Offering a memorable Gift

You won't disagree if I say it is really difficult at times to buy a gift. Giving gifts to the near and dear ones is a special moment for you as well as for the receiver. Hence, everyone thinks of presenting such gifts that are meaningful, functional and at the same time outstanding. A number of people plan for it so that their gifts become acceptable, admirable and remembered always. They think about the recipient and then think about the gift that will spread excitement and joy. They pay a lot of time in thinking, but still they choose wrong ones at times. Recently, one of my friends gifted a child insurance plan for my son. I already had one for my son and regretting. In fact, it really needs a logical thought process especially when you are choosing a financial gift. In this article, we have discussed few gifts for your near and dear ones which would make them happy. 

For kids

 

Gold coins 

Gold makes a great gift idea for valued relationships. And when you talk about important relationships you should not settle for anything but the best. Presenting an envelope of cash to your colleague’s son or daughter doesn’t look better. There is no other gift other than gold in the Indian context, as it makes the recipient feel more important, than the expression of love, respect and piousness. A gift of a few gold coins would really be helpful in future for that kid whom you are presenting that.  

Gift Cheques

If you are going in a birthday party of your friend’s son, it is better to present a gift cheque rather than cash. Certain banks in India issue gift cheques of various denominations.  A number of banks in the country issue gift cheques of the denominations of Rs. 51, Rs.101, Rs.501 etc. These gift chques are generally issued free of charge. The cheques are encashable at par at all branches in India.

Savings account

Open a savings account on the name of your child. This little step taken would create awareness about savings and investments in the child. By doing this, you are laying a strong foundation of financial management in the child. Children get cash on various occasions like birthday etc. They should deposit this cash in that account.

Term Insurance

Every family has a lifestyle and a standard of living. But it would be really difficult for your family and children to maintain the same lifestyle in case you meet with any unfortunate incident. Hence, it is prudent to buy a term insurance for yourself and make your children its nominee.

SIP in mutual fund

Starting a mutual fund SIP in your child's name is another great gift. Just as drops of water make an ocean, smaller but regular investments would build wealth over a longer period. There are various schemes available in which you can deposit as little as Rs.100 regularly every month. 

Fixed deposit

If you are a new generation person, you may consider fixed deposits a bit old fashioned. But with the interest rates going up and considering the security factor underlying with this, fixed deposit is really a hot avenue. You may consider gifting a fixed deposit to the child at his young age. This amount may prove beneficial when he would need a lump sum amount later.

For Sister

Gold bars and coins

You may be thinking that she has enough of jewellery and that is being kept in the locker only. Hence, if you really want to gift her Gold, it is better to go with Gold coins and bars. These make better investment sense than jewellery, simply because when you sell them, you get almost the full value. Making charges on Gold coins and bars are negligible if you compare it with jewellery. 

Prepaid Gift card

Gift card is a prepaid card supported by a magnetic strip that can be used at a number of merchant outlets across the country either for shopping, eating or for other purposes.  These cards can be loaded with any value between Rs.500 and Rs.50,000.  This card is far more better than cash, as it will give her the freedom to choose her own gift. Some banks have also given the flexibility of re-loading the gift cards. 

Single premium ULIP

Suppose your sister is getting married. Instead of giving an extra household item, you may gift her single-premium unit-linked insurance. As the name suggests, the buyer needs to pay just one premium. Hence you pay for it and your sister doesn't need to pay later. The majority of the premium, after deducting the premium allocation charge, is invested. Other than the investment, the life of the individual is insured for a certain amount of sum assured. 

For Elders

Health insurance

It is really a nice idea to gift a mediclaim policy to parents. It would really relieve them from the pressure of paying hospital bills. No issues, if your parents haven't got mediclaim policy yet. There are number of insurers who cover senior citizens above 60 years. Usually, these companies charge more premium for providing health cover to elderly people. Besides, most of the companies offer cover to these people with co-payment option.

Monthly income scheme

Parents would get pension when they would retire, but as a son or daughter; it is really wonderful to gift them an investment plan which would provide them a monthly income to take care of their daily expenses. There are possibilities that your parents may not be depending on your financial help, but this monthly extra cash flow from this investment gift will allow them to enjoy their life more. Asset management companies are offering number of Monthly Income Plans (MIPs) which can do for you. Besides, Monthly Income Scheme (MIS) from India Post can also be considered.

For Friend 

The Silver notes are looked upon as a good investment and gift option vis-a-vis coins and bars nowadays. The denomination of the note is equivalent to Silver weight. For example, an Rs.50 note is equivalent to 50 grams of silver. Jewellers are minting notes of various denominations such as Rs 500 and Rs 1,000. Your near one would feel really happy with this gift.

