stocks.
2. Bonds or other fixed income investments - Fixed-

income investments are investments in debt securities. These pay the
investor a fixed rate of return. Do note that not all fixed income
investments offer a specific fixed return. Fixed income investments
are considered to be less risky than other asset classes.
3. Cash or cash equivalents - The main advantage of cash or

cash equivalent investments is that they can be quickly and easily
The most important

key to successful
investing can be
summed up in just two
words-asset allocation.
- Michael LeBoeuf
54
accessed. It is cash after all. So, one could take out or do anything
with it whenever they wish to. Cash helps buy other asset class during
sharp price correction. Cash helps the portion of the portfolio to be
immune from any sharp drops.
4. Gold - Gold is a highly liquid but equally scarce asset. It is bought

as luxury goods as much as a worthy investment. In an investment
portfolio, gold acts as a
source of long-term
returns, a diversifier
capable of lowering
losses in times of
market stress, and a
liquid asset with no
credit risk. Many argue
that globally gold’s
long-term returns are
comparable to stocks
and higher than bonds
or commodities.
5. Real estate or other tangible assets – Real estate and

other physical assets are considered as a separate asset class. The
main draw here is the aim to offer protection against inflation.
Financial instruments are only on paper. ‘Real’ assets are physically
available.
What is Asset Allocation?

Asset allocation may seem a complicated word for you. But, in
practice, all of us use the basic principles of asset allocation in our
day to day lives.
Asset allocation in terms of investment works broadly by dividing

your investment in a number of unrelated asset classes. You decide
how much of your investment in rupees will go to which assets.
Stocks, bonds, gold, and cash are traditional alternatives.
55
By spreading your investments across a number of asset classes, you
reduce the risk potential compared to allocating 100% of your
investments in one single asset class.
Since all the asset classes do not move in tandem, asset allocation is
an easy way to control investment risk.
Asset Allocation
Goal of asset allocation

The general aim of any asset allocation is simple: minimize losses. If
you minimize losses, your gains will automatically be enhanced.
Many investors use asset allocation to minimize volatility. For those
who do not know what volatility means, here is a small explanation.
Volatility means swings.
For instance, if an asset ‘A’ gives 100% return this year and then falls
by 50% the next year, it is highly volatile. All investors want to have
asset ‘A’ in their portfolio when it gives 100% return. The same
investors would want to avoid asset ‘A’ on a year when it falls by 50%.
By distributing your money across different assets in a proper way,

you can avoid bad knocks to your wealth from assets that are likely
to fall in value. By having more exposure to assets that have potential
to rise, you automatically stand a higher chance of gaining a lot more
than others.
The process of allocating or dividing your investment does not mean

one blindly gives a percentage to all. That approach does not always
work. For example in a year like 2008, most of the financial assets
fell and only gold did well. If you divide your money equally among
all, you would still experience major losses.
Asset allocation works based on few theories. Firstly, all the asset
categories do not fall or rise at the same time. Secondly, all the asset
categories do not behave in the same way at the same time to the
same market forces.
56
Why does asset allocation work?
If you divide your money into different assets, does it work? The
answer depends on how you define ‘work.
If your investments in one asset category are performing poorly,

asset allocation will ensure you will have assets in another category
that are performing well.
Any gains in the well-performing asset class may offset the losses in
the bad-performing ones. This means both your gains and losses are
minimized as far as the overall effect on your portfolio is concerned.
So, if you goal is to ensure lower risk i.e. lower losses, asset
allocation works for you beautifully.
If you goal is to avoid bad performing assets always and be in

better performers only, this will be tough to achieve. The truth is
neither you nor even a skilled investment professional knows the
exact amount of gains or losses one or many assets will make. The
benefit is available only in hindsight.
57
Let us look at the following graphic to understand how different
assets i.e. stocks, bonds, gold etc. have performed in each calendar
year. The row marked ‘average’ assumes you have 25% allocation
to each asset, and this is how the average return is calculated.
First steps of asset allocation

Asset Allocation
Asset allocation is important to you if you are new to building

wealth. As an existing investor if you have all your financial
investments in one asset like stocks, mutual funds or bank FDs,
you also need asset allocation. One bad year for the single asset
you are exposed to and your wealth can witness sharp decrease in
value.
Asset allocation can be done by yourself, or you can seek external

help. Professional help can be from SEBI registered investment
advisors. You can use some investment products that have in-built
asset allocation techniques (we explain this later).
Asset allocation is
found in
Shakespeare’s 16th
century play
Merchant of Venice,
Act I, Scene 1.
Antonio says: “Believe me, no: I thank my fortune for it, My

ventures are not in one bottom trusted, Nor to one place;
nor is my whole estate Upon the fortune of this present
year: Therefore my merchandise makes me not sad.”
58
Returns generated by different asset class
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Equity Equity Equity Equity Equity Gold Equity Gold Gold Equity Cash Equity Debt Gold Equity
71.9 10.7 36.3 39.8 54.8 30.1 75.8 24.1 31.9 27.7 9.0 31.4 8.7 12.0 8.5
Gold Cash Gold Gold Gold Debt Gold Equity Cash Gold Debt Debt Cash Debt Gold
13.5 4.0 22.3 20.8 16.7 9.5 19.7 17.9 8.2 10.2 8.3 10.5 8.2 9.8 6.1
Debt Debt Cash Cash Debt Cash Debt Cash Debt Debt Equity Cash Equity Cash Cash
5.4 2.7 4.6 6.0 8.0 8.4 6.6 5.1 7.9 9.1 6.8 9.2 -4.1 7.5 1.0
Cash Gold Debt Debt Cash Equity Cash Debt Equity Cash Gold Gold Gold Equity Debt
4.6 0.5 4.5 5.5 7.5 -51.8 4.9 4.7 -24.6 8.5 -19.2 0.6 -6.2 3.0 0.8
Average Average Average Average Average Average Average Average Average Average Average Average Average Average Average
23.8 4.5 17.0 18.0 21.7 -0.9 26.7 13.0 5.8 13.9 1.2 12.9 1.7 8.1 4.1
59
The first steps towards asset allocation needs to be linked to the
following:
1. The number of asset categories to be present in

your portfolio - There are both traditional and alternative asset
categories. In traditional segment, there are stocks, bonds, gold and
Asset Allocation
cash. In the alternative space, there are Real Estate Investment Trusts
(REITs), and Infrastructure Investment Trust (INVITs), among others.
Do remember the assets you select for proper allocation should be
regulated by the government authority and should have proper
markets where they can be bought and sold through registered
intermediaries.
2. The percentage of allocation to different assets - Will you

allocate 50% to stocks, and the rest 50% split equally among debt, gold
and cash? Or, will you keep 25% in stocks, 25% in debt, 25% gold and
25% in cash? The answer depends on the size of your portfolio, your
risk tolerance, your investment goals, and your time horizon
(how long you plan to keep money invested). Though at a fundamental
level, all assets are supposed to generate positive returns but every
asset is unique in some respect. For instance, stocks or stock-related
investments should be given a minimum of 3-5 years. Debt or cash can
have less than one year time horizon. If your investment time goal and
time horizon does not permit 5 years, your asset allocation plan should
not include stocks.
3. Asset allocation model - In static asset allocation, there is an

annual rebalancing exercise. It is split between different assets at the
same level before the year begins. The other models are tactical
allocation that adjusts daily, weekly or quarterly in response to asset
market changes. There could be strategic allocation that varies
annually if asset classes deviate a lot in terms of returns.
Why is asset allocation important?

Asset allocation helps weigh stocks, bonds and cash in a portfolio in a
way. The critical first step is portfolio construction. Too much in bonds
or cash will ensure lower volatility, but may not produce enough
60
returns to meet return objectives or keep ahead of inflation.
Conversely, too heavy a weight in stocks can produce higher rates of
return over time, but can also be subject to large swings in value
over shorter periods of time.
Advantages and disadvantages of asset

allocation
Everything has supporters and detractors. The major advantage is

that the mix of assets can possibly provide higher returns. The
portfolio adjustments can prevent losses from unexpected market
downturns and capture the momentum to increase the returns. In
addition, proficient portfolio managers can use dynamic asset
allocation to achieve returns higher than the average market
returns. In other words, the strategy can be utilized to beat the
market.
On the flipside, asset allocation can be hard to achieve given the

fluid nature of markets. Just because an investment portfolio has
followed asset allocation does not mean there will be success.
Entering the right asset at the right time and exiting the wrong
asset at the right time becomes extremely critical for dynamic asset
allocation to work. Let us find about both the pros and cons:
61
Advantages
The asset allocation investment strategy offers some
advantages, like:
1. Returns
Asset Allocation
The frequent adjustments in the mix of assets can possibly provide

higher returns on the investment portfolio. The portfolio adjustments
can prevent losses from unexpected market downturns and capture
the momentum to increase the returns.
2. Adjustment to market changes

Unlike the static asset allocation, dynamic asset allocation is highly
flexible. A dynamic strategy can quickly respond to market changes
and market risks.
Disadvantages
An asset allocation strategy is not flawless:

1. Transaction costs - There are frequent rebalancing of
weights inside the portfolio. This means transaction costs and
portfolio turnover can be higher.
2. Active management - While asset allocation involves active

management, the investment manager’s skill is extremely important

in maintaining a tight control of the investment portfolio. When
there is a change of manager, the skill level as well as execution
capabilities are liable to change too.
Need for diversification

Diversification is the practice of spreading your investments around.
This ensures your asset exposure to any one type of asset is capped.
This practice is designed to help reduce the volatility of your
investment portfolio over time.
One of the keys to successful investing is learning how to

62 balance your comfort level with risk against your time horizon.
If you invest your retirement corpus too conservatively at a young
age, you run the risk that the growth rate of your investments
will not keep up with inflation.
If you invest too aggressively when you are older, you could leave
your savings exposed to market volatility. This would erode the
value of your assets at an age when you have fewer opportunities
to recoup your losses.
One way to balance risk and reward in your investment portfolio is to

diversify your assets.
This strategy has many complexities, but at its root is a simple and
powerful idea. This means spreading your portfolio across several
asset classes.
Diversification can help mitigate the risk and volatility in your

portfolio . This can potentially reduce the number and severity of
stomach-churning ups and downs. Remember, diversification does
not ensure a profit or guarantee against loss.
63
Important
Points
to
Remember
from
Asset Allocation
this chapter
Asset allocation, not just investment selection, guides long-

term financial returns
Balance risk and reward for the long-term with asset
allocation.
Avoid too much exposure in one asset class.
All the assets at the same time do not move in the same
way. Goal of asset allocation is to protect you from
declines. Know your investment goal, investment horizon
and risk tolerance.
Take a measured approach if you opt for static asset
allocation.
Asset allocation is good for investors who simply don’t
have the skill or time to re-balance.
Despite best attempts, you may not become a roaring

winner.
Asset allocation is the best way to optimize risk and return
for long-term investors.
64
Chapter 5
Insurance Fundas
A few years ago the mere mention of the word insurance

brought to mind the spectacled insurance agent, who forced
you to buy policy every few years. Selling of insurance
may have changed, but the importance of insurance has
never changed. All of us need financial protection from the
unknown. With insurance, risks can always be covered.
In this chapter, we will learn about the basic of insurance,

why insurance should not be mixed up with investment and
much more. Read on.
Why Buy Life Insurance?
Most of us have an umbrella at home. We use an umbrella only for a
few weeks in a year, yet we keep it.
Insurance Fundas
All of us have different plans for future. But then life is full of
uncertainties. One may not be there tomorrow and plans mayremain
as plans. But, financial goals as parent, as wife/husband, or as son/
daughter will not go away. Even after a tragic event, our
responsibilities do not change.
Life insurance is a financial cover for protection from risks linked

with human life. Events like death, disability, accident, etc. can cause
financial harm. We are after all humans. Our lives are subject to
risks of death and disability. Cause can be anything, but the outcome
of such risks is always negative.
When a human life is lost or a person is disabled, there is a big loss

not just physically but also financially. There is loss of income to the
household. Though no human life can be valued, the loss of household
income can be compensated in a little way. This has to be done by
66 giving a monetary sum, either in lump sum or installments.
This sum could be determined based on the loss of income in future
years. This is how in life insurance the concept of sum assured has
emerged. Life insurance products provide a finite amount of money in
case the life insured dies during the policy term, or becomes disabled
due to an accident.
Life Insurance is needed :

1. To ensure that your immediate family has some form of financial
support in the event of your death.
2. To finance your children’s education and other needs.
3. To ensure that your loss of income due to serious illness or
accident is compensated.
For family, not your own

You may not realize this, but you buy life insurance because it is the
best way to shield your loved ones. Our death is a surety, but the time,
place and cause is not. But, our loved ones live after our death. So,
buying life insurance is a financial decision based on strong
emotions. It is about love and care, and the unknown future.
Yes, life insurance is about taking care of loved ones. Our life is about
meeting responsibilities. It is about keeping promises. The truth is
anyone who takes a decision to buy life insurance looks at it from the
family’s point of view. This is probably the only product where you do
not look at your own interests.
If you do not have an

insurance policy, you are
not alone. Insurance
penetration in India
continues to be one of
the lowest at 3.69%,
according to the annual
report by IRDAI.
67
People view life insurance as a powerful tool that protects your
spouse and children from the financial losses that can devastate
their lives.
Bought by living, for after death

Life insurance is about life after death. Not the life of the
Insurance Fundas
policyholder, but the lives of their loved ones including their family. It
is not about you. Life insurance is about what would happen should
anything happen to you. The life insurance you buy is to protect and
provide financial relief to those who will be left behind. They must
carry on life, unfortunately without you.
Life insurance is about them. While you are alive, you can ring-fence
them in such a way that financially they will forever remain strong.
They will miss you, but not financially.
An expression of love and caring

People celebrate Valentine’s Day every year. This day is about love. It
shows you care for each other. In a similar tone, life insurance is
about caring for your family. You want to ensure their financial
security if you are suddenly not around. Should you die prematurely,
the proceeds of a life insurance policy will help you keep the
promises. So, that your family and the people who are important to
you never suffer.
By protecting their financial future through a life insurance policy,

you’re enabling your loved ones to maintain the lifestyle that you
chose for them, even if something unexpected should happen to you.
Buy time for important people
When the main or lone breadwinner of a family dies, life can be

difficult. This is the absolute truth. Without income, expenses cannot
be met. Life insurance acts like an alternative to that loss of income.
Life insurance ensures that your surviving family will not be forced
to take tough decisions.
68
If a child, a spouse, a
life partner, or a parent
depends on you and
your income, you need
life insurance
- Suze Orman, Personal Finance Expert
At a time when your grieving family may not be in an emotionally

stable state to make good choices, life insurance gives survivors a
chance. It gives them time to adjust over time. Your spouse does not
need to find a new job right away. Your kids do not need to stop
college. You bought them time with the life insurance payout.
Who needs Life Insurance?

