Features and Benefits of Pension Plans in india

Minimum Guarantee

Every pension plan needs to have a minimum guarantee. As per IRDA guidelines, there should be "on-zero returns" on all premiums or guaranteed maturity benefits. Most insurance companies guarantee a minimum of one percent of total premium over the complete policy term.

Tax Benefits

The final payout is provided in two ways. 33% of final pay out can be withdrawn in lump sum and is not taxable. However the rest of the amount is taxable.

Types of Retirement Plans

Deferred Annuity

A deferred annuity plan allows you to accumulate a corpus through regular premiums or single premiums over a policy term. After the policy term is over, pension will begin.

Immediate Annuity

In an immediate annuity plan, pension begins immediately. One has to deposit a lump sum amount and pension will begin instantly.

With cover and without cover plans

The "with cover" pension plans have life cover component in the plan. This implies that on the death of the policyholder, a lump sum amount is paid to the family members although the cover amount is not very high since a large part of premium is diverted towards growing the corpus rather than covering for life risk. The "without cover" pension plan implies that there is no life cover. Presently, deferred annuity plans are "with cover" and immediate annuity plans are "without cover".

Annuity Certain

As per this clause, annuity is paid to the annuitant for specific number of years. The annuitant can choose the period. If annuitant dies before the policy term, the annuity will be paid to beneficiary.

Guaranteed Period Annuity

As per this annuity option, annuity is provided to the annuitant for the period and beyond. If annuitant dies during the period, amount will be paid to the beneficiary. If annuitant survives, pension will continue throughout life.

Life Annuity

As per this annuity option, pension amount will be paid to the annuitant until death. If annuitant chooses "with spouse" option, after the death of annuitant, the pension will continue and be paid to the spouse.

National Pension Scheme (NPS)

New Pension scheme has been introduced by the government for people looking to build up pension amount. You can put savings in new pension scheme which will be invested in equity and debt market as per your preference. You can withdraw 60% of amount at retirement and rest 40% must be used to purchase annuity. The maturity amount is not tax free.

Pension Funds

Owing to the low front load charges, pension funds are a good way to accumulate corpus amount. Pension funds are meant for long term and hence perform better. PFRDA, the government body has allowed 6 companies as fund managers.

Compare Best Pension Plans

It is imperative to choose a pension plan which offers the best possible returns. That can only be determined by comparing the different pension plans available in the market.

Pradhan Mantri Jan Dhan Yojana : 5 things you want to know

1. Under the scheme, account holders will be provided zero-balance bank account with RuPay debit card, in addition to accidental insurance cover of Rs 1 lakh.

2. Those who open accounts by January 26, 2015 over and above the Rs1 lakh accident, they will be given life insurance cover of Rs 30,000. 

3. Six months of opening of the bank account, holders can avail Rs 5,000 loan from the bank.

4. With the introduction of new technology introduced by National Payments Corporation of India (NPCI), a person can transfer funds, check balance through a normal phone which was earlier limited only to smart phones so far.

5. Mobile banking for the poor would be available through National Unified USSD Platform (NUUP) for which all banks and mobile companies have come together.

Classifications of Indian Stocks

There are three main classifications when it comes to stocks -

1. Large Cap stocks;
2. Mid Cap stocks
3. Small Cap stocks.

Here, the term 'cap' simply refers to the 'market capitalisation' of the stock. 

What is market capitalisation?

It is the value of the stock that you arrive at by multiplying the stock price by the company's outstanding number of equity shares.

Market Capitalisation = Current Stock Price  x  Number of Shares outstanding

Let us see an example:

Company ABC has 10,000,000 shares outstanding and its current share price is Rs 8.

Based on the above formula : Market Capitalisation = Current Stock Price  x  Number of Shares outstanding

Company ABC's market capitalisation is Rs 80 million or Rs 8 per share X 10,000,000 shares. 

Large cap stocks

As we mentioned above, the first category based on market capitalisation is that of 'large cap stocks'.

One can look at the BSE-Sensex or BSE-100 Index as a reference point for large cap stocks. Market capitalisation for stocks in the BSE-100 Index, for instance, ranges from Rs 200 bn to Rs 3,500 bn.

