Post office Recurring Deposit (RD) Rule




[Issued vide Ministry of Finance (DEA) Notification No. F.3/15/81-NS(v) dated 17.12.1981 and further amended from time to time]


GSR 666(E) :- In exercise of the powers conferred by section 15 of the Government Savings Banks Act, 1873 (5 of 1873), the Central Government hereby makes the following rules, namely :-


1.      Short title and commencement :- (1) These rules may be called the Post Office Recurring Deposits Rules 1981.

2.      They shall come into force on the 1st  day of April, 1982.


2.  Definitions :- In these rules, unless the context otherwise requires :-


(a)   ‘Accounts’ means a Recurring Deposit Account;

(b)   ‘Table’ means a Table appended to these rules;

(c)   ‘year’ means a year commencing on the date of the first deposit in an account;

(d)   words and  expressions  used  herein  and  not  defined  but  defined  in  the  Post  Office


Savings Bank General Rules, 1981 shall have the meanings respectively assigned to them in those rules.


3.   Application of the Post Office Savings Bank General Rules, 1981 :-

For matters not provided in these rules, the provisions of the Post Office Savings Bank General Rules, 1981 shall apply.


4.   Persons who can open the account :-


(1)   An account may be opened by :-

(a)  A single adult; or

(b)  two adults jointly, the amount due on the account being payable-

(i) to both jointly or survivor or (ii) to either of them or survivor, or

(c)  a guardian on behalf of a minor or a person of unsound mind; or

(d)  a minor who has attained the age of ten years, in his own name.


(2) A depositor can have more than one account in his name or jointly with another.


Note 1 :- Non Resident Indians (NRIs) are not eligible to open RD account. Provided that if a resident who opened a RD account, subsequently becomes Non Resident Indian during the currency of the maturity period, may continue such account till its maturity on a non-repatriation basis.


Note 2 :- The RD account in the name of minor cannot be opened by a person other than a guardian by contravening the provision of Rule 4 (1)(c) of P.O.R.D Rules.


5.      Maturity period :- Maturity period of an account shall be five years.


6.    Deposits :- (1) subject to the provisions of sub rule (2) to (4) and rule 10. A depositor shall make sixty monthly deposits in an account.

(2)   The amount of monthly deposit on accounts opened on a or after the 1st day of April, 1986 shall be a multiple of five rupee, subject to minimum of ten rupees.


(3)   The first monthly deposit shall be made at the time of opening the account and the amount of such deposit shall be the denomination of the account. Each subsequent monthly deposit shall be made before the end of the calendar month and shall be equal to the first deposit.


(4)  Where a deposit is made by means of a cheque, payorder or demand draft, the date of its presentation to the Post Office Savings Bank shall be deemed to be the date of deposit.


7.` Defaults in deposits :- (1) If there are not more than four defaults in the monthly deposits, the depositor may at his discretion, extend the maturity period of the account by as many months as the number of defaults and deposit the defaulted instalments during the extended period.


(2) If there are more than four defaults, the account shall be treated as discontinued. Revival of the account shall be permitted only within a period of two months from the month of fifth default. Interest at the rate of ten paise for every five rupees of a defaulted instalment for each month of default shall also be paid along with such deposit in lump sum and an account in which defaulted instalments are so deposited, shall not be treated as discontinued.


8. Advance deposits : (1) In an account which has not become discontinued account under rule 7, deposits for not less than six monthly instalments may be made in advance in any calendar month at the option of the depositor and rebate on such deposits shall be admissible as follow :


Advance deposits

Rebate for an account of


Rs. 10 denomination

(i)   Six or more deposits but not

One rupee

exceeding eleven deposits made in any calendar




(ii) Twelve or more deposits made in any calendar

Four rupees for every twelve deposits


and one rupee for the balance, if any, of


not less than six deposits.


(2)             For accounts of other denominations, the amounts of rebate shall be proportionate to the rates specified in sub rule (1)


9. Repayment of Maturity :- (1) (a) In the case of an account in which sixty monthly deposits have been made during its maturity period or maturity period as extended under sub-rule (1) of rule 7, the depositor shall be entitled at the end of such period to receive the amount inclusive of interest.


(b) Amount repayable, inclusive of interest, on an account of any other denomination shall be proportionate to the amount specified in the Schedule.


(2) (a) Where an account has become discontinued or where the defaults in monthly deposit in an account have not been rectified during its maturity period or maturity period as extended under sub rule (1) of rule 7, the depositor shall be entitled, on the expiry of such period, to receive an amount inclusive of interest which shall be in the same proportion to the amount .


9 A Premature Closure :- The holder of an account may prematurely close the account after three years from the date of opening of the account provided that interest at the rate applicable from time to time to post office savings account shall be payable on such premature closure of account. However, no premature closure of account is permissible until the period for which the advanced deposits made under rule 8 is over.


10. Accounts continued beyond maturity period :- (1) Notwithstanding anything contained in the forgoing rules, if sixty monthly deposits have been made in an account during its maturity period or maturity period as extended under sub-rule (1) of the rule 7, the depositor may, at his option, continue the account for a further period up to maximum of five years and make monthly


deposits during such further period. Each such monthly deposit shall be equal to the first deposit in the account. The provision of rules 7 and 8 shall be applicable to such deposits also.