It may be argued that everybody needs life insurance. Yes, anyone
who has a family to support and is an income earner needs to buy
insurance. Our economic value goes beyond just a few months. In a
sense, we are like a bank fixed deposit that every month pays
interest to help support and fulfill family’s dreams.
The general rule about buying life insurance is that you should buy it
if you have dependents.
Who are dependents? A dependent is a person who relies on your

financial support. This may include your spouse, aging parents,
children, siblings and other relatives. These people may be younger
or older than the person whose life is covered by the insurance
policy. This is because the age of the dependent is not as important
as the purpose of the policy to replace your economic value, once
you’re gone.
Many people buy life insurance policies when they get married.
Others buy life insurance when they are expecting their first child. 69
Insurance Fundas
But spouse and children are among a whole range of dependents. One
should not wait till the last to buy life cover.
But, it is true that once you have reached retirement age, there’s a lot
less requirement for life insurance. By the time you retire, your
children are most likely financially independent. Once you are
retired, you would have no major financial obligations like home
loan. This is a time when you are living on retirement savings.
However, if you feel your spouse may need extra money to cover say,
unexpected medical and long-term care expenses, do maintain a life
insurance.
One of the most important reasons you should buy life insurance is if
you have a home loan. It is common to sign up for a 20-year home
loan. But what if you die in 10 years? There are special life insurance
policies that are tied directly to home loans. If the borrower faces
premature demise, the insurance policy repays the entire loan. This
will ensure you home stays with your family.
What Are The Types Of Life Insurance?

There are some basic types of life insurance policies. Each policy
type has the core function of providing a life cover. Let us have a
70 quick look.
Term insurance - Term plans are the most basic type of life
insurance sold. They provide life insurance cover with no savings or
profits component. They are the most affordable form of life insurance.
The premium you pay is the cheapest. A fixed sum of money, called the
sum assured is paid to the beneficiaries of the policy if the
policyholder expires during the policy term. This is called the death
benefit. If the policyholder survives, there is no pay out to the
beneficiaries.
Endowment plan - Endowment plans contain life insurance, but

they also have a maturity benefit. Unlike term plans which pay out the
sum assured only in case of death of the policyholder, an endowment
plan pays out the sum assured under both scenarios i.e. death and
survival. The premium charged is more expensive than term plans.
This too is a combination of insurance and saving. A certain amount is

kept for life cover. The rest is invested by the life insurance company.
In an endowment plan, the benefit is either in the form of death benefit
when the policyholder dies, or maturity benefit when the policyholder
outlives the policy term. To attract customers, endowment plans may
offer bonuses periodically. Endowment plans are commonly referred to
traditional life insurance. They carry lower risk than ULIPs, but offer
lower returns too. Do remember endowment products can save tax on
investment and their corpus is also tax-free.
Unit linked insurance plans (ULIP) - This is a combination of

insurance and investment. The premium paid towards ULIP is partly
used as a risk cover (insurance). Increasingly, a large portion of the
ULIP premium is being invested in funds for investment. One can
invest in different funds offered by the ULIP offering insurance
company depending on their risk appetite. ULIP funds can be
compared to mutual funds. However, costs associated with ULIP
structure make this investment cum insurance product competitive
only if you hold it for the long-term. Do remember ULIPs can save tax
on investment and their corpus is tax-free.
There are many similarities between ULIPs and mutual funds, but 71
ULIPs also contain insurance advantage. ULIPs are a combination
product of investment and insurance. Mutual funds are a pure
investment avenue, with no insurance benefits.
Money back policy - A money back policy is a variant of the

endowment plan. In this policy, you can get periodic payments over
Insurance Fundas
the policy term. Portion of the sum assured is paid out at regular
intervals. If the policy holder survives the term, he gets the balance
sum assured. In case of death over the policy term, the beneficiary
gets the full sum assured.
Money back plans are also eligible to receive the bonuses declared by
the company. Like other insurance products, money back plans save
tax on investment while their returns are tax-free for the
policyholder/ heir / nominee.
Why Insurance Should Not Be Mixed With

Investment?
When you put your money somewhere, it is okay to expect something
back. This is true especially for investment. So, is pure term
insurance an investment? No. Life insurance is not an investment. In
72
There are about
24 companies who
are engaged in life
insurance business
in India.
life insurance, if you die, your nominee/beneficiary gets the money. In

any investment, the return or benefit is enjoyed by the investor. In
case of life insurance, the death benefit by design is never enjoyed by
the policyholder.
You may ask then how are those insurance policies giving benefit to
policyholder? These are not pure term plans. In their bid to get
something out of the money given to the insurance company, many opt
for insurance policies that give you ‘something back’. This insurance
is not purely insurance; it has an element of investment in it. Term
insurance is the purest, cheapest and best form of life insurance. But,
any other form of insurance is costlier.
Remember the death benefit of a term life insurance policy is the only
advantage of such a policy. When you buy any other form of insurance
such as money back plan or endowment plan, you are not buying pure
insurance. You are paying for some insurance, and some investment.
With so many pure-play ways of investment already existing, there is
little reason in buying an insurance policy also for investment
purpose.
In a term plan, you pay a premium for covering a specific risk. If the
risk doesn’t happen, you lose the premium. This is okay, because you
pay a very small amount. But if the risk event happens, your nominee/
beneficiary gets the promised money. This simple arrangement is why
a term plan’s premium is very low. If you want to invest, you can go 73
ahead and do so in a pure investment vehicles like mutual funds,
direct stocks etc.
How Much Insurance Do You Need?

This is a question all of us face in the process of buying life
insurance. While deciding the extent or quantum of cover, it is
Insurance Fundas
important to remember that the main objective of insurance.

Insurance is bought to provide financial support to your family and/
or dependents. Naturally, the life insurance cover should be able to
support them for the longest period of time.
The process of how much insurance you need starts by identifying

your financial goals. Your goals will not vanish if you meet
unfortunate premature death. So, the life insurance cover will be the
sum of meeting these goals.
The following 2 factors will help you calculate:

1. Your current annual income - The first major factor to
consider in the process of deciding your life insurance quantum is
your current annual income. If you die, you will need to ensure your
family survives for at least 20 years. So, multiply your annual
income with 20. So, if your current yearly income is `5 lakh, multiply
by 20 and your life insurance cover should be minimum `100 lakh
(`5 lakh X 20).
2. Your current and future financial liabilities - The

second major factor are your present and future financial liabilities.
Present liabilities could be car loan, home loan, education loan etc.
In case you die early, your family cannot pay the loan EMIs along
with household expenses. So, add these loans to your life insurance
cover. Include future liabilities as well. For instance, a child’s
education or marriage -- these goals need to be met. So, estimate the
amount needed for such future liabilities and add to the calculation.
For instance, if your total outstanding loans are `35 lakh, your
insurance cover has to be `100 lakh plus `35 lakh. If your future
liabilities are worth `50 lakh, the total cover amount has to be `100
74 lakh + `35 lakh + `50 lakh = `185 lakh.
Why Are Insurance claims rejected?
Even after buying life insurance, many families discover that at the
claim stage their policies are worthless. Yes, their claims are
rejected. Let us find out what are some of the most common reasons
for rejection of life insurance claims.
1. Incorrect information given at the time of application

Insurance operates on the basis of trust. So, any form of
misrepresentation of data is bad for life insurance claims. Wrong
information about age, income, occupation, qualifications, lifestyle
and medical history will open the door for rejected claims in future.
2. Non-Disclosure of medical status

The wilful non-disclosure of previous and existing medical
conditions, operations, and surgeries leads to claim rejections. The
insurance company needs accurate information about your medical
history to calculate the policy premium. If you give wrong information,
the entire premise of the policy is based on falsehood. When this is
discovered, rejection of claim can happen.
3. Policy Lapse due to non-payment of premium

75
Do remember life insurance claims are settled only for active
insurance policies. This means the policy should be active. If you do
not pay premium within the allocated period, the life insurance
policy can be lapsed. This can happen if you have missed paying the
premium. If the policy is not active, then claims are not entertained.
Use the direct bank debit facility so that you never miss an insurance
premium payment.
Insurance Fundas
e-Insurance account
An ‘e-Insurance Account’ (eIA) is the portfolio of insurance policies
of a proposer/policyholder held in an electronic form with an
insurance repository. This e-Insurance account facilitates the
policyholder by providing access to the insurance portfolio at a click
of a button through the internet. This helps eIA holder to keep a track
of insurance policies (life as well as non-life) under one umbrella.
An e-Insurance account is offered ‘free of cost’ to the applicants.

There are no charges levied to the individual for opening the eIA.
There are no charges for maintaining the eIA. There are also no
charges for changing any details of the eIA.
76
eIA can be opened in two simple steps. eIA can be opened by filling the
eIA application either online at www.nironline.ndml.in/NIR or writing
the details on the physical form and submitting the same to an
Approved Person.
The eIA opening form and the details about KYC documents required
available are at www.nir.ndml.in
After filling eIA opening form - either online or in paper form, submit it
to Insurance company or Approved Persons along with the KYC
documents. Remember to carry original documents while submitting
application for the purpose of KYC verification and receive
acknowledgment.
Applicant can also submit the eIA opening form online on NDML NIR
system by accessing www.nironline.ndml.in/NIR
Typically, an eIA will be opened within 7 days of the receipt of the

application form from the applicant. Once an eIA is opened, you will be
able to get credit for all the insurance policies in the same account.
What is nsDL national Insurance repository

(nIr)?
NSDL Database Management Limited (NDML), formed in 2004, is a
wholly owned subsidiary of National Securities Depository Limited.
(NSDL). NDML has received an approval from the Insurance
Regulatory and Development Authority of India (IRDAI) for setting up
Insurance Repository. It is named as NSDL National Insurance
Repository (NIR).
NIR facilitates holding of all types of insurance policies in electronic

form in a single e-Insurance Account (e-IA). Thus, it does away with all
the lacunae of holding the insurance policies in physical form. It also
facilitates conversion of the existing paper policies into electronic
policies at the request of the policy holders.
77
NIR brings a whole host of facilities -
NIR is a platform based on the internet.
NIR allows you access based on login ID and password.
NIR permits single view for
all insurance policies at one
place.
Insurance Fundas
NIR allows online payment

of premium.
NIR has very user friendly
navigation which makes it
convenient for everybody.
NIR helps in sending alerts
and messages on
transactions and
modifications.
For the eIA policyholder, NIR brings 3 distinct benefits.

1. Policy Servicing - NIR enables single request contact details
update, premium alerts and payment for all insurers, increased
number of service touch points, and ease in registering bank account
details for premium payment and payouts.
2. Convenience - NIR facilitates one time Know Your Customer

(KYC) update, storage of policy in e-format, all insurance policies are
under one umbrella, and advantage of consolidated insurance

statement on an annual basis.
3. Claims - NIR allows you to not just have a single view of all
policies to an authorised person in case of death of the e-IA account
holder, but also is helpful for one time claim intimation.
78
Important
Points
to
Remember
from
this chapter
Life insurance is a financial cover for protection from risks

linked with human life.
Life insurance ensures that your immediate family has some
form of financial support in the event of your death.
Buy life insurance if you have dependents and liabilities.
Term insurance is the simplest, best and cheapest life
insurance available.
Insurance should not be mixed with investment.
Your life insurance cover should be able to support your
family for the longest period of time.
Life insurance claims can be rejected due to false/
incomplete information or non-payment of premium.
Open an ‘e-Insurance Account’ (e-IA) to hold policies in an
electronic form with an insurance repository.
Utilize the benefits offered by NSDL National Insurance
Repository (NIR).
79
NSDL PRIMER on Personal Finance Insurance Fundas
80
Notes:
Chapter 6
Know About
Tax Planning
Tax planning is one of the most important facets of

personal finance. People often joke that death and
taxes are two things no one can escape. There is a lot
of confusion attached to the word ‘tax. But with proper
knowledge and smart planning, taxes will not be the
complicated subject it seems. In this chapter, find out how
you can navigate the world of taxes and use different
methods to tame taxes.
Taxing times
Financial Year runs between April 1 and March 31 of next year.
Income tax is calculated for this period. Income tax returns are
assessed the year after the financial year has concluded.
Know About Tax Planning
Tax is a rule-based contribution to the government’s revenue system.

Taxes in India fall into two broad types: direct taxes and indirect
taxes. Direct tax is the one you pay on your
income/profit directly to the government.
Everyone who earns or gets an income in
India is subject to income tax rules. The
income could be in the form of salary,
pension or interest from a savings account
or a fixed deposit. The list is quite large.
You are also taxed when you make profit or
capital gain when you sell financial assets
like shares/stocks.
Let us first look at the different types of income considered by

the Income Tax department.
Income from Salary - Most employed people draw a salary. This

is their fundamental source of income. Gross salary is composed of
salary, value of perquisites (also called perks) and profit in lieu of
salary.
Income from Pension - Amount received as pension is

considered as an income.
Income from Other Sources - Many of us get some interest

income from savings bank account interest, fixed deposits etc.
Income from House Property - People who let out their house
for rent, do this to get income. So, rental received is income from
house property.
82
Income from Capital Gains - This is income from the sale of a
capital asset. Capital assets include mutual funds, shares/stocks, and
house property.
Income from Business and Profession - Doctors, lawyers

and chartered accountants are professionals who have income from
the profession. But, this is not limited to them alone. If you are self-
employed i.e. work as a freelancer or you run an independent
business, you can have such income. Also, life insurance agents and
tuition teachers can fall under this group.
Income tax slabs

Taxpayers in India can be Individuals, Hindu Undivided Family
(HUF), Association of Persons (AOP) and Body of Individuals (BOI),
and Companies.
We will limit our information to individuals like you. Individuals have

to pay tax at a different rate depending on their taxable income. Do
remember the tax rates apply to the portion of income falling in that
bracket. In Budget 2019, the government announced that individual
taxpayers with annual income up to `5 lakh would get full tax rebate
or up to `12,500. This means if your taxable income is `5 lakh, then
you effectively pay no income tax.
A salaried individual
with income of
`12,00,000 per year
can save up to
`46,800 by availing
tax deductions
through Section 80C.
83
INCOME TAX RATE CHART
Assessment Year 2020-21 - In case of an Individual

(resident or non-resident) or HUF or Association of Person
Taxable Income Tax Rate

Up to `2,50,000 Nil
`2,50,000 to `5,00,000 5%
`5,00,000 to `10,00,000 20%
Above `10,00,000 30%
Assessment Year 2020-21 - In case of a resident senior

citizen (who is 60 years or more at any time during the
previous year but less than 80 years on the last day of the
previous year)

Up to `3,00,000 Nil
`3,00,000 to `5,00,000 5%
`5,00,000 to `10,00,000 20%
Above `10,00,000 30%
Assessment Year 2020-21 - In case of a resident super senior

citizen (who is 80 years or more at any time during the
previous year)

Up to `5,00,000 Nil
`5,00,000 to `10,00,000 20%
Above `10,00,000 30%
84
Levy of income tax in India is
dependent on the residential
status of a taxpayer for each
financial year. Individuals who
qualify as a resident in India
must pay tax on income earned
in India and abroad. Those who
qualify as non-residents need to
pay taxes only on their Indian
income.
Capital Gain Tax