Mid cap stocks

Mid caps lie between large cap stocks and small cap stocks. Mid cap stocks are those that generally have a market capitalisation within the range of Rs 50 bn and Rs 200 bn.

These represent mid-sized companies that are relatively more risky than large cap as investment options yet, they are not considered as risky as small cap companies. They rank between the two extremes on all the important parameters like size, revenues, employee and client base.

Small cap stocks

Lying at the lowest end of market capitalisation, Small cap stocks are generally viewed under the misconception of being hazardous or 'quick rich' stocks. However, both these labels are untrue.

Small cap companies have smaller revenue and client bases, and usually include the start-ups or companies in the early stage of development.

Have a look at the table below to get a better idea about the return potential of small cap stocks over a 10 year period. Small cap wonders Change in share prices over the past 10 years 

Conclusion

All these categories consist of some really good long term investment opportunities. As such, investors must decide the allocation based on the opportunity's merit and not just whether it is a large cap, mid cap, or small cap. 

But purely as a matter of prudence and safety, investors looking to build a portfolio from a 10 to 15 years perspective can have a 60-70% allocation to large caps and 10-15% each to mid and small caps. Treat this allocation as just a guideline and, we repeat, allocate your equity portion using your understanding of different kinds of companies across different levels of market capitalisation. 

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Proposed Income Tax Slabs & Rates for Assessment Year 2015-16 (applicable on income earned during 01.04.2014 to 31.03.2015)

(1) Individual resident aged below 60 years (i.e. born on or after 1st April 1954) or any  NRI ( Non Resident Individual),  HUF( Hindu Undivided Family), AOP(Association of Persons), BOI(Body of Individuals), AJP(Artificial Judicial Person)

	Income Slabs	Tax Rates
i.	Where the total income does not exceed Rs. 2,50,000/-.	NIL
ii.	Where the total income exceeds Rs. 2,50,000/- but does not exceed Rs. 5,00,000/-.	10% of amount by which the total income exceeds Rs. 2,50,000/-. Less ( in case of Resident Individuals only ) : Tax Credit u/s 87A - 10% of taxable income upto a maximum of Rs. 2000/-.
iii.	Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-.	Rs. 25,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-.
iv.	Where the total income exceeds Rs. 10,00,000/-.	Rs. 125,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than Rs. 1 crore. 

Education Cess : 3% of the total of Income Tax and Surcharge.

(2) Individual resident who is of the age of 60 years or more but below the age of 80 years at any time during the previous year (i.e. born on or after 1st April 1934 but before 1st April 1954)

	Income Slabs	Tax Rates
i.	Where the total income does not exceed Rs. 3,00,000/-.	NIL
ii.	Where the total income exceeds Rs. 3,00,000/- but does not exceed Rs. 5,00,000/-	10% of the amount by which the total income exceeds Rs. 3,00,000/-. Less : Tax Credit u/s 87A - 10% of taxable income upto a maximum of Rs. 2000/-.
iii.	Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-	Rs. 20,000/- + 20% of the amount by which the total income exceeds Rs. 5,00,000/-.
iv.	Where the total income exceeds Rs. 10,00,000/-	Rs. 120,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than Rs. 1 crore.

Education Cess : 3% of the total of Income Tax and Surcharge.

(3) Individual resident who is of the age of 80 years or more at any time during the previous year (i.e. born before 1st April 1934)

	Income Slabs	Tax Rates
i.	Where the total income does not exceed Rs. 5,00,000/-.	NIL
ii.	Where the total income exceeds Rs. 5,00,000/- but does not exceed Rs. 10,00,000/-	20% of the amount by which the total income exceeds Rs. 5,00,000/-.
iii.	Where the total income exceeds Rs. 10,00,000/-	Rs. 100,000/- + 30% of the amount by which the total income exceeds Rs. 10,00,000/-.

Surcharge : 10% of the Income Tax, where total taxable income is more than Rs. 1 crore.


Education Cess : 3% of the total of Income Tax and Surcharge.