(2) An account continued under sub-rule (1) may, at any time, be closed by the depositor and on such closure he shall be entitled to receive repayment of the amount, inclusive of interest as follows :


(a)   If the account is closed after being continued under sub-rule (1) for a completed number of years, the depositor shall be entitled to received the amount.

(b)   If the account is closed after being continued under sub rule(1) for a period of less than one year, the depositor shall be entitled to receive the amount as specified under sub rule (1) of rule 9 together with (i) interest on such amount for the complete months for which the account was continued and (ii) the amount of deposits made by him during the period for which the account was continued and (ii) the amount of deposits made by him during the period for which the account was continued.

(c)   If the account is closed after being continued under sub-rule (1) for a completed number of years not exceeding 4 and for a part of a year thereafter, the depositor shall be entitled to receive (i) the amount as specified in table 1,2,11,13,17, 20,22, 26,29,32,35,38 or 41 as the case may be relevant to the completed number of years


(ii)   interest on such amount for the complete months in the partial years, and (iii)_ the amount of deposits made by him during the partial year.

(d)   The interest referred to in a clause (b) and (c) shall be calculated at the rate applicable, from time to time, to savings accounts of the type of single or joint account.


11. Retention of amount repayment beyond maturity period :-


(1)   Notwithstanding anything contained in the foregoing rules, if sixty monthly deposits have been made in an account during its maturity period or maturity period as extended under sub-rule (1) of rule 7, the depositor may at his option continue the account and retain in it the amount of repayment due under sub-rule (1) of rule 9 for a further period up to a maximum of five years without making any fresh deposits during such further period.


(2)             On closure of the account at the expiry of the further period referred to in sub-rule (1), the depositor shall be entitled to received repayment as follows


a) If the further period is less than

The amount due under sub-rule (1)  of rule  9

one year

together  with  interest  on  such  amount  for  the


complete months in the further period.

b) If the further period consists of

The amount specified in Table

completed years only.



or 42 as the case may be.

c) If the further period consists of completed

The amount specified in Table 3.4

years not exceeding four and part of the

12,14,18,21,23,27,30,33,36,39 or 42 as the case

year thereafter.

may  be,  relevant  to  the  number  of  completed


years together with interest on such amount for


the  complete months in the partial year.


3) The interest specified in clauses (a) and (c) of sub-rule (2) shall be calculated at the rate applicable from time to time to savings accounts of the type of single or joint account.


12. Repayment on death of a depositor (1) Subject to sub-rule (2), on the death of the depositor in a single account or of both the depositors in a joint account, no further deposits shall


be made in the account and the procedure specified in rule 13 of the Post Office Savings Bank General Rules, (1981) shall apply. For the purpose of such procedure, the amount due for repayment on the account shall be as follows :-

a)     If sixty monthly deposits have bee made The amount specified in sub-rule (1) of rule 9 and the account has not been continued

under sub-rule (1) of rule 10 or rule 11

b)     If less than sixty monthly deposits have


been made in the account; and


i)        If the nominee or legal heir desires to receive the amount due on the Expiry of maturity period or extended


period under  sub rule (1) of rule 7; or


ii)  If the nominee or legal heir desires to receive the amount due at any time earlier than under (1) above.



c)      If the account has been continued Under sub-rule (1) of rule 10 or rule 11


The amount specified in sub-rule (2) of rule 9, subject to the provisions of rule 13.





The amount specified in Table 5, 6, 7,8,9, 10,15,16,19,24,25,28,31,34, 37,40 or 43

as the case may be subject to the provisions of rule 13


The amount specified in sub-rule(2) of rule 10 or rule 11, as the case may be.



2)                Notwithstanding anything contained in sub-rule (1) if there are only one or two surviving nominees or legal heirs, he or they may continue the account and receive repayment of the amount inclusive of interest, in the manner provided for in these rules, as if the account had been opened by him or them.


3)                On the death of a depositor in a joint account, the surviving depositor shall be treated as the sole owner of the account and he may deal with in my manner provided for in these rules, as if he had opened the account in his name. If less than sixty monthly deposits have been paid into the account, he shall also have the option to close the account immediately and receive the amount specified in Table 5,6,8,9, 10, 15, 16, 19, 24, 25, 28, 31, 34, 37, 40 or 43 as the case may be.


4)                On the death of the guardian of minor or lunatic depositor, the new guardian may close the account and claim the amount as specified in sub-rule (1) or (2) of rule 9 or sub rule


(2)  of rule 10 or sub rule (2) of rule 11 or Table 5, 6, 7, 8, 9, 10, 15, 16, 19, 24, 25, 28, 31, 34, 37, 40 or 43, as the case may be, if the same is required in the interest of such depositor.


