The first few financial lessons we learn in our life are mostly from our parents. Our fathers, in particular, have always taught us the little details of personal finance and chances are he may have helped opened our first bank account or take that first insurance.
The first few financial lessons we learn in our life are mostly from our parents. Our fathers, in particular, have always taught us the little details of personal finance and chances are he may have helped opened our first bank account or take that first insurance. However, as times change, fathers may be averse to opening up to new-age financial products even though they may be looking for better alternatives. This Father’s Day take the time out and explain to your dad about how investments have changed and what products in the current market scenario could suit his portfolio and benefit him in the years to come.
Equity Linked Savings Schemes (ELSSs) are often considered not suitable investment for senior citizens, retired or near retirement individuals. While equities may be volatile, if one invests for an average of three to five years, equity investments actually carry moderate to high risk in returns. Also, when you take inflation into account, bank FDs and similar deposits generate returns that are barely higher than the inflation rate.
For tax-saving, ELSS is the only category in mutual funds which qualifies for exemption under Section 80C. Although a 10% LTCG tax is applicable on gains above Rs 1 lakh in a financial year, it is still the lowest among similar capital assets as debt or liquid funds. Moreover, ELSS has a lock-in period of only three years, scoring in the liquidity factor too, compared to other long-term options like tax-saving FDs, PPFs and more.
2. Liquid Funds
Your father may be a Fixed Deposit-inclined person because he sees it as a safe option to park his funds. But given that FD rates have not drastically improved and currently tread around the 5.5% to 7.5% mark for leading banks, liquid mutual funds are a good alternative. Liquid funds allow you to keep your money safe while generating returns marginally better than fixed deposits.
They also do not come with any exit load. So, you get the full redemption amount. There will, however, be tax implications as capital gains on these funds are taxed as per the income tax slab applicable to you.
3. Bigger Health Insurance Coverage
Your father may already have a health insurance, but it’s time to recommend him to top it up and go for higher coverage. Keeping the shooting medical expenses in mind, the government has proposed some tax relief for senior citizens in this year’s Union Budget for the premium paid towards health insurance.
The exemption limit on the premium paid has now been increased to Rs 50,000 from Rs 30,000 under Section 80D. For premiums paid towards critical illness insurance, the exemption limit has been raised to Rs 1 lakh under Section 80DDB. These benefits can also be availed by the ones who are paying for the premiums or treatment of dependent senior citizen, which means you could pay for your father’s insurance and claim the exemption
4. Tax-free Bonds
Tax-free bonds can also feature in your father’s portfolio if he is looking to park funds for a long time. These bonds, issued by government-supported organizations, are sold or bought on the stock exchange as they are listed securities. Just remember not to treat these like FDs as they have a longer gestation period such as 10 years 20 years and so on. Hence one should plan investing a little earlier, may be a decade or five years before retiring, to avoid waiting for too long for them to mature.
Although there is no tax-exemption given to such investments, its biggest boon is that the interest earned is tax-free. However, if there is any capital gain on transferring them on exchanges that will be taxed.
5. Travel Insurance
It’s time you gifted your parents that long-awaited international holiday they always wanted. And chances are they may just be in mood for more than one holiday as they will want to spend their time and retirement travelling the country and the world. But travel hassles like delayed flights, emergency medical costs and more can be a big dampener during vacations. To be financially prepared for such situations introduce your father to travel insurance.
If there is more than one trip on the radar, opt for a multi-travel insurance that will take care of all the trips for the year.
(The writer is CEO at Bankbazaar.com)