One must bear in mind that not all income can be taxed on income
slab basis. For example, capital gain income is taxed differently.
Capital gains are taxed depending on the nature of asset you own
and how long you had it. Yes, the holding period would determine if
the asset is ‘long term’ or ‘short term’ for the purpose of income tax
rules.
Under income tax rules, the holding period for all assets for different
assets is different. So, long-term for stocks/shares can be short-term
for debt/fixed income.
Let us understand how this works.
Real Estate - House property: If the holding period is more

than 24 months, then it is taxed at long term capital gains rate of
20%. Any holding period less than 24 months is assessed as short
term capital gain. This means the capital gain is added to your
taxable income and taxed at the rate basis your income slab.
Debt Mutual Funds - In case of real estate, the tax depends on

holding period i.e. 2 years. However, for debt mutual funds the
holding period revolves around 3 years. So, if your holding period of
debt MFs is more than 3 years, then the capital gain is considered 85
long-term capital gain. It is taxed at 20% (plus surcharge, if
applicable and cess) with indexation if units held for more than 3
years. Short term capital gains tax is applied at the income tax slab
rate if debt MF units are held for less than 3 years.
Equity Mutual Funds - The holding period for taxation purpose

is one year in case of equity MFs. Long term capital gains tax is
imposed at 10% (plus surcharge, if applicable and cess) without
indexation if equity fund units are held for more than 12 months. Do
note that you pay tax only when long term capital gain crosses `1
lakh in a year. Short term capital gains tax is 15% (plus surcharge, if
applicable and cess) if the units are held for less than 12 months.
Shares/Stocks - If equity shares listed on the stock exchange are

sold by you at profit within 1 year of purchase, you make short term
capital gain. The tax is applied at 15%. If equity shares listed on the
stock exchange are sold by you at profit after 1 year of purchase, you
make long term capital gain. As per current provisions, if you as
seller make long term capital gain of more than `1 lakh on sale of
equity shares, then the gain made will attract a capital gains tax of
10%. So, if long term capital gain is less than `1 lakh a year, there
will be no income tax. Do note, both short term and long term gain
tax rates are for an investor who has paid STT or Securities
Transaction Tax. Any sale/purchase which happens on a stock
exchange will be subject to STT.
ITR forms are attachment less

forms and, hence, the taxpayer
is not required to attach any
document (like proof of
investment, TDS certificates,
etc.) along with the return of
income (whether filed
manually or filed
electronically).
86
Income Tax Deductions
Tax planning is about using the deductions when you can. Of course,
many income tax deductions can be availed if you invest a good
amount. Don’t think too much about investing money to save tax
money. Such investments are, in fact, a double bonanza. Firstly, such
investments help you create wealth. Secondly, the tax that is saved
can become the seeds of future wealth.
Let us know some of the main deductions that individual taxpayers

can avail of.
Standard Deduction for Salaried - A salaried taxpayer can

claim a standard deduction of `40,000 per financial year.
Municipal Tax Deduction - A taxpayer having rental income

from a flat can claim a deduction of paying municipal taxes.
Section 80C Deduction - You can get a deduction of up to `1.5

lakh a year by investing in EPF, LIC, PPF, tax-saving MFs (ELSS) and
expenses incurred towards tuition fees etc.
Deduction on Bank Interest - Under Section 80 TTA, there is

up to `10,000 deduction from your gross total income for the Interest
earned on savings bank account. Do note this is not available on
interest income from FDs (fixed deposits), RDs (recurring deposits),
or interest income from corporate bonds. 87
House Rent Deduction - Under Section 80GG, there is a
deduction for rent paid where HRA (House Rent Allowance) is not
received by employee. The deduction available is the least of the
following - rent paid minus 10% of adjusted total income, `5,000/
month, or 25% of adjusted total income.
Deduction on Home Loan Interest - Under Section 24, up to

`2 lakh paid as home loan interest can be deducted from your gross
annual income. The principal portion of the EMI paid for the year is
allowed as a deduction, but that is under Section 80C. The maximum
amount that can be claimed is `1.5 lakh under Section 80C. There is
deduction in respect of interest paid towards home loan during pre-
construction period. However, the maximum eligibility for this
remains capped at `2 lakh.
Leave Travel Allowance Exemption - Leave travel assistance

or LTA received from the employer towards cost of domestic travel to
hometown or for vacation once every 2 years by rail/air for self and
family members is allowed to be claimed as exempt income. This
deduction can only be claimed by a person from the employer directly.
Medical insurance deduction - Under Section 80D, up to

`25,000 medical insurance premium per year paid by individual
taxpayers is deducted from gross income, thus reducing taxes. The
deduction is higher for senior citizens i.e. up to `30,000 per year.
Your Tax Credits and Where To Find Them

The Income Tax department has implemented an automated system.
This type of system helps in different ways. Firstly, not every income
tax that is deducted needs to be remembered by the taxpayer.
Secondly, you as a taxpayer can access details anytime with a few
clicks on a computer. Thirdly, the tax credit system automatically gets
updated. How does this benefit you? Let us explain in detail.
Income of certain nature suffers a Tax Deduction at Source (TDS)

itself. For instance, salary, interest, rent, commission and many of the
88 types of other income. As per norms, the person in charge of paying
such income will have to mandatorily deduct taxes before making
the payment. For instance, your monthly salary of `50,000 may see
a TDS of `5,000 and as a result you get `45,000 in hand. The `5,000
per month, or `60,000, is not money that is lost to taxes. It is only
TDS. If your tax dues are lower than `60,000 a year, a part or whole
of this TDS money will come back to your account. Banks deduct a
standard 10% tax before they give away the interest. Do note that if
you fall in the 20% or 30% income tax bracket, you would still have
to pay the remainder of the income tax.
Next, a taxpayer may be liable to pay advance taxes if there are

taxes payable. This is paid in advance and hence the name. Self-
employed people can do the calculation themselves and pay the tax
to the government by mid of every quarter. On or before 15th June,
pay 15% of advance tax. On or before 15th September, pay 45% of
advance tax. On or before 15th December, try to pay 75% of
advance tax. On or before 15th March, make sure you pay 100% of
advance tax.
Lastly, after TDS and advance tax, if there is still tax to be paid,
the same would have to be paid in the form of self-assessment tax.
All of the above taxes paid i.e. TDS, advance tax and self-
assessment tax are neatly organized in one document, namely
Form 26AS of the taxpayer. This Form 26AS is called the Annual
Tax Credit statement. It contains all the tax credits against your
PAN (Permanent Account Number) for any given financial year.
Form 26AS can be downloaded from
www.incometaxindiaefiling.com
You can also use your login for internet banking to check your Form
26AS. This facility is available to a PAN holder having net banking
account with many authorised banks. Viewing Form 26AS is
available only if the PAN is mapped to that particular bank account.
The facility is available free of cost. Login to your bank’s internet
banking website and click on the option provided to view Form
26AS. 89
Important Income Tax Sections
Let us have a look at some of the important income tax sections that
are very important when it comes to tax planning.
1. Section 80C -
Under section 80C, a deduction of `1,50,000

can be claimed from your total income. This means you can reduce up to
`1,50,000 from your total taxable income through smart use section 80C.
In case you have paid excess taxes in a financial year, but have invested
in Section 80C eligible avenues in the same year, you can claim a deduc-
tion of the same under 80C while filing your Income Tax Return. In this
way, by way of claiming these deductions, you can get a refund of all the
excess tax paid in your name.
i) Section 80CCC – This provides a deduction to an individual for

any amount paid or deposited in any annuity plan of LIC or any other
life insurer.
ii) Section 80CCD – The Section 80CCD (1) is allowed to an

individual who makes deposits to his/her pension account. Deduction
is allowed as a percentage of salary in case the taxpayer is salaried
or self-employed. For salaried, the maximum deduction permissible
under this section is 10% of the salary (basic + DA) or 10% of the
gross income of the individual. For self-employed individuals, this
limit is 20% of the gross total income with the maximum limit being
capped at `1,50,000 for a given financial year.
iii) Section 80CCD (1B) - This section has been introduced for
an additional deduction of up to `50,000 for the amount deposited by
a taxpayer to their NPS account. Do note that contributions to Atal
Pension Yojana are also eligible for this deduction.
iv) Section 80CCD (2) - The

additional deduction is allowed for
employer’s contribution to employee’s
pension account. Section 80CCD (2)
allows salaried individuals to claim
90 deductions up to 10% of their salary.
Income Tax Collection for
the year 1945-46 stood at
`57.12 crore. Compare it to
the Income Tax collection in
the country of `10.03 lakh
crore during 2017-18.
The term salary includes the basic pay and dearness allowance or is
equal to the contributions made by the employer towards NPS.
2. Section 80 TTA – This section is for deduction of maxi-

mum `10,000 and can be claimed against interest income from a savings
bank account. Do note that interest earned from savings bank account
should be first included in other income. The deduction can be claimed of
the total interest earned or `10,000, whichever is lower.
3. Section 80D – A deduction of `25,000 paid towards medical

insurance can be claimed for insurance of self, spouse and dependent
children. An additional deduction for insurance of parents is available
to the extent of `25,000 if they are less than 60 years of age or `50,000 if
parents are more than 60 years old. In case, a taxpayers age and parents
age is 60 years or above, the maximum deduction available under this
section is to the extent of `100,000.
4. Section 80DD – The deduction is for a disabled dependent.

This is available on expenditure incurred on medical treatment (includ-
ing nursing), training and rehabilitation of handicapped dependent
relative. You can also claim it on payment or deposit to specified scheme
for maintenance of dependent handicapped relative. Do remember
that where disability is 40% or more but less than 80%, there is a fixed
deduction of `75,000. But if it is severe disability (i.e. disability is 80% or
more), the fixed deduction amount is higher at `1,25,000. To claim this
deduction a certificate of disability is required from prescribed medical
authority. 91
5. Section 80DDB – This section is for deduction for medi-
cal expenditure on self or dependent relative. The deduction that can
be claimed is `40,000. Such deduction, for an individual, is available in
respect of any expenses incurred towards treatment of certain speci-
fied medical diseases or ailments for himself or any of his dependents.

In case the individual on behalf of whom such expenses are incurred
is a senior citizen, a higher deduction of up to `1 lakh can be claimed
by the individual taxpayer. Do note that any reimbursement of medical
expenses by an insurer or employer will be reduced from the quantum
of deduction the taxpayer can claim under this section.
6. Section 80U – This is for deduction for person suffering

from physical disability. A deduction of `75,000 is available to a resident
individual who suffers from a physical disability (including blindness)
or mental retardation. In case of severe disability, deduction of `1,25,000
can be claimed.
7. Section 80G – This section governs deduction for donations

towards social causes. The various donations specified under Section 80G
are eligible for deduction up to either 100% or 50% with or without restric-
tion as provided in section 80G.
Donations with 100% deduction without any qualifying limit include

donations to National Defence Fund set up by the Central
Government, Prime Minister’s National Relief Fund, National
Foundation for Communal Harmony, an approved university/
educational institution of National eminence, Zila Saksharta Samiti,
Fund set up by a state government for the medical relief to the poor,
National Illness Assistance Fund, National Blood Transfusion
Council, National Trust for Welfare of Persons with Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities,
National Sports Fund, National Cultural Fund, Fund for Technology
Development and Application, National Children’s Fund, Chief
Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with
respect to any State or Union Territory, The Army Central Welfare
Fund or the Indian Naval Benevolent Fund or the Air Force Central
92 Welfare Fund, Swachh Bharat Kosh, Clean Ganga Fund and
National Fund for
Control of Drug
Abuse.
Donations with 50%

deduction without any
qualifying limit
include to Jawaharlal
Nehru Memorial
Fund, Prime
Minister’s Drought Relief Fund, Indira Gandhi Memorial Trust and
The Rajiv Gandhi Foundation.
Donations to certain entities are eligible for 100% deduction subject

to 10% of adjusted gross total income. This list includes Government
or any approved local authority, institution or association to be
utilized for the purpose of promoting family planning, donation.
Donations to the certain entities are eligible for 50% deduction
subject to 10% of adjusted gross total income. They include
Government or any local authority to be utilized for any charitable
purpose other than the purpose of promoting family planning, and
any authority constituted in India for the purpose of dealing with
and satisfying the need for housing accommodation or for the
purpose of planning, development or improvement of cities, towns,
villages or both.
8. Section 80GGC – There is also deduction on contributions

given by any person to Political Parties. Deduction under this section 80GGC
is allowed to a taxpayer for any amount contributed to any political party
or an electoral trust. The deduction is allowed for contribution done by any
way other than cash.
Income Tax Calculation

Most of the income that your receive should form part of your income
tax return. There is exemption of certain incomes e.g. Long Term
Capital Gain (LTCG) on listed equity shares up to `1 lakh in any
financial year etc. But, the process to calculate income tax may 93
seem complicated at first if you are new at this. Follow this simple
step by step process and get a good idea.
1. Write down all your income in one place. This can in the form of
salary, rental income, capital gains, interest income or profits from
your business or profession. Kindly remove incomes that are exempt.
2. Now, deduct all applicable deductions available under every source

of income. For instance, salary income can deduct standard
deduction of `40,000. Or, you can claim business related expenses
from your business turnover.
2. Next, deduct all applicable exemptions under every head of income.

For example, the amount reinvested in another house property can
be claimed as an exemption from capital gains income.
4. Also, deduct expenses under Section 80C, 80D, 80TTA, 80TTB.
5. You will now arrive at your taxable income. Check the income tax
slab you fall under. This will help you calculate the income tax
payable.
94
Form 16 has a summary of all
the tax deducted by each
quarter. It also has all the tax
benefits and allowances you
have availed as a salaried
individual, Section 80C
deductions you have claimed through your
employer, and your taxable income after
allowances and Section 80C deductions.Having
a Form 16 makes e-filing your income tax
return extremely simple.
How to file an Income Tax Return (ITR)

online?
The Income Tax Return Form can be filed with the Income-tax
Department either by furnishing the return in a paper form, or by
furnishing the return electronically under digital signature, or by
transmitting the data in the return electronically under electronic
verification code or by transmitting the data in the return
electronically and thereafter submitting the verification of the return
in Return Form ITR-V.
Let us now understand a very crucial process of filing the ITR.

Today, there are many online platforms that help you file ITR. Here,
we will tell you how to use the Income Tax department website to file
ITR. Here is a step by step guide.
To Upload ITR, please follow the below steps:
1. Download the ITR preparation software for the relevant

assessment year to your PC / Laptop from the “Downloads” page
of the Income Tax department website.
2. Prepare the ITR using the downloaded Software.
95
3. Gather all the information regarding your income, tax payments,
deductions etc. This means you can pre-populate the personal
details and tax payments/TDS by clicking on the ‘Pre-fill’ button.
Compare with the information you have to ensure that nothing is
left out when it comes to this step.