13. Repayment of full maturity value on the death of the depositor in certain cases (Protected Savings Scheme) (1) Where the depositor in a single account or the surviving depositor in a joint account dies during the maturity period of an account or its extension under sub-rule (1) rule 7, the legal heir or nominee, as the case may be of such depositor shall be entitled to receive the amount specified in sub-rule (1) of rule 9 as if the depositor had paid all the sixty monthly deposits subject to the following conditions namely :


i)   The payment of full maturity value under this rule shall be restricted to the maturity value of an account of denomination of fifty rupees.

ii)   The account has not become a discontinued account.

iv) The period from the date of opening the account to the date of death of the depositor or surviving depositor, as the case may be, is not less than two years.


iv)   The age of the depositor or depositors, as the case may be, at the time of opening the account is not less than 18 years and not more than 53 years. At the time of opening the


account or thereafter, every depositor shall give a declaration in writing to the Post Office Savings bank indicating his age at the time of opening the account. Where such declaration has not been given by the depositor or depositors, the claimant shall furnish a certified copy of the School Leaving Certificate of the deceased depositor or a declaration on a plain paper as to the age of deceased depositor at the time of the opening the account duly attested by a Gazetted Officer or a Magistrate (including Honorary Magistrate) or a member of Parliament or of a Legislature (including the Metropolitan Council for Delhi) or a Panchayat President or Pramukh.


v) The first twenty-four monthly deposit have been made without default.


14)             Withdrawal :- (I) Subject to the provisions of sub rules (2) to (7), where an account has not become a discontinued account under sub rule (2) of Rule 7, one withdrawal not exceeding fifty percent of the deposits made in the account may be allowed after the account has been in operation for at least one year and twelve monthly deposit have been made in the account.


2)              The amount of such withdrawal shall be multiple of five rupees. It may be repaid at any time during the currency of the account, in one lump sum or a in equal monthly instalments


3)              Simple interest at the rate specified below shall be payable by the depositor :



a)     For withdrawal made during the Period from 1st April, 1993 to 31st December, 2004.


b)     For withdrawal made on or after 1st January, 2005.


– 15 per cent per annum.



-2 per cent over and above the interest rate applicable to the deposits made for a period


of five years under the POTD Rules, 1981, on the date of withdrawal. [7.5+2 =9.5% p.a)



4)                In the case of repayment in one lump sum, interest at the rate specified in sub rule (3) shall be calculated on the amount of withdrawal for full calendar months from the month of withdrawal to the month of repayment irrespective of the date on which the amount is withdrawn or repaid. If the repayment with interest is made on or before the 10th of a month, no interest shall be payable for that month.


5)                In the case of repayment in equal monthly instalments the amount of each instalment shall be be multiple of five rupees and the number of instalments shall not exceed the number of months remaining for maturity of the account or the post maturity period for which the account is continued under rule 10 or 11. The interest at the rate specified in sub-rule (3) shall be calculated on the amount remaining unpaid at the end of each month from the month of withdrawal and the total amount of such interest shall be payable in lump sum alongwith the last instalment of repayment of the amount withdrawn or in the month next following the month in which the last instalement of the amount withdrawn is repaid.


6)                During the maturity period of an account or its extension under sub-rule (1) of rule 7 or sub-rule (1) of rule 10, the monthly instalment of repayment of withdrawal, if any, shall be payable alongwith the monthly deposits. If an account is continued beyond the maturity period without any fresh deposits under sub-rule (1) of rule 11, monthly instalment of repayment of withdrawal, if any, may be paid during the period of such continuance.


7)                Where, for any reason, the amount of withdrawal or a part thereof has not been re-paid or the interest thereon has not been paid by the depositor before the closure of the account, any outstanding amount due from him in this behalf shall be recovered from the amount payable to him or to his nominee or legal heir, as the case may be, on the closure of the account.


14A Mode of payments :- All transactions of recoveries, withdrawals , repayments, etc. under these rules shall be rounded off to the nearest rupee and for this purpose any amount of 50- paise or more shall be treated as one rupee and any amount less than 50 paise shall be ignore.



(15) Procedure on the minor attaining majority : (1)_ A minor on whose behalf an account has been opened may on his attaining majority :


a)     continue the account for full maturity period or maturity period as extended under sub-rule (1) or rule 7 or for a further period under rule 10 or rule 11, as the case maybe; or


b)     if he does not continue the account any longer, claim proportionate amount as specified in sub-rule (2) or rule 9 on expiry of maturity period, or the amount due under suble-rule (2) of rule 10 or sub-rule (2) of rule 11, as the case may be.


2)     For purpose of clause (a) of sub-rule (1) the ex-minor shall give a declaration as follows :


“ I hereby declare that the post office savings Bank General Rules, 1981 and the Post Office Recurring Deposits rules 1981 have been read by/to me and that I accept the said rules and all such amendments thereto as may be issued from time to time as binding on me. ”


16. Repeal and Saving : (1) The Post Office (Recurring Deposits) Rules 1970 are hereby repealed.


2) Notwithstanding such repeal, anything done or any action taken under the rules so repealed shall be deemed to have been done or taken under the corresponding provisions of these rules or the Post Office Savings Bank General Rules, 1981

Tax on Capital protection funds

A capital protection-oriented fund is a closed-ended debt scheme of a mutual fund. The fund manager invests money in both equity and fixed income instruments in a pre-determined ratio.

Most of your money is invested in high quality fixed income instruments that are expected to mature in sync with the end of the scheme tenure.

High quality fixed income instruments include instruments with high ratings that imply low possibility of default.
This ensures that by the end of the scheme term, the money invested in these instruments grows to the original sum invested in the capital protection-oriented fund. Rest of the money is invested in equity.