For Driver

It is a nice thing to gift a personal accident policy to your driver. He may think that buying a cover is very costly and avoid investing. There are number of personal accident policies available with insurance companies which provide compensation in the event of death or disability. For him, you should choose such a policy which offers compensation in case of death or bodily injury to the insured person, directly and solely as a result of an accident, by external, visible and violent means.

For Maid and Servant

Maids and household servants care for us a lot and it is our moral duty to return something to them apart from their salary. They don't buy mediclaim policies, but are bound to pay heavy prices when they visit hospitals. Hence, you may consider buy and gift a mediclaim policy for your household servant and your maid. In addition, you can buy maid insurance policy as well for your maid.

Remember, your gift can be taxed 

Though India does not have a gift tax, but as per the income tax provisions a gift of sum of money or gift of property exceeding Rs. 50,000 without a consideration could trigger income tax in the hands of the recipient of the gift. For the purpose of taxation of gifts, property means: immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptured, bullion/ Silver and any work of art. Tax will be triggered, if the transaction entails gift of property, other than immovable property without consideration, if the aggregate fair market value of property exceeds fifty thousand rupees. The 'fair market value' of a property will be the price it would fetch if sold in the open market on the valuation date as determined by a registered evaluator. Gift of sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees is taxable. As for where an immovable property is gifted, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property will be taxed in the hands of recipient. The recipient of gift has to pay tax on the value of the gift.

All the thought behind a gift is to give some happiness and not to add to the worries of the recipient. Hence, gifts of sum of money or property received are not taxable in the hands of the recipient in the following cases: (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the law; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution as specified in the law; or (g) from any trust or institution registered under law.Any gift you receive from your relatives is not taxed irrespective of its value. For the purposes of taxation of gifts, relative means: (i) a spouse; (ii) brother or sister; (iii) brother or sister of the spouse of the individual; (iv) brother or sister of either of the parents of the individual; (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; (vii) spouse of any person referred to above.

Gifts received at the time of marriage

All gifts received by you at time of marriage are tax free, irrespective of their amounts and irrespective of the person gifting them to you. The gift doesn't have to be given on the exact day of your marriage - it can even be a day before or after. There is no specific limit of time, but you should be able to establish that the gift was given for your marriage.

Income from gifts

If one invests the cash gifted to in shares, the income generated from this will be taxed. Though the one who receives the gift has to bear the tax burden on any interest earning from it, the case is different in the case of spouses. Suppose a man gifts his spouse Rs 5 lakh and the entire amount is put in a fixed deposit earning 9% interest a year. This means that the wife will earn Rs 45,000 as interest income, but this money will be added to the husband's account and he will have to pay tax on it.

Transferring assets to spouse or fiancé

If you transfer a property, for example a house to your spouse, any income accruing to your spouse from this property would be clubbed with your income. However if you transfer the same property to your fiancé to which you are getting married soon, then even after your marriage, any income generated from this property shall not be clubbed under you income.

(Published in Money Mantra)

 

Financial planning for people with Irregular Income

Many people with irregular income think that they don't need to create a budget. They think since there is not a fixed income on a fixed date of the month, they don't require the planning for income and expenses. Most of such persons spend their money on need basis and are not able to collect money for hard times. In fact, planning is even more important for the people with irregular income than for the salaried persons. Without budgeting skills, such people are unable to survive properly and make their life difficult. When one is into an income stream that is irregular, the onus is really on him to follow a proper financial game plan. In this write up, we would discuss such issues for people with irregular income and try to suggest better ways as far as their financial life is concerned. Like others, financial matters for such people can be divided into three parts- budgeting, spending and saving & investment. 

Budgeting is the key

Financial planning for such people starts with budgeting itself. People with irregular income should divide their funds into three parts- fund for day to day expenses, savings and contingency fund. Contingency fund is made for expenses for sudden and unexpected situations. One should keep aside cash equivalent to at least six-nine months expenses. This serves as a cushion for an extended lean period. First and foremost thing is to make the proper budget and follow the routine plan.

Invariable fixed expenses: Whenever one starts making a budget, he should start with invariable fixed expenses. There are some very essential expenses every month like your home rent (if one lives on rent), EMIs and insurance premiums. These are fixed amounts due for every month and one should make his budget including these all. This is the amount one needs every month at any rate and one can't trim it, regardless he earns Rs.50000 or nothing.

Variable fixed expenses: Next category is variable fixed expenses, which includes expense heads needed every month, but vary in amount. These include various utility bills (like electricity bill, bill of phone, bill of internet usage etc) and grocery bill. These expenses can be trimmed down drastically if one sees things getting difficult. People with irregular income can prepare themselves to deal with variable fixed expenses. Ideally, they should anticipate the highest amount they have fixed for this head (to maintain the same standard of life), but be ready to cut back if required. The mantra is- hope for the best but prepare for the worst.