4. Enter all data and click on the ‘Calculate’ button to compute the
tax and interest liability and final figure of refund or tax
payable. If some tax is payable. pay immediately and enter the
details in the appropriate schedule. Repeat this step until the
tax payable becomes zero. Generate and save the Income Tax
Return data in XML format in the desired path/place on your
PC/Laptop.
5. Login to e-Filing website https://www.incometaxindiaefiling.gov.
in/ with User ID, Password, Date of Birth /Date of Incorporation
and enter the Captcha code. Go to the e-File section and click on
“Upload Return” button. Do remember to select the appropriate
ITR, Assessment Year and XML file previously saved.
6. Upload Digital Signature Certificate (DSC), if applicable. Please
ensure the DSC is registered with e-Filing. Click on “Submit”
button.
7. On successful submission, ITR-V would be displayed (if DSC is
not used).
8. Click on the link and download the ITR-V. ITR-V will also be sent
to the registered email. If ITR is uploaded with DSC, the Return
Filing process is complete.
If the return is not uploaded with DSC, the ITR-V Form should be
printed, signed and submitted to CPC within 120 days from the date of
e-Filing. The return will be processed only upon receipt of signed
ITR-V. Please check your emails/SMS for reminders on non-receipt of
ITR-V.
Your ITR can be verified electronically through any of the

following means:
Via net banking
Via Aadhaar OTP
96 Via EVC on the Income Tax department website
esign Facility
eSign service is an online electronic signature service that can
facilitate an Aadhaar holder to digitally sign a document. NSDL
e-Governance Infrastructure Limited (NSDL e-Gov), a licensed
Certifying Authority (CA), is empaneled by Controller of Certifying
Authorities (CCA) to provide eSign services to Application Service
Providers (ASPs).
eSign is an online electronic signature service that can facilitate an

Aadhaar holder to digitally sign a document.
An Aadhaar holder can now sign a document after Biometric/One

Time Password authentication thus requiring no paper based
application form or documents.
Authentication of the signer will be carried out by the e-KYC services

of UIDAI and on successful authentication i.e., on receiving the
consent from the signer, electronic signature on the document/data
will be ascribed by eSign services of NSDL e-Gov.
eSign makes the process of digital signature very simple and hence,
end-users may adopt it at a much faster pace than the traditional
DSC.
There are 6 features of eSign. These include easy and secure way to
digitally sign documents anywhere,
anytime; facilitates legally valid
signatures; flexible and easy to
implement; privacy of the signer is
maintained; secure online service is
used; and immediate destruction of
keys after usage.
The 5 benefits of eSign are that it

promotes paperless environment, no
hassles of key storage and key
protection concerns, user 97
convenience, integrity with complete audit trail, and saves cost and
time.
Penalties for non-Filing of Income Tax return

Return of income which has not been furnished on or before the due
date specified under section 139(1) is called belated return. Belated
return of income is furnished under section 139(4).
Any person, who has not furnished a return of income within the time
period allowed under section 139(1) or within the time period allowed
under a notice issued under section 142(1), may furnish return for any
previous year at any time before the end of the relevant assessment
year or before completion of the assessment, whichever is earlier.
However, do remember that a belated return attracts late filing fees

under section 234F. Now, as per section 234F, late filing fees of `5,000
shall be payable if return furnished after due date specified under
section 139(1) but before 31st December of the assessment year.
In other cases, late filing fees of `10,000 is payable. However amount of

late filing fees to be paid cannot exceed `1,000, if the total income of the
person does not exceed `5 lakh.
Do note that if a person after furnishing the return finds any mistake,
omission or any wrong statement, then the ITR can be revised before
the end of the Assessment Year or before the completion of the
assessment; whichever is earlier.
If the original return was filed in paper format or manually, then

technically it cannot be revised by online mode or electronically.
Revised return can be filed online under Section 139(5).
Non-payment of tax attracts interests, penalty and prosecution. The

prosecution can lead to rigorous imprisonment from 3 months to 2 years
(when the tax sought to be evaded exceeds `25,00,000 the punishment
could be 6 months to 7 years).
98
Important
Points
to
Remember
from
this chapter
Financial Year runs between April 1 and March 31 of next

year.
Everyone who earns or gets an income in India is subject to
income tax rules.
You are also taxed when you make profit or capital gain
when you sell financial assets like shares/stocks.
Tax planning is about using the deductions when you can.
Form 16 has a summary of all the tax deducted by each
quarter.
A belated return attracts late filing fees.
Non-payment of tax attracts interests, penalty and
prosecution.
99
100
Notes:
Chapter 7
Prepare For
Retirement
Turning 60 years old is an uncertain time for most

private sector employees. Once they retire, the monthly
salary says bye-bye. Retirement is about finally getting
time, but it also marks a phase when your expenses have
to be funded by savings. Government sector employees
have pension, but vast swathes of private sector
employees do not. Let us tell you how to prepare for a
happy, peaceful and independent retired life.
Retirement Planning
Everything that has a plan is assured of an outcome. Planning is
important. Be it a 30 year or 54 year old person, retirement is a
definite event that will happen. The earlier you prepare, the better it
will be. At its core, what is retirement planning? It is all about
Prepare For Retirement
ensuring that after retirement, you can take care of your expenses
through a regular stream of money. Yes, retirement planning involves
disciplined saving. Then, you need to do vigilant investments for
building a sufficient retirement corpus. Lastly, there must be a
judicious drawdown in the post-retirement phase since
indiscriminate withdrawals can lead to the precious retirement
money getting over too soon. The best way to achieve all this is by
joining a pension/retirement plan at an early stage in one’s life. As
you work and save, your retirement corpus too rises. The day the
person retires from active work life, he/she gets a regular stream of
income in the form of pension for life.
You may have successfully gone through the many phases of life.
This would have involved overcoming many hurdles in your long
career and life path. Yes, there have been many ups and downs. But,
retirement is a big challenge. Why? In all the previous challenges,
102
you had income on your side. You knew you had the ability to earn
money. But, retirement is all about living without any salary. For
salaried people, this requires great mental adjustment.
But retirement is not an end. It is merely changing the speed of your

car from the fast lane to the slower lane. It is another phase in one’s
life. There are a few unique things in this phase. For instance,
retired people are older so healthcare expenses are higher. But older
people do not spend much time eating outside and partying, so
entertainment expenses are lower.
Preparing For Salary Loss

No matter how you look at it,
some sadness always descends
the day you get your last
salary. You know from next
month there will be no salary.
But, the beauty of the situation
is that you know for many
years that this day will come.
Planning for unexpected
things is much more difficult.
Planning for expected events
is relatively simpler.
For most people, regular

income comes in the form of a
monthly salary. Because of the regularity of income during our
working life, individuals usually adapt their spending with income.
For instance, if somebody earns `65,000 per month, their expenses
will always be near that figure. This is how our budgets work. This
happens for months, years and decades. Then, retirement arrives.
The habits stay. The lifestyle has become an integral part of your life.
This is why at some time before retirement, we need to have a proper
plan about what we are going to do with retirement savings. The plan
cannot happen when you hit retirement.
103
The entire plan is to replace pre-retirement salary with post-
retirement income. Here are four simple steps that can help you
arrive at an ideal retirement plan.
Step 1 - You need to calculate how much money you require to lead
a comfortable life in your post-retirement year Account for aspects

like increased medical/health costs.
Step 2 - Have a very clear idea of any amount to be received in a

lump sum at the time of retirement like EPF money.
Step 3- Choose the right retirement plan that enables you to meet
your post-retirement expenses. Combine all the available options so
that you have a diversified basket, cutting down reliance on one or
two options.
Step 4- Start investing early in the retirement so that you have

time on your side. It will allow you to enjoy the power of
compounding.
How Much Is Enough?

One of the most important tasks in retirement planning is to
calculate how much money you require. This calculation may seem
tough given that retirement may be 20-30 years away for a young
person. However, you still need a number. That will be your goal.
An easy rule of thumb to know how much is enough is to assume

that you’ll need to replace 70% to 90% of
your pre-retirement income. So, if
you’re earning `40,000 a month
(before paying taxes), you might
need `28,000 to `36,000 a
month in retirement income.
This would, theoretically, let
you enjoy the same
standard of living you had
104 before retirement.
With no significant social
security provisions such as a
state-sponsored pension, most
Indians in the middle- and high-
income groups seem to be
saving up for their retirement
on their own. A recent report by
Aegon Center for Longevity and
Retirement, says India leads the
way in retirement readiness
among the 15 countries
surveyed across Europe, the
Americas, Asia and Australia.
The following example tells you in greater detail how you can
arrive at the targeted amount needed as retirement corpus.
Retirement Age - 60 years

Current Age - 58 years
Life expectancy - Till 83 years
Years after retirement - 23 years
Current Annual Expenses - `1.80 lakh
Average Return on investment - 12% per year
Inflation per year - 5%
Inflation adjusted investment return - 7%
Total retirement corpus required - `15 lakh
How to Prepare for Retirement?

Leading a financially independent and happy retirement is not an
impossible task. In fact, many around you are doing it. Many more
will do it in the future. The blueprint of a retirement financial plan
needs to have 6 important steps:
105
Yesterday is history,
tomorrow is a
mystery, today is
God’s gift, that’s why

we call it the present.
- Joan Rivers, comedian
1. It is never too late to start. A retirement plan is only too late if

you never start at all. So, start today.
2. Deposit a large portion of everything you can into your

retirement plan. This will act like a seed for the retirement
tree.
3. You cannot spend your way to post-retirement bliss. This
means you need to reduce expenses and funnel those savings
into your retirement kitty.
4. While you aim for higher returns and tax savings with
retirement savings, do not invest in anything you are not
comfortable with.
5. Make your goals realistic. Make the mental adjustments
required to have an affordable lifestyle in retirement.
6. Sell financial assets that are not producing income or growth.
Focus and invest in income-producing assets.
Financial planning is the process of meeting your financial goals.

This can happen - 50% through the proper management of your
finances and 50% through execution of your plans. Make advance
provision for your anticipated financial needs that will arise in the
future. The entire game is having the right amount of money at the
right point in time in the future.
106
Retirement Plan Options
Let us discuss some of the useful retirement corpus building options.
Each of these can be used to create a retirement corpus that can fund
your post-retirement life. Ideally, one should use a combination of
them.
National Pension System - Known as NPS, this system is

administered and regulated by Pension Fund Regulatory and
Development Authority (PFRDA). The
NPS is a voluntary, defined contribution
retirement savings scheme. It is
designed to enable the subscribers to
make optimum decisions regarding
their future through systematic savings
during their working life.
To know more about NPS, refer to Chapter 3.
Employees’ Provident Fund - Many salaried professionals see a

portion of their salary going to EPF each month. The money goes into
Employee’s Provident Fund. EPF is a retirement benefit scheme
which is available to all salaried employees. EPF is looked after and
maintained by the Employees Provident Fund Organisation of India
(EPFO).
Many people are not currently

covered by pension systems and
for those who are, their level of
savings may not be adequate for
a comfortable retirement.
Because of India’s large informal
workforce, only one in eight
workers now earn a contributory
pension benefit of any kind.
107
From the moment you start working, you as well as your employer
start contributing 12% each of your basic salary into your EPF
account. The money from different EPF subscribers like you are
pooled together and invested by a trust. This pool generates interest
income. The rate of EPF is determined by the government and the
central board of trustees. For instance, the annual interest rate was
8.55% for the year 2017-18. For year 2019-20, the interest rate is
8.65%.
The compound interest that is determined by the government and

central board of trustees is paid on the amount which is credited to
the employee. This is done as on the 1st of April every year.
At the beginning of every financial year, you will have an opening

balance i.e. the amount accumulated till that point. The interest
income depends on your EPF balance.
There are some lucrative benefits associated with EPF contribution.

Your employer contribution to your EPF is tax-free. Your contribution
is eligible for getting you a deduction of up to `1.5 lakh under Section
80C of the Income Tax Act. The money that you accumulate in your
EPF i.e. the interest earned and the money that you will withdraw
108 after the mandatory specified period (5 years), all are exempt from
Income Tax.
For those who want operate EPF account online, knowing their
Universal Account Number is important. With UAN, accessing your
EPF account services like withdrawal, checking EPF balance without
the help of employers and PF loan application is easy. UAN stands for
Universal Account Number, which is a unique 12-digit number for all
individuals enrolled under the EPF scheme. The best part is, UAN is a
unique number assigned to each employee and remains permanent
even when you switch your employment.
UAN can be generated by logging in to the EPFO website. Once you

have registered your UAN, you will receive details like EPF balance
and other such information on your mobile phone via SMS.
For a salaried person, contributions to the EPF offer key advantages.

Firstly, you get safe returns as a maximum portion of EPF money is
invested in debt instruments available in the country. The government
guarantees safety of principal and interest earned. Secondly, EPF
offers friendly tax treatment. Your contributions are deductible under
Section 80C, interest earned is tax free and maturity proceeds are
also tax free.
Public Provident Fund - This is

a popular long term investment option
backed by Government of India. It
offers safety with attractive interest
rate and returns that are fully
exempted from Tax. Investors can
invest minimum `500 to maximum
`1,50,000 in one financial year and can get the facilities such as loan,
withdrawal and extension of account.
To know more about PPF, refer to Chapter 3.
Mutual Funds - There are special typeT of mutual funds that are
suited for retirement. Such MFs fall in the solution-oriented schemes
category. These retirement funds invest up to 40% in equities and the
balance in fixed income. The come with 5-year mandatory lock-in. 109
To know more about such mutual funds, refer to Chapter 3.
Insurance retirement plans - These are retirement plans with

a foundation in insurance. They require you to make contributions
into a pool of funds set aside for your retirement benefit in the future.
During the investment stage, insurance retirement plans can put
your money in a range of assets like equity, debt etc., in a bid to
generate returns so that the corpus is bigger. During the investment
phase, you can get tax benefits under Section 80C. During maturity
stage as well, corpus will be tax-free. However, income in the form of
annuity is not tax-free.
Do remember a retirement insurance plan also comes with financial

protection in the form of a life cover. This facility is missing in all
other retirement options. If you meet premature death, your loved
ones’ will get a life cover sum that should help the family survive. If
you survive until retirement age, the regular investments by you
would ensure a big enough corpus any which way.
All the insurance pension plans are divided into two parts: The first
part is accumulation where you (insured) pay the policy premium.
110 The second part is the distribution of the accumulated corpus. This
distribution can be in the form of a lump sum or a regular income
through an annuity plan after your retirement. Do remember that an
annuity plan is a type of insurance which starts paying you an
income right from the start as per the option chosen by you.
Pension/retirement insurance plans will most likely have an annuity

linkage at maturity stage. In case of immediate annuity option, the
retirement corpus would be used to get pension immediately. You
have to deposit a lump-sum amount in the form of buying the
immediate annuity and the pension will start immediately on the
basis of the amount invested by the policyholder. You can choose from
a range of annuity options available. In case of death of the
policyholder, the nominee/beneficiary will be entitled to get money as
per the option selected.
In guaranteed period annuity, the annuity/regular sum is paid to the

annuitant for a specific number of years as per this clause. Usually,
the annuity is given to the life assured for certain periods like 5, 10,
15 or 20 years. In life annuity option, the pension amount will be paid
to the annuitant until his/her death.
Senior Citizen Savings Scheme (SCSS) - This is a bank

deposit option primarily for the senior citizens of India. The scheme
offers a regular stream of income with the highest safety and tax
saving benefits. It is an apt choice of investment for those over 60
Life expectancy at age 60 is

already 18 years in India, up
from just 12 years in the early
1950s, when the EPF was set up.
By 2050, the UN projects that it
will reach 20 years. Over the
next few decades, the fastest
growing age group in India will
be persons aged 80 and over.
111
years of age, who do not want any market-linked return but prioritize
safety of return over anything else.
Investing in SCSS is an effective and long-term saving option. It

offers security and added features that are usually associated with
any government-sponsored savings scheme. SCSS is available

through many banks and post offices across India. Senior citizens of
India aged 60 years or above can use the retirement corpus to get a
pension type income through SCSS.
An individual can invest a maximum amount of `15 lakh, individually

or jointly in an SCSS account. The amount invested in the scheme
cannot exceed the money that has been received on retirement.
Hence, the individual can invest either `15 lakh or the amount
received as a retirement benefit, whichever is lower.
Do remember that SCSS is an Indian government-sponsored

investment scheme. SCSS return/interest is generally higher than
bank savings or bank FD account.
Tax deduction of up to `1.5 lakh can be claimed under Section 80C of

the Indian Tax Act, 1961. However, interest is taxable.
The tenure of SCSS investment scheme is flexible with an average

tenure of 5 years which can be extended up to 3 additional years.
Pradhan Mantri Vaya Vandana Yojana - The aim of the

scheme is to give senior citizens a form of regular pension. The
scheme can be purchased from LIC in offline mode at its branches,
and in online mode through this link https://eterm.licindia.in/
onlinePlansIndex/pmvvymain.do. The scheme provides an assured
rate of return per annum. The scheme can be purchased by paying
lump sum amount ranging from `1.5 lakh to maximum `15 lakh for
monthly pension.
The many benefits of Pradhan Mantri Vaya Vandana Yojana include

112 no maximum entry age, provision of assured pension, maturity
benefit of return of purchase price, premature exit is allowed and
98% of purchase price is given back, and payment of pension directly
to beneficiary bank account.
Do remember that there is no special tax benefit from section 80C.