To understand it better, let us take an example. Suppose `1 lakh is invested in a capital protection fund with a three-year tenure.

If the fund manager comes across instruments of high credit quality with the least possibility of default, offering 8% return per year, he would invest approximately 80% of the money into a portfolio of such instruments.

This will ensure that this money will grow to `1 lakh at the end of the tenure and you are assured of getting your money back. The remaining 20% of the money in this case is invested in equity. While fixed income instruments assure your capital back, equity brings in the much needed returns.

Put simply, the performance of the capital protection-oriented funds will depend on the fund manager’s ability to choose the right calls in equity.

A point to note is that the fund does not guarantee your capital. In extreme situations, if the issuers of the high quality fixed income instruments default, a scheme may show capital loss.

Normally, if the investor remains invested till maturity of the scheme, he is likely to get the capital back along with returns generated by equity.

Units of the capital protection oriented scheme are listed on the stock exchanges. However, they are rarely traded on the stock exchanges offering little liquidity to the investor.

Capital protection oriented funds are taxed like a debt mutual fund , where long-term capital gains are taxed at 10.3% without indexation or 20.6% with indexation, whichever is lower.

Source: Economic Times

How to earn better returns from your MF portfolio

Pick up any mutual fund portfolio of an active investor and you will usually find it beset with typical problems. These can affect the overall performance. If we can understand, identify and rectify these common blunders, we can make much better returns out of our money.

A bloated Portfolio

Many people have the habit of collecting funds. Over time, therefore, you will find such portfolios having 40-50 funds. Diversification is good, but over-diversification is not.

Firstly, a large portfolio would mean that some funds in the portfolio will always be below-average, thus dragging down your total returns. Secondly, even with all the support of the computers and specialized websites, it is not possible to effectively manage a large portfolio. This again is going to impact the performance on the whole.

One should, therefore, have a limited but power-packed portfolio. The idea is to extract maximum punch with minimum cost and effort.

Chasing the Top Performers

There is too much focus on the performance and that too usually the recent one say over 3 months to 1 year. That’s why you always find this fascination among people for fund rankings.

Of course, performance matters! But making performance (and that too short-term) as the sole selection criteria can prove counter productive.


Historical evidence shows that no fund can always remain the top performer. It also shows that a fund, which has been consistently amongst the top quartile say over 3-5 years, will usually continue with its’ good performance. Similarly, a consistently poor performing fund usually finds it difficult to make it to the top.

Besides this the markets, as we all know, are highly sentiment-based. Therefore, more often than not, you will find some theme or the other being market fancy. It could be infrastructure, mid-caps or technology and so-on. At any given time you will find that most of the top performers belong to the same category.

So if you chase top performers you will end with similar schemes in your portfolio. In the process, the portfolio becomes concentrated, defeating the very idea of using MFs to diversify one’s investment.

Your focus should not only be the past performance but also reputation & management of the AMC, fund’s investing style & focus, asset size, etc., besides of course, other key factors such as your investment horizon, risk appetite and other funds in your portfolio.

Mismatched and Unbalanced

It is but natural that the money you need in the short term should be in debt, while only the long term money should be in equity. Liquidity apart, your asset allocation between debt and equity should be in line with your risk appetite.

Some people of course do not do so. Some others start in planned manner. But, as equity and debt follow different paths, over time the portfolio will become mismatched and unbalanced.

As such you may either be over-exposed to equity thus increasing risk; or under-exposed thus losing out on the benefits of equity.

Or a liquidity mismatch may happen between the investment and your need. For example equity markets may be down when you need money, thus forcing you to sell at a loss.

Thus your portfolio needs timely review and correction in tune with your risk appetite & liquidity needs.

Infested with NFOs

Thousands of pages have been devoted to pointing out the myth of NAV. Yet the logic that NAV has absolutely no bearing on the future returns, simply does not register with a common investor.

Hence one can see thousands of crores flow into NFOs especially in a bull market, while the existing funds get practically nothing. In fact, it’s the opposite. People switch out of existing schemes to invest in NFOs under the false impression that Rs.10 NAV fund is cheaper.

As such a typical portfolio would be infested with NFOs. Higher costs in NFOs vis-à-vis existing funds will eat into the returns. Also as the so-called low NAV is why you invested in the NFO, it is quite likely that the fund’s style and focus does not fit with your needs. This also is going to hamper your returns.

Too Much Churning

Call it impatience or a false sense of being proactive or the instant-culture – we simply cannot wait and watch our portfolio grow. We always feel that we need to do something regularly.

Therefore, as soon as a fund shows good appreciation, we are quick to book profits. Or if a fund does not move for some time, we are equally prompt to dump it. This, for one, is adding to the costs in terms of capital gains taxes, entry loads, exit loads, STT, etc. But more importantly, we may be getting out too soon and thus missing out on future performance.

For example, I know investors who want to exit from some funds whose focus is on smaller or mid-sized companies. Now these are the funds, which usually will take time to show returns. It’s quite logical. A Bharti or a Suzlon or an Infosys did not become big in one day. Similarly, who knows how many such future stars are there in these funds? If we wait for 3-5 years, many such budding companies will blossom into beautiful flowers and give us super-normal returns. The question is – are we willing to wait for it?

