Money Matters

  • Ifthikar Bashir
  • Publish Date: Apr 23 2018 1:16AM
  • |
  • Updated Date: Apr 23 2018 1:16AM
Money Matters

Are Unit Linked Insurance Plans a better proposition than equity mutual funds now that long term capital gains tax is being imposed?

Mudasir Mir, via email


It is a differential advantage of ULIPs that they will not be liable to long term capital gains tax like an equity fund. But that doesn’t make ULIPs attractive. Mutual funds have too many good things going for them. Mutual funds are transparent, they are liquid, they are low on cost and you can move your money around if the investment is not doing well. Your liquidity on ULIPs is low, but the surrender charges and other things could be very different. The cost claim of a ULIP is low but most ULIP customers don’t feel that and there is opaqueness.

That apart, when you mix insurance and investment, you don’t the best of both. There may be ULIPs that are more advantageous and are proven over time. But insurance is important and ULIPs can’t fulfil the need to actually have a meaningful insurance. Don’t mix them.


I am a businessman and can invest Rs 3-4 lakh every month for 15-20 years. Can I invest only in mid-cap and small-cap funds? 

Tariq Ahmad, Baramulla


Yes. Just make sure you are comfortable doing so. Look at the past performance of these mid-cap and small-cap funds. Look at what happens to these funds in the worst of times and assess whether you will be fine with a similar situation. But if you are investing for 15-20 years, they should turn out to be substantially more rewarding. Also, this is a category of funds where you will have to be a little more active. You can’t choose a fund and be at it for the next 20 years. You have to review your selection every two-three years because things might change. The fund manager may leave or the fund may become too big, which is detrimental to performance. So make your choices, start your SIP and review your investment every two-three years.


Are debt funds and liquid funds the same and are they taxed similarly?

Taha, via email


Liquid funds are a subset of debt funds. They invest in very short term debt instruments with a maturity period of less than 91 days. Generally, liquid funds do not have any exit load.

Yes, capital gains on liquid funds are taxed just like any other type of debt fund. If you redeem units within three years, you will have to pay tax on short term capital gains. The gains will be added to your income and taxed as per the income tax slab applicable. In case you hold the units for over three years, the gains will qualify for long term capital gains tax of 20% with indexation benefit on your original investment.


I want to buy a health insurance but I’m not able to decide whether I should go for online agents such as Policybazaar or offline agents. My concern is not just premiums but also how convenient the claim settlement procedure would be with the online agents.

Zubair, via email


You can buy a health insurance plan directly from the insurer on their website or through the insurer’s agent or through aggregator sites such as Policybazaar. The aggregators let you compare the features and prices of a particular type of policy across insurers. The policy, though, will only be issued by the insurance company. Buying online has now become a simple process. You don’t have to go through the hassle of engaging with an agent, who may be representing just a few companies and may thus not be able to offer the product you want. The agent may try pushing a product he is affiliated with. Also, there is complete transparency in the process when you buy online.

Save the insurer’s toll free number and of another family member on your phone, so that a claim can be filed quickly when the need arises. Keep the mediclaim card with you as it can be a great help in times of emergency. Keep copies of all documents, bills and letters you send to the insurance company. At the time of making a claim, the aggregators will not play any role. You will have to contact your insurer or their third party administrator, or TPA – and this does not necessarily require an agent’s help.

Most health insurance companies have TPAs to take care of cashless hospitalisation of policyholders and for providing assistance at the time of claim settlement. Some health insurance providers do not employ TPAs and manage the claims settlement in-house.

Online plans are suitable only if you are well aware of the finer details of the policies and can make the decision on your own. Not only you, but also your family should know the complete details of the plan bought online because in the event of hospitalisation, the onus of handling the claim process would lie with the. If you choose to avoid such hassles, you can compare online and buy offline through an agent who is trustworthy, even though the premium would be a little higher.


Which is better to invest for a 20-year horizon, multi-cap fund or index fund?

Shafia, Hyderpora, Srinagar


If you are able to spot a great fund manager, choose a multi-cap fund. Index funds have not been able to build a case for themselves. Look at 15-year to 20-year performance record of multi-cap funds by managers who are still managing the money and you will find they have been able to beat the index by a wide margin. The case for index fund in India is not solid yet. It might be a worthy consideration after few years, but not right now.

Do closed-end funds give superior returns since they don’t face the threat of sudden redemptions? 

Gowhar Wani, Hawal, Srinagar

There are advantages and disadvantages to both open-end and closed-end funds. The biggest disadvantage to a closed-end fund is that you cannot invest regularly. The advantage you are referring to is also a disadvantage because you are forced to invest the money. Of course, the fund manager has the advantage of taking a long-term view and he is not subject to investors’ day to day actions, but there is no evidence of superior returns. Comparing the performance of a closed-end fund with a similar open-end fund, I have not found anything to suggest closed-end funds do better. These funds benefit from the timing perspective, that is, when the fund was launched and how the market was at that time.