Pension income remains taxable.
The Pradhan Mantri Vaya Vandana Yojana allows senior citizens to

have a systematic regular pension. This is done via an organised and
well-planned investment scheme. The flexibility when withdrawing
and availing loan facility in 3 years is a great customer friendly
feature offered in this scheme that allows senior citizens to use this
investment as an asset as and when required.
Share Dividend income - This is a traditional way of

generating a regular stream of income. Compared to other options,
this is slightly riskier given that dividends declared by a company,
however big or strong it be, does not come with a guarantee.
Dividends can stop. Dividend income can be generated annually or
half-yearly depending on the company that declares the dividend.
Typically, PSU, foreign firms in India and old private sector
organizations declare regular dividends.
To generate a good regular income from dividends, one needs to

build a sizeable portfolio of stocks.
This cannot be done overnight. It
will take time and practice to
prepare a portfolio of dividend-
paying stocks.
Reverse Mortgage - Reverse

mortgage is a relatively new way of
financing against real estate. It is
useful as a retirement planning
tool. A reverse mortgage enables a
senior citizen to receive a regular
stream of income from a lender (a 113
bank or a financial institution)
against the mortgage of his/her
home. The borrower (i.e. the
individual pledging the property)
continues to own the property
and is allowed to reside in the

property, till the end of his/her
life and receives a periodic
payment on it.
The borrower is not expected to service the loan during his lifetime.
Upon the death, the house goes to the lender.
Resident Indian senior citizens are given reverse mortgage loans

for a tenure depending on the age of borrowers. While calculating
the reverse mortgage amount, the lender factors in your age, the
value of your property, current interest rates and the specific plan
chosen. Also the residual life of the property should be at least 20
years.
The valuation of the mortgaged property is done at periodic

intervals by the lender. Currently, big nationalised banks and some
private banks offer reverse mortgage loans. Like any other loan,
reverse mortgage also attracts charges such as a processing fee.
There are two variations of reverse mortgage loans - the regular

version and the reverse mortgage loan-enabled annuity (RMLeA),
which is like a pension product that pays a fixed amount for a
lifetime.
Final Thoughts on retirement Income

With rising life expectancy in India, post-retirement life span is and
will now be longer than what it was. Life expectancy in India has
risen from 53-54 years in 1980 to 78 years in 2015. That is a big rise
in the number of years one would survive. Living longer is good, if
you have resources i.e. money. But even if you have money, annual
price rise or inflation of 5% can make a dent into retirement kitty.
114
Plan for medical insurance - Large expenses like medical
contingencies, which have more inflation, need to be accounted for.
Do not repeat the mistake of many who plan retirement without any
medical insurance. With health costs rising fast, recognize this risk
and get it covered. In its absence, a larger pool of funds will have to
be kept aside for medical emergencies in the post-retirement.
Traditional and modern mix - Among traditional investment

choices for senior citizens, there are bank fixed deposits, Senior
Citizen Savings Scheme (SCSS) and National Savings Certificate
(NSC). Interest rates on these are safe and do not show sharp swings.
Yet, retirement corpus should not be just traditional avenue focused.
Consider investing in stocks, MFs, insurance plans and pension
schemes from the government like NPS. They will give better returns
for more risk, enhancing your corpus or helping you reach goals
faster.
Physical assets reliance - Many individuals buy fixed assets

like flat or land for post-retirement purpose. Yes, traditionally, most
Indian families invest in a house. But, houses/homes are not really
dependable in terms of generating a fixed pension-like payment. You
can take a reverse mortgage on the house, but factors like low
payout, lack of understanding and complex processes are
dampeners. Do not make real estate the focal point of your retirement
planning. Similarly, gold cannot be your post-retirement saviour.
Build a judicious mix of fixed-return and market-linked products to
grow your existing savings pile and boost wealth.
115
Important
Points
to
Remember
from
this chapter
Never too late to prepare post-retirement income.

Save a lot, but ensure investments.
Go for a diversified approach where traditional and modern
investment avenues are mixed.
Don’t rely on real estate and gold for post-retirement
income.
Explore reverse mortgage loans to get retirement income
from your home/house.
Account for general inflation and medical inflation when
calculating how much is enough for a happy retirement.
Pay attention to the taxation aspect when generating regular
income post-retirement.
Stocks generate higher returns that beat inflation; lower risk
by investing for the long-term.
116
Chapter 8
Handing Over
Your Legacy
Individuals and families are putting a lot of effort to save

and invest. But, they are not preparing a solid plan when
it comes to transferring the wealth to the next of kin. After
the death of an individual, his/her closest people realize
that they have been unaware of the financial picture,
investments etc. It is important to hand over the legacy in
a planned way. In this chapter, let us understand how you
can accomplish this task.
Changing times
These are exciting times for Indians and their families. Promising
opportunities and wealth creation offer plenty of prospects for
sustained growth and asset diversification. Most families are
Handing Over Your Legacy
witnessing better times. Indian families are built on a strong

foundation of values, culture and tradition. It is ensured that good
values are passed on through generations.
Like each individual, each family has a vision for the future and is
fully committed to the success. However, the demise of the main
person in the family can lead to disputes. it is very likely that family
members belonging to the current and next generations have
conflicting ideas. Hence, it is important to understand the needs of
the next generation and how these can be satisfied. Such nuanced
understanding will avoid disputes.
Succession planning is the biggest threat facing all families. The

threat is your investments and assets will not be properly handed
over to the desired persons due to lack of preparation. The transfer of
ownership and planning the succession process is important. But,
this is the most difficult challenge that families encounter. If
succession change and generational change are not properly
addressed, this could easily result in the fragmentation of family.
There are multiple questions that need to be answered while
planning for succession. It is not a one-time event but an evolutionary

process.
Indian families are deeply emotional. Given the fabric of Indian

families, conflicts are inevitable. However, managing conflict is the
key here.
Estate Planning
You have worked hard throughout your life and built assets. Like
most, you probably did this to ensure financial safety and security of
your loved ones just in case you met with an unfortunate event. But
do you know what would really happen to these assets on your
118 sudden death? Have you given any thought to it? How would your
family pick up the pieces and live the life you have planned for them?
The answers to these questions lie in estate planning. You do not

need to have crores in assets to plan. Yes, estate planning is not only
for the rich. Even the middle class must do it. Estate planning is not
for the old. Even those in their late 30s and early 40s can do it. One
thing is very clear. Planning your estate is not an exercise to be
looked after retirement. Estate planning, when done well, will ensure
passing down of your assets from one generation to another in a
seamless manner.
Busting Myths
Words like ‘estate planning’ are often less understood. This is also a
reason why there are so many myths associated with them. Let us
have a look at a few of them and bust the myth with the truth.
Myth - Estate planning is for the wealthy.

Truth - Estate planning is essential for all. The process of estate
planning is not dependent on your monetary assets.
Myth - Estate Planning is a job after retirement.

Fact - Life is unpredictable. The earlier you plan, the better it is. 119
Myth - My legal heirs are mature and they can handle any problem
easily.
Fact - Disputes happen over money. By doing proper estate planning,
you remove all chances of a dispute by putting across your wishes
explicitly.
Myth - Nominee will be the beneficiaries of assets.

Fact - The nominee is not always the owner of the assets. The owner
of the assets will be the legal heir. A nominee is merely the trustee of
assets.
Do’s and Don’ts of Succession Planning

Unfortunately, many people put off their succession planning. Death
and poor health do not come with a warning. If you own movable or
immovable assets, you must realize the need to have a succession
plan. It is not about your age; it is about the assets.
1. Despite intelligence and practical experiences, most people refuse

to believe that their family members will not fight over their assets.
This is especially true when you ask them what happens after they
are gone. Being optimistic is great, but do not be blind about the
realities of life.
2. Many hold assets in joint names with a spouse. Most erroneously

assume that if the husband dies then the wife on an automatic basis
will become the owner.
This is not right. If the
husband dies without
writing a will then his
share will first go to his
surviving class-1 legal
heirs i.e. his wife,
children and mother.
They will have equal
rights on his share in
that asset.
120
3. Many people have acquired precious assets over time. But, do you
have a list of what you own? Very few people have ever listed their
dealings and updating the assets they own. Not even their closest
people in the family or outside know the assets. Make a list and
consider who should receive what share.
4. Succession planning should involve legal professionals. If you go to

a doctor when you are unwell and seek the help of an electrician
when the fuse burns, why not consult and use the services of a
lawyer when you need to plan your succession? Do not attempt to do
your own estate planning. You can make serious errors. Such follies
will leave long-lasting negative effects on your family’s life after you
are gone.
For her, with love

Estate planning has a crucial role to play in the lives of many people.
But when it is about women, it becomes much more important.
Women are known to be economically vulnerable especially because
many of them are financially dependent. In the Indian system, a
history of inadequate economic resources make women dependent
not only on their parents, spouse but also their children. Since the
marriage norms mean that wife is generally younger than the
husband, it can be said with a lot of surety that an average woman
will outlive her husband. After the demise of the spouse, she needs to
become individually responsible for managing all financial and other
assets at some point in her life. This is a sea change because for
years it was her husband who managed everything.
Many would argue houses, land, cars, and shares being registered
under women’s names. Do women actually control the assets
registered under their name? We know the answer to that question.
Women may be the legal beneficiary of such assets, but quite often
she is just a paper signatory. The males in her life control those
assets; she is just a decorated owner. After the death of husband,
social hierarchy and the weight of traditions can make it extremely
difficult for them to exert their ownership. The modern woman who
works is not different in this respect. Even though she has a 121
The Married Women’s Property Act,
1874 (MWPA) was created to secure
the assets owned by a woman
against her husband, his creditors
and relatives. If you’re buying a life

insurance policy under the MWPA
for the benefit of your wife and
children, the sum assured will
always be their property.
professional career and earns her own money, she has been made to
look up at male relatives and acquaintances for taking important
financial decisions like investments, taxation, and personal finance.
Without a proper ecosystem, women can never exert their right and
manage assets. This is why it is the duty of every responsible
husband to plan their estate in such a way that his loving wife never
faces any legal trouble after his demise.
Everybody has an estate. You need not be a millionaire. Your estate

comprises your home, property, investments, insurance, bank
accounts, retirement plans and direct/indirect interests in businesses
if any. Estate planning safeguards your assets should you no longer
be able to actively handle them. This also creates a protective ring

around your wife’s life so that she can take control of the assets
chosen by you.
Back to Basics
What is estate planning? It refers to the passing assets and
investments down from one generation to another, or from one person
to another. As the owner, you decide how much of your estate you will
pass on to whom and how, after your demise. It is accepted by the
laws of the country.
What happens if death happens without a legal heir? It is easy to

122 understand that such a situation can leave various complications for
your family. Firstly, there could be serious disputes amongst family
members over the estate. This can harm the peace and happiness in
the family. Opportunistic people may create more rifts and divide
family members.
Where There Is A Will, There Is A Way

One of the proper ways to do estate planning is writing a will.
What is a will? It is a legal declaration of the intention. The one who

makes the will is called the testator. The will tells people what the
testator wishes to do with respect to his/her property after death. So,
a will basically tells people what will happen to their assets after they
die.
Who can make a will and when?

Surprisingly, many do not know that a
will can be prepared by anyone who is 18
years of age. You need to be of sound
mind, and free from any coercion, fraud
and undue influence when you wrote the
will. You are never too young to prepare
a will. A will bypasses unwanted
complications. It ensures that your
family will have a peaceful life.
Can you revise a will? Yes, you can always revise a will. It can be
done an unlimited number of times but the process needs to be
legally binding.
When to make a will? The truth is that people become incapacitated

with old age. Some even lose their mind. The ability to comprehend
greatly reduces. A will cannot be made at that stage. That is why it is
advisable to prepare your will at a relatively young age when you are
physically and mentally fit,
Who should make a will? There are 3 types of situations where a

person should definitely make a will. If you are married or in a 123
relationship, a will can give financial security to your partner, and
give him/her a better future since you have planned it well. When
you are married and have children along with dependents, writing
a will is a good idea so that everybody gets their due. This will
avoid disputes among dependents. If you are diagnosed with a

terminal illness and if you haven’t written a will, this is the best
time to do it.
What assets covered by will? All movable as well as immovable

assets can be included. This means real estate, fixed deposits,
money in bank account, stocks/securities, bonds, proceeds of
insurance policies, retirement benefits, art, precious metals,
goodwill, digital assets like photographs, blogs, websites, email
accounts and social website profiles can be covered under a will.
Simply put, any asset that the testator has ownership over, at the
time of death, can be included and distributed as per the desire of
the person.
Important Terms
Intestate - A person who dies without leaving a ‘will’ is said to
have died intestate. Without a will, all legal heirs are entitled to the
assets of the deceased.
Testator - A person who makes and executes a will.

Testatrix - A female who has made a will.
Beneficiary - A person who is entitled to the asset under a will.

Even a charitable organization or a public or a private trust can be
beneficiary.
Executor - A person who is appointed to look after, administer

and distribute the assets of the testator upon testator’s demise.
Probate - The process to establish that a will is valid. The court

certifies the will is valid or not.
124
As per law, a nominee is a trustee,
not the owner of the assets. In
other words, a nominee is only a
caretaker of your assets. The
nominee will only hold your
money/asset as a trustee and will
be legally bound to transfer it to
the legal heirs. For most
investments, a legal heir is entitled
to the deceased’s assets.
The Best Written Will

Badly written wills are a problem. Hence, it is important to write a
will properly. Let us have a look.
A proper will contains all the necessary identifiers of the testator.