Building and maintaining a well-diversified and balanced portfolio is no rocket science. All it needs is common sense and discipline to act prudently, promptly and purposefully.


Minimising capital gains tax

If you switch from dividend option to growth in a mutual fund during the year, it could attract tax.

Many retail investors are looking to take advantage of the soaring indices by selling their stocks and mutual funds (MFs). Besides booking profits, they can adjust such profits against any loss-making investments, thereby minimising the tax on capital gain.

Investors need to keep a few details in mind. Any Long-Term Capital Gain (LTCG) arising out of sale effected on or after October 1, 2004, on shares and equity-oriented MFs are exempt from tax. This provided, the transaction was on a recognised stock exchange in India and the investor has borne the Securities Transaction Tax (STT) on the sale.


The Income Tax Act says capital losses can only be set off against capital gains – other incomes like salary or business income cannot be used. Long- Term Capital Loss (LTCL) can only be set off against taxable LTCG. However, Short-Term Capital Loss (STCL) can be set off against both Short-Term Capital Gain (STCG) and taxable LTCG.

STT is not required to be paid on the following transactions taken place on or after october 1, 2004:

  • Asset other than equities and equity-based MF schemes
  • Sale of equity shares which has not taken place on a recognised stock exchange in India.
  • Redemptions, share buy-backs by the companies.

On such assets, LTCG will be taxed at 10 per cent without indexation or at 20 per cent with indexation, whichever is lower. STCG is considered as normal income of the assessee, added to the income and taxed at the slab rate applicable.


Both LTCG and LTCL are tax-free. So any LTCL incurred from October 1, 2004, arising out of sale of equity shares or equity MFs cannot be set off against any LTCG, even the one arising out of, say, housing property. But it is possible to save tax on LTCGs by using Sec 54EC, 54F, 54 and carrying forward the losses.

Take the case of an individual who has earned taxable LTCG and has invested the gains immediately thereafter in infrastructure bonds, to bring his capital gains tax to nil. The question arises, if during the same financial year, he incurs a LTCL, can he offset the loss against the gains, in spite of having invested in the bonds under section 54EC? Also, can he carry forward the loss?

The answers to these questions lie in the fact that sections 54/54EC/54F are exemptions and not deductions. In other words, if an income is eligible for exemption, it is not to be included in the computation of income. On the other hand, deductions (Secs. 80C, 80G, 80D, 80U) are to be claimed after having aggregated the incomes from different sources.

After having claimed the exemption under section 54/54EC/54F, an income ceases to be taxable. As such, the full amount of capital loss can be carried forward. So, if the assessee earns LTCG later in the same financial year, he can invest in bonds within six months, claim exemption under section 54EC and carry forward the loss.


If an investor is contemplating a switch from dividend to growth or vice versa within a MF, he could attract capital gains tax liability. One should take care to see that the investment has been done over a year. In that case, LTCG would be exempted, else the same would be taxable. However, a switch from dividend to dividend-reinvestment option will not invite any tax liability.

Since due to current tax laws, there is no difference between dividend reinvestment and growth, it is suggested that if the switch is being made before a holding period of one year, it should be done in the dividend reinvestment option. This would give a benefit similar to the growth option but without the attendant tax liability.


5 Mutual Fund Myths

It is easy, even for an intelligent investor, to be taken in by the hype surrounding a mutual fund scheme. Such misconceptions can impact the investments, which is why they need to be debunked. Here are the five common myths:

1. A fund with a net asset value (NAV) of Rs 10 is cheaper than the one whose NAV is Rs 50: The NAV of a mutual fund represents the market value of all its investments. Any capital appreciation in the fund scheme will depend on the price movement of its underlying securities. Suppose you invest Rs 1,000 each in Fund A (a new scheme with an NAV of Rs 10) and Fund B (an older scheme with an NAV of Rs 50). You will get 100 units of Fund A and 20 units of Fund B. Let's assume that both the schemes invest in just one stock, quoting at Rs 100. If the stock appreciates by 10%, the NAVs of the two will rise by 10%, to Rs 11 and Rs 55, respectively. In both cases, the value of investment rises to Rs 1,100-an identical gain of 10%. Fund B's NAV is higher as it has been around for a longer time and had bought the scrip earlier, which appreciated. Any subsequent rise and fall in the funds' NAVs will depend on how the scrip moves.

2. A balanced fund will always have a 50:50 debt to equity ratio: Balanced funds aim to achieve a balance between equities and debt. But the balance can tip depending on the nature of the fund. The equity-oriented balanced funds usually invest at least 65% in equities and the rest in debt. The others do this in a 40:60 ratio.

3. Large corpus funds generate higher returns:  A fund with a very large corpus is prone to inefficiencies as rising assets become unmanageable after a point. Also, most fund managers are more dextrous managing mid-sized funds. A large fund forces them to broaden their stock universe. This can lead them to include less researched or low-potential stocks in the fund's portfolio or increase the stake in certain stocks, leading to a selection bias. HDFC Equity has a corpus of Rs 2,680 crore, but its three-year annualised return is -1.68%, whereas the best performer for the same period is Reliance Regular Savings Fund, with an annualised return of 7.71% and an AUM of Rs 618 crore. At one-fifth the assets, the Reliance fund has fared far better.