Types of Mutual Funds

Balanced Funds

Mutual funds that invest in equity as well as debt and money market instruments are termed as balance funds. Normally equity instruments are the major portion of the investment profile ranging from 60 to 80% and rest in debt and money market instruments. The fund house with a variation percentage predetermines the equity to debt investment ratio that they can use to switch majority of the investment into debt at any given point of time.

Large-cap funds

Funds that invest in companies with large market capitalization are known as large cap funds. The definition of large cap stocks are defined by each fund differently and so understanding the fund investment style helps understanding what kind of diversification one can achieve investing in the fund.

Blue-chip, Top 100, Top 200, Equity funds are some of the common names used for large cap funds but investing in each of those funds from same or different fund house does not diversify mutual fund investments.

Mid Cap & Small Cap Funds

Funds that invest primarily in medium size companies or medium market capitalization companies are termed as mid cap funds and funds that invest in small size companies or small market capitalization are termed as small cap funds. Ideally mid and small cap companies are clubbed together into one group by fund houses to name the fund as mid and small cap funds. The idea is to invest into small and medium companies without too much segmentation.

Small and mid cap category of funds tend to avoid the market leader and try to invest in future leaders and have higher returns but with at the price of higher risk.

Arbitrage Funds

Arbitrage funds are funds that remain in cash or debt investments and look for arbitrage opportunities in various market segments like difference in pricing between cash and derivatives segment.

Index Funds

An index fund is benchmarks an index for investment. Some of the popular indexes for mutual funds are Nifty, Sensex, Nifty Junior, Nomura MF Index, and CNX 500 etc.

Investing in Index funds along with a large cap fund may not provide the needed diversification and it may just lead to investing in the same companies through different funds.

Tax-saving ELSS Funds

Funds that have 3 years of locking period and provide tax benefit under the section 80C are termed as tax saving ELSS funds. Every fund house has one tax saving scheme and normally this fund invest in large cap stocks. Check fund specific investments if you prefer to diversify your assets with tax saving funds.

Remember investing in an ELSS fund with a large cap fund may not provide the needed diversification.

International Funds

As the name suggest, funds that invests in opportunities outside India. Some of the funds in this category include L&T Indo Asia Fund, Birla Sun Life Intl. Equity Fund, and DSPBR World Gold Fund. Investing in international fund can provide great deal of diversification. Remember that there are quite a few international funds but all the international funds are not same and some invests in International Equities, where as other invest in international commodities like gold or oil.

Sector Specific Funds

Funds that invest in particular sectors like infrastructure, banking, Information technology, FMCG, power etc. are call sector funds. Like International funds, sector specific funds provide better diversification but unless you want to be diversifying the complete portfolio yourself, it is better to be investing in diversified funds.

Diversified Funds

Funds that neither invest in any particular sector nor invest in any particular sized companies are termed as diversified funds. Diversified funds can be a large cap, mid cap, small cap or even an international fund but normally if a fund is in those categories we tend to name them with those categories and not name them as diversified fund but any fund that does not invest in any given sector is ideally a diversified fund.

Funds of Funds

Funds of Funds or FoF is a mutual fund which invests in different mutual fund schemes instead of stocks and the biggest advantage of investing in funds of funds is you get access to high end closed ended funds and schemes which a retail investor may not be able to invest because of minimum investment limits.

There are 2 kinds of funds of funds i.e. equity oriented and debt oriented. Equity oriented fund of fund invests majorly in equity funds and debt oriented fund of fund majorly invests in debt funds.

Gold Funds

Gold funds primarily invest in Gold ETFs. Investing in Gold ETF’s directly than investing in Gold funds.

Debt Funds

Debt funds invest in short-term or long-term bonds, Central Government Loan, State Development Loan, NCDs or Non Convertible Debentures or any other money market instruments. There can be lock-in periods for investments in such Government instruments but you can invest in those instruments through debt funds without any lock-in period.

Apart from lock-in periods, you are also able to invest in good schemes at any given point of time that may not available when you want to be investing in a debt fund. 

Hybrid Funds

Most of the Balance funds invest majorly in equity to be treated as equity fund for taxation (needs 65% of investment in equity) but funds that do not have equity major investment profile and invest in equity, debt as well as any other money market investment instruments are known as hybrid funds.