Money Matters

  • Ifthikar Bashir
  • Publish Date: Mar 26 2018 2:08AM
  • |
  • Updated Date: Mar 26 2018 2:08AM
Money Matters

Is it sensible to maximise my home loan amount since it is cheap and invest my own money in mutual funds?

Saajid, via email

 

The whole idea is to ensure you are not contributing heavily out of your income. If 60% of your income goes towards paying the EMI, it isn’t wise. If there’s uncertainty about your job, your mental framework changes. We are extremely uncomfortable with the possibility of losing our house just because we lost our job. Of course, any loan with less than 9% interest rate is not an expensive borrowing but by no yardstick is it free money either. Equity will be able to generate much greater returns but it will come with a great deal of uncertainty. So, it’s always good to be a little conservative with your borrowings. Make sure your EMI is not more than a third of your income. That should keep things under control. Broadly, I agree with the idea that one should borrow as much as possible because the investment returns will be higher than the cost you will incur on the home loan.

 

 

I have purchased a single premium policy from a private life insurance company and it is due for maturity. How is the maturity value of single premium insurance policies taxed? 

Nighat, via email

 

The maturity value of all single premium insurance plans is tax-free if the assured sum is at least 10 times the premium paid. Else, the maturity proceeds are added to the income and taxed as per the income slab system.

 

 

I am investing in five mutual funds currently. For four of these, the registrar is CAMS, and for the other it is Karvy. All investments are made from the same savings account. I want to change my registered savings account for all mutual funds. Do I need to update account details individually for each mutual fund? Is there any other way?

Zaffar Ahmad, Chanapora, Srinagar

 

You will have to update your bank details with each of your mutual fund houses individually. The other option would be to consolidate all your mutual funds under one roof with Mutual Fund Utilities India. This is a common platform started by the Association of Mutual Funds of India to facilitate transactions and investments across 25 fund houses using a common account number. There is a one-time procedure for this to be activated wherein you have to fill the CAN form that you would need to the nearest registrar and transfer agent (CAMS/Karvy) or the fund houses, along with a cancelled cheque and a self-attested copy of PAN/Aadhar card. Once this is done, you can update your account or KYC details at a single point of contact.

 

What should be the time horizon for investing in an index fund?

Aamir Ali, Bijbehara

 

Your time horizon for investing in index funds should be the same as in equity. It should be your long-term money, which means five years or more. There are two factors you should be careful about: the type of index and the cost. Cost makes all the difference.

 

 

My daughter is a homemaker with no formal income. Because of this, she has been disallowed from taking a pure term insurance policy, even though she is eligible for other life insurance policies with high premiums for low life cover. Why this discrimination?

SM Ahmad, Soura, Srinagar.

 

Most insurance companies do not offer pure term plans to housewives. But I do agree that even if housewives may not be working, they do take up multiple responsibilities that have financial value. But according to insurance companies, since term plans are meant for income replacement, housewives technically do not qualify for these products as they have no income. Some companies do offer term plans to housewives, but the quantum of cover is linked to the insurance cover of the husband. Most companies would be happy to sell insurance-cum-investment products like endowment plans, ULIP to housewives. However, you should stay away from these products as they offer little insurance cover with modest returns.

 

 

I am 35 years old and working for a multinational corporation. I am interested in investing across equity mutual funds for various short, medium and long term goals. Can the number of my funds be equal to the number of my goals?

Sajad, Srinagar.

 

This surely is a good idea. But you don’t need to have different funds for different goals. You might have planned to retire in 20 years or may need money for your child’s wedding in 15 years but you don’t necessarily need separate funds. Choosing a few good funds and sticking to them will be enough. Earmarking separate goals in your mind is good enough.