4. Funds that regularly declare dividends are good buys: Fund houses declare dividends when they have distributable surplus. However, there are times when fund managers declare dividends as they do not have adequate investment opportunities. In some circumstances, a fund manager may sell some quality stocks to generate surplus for dividend distribution to attract investors.

5. SIP always scores over lump-sum investing: A systematic investment plan (SIP) is the best way to invest during volatility as it lowers the average per unit cost. This is also termed as rupee cost averaging. However, investing systematically during a bull run results in lower returns. When markets are constantly rising, SIP fails to lower the average cost and so results in lower returns compared with a lumpsum investment.

Source: Business Today

Pension Plan or PPF

While an old warhorse like PPF offers peace of mind at maturity, things are not so simple with pension ULIPs.

What’s in a name? That which we call a rose by any other name would smell as sweet,” wrote William Shakespeare in his famous play ‘Romeo and Juliet’.

Well, we can say the Great Bard may have been off the mark, for once. The name of a product indeed plays a great role in how well it sells. Let’s take the case of pension plans sold by insurance companies. What if we were to tell you that there are other investments that can do what pension plans do, but they aren’t really called pension plans? And since pension plans are called pension plans, you and me feel comfortable buying them, thinking that when we are old we can use the accumulated money to generate a regular income.

What Are Pension Plans? : The Webster English dictionary defines the world pension as “a fixed sum paid regularly, especially to a person retired from work.”

Insurance companies basically offer two kinds of pension plans — immediate annuities and deferred annuities. An investment made into an immediate annuity ensures a regular payment from an insurance company, monthly, quarterly, bi-annually or yearly in nature, for that matter. Immediate annuities ensure that the policyholder gets a regular “pension”.

In a deferred annuity, a policyholder needs to pay a regular premium for a certain number of years. This phase is referred to as the accumulation phase. The accumulation phase is essentially used to build a corpus. Once the phase is over, the money that has accumulated is used to buy immediate annuities which, in turn, generate a regular income.

So deferred annuities are like any other investment product that help you build a corpus by investing regularly. Hence, to that extent the name pension plan is clearly a misnomer. But given the name, pension plans used to be a top selling product for insurance companies. In 2009-10, pension plans mopped up around Rs 58,000 crore. During April to June 2010, pension plans have garnered close to Rs 7,000 crore.

Then things changed. Starting September 1, 2010, the Insurance Regulatory and Development Authority of India (IRDA), the insurance regulator made it mandatory for insurance companies to guarantee a return of 4.5% on unit-linked pension plans till March 2011.

Beyond that, the minimum returns will have to be linked to the average reverse repo rate (or the rate at which the Reserve Bank of India borrows from banks) with a minimum return in the range of 3-6%. Subject to this band, the guaranteed returns will be 50 basis points higher than the average of reverse repo rates during the four quarters of the preceding financial year. Further, unit-linked insurance plan (ULIP) commissions have been capped, which has ensured that the agents will not be too keen to sell these products. So far, only LIC and ICICI Prudential Life Insurance have launched pension ULIPs, while SBI Life has reportedly sought Irda’s permission to launch one. Notably, the two private life insurers are focusing on single-premium pension ULIPs. The risk of offering a guarantee, assuming that premiums will flow in over such a long term, is apparently holding back insurance companies from designing regular premium pension ULIPs. But it is highly likely as the tax-saving season (Jan ’11 to March ’11) approaches, several insurers may launch pension ULIPs as they have been the best selling products in the past.

How’s A Pension Plan Structured? : In unit-linked pension plans, the premium that you pay is first deducted for the premium allocation charge (through which the agent is paid commission). The remaining money is then invested in an investment fund of your choice. Also, typically the choice of fund may vary from a fund which invests 100% in equity to another which may put 100% in debt. That, of course, is not the case now, as insurers need to guarantee a certain return. So, no insurer is going to bet 100% of the investment on equity. For instance, LIC offers two fund options under Pension Plus – debt fund and mixed fund. The former invests the entire corpus into debt instruments, the latter invests up to 35% in equities.

Should You Invest In A Pension Plan? : Like all other ULIPs, Irda has capped charges on ceilings pension ULIPs too. “Earlier, I never recommended pension ULIPs because of the high charges that were built in. Now, I don’t advise my clients to go for them because of the guaranteed return factor,” explains certified financial planner Pankaj Mathpal. Concurs Anil Rego, CEO of financial planning firm Right Horizons: “The guarantee makes pension ULIPs defensive. It may be useful for someone who is over 45 and is looking to invest for a shorter time-frame. But for those who are young, with perhaps a 20-30-year outlook, directing 100% of investment towards equity is better.”

Since insurance companies have to guarantee returns, it doesn’t make sense for them to offer an equity-heavy investment option to the investor. They have to ensure that the structure of their portfolio is such that it gives the investor a guaranteed return. This implies that a major part of the investment will have to be in debt securities. And given that, the corpus likely to be accumulated isn’t going to be great.

Also, since no withdrawals are allowed during the premium-paying term, this could be a turn-off for those who may suddenly need some money in the interim.