Needed income: By adding invariable fixed expenses and variable fixed expenses, one would come up with a number (an amount) which is required every month to run the life smoothly. But one shouldn't forget to add ten per cent of the sum as miscellaneous expenses. This would show that what one needs to make every month in order to meet his most basic expenses comfortably. On the other hand, one should know that how much he would be making that month (a rough idea). By mid-January, one should have a good idea how much he would be getting during February.

Life doesn't stop: We have discussed it earlier that people with irregular income should divide their funds into three parts- fund for day to day expenses, savings and contingency fund. One may open three accounts for these three parts. Fund to meet the expenses of January should be kept aside in first account well before January. Let us understand it in detail. Suppose one has to arrange Rs.30000 per month to meet the both ends. Hence, it is necessary to arrange Rs.30000 and put that in first account.

People with irregular income know that cheques may not come for weeks or even months. If the income comes up short, one should take a temporary loan from savings account to bridge the gap in income. It is important to note that this loan from savings account should be repaid as and when situation gets better.

Spend the money sensibly

Every person in the world earns and spends money, but people who spend money sensibly can do wonders. A little difference between these people and others is smartness of spending on right things on right time and skipping the non-required expenses smartly.

Plan spending in a better way: Sometimes it is really helpful for the people with irregular income to adopt an approach of not purchasing more than is absolutely needed. Such planning of spending ensures the focus on the fact that how big one can cut from the variable fixed expenses and how much one can save each month. It's a matter of how much extra savings can be built up, and this can be done by if one practices saying no on several occasions. 

Skip the non-required expenses: People spend a lot of money for buying new clothes or buying books or eating outside. These are the expenses that are completely within one's control. These are the things on which one can spend money if he can afford. The expense of this non-required category can be skipped and can be trimmed if one doesn't have money. It is better to postpone buying of books for times when he has extra money. One may choose not to spend money on clothes at all for several months. Then, he may plan to make clothing purchases on few occasions.

Pay the bills and debts on time: Money should be arranged for bills and EMIs in advance and these should be paid on time. One must understand the fact that paying these on time saves some extra bucks every time. It is better to pay the debt than parking that into a savings account. If one has Rs.50000 earning 4 percent in a savings account, whereas his credit cards are losing 40-42 per cent, then it's a better idea to pay the card dues. Once the debt is paid, one can transfer that same monthly payment into a savings account.

Better to go for foreclosures: It is not that all the twelve months are lean months for the people with irregular income. There are always few better months which fetch them good amount. Whenever one gets a handsome amount, it is better to settle the existing loans, even if they are expensive. Despite the prepayment fee, it is advisable to dispose of all the loans as soon as possible.

Save and invest smartly

One shouldn't keep all his funds in the first account. Instead, one should try to put the extra amount (after keeping the day to day expenses aside) in the savings account. Following the routine plan is the best way to save. If one continues this for few months, he would don't even notice that he is not spending as much as earlier. Some people don't save because they are left with a very little amount after expenses. They should not feel ashamed in starting with a very little amount, but the important point is to get started. Keeping a long term view helps one realize the value of a small start. It is really foolish to save money and keep idle into a savings account. The next step is investing the money so as which proves to be helpful for future.

Buy Life and medical insurance: Life insurance plan is thoughtful investment that can be helpful in financial security of the family. Every family has a lifestyle and a standard of living. This is mainly based on the earnings of the head of the family. It would be really difficult for his family and children to maintain the same lifestyle in case he meets with any unfortunate incident. Hence, it is prudent to buy a term insurance for himself and make the children his nominee. A single-premium policy is the perfect idea for people with irregular income as they are not paid regularly. Another thing, which is necessary, is to buy a family floater mediclaim policy. It would really relieve him from the pressure of paying hospital bills.

Opt for liquid plus schemes and short term FDs: Saved money can be invested into liquid or liquid plus schemes. One can invest lump sum in such schemes and move the money over time, say six or 12 months. Such investing will ensure that the money is in the hands and does not get spent. One can use short term FDs as well which can be accessed at a very short notice.

In addition, sweep-in option offered by banks for a savings bank account can earn interest for investors. This facility puts money from the investor's account into a short-term fixed deposit and puts the money back into that account if there is a deficit when one has issued a cheque.

Public Provident Fund and NPS: One must think about the necessities of the years to come well ahead. Public Provident Fund is a good investment option to build a corpus for the future. It gives eight and a half per cent after-tax returns. One can invest as low as Rs.500 to as much as Rs.1,00,000 per year in his PPF account. Insurance companies and mutual funds are offering several pension plans but New Pension System (NPS) can be preferred to collect a corpus for the years to come.
(Published in Money Mantra)