Identifiers can go beyond just name, age, religion, address.
A proper will must have a declaration made by testator to the effect

that the present will is his/her last will. They must say all other
earlier wills and codicils are revoked. A codicil is an addition or
supplement that explains, modifies, or revokes a will or part of one.
Clear information about who are the beneficiaries and what is their
relationship with the testator must be mentioned in the will. It should
be clearly written what assets will be given to which beneficiary and
in what proportion. Say, land admeasuring 2 cottahs will be
distributed equally i.e. 50% each to two sons.
A well-written will must mention that it will take effect after the death
of the testator. Also, do mention who will be responsible for the
execution of the will (i.e. executor’s name).
Do note that a will must be attested by a minimum of two persons as

witnesses. They have to put their signatures in the presence of the 125
testator. The testator should sign the will in the presence of the
witnesses. Beneficiaries cannot be the witness!
The process of writing, executing and witnessing the will should

ideally be video graphed. A video recording of the will is admissible

by way of evidence.
It is also important to ensure that the will is registered with the sub-
registrar of assurances.
8 benefits of Will
1. A proper and fair will avoids disputes within the family
2. A will can make provisions for minor children and children with
special needs
3. A will can bypass relatives who may be troublemakers in the
future
4. A will enables smooth transfer of assets
5. A will helps you choose your executor
6. A will helps specify funeral wishes
7. A will prevents legal grief
8. A will brings in peace of mind and happiness
for your relatives after your death
NSDL Will Service

NSDL e-Governance Infrastructure Limited and Warmond Trustees

and Executors Private Limited (Warmond) have partnered to offer
services pertaining to succession planning such as Personalised Will
(Will writing service), Executorship and Trust Services, through a
web-based portal ‘EzeeWill’ (www.ezeewill.com).
A panel of experts has been deployed for preparation of the Will

document based on the interaction with the client.
EzeeWill Service objective is to provide a friendly, affordable and

trustworthy option for assisting its clients in succession planning and
drafting their Will in a manner, that their hard-earned wealth is
126 passed on to their family easily.
In absence of estate planning, if one
dies intestate (in absence of will),
assets are than distributed amongst
the family members (legal heirs) as
per succession laws of the religion
that the person belongs to. Example
of succession laws applicable as per
religion are Hindu Succession Act,
Muslim Shariat Laws, Parsi
Succession Act amongst others.
Advantages of availing EzeeWill services for preparation of Will:

• Easy Process for creating a Will through your mode of choice.
• Will drafted by Legal experts having adequate experience and
specialization of the subject matter.
• Respects the confidentiality of your Personal Data.
• Simple and Convenient way to ensure wealth distribution as per
your wish
For more information and queries about EzeeWill, visit

www.ezeewill.com
Trusts For Estate/Succession Planning

Instead of wills, many today are considering setting up trusts to
handle the tricky situation of estate/succession planning.
One can bequeath all the assets upon his/her demise to a private or a
charitable trust under the will. In this example, a trust swings into
action and commissions its activities upon the demise of a person. A
trust can be set up for the benefit of family members or such persons
who will testator desires to include as his/her beneficiaries.
A trust is considered as a good route to address succession-related

issues on a long term basis for the next generation. Simply put, a
trust is an agreement between the settlor and the trustees to
transfer the legal ownership of assets/property to the trustee. There 127
is an obligation that the transfer of legal ownership is only held for the
benefit of the beneficiaries as specified in the trust deed.
A trust has four main components.

1. Author of the Trust - Settlor: This is the person who settles

the trust or is the author of the trust.
2. Trustee: An individual or an entity appointed by the settlor to

administer the trust. The trustee accepts the responsibility to act as
trustee.
3. Beneficiary: The person or persons for whose benefit the trust

is created.
4. Trust-property or trust money: This can comprise movable

and immovable property viz. cash, jewellery, land, investment
instruments etc.
A trust should have the following things to ensure justice is done.

I) At the outline, the purpose and objects of the trust should be
properly written
II) The beneficiaries of the trust must be clearly specified
III) The identifiable property should be properly transferred under an
irrevocable arrangement to the beneficiaries
Different types of trusts

There are various types of trusts classified as per the Indian laws.
The type of trust usually depends on the purpose they have been
formed.
Public Trust – Such a trust is constituted wholly or mainly for the

public. Such trusts are in the nature of religious or charitable.
Private Trust – Such a trust is constituted for the benefit of one or

more individuals. A private trust is governed by the Indian Trust Act,
1882. However, if such a trust is created by a will, it is usually
128 subjected to the provisions of the Indian Succession Act, 1925.
Wills vs. Trusts
We have told you a lot about why, how and when about wills. So, you
may ask why are we talking about trusts. There are some clear
reasons why trusts are often better than wills in certain situations.
1. By adopting a trust route, a person can avoid the issues which

may arise in a will. In a will, questions are always raised about
the authenticity of the will, mental soundness of the person when
they made will. Allegations of forgery also take place when it
comes to considering wills. Many family members tell courts that
the will is not proper or signature is wrong etc. Clearly, the
grounds on which a will can be challenged are many in number.
2. Wills can take a lot of time to be executed. Yes, the probate on a

contested will could take several years. The entire process is
expensive and goes on for a long time. Both the cost and time
involved make such a route disadvantageous.
On the other hand, a trust deed is never disclosed to anyone. It is

highly confidential. Also, in most cases, there is no need to obtain
probate even.
129
Many wrongly believe that
nomination and joint ownership is a
way of estate planning. Both these
means can be usually ineffective and
legally disputable. It is important to

know that nomination and joint
ownership are both superseded by
succession laws. Most family
disputes have arisen owing to
nomination / joint ownership being
different individuals compared with
legal heirs.
Creating a private trust resolves most of the problems that occur in

case of a will. So, private trust can turn out to be beneficial in the
management and distribution of assets. One could argue a trust
structure is more efficient as well.
Although the best way to bequeath the assets to the beneficiaries

appears to be by creating a private trust, experts say that it is ideal
to have a combination of both - have a will and a trust.
A private trust has its own set of limitations.

1. The cost paid towards stamp duty in case of transfer of

immovable property differs depending on the state.
2. The success of a trust depends upon the right selection of the

trustee. A wrong selection can defeat the entire purpose of
setting up the trust.
3. Drafting a trust deed is more difficult than writing a will. If not

drafted clearly, a trust deed is difficult to execute.
Select the right estate planner

The role of an estate planner in estate planning is very vital. They
130 form the important spoke in the wheel of estate/succession planning.
The qualities of an estate planner cannot be judged in a single
meeting. Meet them for a few times and deeply engage with them.
Find out the following about the estate planner to know more about
them. It is important to know more about them before, than leaving the
job to people about whom you know very little.
1. Principal area of their practice.

2. Apart from will writing, assess their level of expertise in
instituting a trust.
3. The total years of experience of the individual and the firm.
4. The fees involved - fixed or on time/effort basis.
5. List of all services and separate fee chart.
6. Try to get customer testimonials. This will help you get a sense of
the service.
7. Do your own research and reference checks.
A good estate planner must have the following qualities. We will

explain why.
I) Righteous individual - A good estate planner should be a

person with solid integrity and impeccable ethics. They have to be
morally upright. They will never ever compromise safeguarding and
serving your interest as a client.
II) Proficient - Estate planning requires knowledge, skill, and

experience. They should display an advanced degree of competence in
estate planning laws and practice. A small mistake or ambiguity
during the documentation can cause big problems later.
III) Listener - The ability to listen and comprehend the needs of

the testator is very important. A good estate planner will always hear
more and speak less. They will display sensitivity and the ability to
comprehend. It is important to listen to the client to give proper
advice.
131
Important
Points
to
Remember
from
this chapter
Plan your estate when you have time.

Discuss and share your thoughts on transfer of wealth.
Do not assume family members will not fight.
Disclose your assets to a few selected near and dear ones.
Make a will and revise it once in a few years.
Follow the due process and seek legal help with will.
A trust can be a good alternative, but do know its pros
and cons.
Life is unpredictable and so do not leave estate/succession
planning for post-retirement days.
132
Chapter 9
How To Start
Investing?
Armed with the realization that you must save and invest,
the first stumbling block for many people is ‘how to invest’.
They may know about mutual fund, shares, stocks, and
bonds, but one need to possess an understanding of the
documents and the processes that need to be followed to
enable investing. In this chapter, we will tell you about the
different ways one can start investing and how you should
go about it.
KYC
What is KYC? It is an acronym
for Know Your Client. Be it
online investing or offline
investing in mutual funds,
How To Start Investing?
investors need to be KYC

compliant before they are
allowed to enter the lucrative
world of funds.
KYC norms track the legality of money used by an investor in an

investment. KYC is a one-time process. Every first-time mutual fund
investor needs to follow KYC norms to be able to invest in a mutual
fund.
Proofs required to be KYC compliant

1. Identity proof - You can submit PAN card along with your latest
photograph. This document is compulsory in most cases. You can use
any one among passport, Aadhaar card, driving license, Voter ID or
PAN card with photograph for furnishing identity proof.
2. Address proof - Submit anyone of the following:

• Voter ID copy
• Driving License copy
• Passport
• Aadhaar card copy
• NREGA job card
In case of the correspondence address and permanent address are

different, proof for both addresses needs to be submitted.
To check your KYC status online, visit either of the following:

1. www.kra.ndml.in
2. www.karvykra.com
3. www.cvlkra.com
4. www.camskra.com
134 5. www.nsekra.com
You may also be required to submit cheques for MF investment.
Those investors who want to do Systematic Investment Plan (SIP)
investing, will be required to submit bank mandate documents that
will ensure on a particular date MF investment amount is debited
from the bank account and credited into MF account.
Don’t have PAn?

Most of the newcomers to investing field realize they do not have a
PAN. The Permanent Account Number is essential for
all entities and individuals.
PAN is a unique 10-digit

alphanumeric identity. This is
allotted to each taxpayer by the
Income Tax Department under the
supervision of the Central Board of
Direct Taxes.
But you do not need to fret if you do not have a PAN. You can easily
get your PAN. NSDL e-Gov accepts PAN applications on behalf of
Income Tax Department (since June 2004) through its chain of TIN-
Facilitation Centres (TIN-FCs) and PAN centres set up across the
country. Further, NSDL e-Gov also provides a facility to apply for
PAN over the internet through its online facility.
There are two types of PAN applications.

1. Application for allotment of PAN - This application form is used
when the applicant has never applied for a PAN or does not have PAN
allotted to him. An applicant may visit ITD’s website www.
incometaxindia.gov.in to find whether a PAN has been allotted to him
or not.
135
Following forms have been notified by ITD (w. e. f. November 1, 2011)
for submitting applications for allotment of new PAN:
FORM 49A: - To be filled by Indian citizen including those who

are located outside India.
FORM 49AA: - To be filled by foreign citizens.
2. Application for new PAN Card or/and changes or corrections in

PAN data - Those who have already obtained the PAN and wish to
obtain the new PAN card or want to make some changes/corrections
in their PAN data, are required to submit their applications in the
form prescribed by ITD:
how to Apply for PAn?

The applicant may either make an online application through
www.egov-nsdl.co.in/pan_card_issues.html or submit physical PAN
Application to any TIN-FC or PAN centre of NSDL. As an applicant,
you should go through the instructions and guidelines provided in the
application form before filling the form.
Applicant should ensure that the necessary supporting documents

(as specified under Rule 114 of Income Tax Rules, 1962) are
submitted along with the application. The details of the documents
required are also provided in the application form. Name mentioned

in Application form and Name in the Proof of Identity / Proof of
Address should match.
Applicants may obtain the application forms from TIN-FCs, PAN

centres, any other vendors providing such forms or can freely
download the same from www.egov-nsdl.co.in/pan_card_issues. html
NSDL forwards the application details to ITD after digitization of the

form submitted.
136 In case of an application for allotment of PAN (Form 49A), a new PAN
is allotted by ITD. NSDL prints the PAN card after allotment of PAN
by ITD and dispatches the same along with an allotment letter to the
respective applicant.
In case of ‘Request for New PAN Card or/and Changes or Correction

in PAN data’ the application request is forwarded to ITD for an
update of the database and after confirmation from ITD, a new PAN
card is printed and dispatched to the applicant.
All the communications are sent at the address mentioned as

‘address for communication’ in the form. Applicants, specifying valid
e-mail ID in the application, are informed about the new PAN
through e-mail in addition to the PAN allotment letter. Applicants are
advised to mention their telephone number (preferably a mobile
number) in the application. This ensures faster communication in
case of any discrepancy in the application.
The applicants may track the status of their application using 15

digit unique Acknowledgment Number after three days of application
using the status track facility. Alternatively, applicant may call TIN
Call Centre on 020 – 2721 8080 to enquire about the status of
application. The status of the PAN application can also be tracked by
sending an SMS - NSDL PAN your 15 digit acknowledgment number
to 57575.
Normally two weeks are required to process the application and

dispatch the PAN card, provided application is in order in all
respects.
e-PAN
The Income Tax Department has introduced the e-PAN card. It is the
instant allotment of PAN to first-time taxpayers. e-PAN will not be
allotted to a person who already holds a PAN. As per provisions of
Section 272B of the Income Tax Act., 1961, a penalty of `10,000 can
be levied on possession of more than one PAN.
To apply for an ePAN card, you must be an Indian resident, must be 137
an Individual taxpayer, must not already hold a PAN, must have an
Aadhaar, must have an active mobile phone number linked with your
Aadhaar and your Aadhaar must have your updated and correct
details.
To request for an e-PAN, visit the NSDL PAN online portal URL:
https://www.onlineservices.nsdl.com/paam/
endUserRegisterContact.html
This is a paid facility for download of e-PAN card. For the PAN
applications submitted to NSDL e-Governance where PAN is allotted
or changes are confirmed by IT department within the last 30 days,
e-PAN Card can be downloaded free of cost at the following URL:
https://www.onlineservices.nsdl.com/paam/MPanLogin.html
Do note that this facility is available for PAN holders whose latest
application was processed through NSDL e-Governance. PAN
holders who had obtained PAN using instant e-PAN facility on
e-filing portal of IT department, will also be able to avail this facility.
For Shares/Stocks
Apart from indirect investments like mutual funds, one of the
favourite investment avenues is shares/stocks. Share bazaar or
stock exchange is a place where investors can buy and sell shares
through a broker.
Most of the share trading in the Indian stock market takes place on
its two major stock exchanges: the BSE Limited (earlier known as
Bombay Stock Exchange) and the National Stock Exchange of India
Limited (NSE). There is also a new exchange or bourse called
Metropolitan Stock Exchange of India Limited (MSE).
To start investing in the stock markets, you need 3 types of

accounts.
1. Trading Account - This is where you as an investor place

138 buy/sell orders.
Dematerialization - This is the
process of converting the physical
share certificates into electronic
form. Once in the electronic form,
such certificates are easier to
maintain and is accessible from
anywhere throughout the world. An investor who
wants to trade online needs to open a demat with
a Depository Participant (DP).
2. Demat Account - This is where you as an investor hold your

shares in dematerialized form.
3. Bank Account - This is where you send money for fund

transfers and receive funds as well from completed trades.
We all know about a bank account. Hence, we are not explaining
what is a bank account and why is it used. Let us look at trading and
demat accounts closely.
Trading Account - This account has to be opened with a SEBI

registered stockbroker. Today, a stock market investor has the
comfort of having the documentation for opening a trading account
completed at your home. In this case, the broker’s representative will
bring along the account opening forms and the Know Your Client
(KYC) forms.
In addition to submitting the duly filled account opening form, you

will be expected to furnish documents that establish your identity
and address. On completion of this step, a verification process will be
conducted either through a phone call or representative visit. The
necessary documentation and verification will be followed. Once
done, the company will provide trading details using which you may
participate in market operations. A unique trading ID is necessary
for trading in stocks. They will also provide you with ID and
password to operate the trading account.
139
Demat Account - A trading account is different from a demat
account. A demat account holds shares and other types of securities.
Shares purchased through a trading account are deposited into the
demat account. Existing shares can also be sold and they get
withdrawn from your demat account and sold through a trading
account. First-time investors can think of demat account as a garage

or parking space for shares.
Typically, when you sign up with a stock broker, they will guide you on
not only the opening of the trading account but also the demat account
and linking of your bank account. A stock broker will complete the
entire process for you. Do remember that depositories provide the
facility to open and maintain demat accounts. In India, the government
has mandated two entities as depositories. National Securities
Depository -JNJUFE(NSDL) is the first depository of India and also one
of the leading depositories in the world. The other depository is
Central Depository Services of India Limited (CDSL).
Don’t have Demat Account?

