If you understand how to invest in mutual funds you can easily find a way to improve your finances. Everyone wants easy money. If you have money sitting around and are not using it, it is natural to turn to the stock market as an investment option.

Unfortunately the stock market is fickle and it is far too easy to loose money if you don't know what you are doing. Most people have no idea where to start, let alone how to actually make money.

The amount of research needed to make good investment choices is overwhelming. Fortunately small investors no longer need to do this research. Mutual fund providers do the research for you and present a range of options you can understand.

With managers and brokers who understand the current markets and who understand how to take advantage of it, mutual funds give investors an upper edge in investment. Those who choose the stocks that make up the funds keep up-to-date with all the information and make choices to make their mutual fund the most profitable to all involved.

Some mutual funds wind up costing investors a lot of money. Managers and brokers take fees to pay for their expertise. When investing, it is smart to look for a no penalty mutual fund to minimize extra fees.

No load funds are in fact just as good as mutual funds where you can expect to pay fees. Sometimes they are even better. Having extra fees does not make your investment any more secure or productive.

There is an amazing amount of information available for those who are looking to invest. You can find information in books and articles from magazines and financial journals. Newspapers often discuss investment information in their financial pages. There are many websites and other internet sources with lots of investment information. Many mutual funds also offer pamphlets to read at no cost. By researching you can learn all about your investment possibilities.

It is very important to read up as much as you can before investing. It is your knowledge that will help you find a mutual fund that suits your needs.

Tips on hidden fees and unseen risks will help you understand what goes on behind the scenes in the mutual fund world. You can avoid many pitfalls by researching carefully. There is also a lot of information on the history of individual companies and funds and you can track their performance to see their track record.

It is easy to buy into a mutual fund once you find one that suits your needs. With lots of information available you can be in charge of your investment choices and know how to invest in mutual funds effectively.

complete and Proper tax planning is a basic duty of every person which should be carried out religiously. Basically, there are three steps in tax planning exercise. These three steps in tax planning are:

Calculate your taxable income under all heads ie, Income from Salary, House Property, Business & Profession, Capital Gains and Income from Other Sources.

Calculate tax payable on gross taxable income for whole financial year (i.e.,From 1st April to 31st March) using a simple tax rate table, given on next page.

After you have calculated the amount of your tax liability. You have two options to choose from:

-Pay your tax (No tax planning required)

-Minimise your tax through prudent tax planning.

Most people rightly choose Option 'B'. Here you have to compare the advantages of several tax saving schemes and depending upon your age, social liabilities, tax slabs and personal preferences, decide upon a right mix of investments, which shall reduce your tax liability to zero or the minimum possible.

Every citizen has a fundamental right to avail all the tax incentives provided by the Government. Therefore, through prudent tax planning not only income-tax liability is reduced but also a better future is ensured due to compulsory savings in highly safe Government schemes. We sincerely advise all our readers and clients to plan their investments in such a way, that the post-tax yield is the highest possible keeping in view the basic parameters of safety and liquidity

Exiting an insurance policy is not just a matter of procedure. It’s equally important to know if it’s financially viable.

The earliest exit option available on a life insurance policy is 15 days. It’s called the ‘free-look’ period. Some insurers have extended this period to 30 days. This is basically an option to return your policy (if you don’t like it) and get your money back. But the problem is that unlike buying consumer products such as washing machine or weight reducing equipment, the 15 to 30-day period is too less to understand whether you have made a bad decision.

Apart from this ‘early bird’ exit option, there are three other possible ways to exit an insurance policy. They are — exit by way of policy lapse or surrender or making the policy ‘fully paid’.

As a rule, there are no exit options available during the first three years of policy tenure. And after three years your insurance policy acquires a cash value. Insurers call that as the surrender value, which is usually around 30% of the total premiums paid after the first year. The surrender value increases as you inch closer to the maturity date of the policy. For example, if you have paid an annual premium of Rs 30,000 and want to exit in the fifth year, the surrender value will work out to Rs 45,000. That would 30% of the premiums paid for five years. Now, you will have to decide if you want to reinvest this money to make up for the losses and facilitate wealth creation by investing in other high yielding instruments.