What Happens At Maturity?: When the pension plan matures, the policyholder can withdraw one-third of the corpus tax-free, according to the current income-tax laws. The remaining portion has to be used to buy immediate annuities, which means that the policyholder has to compulsorily buy immediate annuities come what may, even when other investment options may help him earn more.

The Senior Citizens Saving Scheme (SCSS), allows investors to invest up to Rs 15 lakh and guarantees a return of 9% pa with a payout every three months. Beyond that, the post office monthly income scheme (POMIS) pays an interest of 8% per year up to a maximum investment of Rs 4.5 lakh. Even FDs give returns superior to immediate annuities currently.

The Alternatives: Without doubt, your first stop for building a retirement corpus should be the time-tested public provident fund (PPF). The product is a must in your retirement planning portfolio. Any other avenues should be explored only after the yearly limit of Rs 70,000 is exhausted. The product offers an attractive tax-free return of 8% per annum (compounded), and easily ranks as the best amongst its peers. Also, as far as guarantees go you would rather have a guarantee of 8% from the government of India, than a guarantee of anywhere between 3-6% from the insurance companies. A PPF account matures in 15-16 years and can then be extended for blocks of five years each indefinitely.

Moreover, in case of PPF, investor can withdraw once every year from the seventh year, which makes it a more liquid option compared to pension ULIPs. “Once the PPF option is exhausted, you can look at the new pension scheme. Since it is a long-term investment, you can choose the option to invest up to 50% of your contribution into equities. This apart, you can look at investing in tax-saving mutual funds (or even equity mutual funds) with a long-term horizon in mind,” says Mr Mathpal.

The advantage of investing in mutual funds is that you can select the best mutual funds in the market. That is not so with ULIPs, given their complicated structure. Also, if a mutual fund is not doing well, you can always switch, but doing that with unit-linked pension plans can be a complicated process.

The accumulated corpus can then be used to generate regular income first through SCSS, POMIS and FDs. Beyond that, you can look at immediate annuities. If they are giving better returns at that time, you can buy them using the corpus generated through a combination of investing in PPF and tax-saving MFs.

We guess Shakespeare was right. What’s in a name? There are far superior ways of building a retirement corpus than a pension plan.

Source: Economic Times

Indian Post office Time Deposit

Interest Rate

Interest payable annually but calculated on quarterly basis (w.e.f.01.03.2003)



Rates of interest

 1 year Account

6.25 %

 2 year Account

6.5 %

 3 year Account

7.25 %

 5 year Account

7.5 %

Who can Open ?

Account may be opened by an individual, i.e., Single,  Joint A/B (not more than two adults) Trust, Regimental Fund and Welfare Fund.

Interest is calculated on compounded quarterly basis and payable annually. The investment under this scheme qualify for the benefit of Section 80C of the Income  Tax Act, 1961 from 1.4.2007.

Investment Limits & Denominations

Minimum Rs. 50/- and it's multiples.
No maximum limit.

Features and Tax Rebate

Account may be opened by an individual, Trust, Regimental Fund and Welfare Fund.
2, 3 and 5 year accounts can be closed after one year at a discount.
Account can be closed after 6 months but before 1 year without interest.
The amount of interest earned is tax free under Section 80-L of Income Tax Act.

What is Waiver of premium rider?

With the growing uncertainty of life, getting an insurance policy has become a must for almost every individual. When you take an insurance policy, you also tend to add 'riders' to the policy. Riders are the additional benefits that you may buy and add to your policy. Riders can be mixed and matched based on one's preferences for a small additional cost.

One size does not fit all

A one size fits all approach does not apply to insurance policies. Therefore, the kind and number of riders added to an individual's insurance policy depends on many factors such as individual's health, future plans, purpose of the insurance, etc.

One of the most popular and important riders added to an insurance policy is the 'Waiver of Premium.' If this rider is a part of insurance policy, it ensures premiums to be paid by the insured are waived off if the latter becomes unemployed due to an injury or sickness. In such a situation, even though the premiums are not paid by the insured, the policy does not lapse.

What is a waiver of premium?

A waiver of premium is an extra option life insurance companies provide you with on top of your purchased life insurance policy at an additional cost. This offers protection and cover for your premiums if you should fall seriously ill or incur injuries that leave you impaired – a situation where you cannot earn. In such an unfortunate event, the life insurance company will become responsible to pay the premiums which you were expected to pay.

The best part about this rider is that anyone who takes up the insurance policy can effectively add this rider to the policy. The amount of premium to be paid depends on the premium you pay on the base policy and on other riders. The higher the premium on the base policy and the more the riders you add, the higher will be the premium you pay on this rider.

Is it worth it?

With the increasingly stressful lifestyle, hazardous traffic situations, addition of this rider to an insurance policy could be very helpful. The rider also ensures that in an event of death of the insured during policy term, the policy does not lapse and remains in force even during the Auto Cover period. An Auto Cover Period is a term of two years during which full death cover continues even if the insured has not paid premiums – subject to at least two full years' premiums having been paid. The premium paid for this rider also qualifies for tax deduction under section 80D of the Income Tax Act.

How is it useful?

This rider is especially useful for a child insurance policy as it has been primarily set up in place to provide money for your child in an hour of his or her need.

In case of child insurance policy, where you are ensuring your child receives a sum of money at a certain pre-defined age, this will ensure that the process is uninterrupted and premium payment is continued.