There is no need to worry if you do not have a demat account. You can
open more than one demat account in the same name with single DP/
multiple DPsas per your need. What is a DP? DP stands for Depository
Participant. DP acts as an agent of the depository and provides
services to investors .
No minimum balance is required to be maintained in a demat account.
You can give a one-time standing instruction to your DP to receive all

the credits coming to your demat account automatically.
You may choose your DP based on your evaluation of their reputation,

service standards, charges, comfort level, other conveniences, etc.
Open the demat account in single or joint names. If the same set of
joint holders hold securities in a different sequence of names, these
joint holders are not required to open different demat accounts in
140 NSDL depository system just for dematerialization of their existing
shares in physical form.
NSDL has introduced “Transposition-cum-Demat” facility to help
joint holders, to dematerialize securities in the same account even
though share certificates are in a different sequence of names. For
this purpose, Transposition-cum-Demat Form should be submitted
to the DP.
E.g.: If 100 securities of company SDE are registered in the

name of Suresh as first holder and Rajesh as second holder
and 200 securities of company QAZ are registered in the
name of Rajesh as first holder and Suresh as second holder,
both these securities can be held in one single demat account
opened in the name of Suresh as first holder and Rajesh as
second holder or Rajesh as first holder and Suresh as second
holder.
In case of a minor, the demat account should be opened in the name

of the minor and the guardian’s name should be mentioned. The
guardian will sign as a signatory on behalf of the minor.
Demat account opening procedure should typically take anywhere

between few minutes (online mode) to 2/3 days (offline mode).
Procedure to Open Demat Account

Let us tell you how an NSDL demat account is opened.
1. Fill account opening form (available with your DP).
2. Give your DP the duly filled account opening form with proof of
identity and proof of address documents as may be required.
3. DP would give you “Client Id” no. (account no.) once your demat
account is opened. This ‘Client Id’ number along with your ‘DP
Id’ number forms a unique combination. Both these numbers
should be quoted in all your future dealings with DP/NSDL etc.
141
As on March 31,
2019, NSDL has
1,85,22,418
investor accounts,
and `186.8 lakh

crore demat
custody value
4. Your DP would give you instruction slips for depository services

viz., dematerialization, delivery instructions for trades, etc. These
instruction slips will bear pre printed serial numbers and your
client-ID prestamped. Preserve these carefully.
5. Your DP would give you a list of deadlines for giving instructions

for various depository activities such as transfer for effecting
sales, purchase, etc.
Dos and Don’ts of Demat Account

As an investor, you must know the following when you have a demat
account.
Scrutinize - Go through both the transaction and holding

statement that you receive .
Handle - Keep Delivery

Instruction Slips (DIS) book issued
to you carefully. Insist that the DIS
numbers are pre-printed. Do not
pre-sign them.
Mention - Always refer the

details like ISIN, number of
securities accurately. In case of
142 doubt, contact DP or your broker.
Remember - Note that the execution of Power of Attorney (PoA) is
not compulsory. Understand PoA importance before signing it.
Freeze - In case you are not transacting frequently, utilize the

freezing facility provided for your demat account.
Strike Out - If there is space for multiple instructions and it is not

used fully, remember to strike out the blank space for furnishing
security details.
Avoid - Do not overwrite, avoid cancellations, misspellings,

changing of the name and quantity of securities.
Never - Do not issue demat delivery instruction slip from any other
family members, friends accounts.
Do Not - Never sign blank Delivery instruction slip
143
Important
Points
to
Remember
from
this chapter
You need to be KYC-compliant in for making financial

investments.
Use NSDL service to get PAN if you do not have one.
Choose the depository participant for demat account very
carefully. Understand the account opening process and
documents required.
Most financial institutions have online and off line
processes for customer convenience.
144
Chapter 10
How to Build and

Monitor A Portfolio?
An investment portfolio is a set of financial assets. Smart

investors use such a basket approach with investments
to earn a profit. No matter how you make a portfolio, the
journey is not like a straight line. There will be ups and
downs. However, when smartly curated and monitored, a
portfolio has the ability to navigate difficult times so that
wealth is generated over the long-term. In this chapter, we
will find out how to build an all-weather portfolio and
use different ways to keep a track.
Investment Portfolio
The assets included in an investment portfolio are called asset
How to Build and Monitor a Portfolio?
classes. The investor needs to make sure that there is a good mix
of assets. A well-balanced mix helps foster growth for the
investment capital, with controlled risk.
A portfolio should contain stocks. They refer to a portion or share

of a company. Stocks can be a source of income when the company
shares its profits with shareholders by way of dividends. However,
the main purpose of buying stocks is capital appreciation. Shares
sold at a higher price than their purchase price generate profit
when sold.
Bonds are an important part of any portfolio. A bond is a loan and

comes with a maturity date. At that date, the principal amount used
to buy the bond is returned along with agreed interest. Compared
to stocks, bonds do not pose much risk. However, bonds offer
potentially lower returns. Bonds are used to give stability in an
investment basket.
Gold, cash and real estate are commonly used other asset classes
that are put in an investment portfolio. These assets PD\ offer
lower returns than stocks, but give the diversification angle to the
portfolio. Cash is a liquid asset and adjusting its share can be used
to increase or decrease the exposure of the other asset classes.
Types of portfolio
Investment portfolios can come in various shapes and sizes. It all
depends on the strategy for investment.
Growth Portfolio: A growth portfolio aims to get higher returns

by taking greater risks. This means the portfolio will have a higher
weight of stocks/shares. Also, growth investing involves
investments in younger companies such as smallcaps and midcaps.
Income Portfolio: An income portfolio is all about stability with

146
some recurring inflow for the investor. Such a portfolio is more
focused on securing regular income from investments such as bonds
and real estate rental gains. They involve lower risk and so gains are
modest.
Value Portfolio: A value portfolio is all about tactical calls for the
investors. This is done by taking advantage of buying cheap assets.
What is cheap? Valuation decides whether an asset should stay and
why. By buying under-appreciated firms, the portfolio’s profit
potential rises in the future.
monitoring Investments
It is not enough to do investments regularly. Investments should be
monitored regularly. There are different ways to track your
investments and keep an eye on how they are performing. There are
different provisions under which investment intermediaries help you
monitor investments.
Under the provisions of the Depositories Act 1996, NSDL provides

various services to investors and other participants in the capital
market like clearing members, stock exchanges and issuers of
securities. These include basic facilities like account maintenance,
dematerialization, rematerialization, settlement of trades through
market transfers, off-market transfers and inter-depository transfers,
distribution of non-cash corporate actions, nomination/ transmission
and many more.
The depository system, which links the Issuers, Depository

Participants (DPs), NSDL and Clearing Corporation of stock
exchanges, facilitates holding of securities in dematerialized form
and effect transfers by means of account transfers. This system
which facilitates scrip less trading offers various direct and indirect
services to the market participants.
147
Let us take a quick look at various investor oriented services brought to
you by NSDL.
SPEED-e - NSDL launched SPEED-e (pronounced as speedy) in

September, 2001. SPEED-e enables demat account holders to submit
delivery instructions directly on the Internet through SPEED-e website
https://eservices. nsdl.com. SPEED-e is available only to those investors
whose DPs have subscribed to it and the Users sign an agreement with
the Participant. A demat account holder will have the option of
accessing SPEED-e either as a Password User or as a Smart Card / e-
Token User. Password Users can debit their demat accounts only in
favour of specified Pre-Notified Clearing Member accounts (up to six),
while Smart Card / e-Token User can submit instructions in favour of
any number of accounts.
IDeAS - Internet-based Demat Account Statement is the facility for

viewing balances and transactions in the demat account. It also enables
account holders to participate in e-voting and request for CAS. This
facility is absolutely free for all NSDL demat account holders.
e-Voting - By voting through an electronic system, members/

shareholders can vote on resolutions of companies requiring members/
shareholders consent. The need for e-Voting arises when a company
wishes to pass a resolution by Postal Ballot/AGM/EGM which requires
members/shareholders consent.
The Ministry of Corporate Affairs (MCA) has authorized NSDL for
setting up an electronic platform to facilitate members/shareholders to
cast vote in electronic form. Accordingly, NSDL has set-up an electronic
infrastructure to facilitate members/shareholders to cast votes in
electronic form through the internet. The e-Voting System of NSDL
facilitates voting from all shareholders i.e., shareholders holding shares
in physical and demat mode with either NSDL or CDSL, as on the
record date. Further NSDL e-Voting System also facilitates members of
entities who wish to provide e-Voting facility for its members.(e.g.
Clubs).
148
NSDL Mobile App - With mobile being omnipresent in today’s life,
NSDL has developed a Mobile App for esteemed investors. You can
download and use NSDL Mobile App to view balances in your demat
account on your mobile anytime, anywhere. NSDL Mobile App is
available on Google Playstore and Apple App Store and it is
absolutely free for all demat account holders.
DAN: Depository Account Validation is a secured internet based

facility which provides an online interface enabling subscribers to
validate DP ID, Client ID and PAN of investors through a file upload.
This facility is available to book running lead manages, syndicate
members, etc., for initial public offer, public issues, etc.
CAS: Consolidated Account Statement. NSDL CAS is a single

statement of all your investments in the securities market. NSDL CAS
includes investments in equity shares, preference shares, mutual
funds, bonds, debentures, securitized instruments, money market
instruments and government securities held in demat. All
investments held in single or joint names with you as the sole/first
holder are a part of the NSDL CAS. NSDL CAS is part of the overall
vision to enable all financial assets to be held electronically in a
single demat account, which was articulated in the budget speech of
July 2014. As a step in this direction, SEBI has introduced this
Consolidated Account Statement for all securities assets by
consolidating demat accounts and mutual fund folios. NSDL CAS
offers you unparalleled convenience in keeping track of your
investment portfolio. You can easily monitor the investments you
hold, their value and portfolio composition. It will help you in
developing a strategy to managing your investments better.
149
online portfolio management tracking
Your investments earn dividends and bonuses, apart from capital
appreciation. With many investments spread out across asset classes,

it is understandably difficult to figure out how much each of your
investments are earning. The solution to this problem is online
portfolio management tracking systems. Such portfolio managers take
into account every investment-related transaction of your portfolio.
Just fill in the details of the investment transactions and watch the
portfolio managers tell you about the returns that you are earning.
Some of the tools evaluate your investment performance on the basis
of an annualized effective compounded return rate.
Online and app-based portfolio trackers provide you with intelligent

tools. These enable you to analyze your portfolio and track its
movements even during trading hours. You can set email alerts for
both your equity and mutual fund portfolios. You also have the option
of setting up an online watch list. Such portfolio trackers may offer
value-added reports like Transaction Summary, Annualised Returns,
and Currency reports. The tracker’s ease-of-use makes stock tracking
easier than ever before.
150
Important
Points
to
Remember
from
this chapter
A well-balanced portfolio mix helps foster growth for the

investment capital, with controlled risk.
Download and use NSDL Mobile App to view balances in
your demat account on your mobile anytime, anywhere.
Internet-based Demat Account Statement is the facility for
viewing balances in the demat account.
E-voting allows members/shareholders to vote on
resolutions of companies requiring members/shareholders
consent.
CAS is a single statement of all your investments in the
securities market such as equity shares, mutual funds,
bonds, debentures, etc.
Online and app-based portfolio trackers provide you with
intelligent tools to track and monitor your money.
151
NSDL PRIMER on Personal Finance How to Build and Monitor a Portfolio?
152
Notes:
Chapter 11
How To Seek Help

From Financial
Regulators?
Financial investments are done with best of intentions

in mind. However, sometimes problems happen. When
the financial institution does not solve pur problems,
we seek help from the top financial regulator. In this
chapter, we will learn about the ways to approach
the regulators and learn about the processes that will
ensure quicker results.
Insurance
How to Seek Help from Financial Regulators?
If you are unhappy with your insurance company, approach the

Grievance Redressal Officer of its branch or any other office that you
deal with. Do remember to give your complaint in writing along with
the necessary support documents. Take a written acknowledgement of
your complaint with the date. The insurance company should ideally
resolve your complaint within 30 days.
IRDAI has a cell for redressal of grievances of policyholders. The

Grievance Redressal Cell in the Consumer Affairs Department of the
Insurance Regulatory and Development Authority of India looks into
complaints/grievances from
policyholders. This Cell takes up
the grievances with the
respective insurers for redressal.
Policyholders who have

complaints against insurers are
required to first approach the
Complaints/Grievance Redressal
Cell of the insurer concerned.
You can easily go to the IRDAI
website and find out the mail ids of the Grievance Redressal Officers of
the insurers.
If aggrieved policyholders do not receive a response from the insurer

within a reasonable period of time or are dissatisfied with the
response of the company, they may approach the Grievance Redressal
Cell in the Consumer Affairs Department of the IRDAI.
Only complaints from the insured or the claimants shall be

entertained. The Cell shall not entertain complaints written on behalf
of policyholders by advocates or agents or by any third parties.
Complainants are requested to submit complete details of the

complaint as required in the complaint registration form put on the
154 IRDAI website – www.policyholder.gov.in
You may download the Complaint Registration Form online as well.
Without the required information called for in the Complaint

Registration Form, IRDAI will not be in a position to register the
complaint.
Registration of Complaints with the IRDAI by Policy holders:
1. Policy holders can make use of the Integrated Grievance

Management System(IGMS) - IRDAI Portal at [email protected] for
registering the complaints themselves and to monitor the status of
the complaints.
2. Can send the complaint through Email to [email protected]
3. Can call Toll Free No. 155255 or 1800 4254 732.
4. Apart from the above options, if it is felt necessary by the
complainant to send the communication in physical form, the
same may be sent to IRDAI addressed to:
General Manager
Insurance Regulatory and Development Authority of India(IRDAI)
Consumer Affairs Department – Grievance Redressal Cell.
Sy.No.115/1, Financial District, Nanakramguda,
Gachibowli, Hyderabad – 500 032.
Banking
Banks -The Banking Ombudsman Scheme is an expeditious and
inexpensive forum for bank customers for resolution of complaints
relating to certain services rendered by banks. The Banking
Ombudsman Scheme was introduced under Section 35 A of the
Banking Regulation Act, 1949 by RBI with effect from 1995. Presently
the Banking Ombudsman Scheme 2006 (As amended up to July 1,
2017) is in operation.
The Banking Ombudsman is a senior official appointed by the Reserve