For instance, it might not be a bad idea to exit a participative pension policy (which usually maintains debt oriented portfolio) after the first five years and reinvest in an equity oriented portfolio. With an investment horizon of 10 years or more, you could get a better deal. You could also convert endowment plans to whole life plans and in the process make the policy a fully-paid one. In effect, you don’t pay any more premiums. Accordingly the insurer will lower the sum assured as the years pass by. However, in this case you get the sum assured and the bonus accrues only after the policy ends.

One word of caution here: whenever you quit from your insurance investment, you have to ensure that you have taken an adequate risk cover as a back up for the unseen contingencies.

When should you hold on?

If you have another 5 years to go for the expiry of the policy, its better to stay invested. Essentially your policy would be growing well at this stage after factoring in all the costs and other deductions. If you discontinue your policy at this stage, you can’t even generate returns and make up for the losses by investing the balance premiums elsewhere.

Tax implications

If you exit from your policy within three years from the effective date, you will have to pay off for the tax benefits you enjoyed on the previous premium payments. So before deciding to call it quits, it’s better to know how much you would lose monetarily.

The simplest way to avoid all the hassle is just read the fine print. The next time your agent tells you to sign on the dotted lines, do the due diligence. Have a look at the policy document and make sure you understand it.

The year has wound to an end and as we get close to a new financial year, lets ask ourselves how prepared are we for the coming year. You may see that people around you have suddenly emerged from their hibernation and are making a quick run to their financial advisors for their tax planning and Income Tax returns. When it comes to IT returns, the emphasis moves obviously to ‘tax planning’. One needs to outline it well and make maximum use of the benefits offered. Lets find out what options are available to organize your earned cash and avail the tax benefits. One such alternative is ‘Insurance’.

For instance, insurance cannot be viewed, as just a tax saving instrument as most of them wrongly think or view it to be like. The insurance protection component cannot be overlooked just to get the tax settlement. Now, if you have made up your mind to invest in insurance then why not choose an appropriate policy that will suit you perfectly. For example you can choose a retirement product if you are nearing the retirement phase or you could plan out an early retirement policy. In the bargain, you have planned your future as well your tax concern.

It is important to note that the conventional tax planning is not the only method of tax saving, within the given limited options available one can explore a lot more other options too. The schemes available under the section 80C are- Life Insurance, Public Provident Fund, Equity Linked Saving Schemes, National Saving Certificate, Kisan Vikas Patra.

Currently, under Section 80C -- "u/s 80CCC, & u/s 80CCD", the following benefits are available at the current year.

· Rs 1 lakh can be invested under this section without any individual sub-limits except in the case of Rs 10,000 in pension funds.
· Deduction in respect of Life Insurance Premia, Contribution to Provident Fund, etc.
· Sections 88, 80L, 80CCC and 80CCD are clubbed in.
Individuals with an annual income of Rs 1,00,000 are exempt from tax; those falling in the income bracket of Rs 1,00,000-Rs 1,50,000 are subject to a tax of 10%. For those earning between Rs 1,50,000 to Rs 2,50,000 a 20% tax is charged and anything above
Rs 2,50,000, a tax of 30% is paid. A relief is provided to the resident individual belonging to lower income group. A resident individual having taxable income up to Rs 100,000 is not subject to paying any income taxes. Such individual will be entitled to rebate equal to the amount of tax payable on taxable income up to Rs 1,00,000.
However, no such rebate will be available to an individual with the taxable income exceeding Rs 100,000. This will adversely affect individuals whose taxable income marginally exceeds Rs 100,000.



Now, the annual budget ’06-’07 will welcome the new Exempt Exempt Tax (EET), wherein, individuals claiming income tax benefits under 80C will now have to pay taxes on withdrawals. Withdrawals before the expiry of the term will also be taxed. However for the first time investors will have the option to switch between the savings instruments which are mentioned above and the good news is that no tax will be levied for this switching over between the saving instruments. Gratuity payments and superannuation funds will be exempt from this system. All the long term saving instruments are subject to the EET system. However, Short and medium term savings certificates and infrastructure bonds are expected to be outside the EET umbrella.

The new EET system will be applicable from the new financial year or soon after the budget is announced. So wasting no more time, make a quick decision right now. The clock is ticking; make a run for it now.

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