Bank of India to redress customer complaints against deficiency in 155
certain banking services covered under the grounds of complaint
specified under Clause 8 of the Banking Ombudsman Scheme 2006 (As

amended up to July 1, 2017).
As on date, twenty Banking Ombudsman have been appointed with

their offices located mostly in state capitals.
All Scheduled Commercial Banks, Regional Rural Banks and

Scheduled Primary Co-operative Banks are covered under the Scheme.
The Banking Ombudsman can receive and consider any complaint

relating to a deficiency in banking services. A customer can also lodge
a complaint on grounds of deficiency in service with respect to loans
and advances.
Do note that one can file a complaint before the Banking Ombudsman
if the reply is not received from the bank within a period of one month
after the bank concerned has received one’s complaint, or the bank
rejects the complaint, or if the complainant is not satisfied with the
reply given by the bank.
You can file a complaint with the Banking Ombudsman simply by

writing on a plain paper. One can also file it online at https://cms.rbi.
org.in/cms/IndexPage.aspx?aspxerrorpath=/cms/cms/indexpage.aspx
or by sending an email to the Banking Ombudsman. There is a form

along with details of the scheme in our website. However, it is not
mandatory to use this format.
One may lodge his/ her complaint at the office of the Banking
Ombudsman under whose jurisdiction, the bank branch complained
against is situated.
For complaints relating to credit cards and other types of services with
centralized operations, complaints may be filed before the Banking
Ombudsman within whose territorial jurisdiction the billing address of
the customer is located.
156
The Banking Ombudsman does not charge any fee for filing and
resolving customers’ complaints.
The amount, if any, to be paid by the bank to the complainant by way

of compensation for any loss suffered by the complainant is limited to
the amount arising directly out of the act or omission of the bank or
`20 lakhs (`Two Million), whichever is lower.
The Banking Ombudsman may award compensation not exceeding `1

lakh (`One Hundred Thousand) to the complainant for mental agony
and harassment. The Banking Ombudsman will take into account the
loss of the complainant’s time, expenses incurred by the complainant,
harassment and mental anguish suffered by the complainant while
passing such award.
Name and address of the complainant, the name and address of the
branch or office of the bank against which the complaint is made,
facts giving rise to the complaint supported by documents, if any, the
nature and extent of the loss caused to the complainant, the relief
sought from the Banking Ombudsman and a declaration about the
compliance with conditions which are required to be complied with by
the complainant under Clause 9(3) of the Banking Ombudsman
Scheme.
NBFCs
The Reserve Bank of India has introduced an Ombudsman Scheme for
customers of Non-Banking Financial Companies (NBFCs). The
Ombudsman Scheme for Non-Banking Financial Companies, 2018 (the
Scheme), is an expeditious and cost free apex level mechanism for
resolution of complaints of customers of NBFCs, relating to certain
services rendered by NBFCs.
The NBFC Ombudsman is a senior official appointed by the Reserve

Bank of India to redress customer complaints against NBFCs for
deficiency in certain services covered under the grounds of complaint
specified under Clause 8 of the Scheme.
157
As on date, four NBFC Ombudsman have been appointed with
their offices located at Chennai, Kolkata, New Delhi and

Mumbai.
Chennai
Office of NBFC Ombudsman
C/o Reserve Bank of India Fort Glacis,
Chennai 600 001
STD Code: 044 Telephone No : 25395964
Fax No : 25395488
Email : [email protected]
Mumbai
C/o Reserve Bank of India
RBI Byculla Office Building
Opp. Mumbai Central Railway Station Byculla,
Mumbai-400 008
STD Code: 022 Telephone No : 2300 1280
Fax No : 23022024
New Delhi
C/o Reserve Bank of India Sansad Marg
New Delhi -110001

STD Code: 011 Telephone No: 23724856
Fax No : 23725218-19
Kolkata
C/o Reserve Bank of India 15,
Netaji Subhash Road
Kolkata-700 001
STD Code: 033 Telephone No : 22304982
Fax No : 22305899
158 Email : [email protected]
The NBFC Ombudsman can receive and consider various kinds of
complaints. The Ombudsman may also deal with such other matters as
may be specified by the Reserve Bank from time to time.
For redressal of grievance, the complainant must first approach the

concerned NBFC. If the NBFC does not reply within a period of one
month after receipt of the complaint, or the NBFC rejects the complaint,
or if the complainant is not satisfied with the reply given by the NBFC,
the complainant can file a complaint with the NBFC Ombudsman under
whose jurisdiction the branch/ registered office of the NBFC falls.
One can file a complaint with the NBFC Ombudsman by writing on a

plain paper and sending it to the concerned office of the NBFC
Ombudsman by post/fax/hand delivery. One can also file it by email to
the NBFC Ombudsman.
A complaint form along with the scheme is also available on RBI’s

website, though, it is not mandatory to use this format.
For complaints relating to types of services with centralized

operations, complaints may be filed before the NBFC Ombudsman
within whose territorial jurisdiction the billing address of the customer
is located.
The NBFC Ombudsman does not charge any fee for

filing and resolving customers’ complaints.
The compensation amount, if any, which can be awarded by the NBFC
Ombudsman, for any loss suffered by the complainant, is limited to the
amount arising directly out of the act or omission of the NBFC or
rupees one million, whichever is lower.
The NBFC Ombudsman may award compensation not exceeding rupees

1 lakh to the complainant for causing mental agony and harassment.
The NBFC Ombudsman, while passing such award, will take into
account the loss of the complainant’s time, expenses incurred by the
complainant, harassment and mental anguish suffered by the
complainant. 159
The complainant is required to give details such as, his/her name
and address, the name and address of the branch or office of the
NBFC against which the complaint is made, facts giving rise to the
complaint supported by documents, if any, the nature and extent of
the loss caused to the complainant, the relief sought from the NBFC
Ombudsman and a declaration that the complaint is maintainable
under Clause 9A of the Scheme.
Any person aggrieved by an Award issued under Clause 12 or by the

decision of the NBFC Ombudsman rejecting the complaint for the
reasons specified in sub-clause (c) to (f) of Clause 13 of the Scheme,
can approach the Appellate Authority.
The Appellate Authority is vested with a Deputy Governor-in-Charge

of the department of the RBI implementing the Scheme. The address
of the Appellate Authority is :
The Appellate Authority

Ombudsman Scheme for Non-Banking Financial Companies
Consumer Education and Protection Department
Reserve Bank of India
First Floor, Amar Building
Fort, Mumbai 400 001.
The complainant also has the option to explore other recourse and/
or remedies available as per the law.
Capital Markets
There will be occasions when you have a complaint against a listed
company/ intermediary registered with SEBI. In the event of such
complaint you should first approach the concerned company/
intermediary against whom you have a complaint. However, you may
not be satisfied with their response. Therefore, you should know
whom you should turn to, to get your complaint redressed.
SEBI takes up complaints related to issue and transfer of securities

160 and non-payment of dividend with listed companies. In addition,
SEBI also takes up complaints against the various intermediaries
registered with it and related issues.
SCORES facilitates you to lodge your complaint online with SEBI and
subsequently view its status.
SCORES is an online platform designed to help investors to lodge

their complaints, pertaining to securities market, online with SEBI
against listed companies and SEBI registered intermediaries. All
complaints received by SEBI against listed companies and SEBI
registered intermediaries are dealt through SCORES.
Complaints arising out of issues that are covered under SEBI Act,
Securities Contract Regulation Act, Depositories Act and rules and
regulations made there under and relevant provisions of the
Companies Act, 2013.
Matters that cannot be considered as complaints in SCORES are

a. Complaint not pertaining to investment in securities market
b. Anonymous Complaints (except whistleblower complaints)
c. Incomplete or un-specific complaints 161
d. Allegations without supporting documents
e. Suggestions or seeking guidance/explanation

f. Not satisfied with trading price of the shares of the companies
g. Non-listing of shares of private offer
h. Disputes arising out of private agreement with companies/
intermediaries
i. Matter involving fake/forged documents
j. Complaints on matters not in SEBI purview
k. Complaints about any unregistered/ un-regulated activity
To become a registered user of SCORES, investors may click on

“Register here” under “Investor Corner” appearing on the
homepage of SCORES portal. Here is the URL:
https://scores.gov.in/scores/userRegistration.html
After logging into SCORES, investors must click on “Complaint

Registration” under “Investor Corner”. Here is the login URL:
https://scores.gov.in/scores/Welcome.html
Investor should provide complaint details. Investors must select the

correct complaint category, entity name, and nature of complaint.
Investors must provide complaint details in brief (up to 1000
characters). A PDF document (up to 2MB of size for each nature of
complaint) can also be attached along with the complaint as
supporting document.
On successful submission of complaint, system generated unique

registration number will be displayed on the screen which may be
noted for future correspondence. An email acknowledging the
complaint with complaint registration number will also be sent to
the email id entered in the complaint registration form. A text
message will also be sent to the investor informing them about
registration of the complaint.
162
For lodging a complaint on SCORES, the following personal
information has to be mandatorily provided by investors/
complainants:
a. Name
b. Address
c. E-mail Address
d. PAN and
e. Mobile Number
An investor can go to the ‘View Complaint Status’ section of SCORES.

Once the investor enters the registration number, password and
captcha/security code, they can see the name and e-mail address of
the Dealing officer handling their complaint on SCORES after
keeping the cursor on the field “Dealing Office”.
After SCORES complaint, entities are required to submit the action

taken report within a reasonable period but not later than 30 days.
To facilitate replies to various queries of the general public and on

guiding them with regard to grievances in matters relating to
securities market, SEBI launched toll free helpline service number
1800 266 7575 or 1800 22 7575 on December 30, 2011. The toll free
helpline service is available to investors from all over India. The toll
free helpline service is available on all days from 9:00 a.m. to 6:00
p.m. (excluding declared holidays in state of Maharashtra).
163
References
Webpage Purpose
https://nsdl.co.in/downloadables/ Know more about NSDL

pdf/Investor%20Brochure.pdf offerings
http://www.sebi.gov.in/cms/sebi_ Learn about financial

data/investors/financial_literacy/ literacy concepts
College%20Students.pdf
http://www.sebi.gov.in/cms/sebi_ Understand more about

data/investors/financial_literacy/ retirement planning
Investment%20Planning%20
for%20Retired%20People.pdf
https://www.nseindia.com/invest/ Find out more about

content/inve_rights_ob.htm investor rights
https://www.bseindia.com/static/ Know more about stock

investors/services.aspx markets terms, and
concepts
https://www.incometaxindia.gov. Learn the answers to

in/Pages/faqs.aspx frequently answered
questions about income
tax
http://www.policyholder.gov.in/ Understand more about

insurance
https://www.indiapost.gov.in/ Find out more about

Financial/pages/content/post- post office saving
office-saving-schemes.aspx schemes
https://www.mutualfundssahihai. Know more about mutual

com/en funds and how to invest
in them
164
https://www.pfrda.org.in/index1. Learn more about
cshtml?lsid=94 National Pension System
https://cms.rbi.org.in/cms/ Understand more about

Documents/en-US/Banking Banking Ombudsman
Ombudsman Scheme 2006_ Scheme
FAQ.pdf
https://cms.rbi.org.in/cms/ Know more about NBFC

Documents/en-US/Ombudsman Ombudsman Scheme
Scheme for NBFCs 2018_FAQ.
pdf
https://scores.gov.in/scores/ Find out more details

Docs/FAQ-SCORES.pdf about SEBI SCORES
Grievance Redressal
System
165
NSDL PRIMER on Personal Finance How to Seek Help from Financial Regulators?
166
Notes:
Notes:
167
NSDL PRIMER on Personal Finance How to Seek Help from Financial Regulators?
168
Notes:
NSDL Primer
oN PerSoNaL FiNaNce
Guiding you through the maze of numbers and
financial decisions

This manual will help you take control of your finances, from opening a
savings bank account, managing tax and operating in a capital market.
Written as a step-by-step guide for every stage of your life, it will lead you
NSDL Primer
through a complex, jargon-packed world, detailing how you can keep your
finances fit-in a digital era.
The guide offers unbiased, jargon-free suggestions that will help you at every
stage of life: from the first job up till your retirement. Which is why, it’s the
must-have guide for everyone in your family. Each of the 11 topics in this
on
NSDL Primer on Personal Finance will help you:
• grasp the format with detailed working of financial instruments Personal Finance
• get started Your step-by-step guide to wealth creation
• find out tax implications, if any
• get a handy checklist on what to do
About National Securities Depository Limited (NSDL)

NSDL, established in 1996 is one of the largest Depositories in the world.
NSDL pioneered the concept of dematerialization in India and coined the term
‘demat’ which is now a household term. With its innovative products &
services, NSDL has always been the preferred depository with more than 182
Lakh investors having assets worth more than `177 Lakh Crore accounting for
more than 90% market share. NSDL reaches out to investors with a network
of more than 277 Depository Participants spread across more than 31,300
service centers across India.
A special thanks to
‘Outlook Money’
for their valuable input in
writing this book.

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What is the purpose of the document?

What is the purpose of the document?

What topics does the document cover?

What topics does the document cover?

NSDL Primer

NSDL Primer on Personal Finance

About National Securities Depository Limited (NSDL)

Your step-by-step guide

No part of this book may be reproduced, stored in a retrieval

Published from National Securities Depository Limited,

The information provided herein is solely for creating awareness and

The publication is an initiative of National Securities Depository

1. Personal Finance - What And Why ..........................................................1

2. The Need for Savings..................................................................................9

6. Know About Tax Planning.......................................................................81

7. Prepare For Retirement.........................................................................101

8. Handing Over Your Legacy....................................................................117

1. How To Start Investing? ........................................................................133

2. How To Build and Monitor A Portfolio?................................................145

3. How To Seek Help From Financial Regulators? ................................153

We often say ‘Happiness is more important than money’. Nothing

So what exactly is personal finance? And why is it so important,

When we were young, we were taught to save in piggy banks. In

Mr. G.V.Nageswara Rao

Just earning money is not enough in the 21st century. You

By practicing personal finance smartly, you will be able to

help you move a step closer to being good at managing money.

No, you do not need to be super-rich to have a good financial life. In

You may be earning `50,000 or `5 lakh a month, but more income is

lower incomes have.

Being Bad Is Good

What is Personal Finance?

Personal finance is about meeting

But as you know, it is never easy to make a superb financial plan. If

Personal finance comprises knowledge about 8 core areas. They are

If a 25 year old saves and

Why Learn About Personal Finance?

Below we outline 4 reasons why you should learn about

We understand concepts like

For making successful use of financial services like banking,

2. To Live Within Your Means - We dream of a big car, a

3. To Save And Invest - Savings and investments are an integral

Some of us, till today, prefer to ‘invest’ in savings account of banks.

used to generate returns decades ago,

Many people do not understand the

4. To Understand Taxes - Do you know that your bank deposit

While we understand profit, we hardly realize that profit will be taxed

Personal finance knowledge will empower you with the ability to

Personal finance is financial management done by

Focus and discipline can help everybody achieve personal

The Need For Savings

None of us can predict the future. Saving money can help

and about the different avenues for savings.

All of us know the joy of getting salary. There is no feeling better in

Saving can also be generated by reducing expenses. Taking the

India’s gross savings

colleagues. He was happy that he had got the much-awaited

Below are 6 tips that will help you generate savings.

1. Establish your budget - Make a budget for every month on