The terms and conditions regarding what constitutes serious illness or injury and conditions regarding the time frame when the premium payment starts by the insurer, etc are defined by the insurance company and may vary from one company to another. Be sure to research on this thoroughly and understand the clauses and conditions of the insurance company.

Usually, the premium paying term for the rider is throughout the benefit period. Few companies restrict time frame of a policy owner or maximum duration of policy to 25 to 30 years.

Source: Yahoo Finance

Fired from job?

Being fired from a salaried job is new phenomenon in India. Till a few years ago, a salaried job with even a mid-size firm was for lifetime unless the employee quits to pursue greener pastures. Things have changed dramatically with the advent of the service-oriented jobs in the so-called new economy and the Indian economy hinged to the vagaries of the global market. Now a professional faces the prospect of a short-term break in his/her carrier due to challenging economic environments such as the current volatility in the world economy. While one cannot do much to avoid a job loss other than working hard, a well laid out financial planning may go a long way in mitigating its impact.

Not long ago, the salaried class in India had been used a benign job market and near permanency of jobs. The picture, however, has changed over the past 10 years given the increasing number of job opportunities in areas of IT and IT-enabled services like call centers, BPO, and KPO, and other sectors such as media and entertainment, aviation and hospitality.

Go for a financial planning

For instance, during the economic slump of 2008-09, companies, mainly in export related businesses, had to reconfigure their workforce to address the falling demand from the US and European markets. This pushed a portion of their headcount into a temporary jobless phase. The situation was similar in the fields of financial research and investment banking, print and electronic media and gems and jewellery.

No doubt, the present day employment is following the crests and troughs of global business cycles more closely than before. This makes it necessary to plan for such an adversity well in advance. According to the financial planning experts, the opportune time is now. As Swapnil Pawar, head – high net worth individual (HNI) solutions, Karvy Private Wealth, says: “Disciplined investment and savings pattern from the start of a person’s working life is key to building financial security, and to ensure adequate funds during the loss of employment.”

What's your budget?

During the loss of employment, a person needs to quickly adjust to a different set of challenges. While the regular inflow of money in the form of salary disappears, many of the essential expenses, such as monthly rent or interest on home loans, insurance premium, food and laundry expenses, medical expenses, etc will still remain.

To get an exact sense of such expenses, one needs to draw up a budget, mapping the current monthly income and expenditure. This should include any type of loan servicing and credit card payments along with the available income streams, such as spouse’s income, fixed deposit interest and dividend income, if any. Also, don’t forget to include liquid assets such as bank savings and current account and liquid fund schemes of mutual funds. This leads to the next step of generating what financial planners call a contingency fund. Such a fund is crucial in meeting day-to day expenditure and other financial emergencies during the time of difficulty.

The power of contingency fund

Typically, the size of the contingency fund should be adequate to meet 3-6 months of a family’s monthly expenditure, including loan payments. In some professions, which are highly specialized, and it is comparatively difficult to find an alternative employment quickly, financial planners argue for a 9-month contingency fund.

While building the contingency fund, one can start by setting aside nearly 10-15% of the family’s monthly income, in low risk instruments like bank term deposits and liquid fund schemes of mutual funds. Remember, this contingency fund requirement is dynamic.

It needs to be reviewed each year to adjust for a possible increase in a family’s income or expenditure pattern, or the enlargement of a family due to the birth of a child. For instance, if a family currently spends Rs 50,000 per month, they would need a contingency fund, that could vary between Rs 150,000 – 300,000. However, if two years later their monthly expenditure reaches Rs 65, 000 due to a bigger family, the contingency fund would need to be a minimum of Rs 200,000.


Use severance pay judiciously

A laid off employee in the organised sector typically receives 3-6 months of severance pay. In absence of a contingency fund, such a windfall cash flow would find its use in meeting day-to-day expenses. Experts warn against such uses of severance package.

Financial planners say that if proper financial planning has been done from the beginning, the severance pay could be utilised to reduce outstanding loans, such as car or credit card loan. This will take away some burden from the monthly family budget since these loans typically have a higher rate of interest than a secured loan, like housing.

Be prudent when you spend

Young employees with lesser work experience may see their jobs vanishing faster than their experienced counterparts during a slowdown. Further, such relatively new employees may have lower contingency funds at disposal due to lesser number of years into service.

Hence, it becomes all the more important for such individuals to limit their credit driven expenses. Lesser the burden of personal loan, lower will be pressure on contingency funds during testing times. Says Kartik Jhaveri, a financial planner: “Conserving cash is key during such a difficult time. Individuals also need to eliminate unnecessary expenditure to balance their monthly budget.”

Seek help of your creditors

A senior executive at the country’s leading home loan company said that the lender should help the client jointly analyse his monthly cash flows and various financial liabilities if he has lost his employment.

Based on this exercise, if possible, it advises the client to pre-pay more expensive debt including personal, car and credit card loans to reduce the burden on the monthly family budget.

Loss of employment is a difficult period for individuals but suitable financial planning in advance can help limit the impact.

Source: Economic Times

What should you do in the event of a car loan default

When the economy slumps unemployment percentages, grim job prospects, and high inflation rates can rock any individual's boat. Those who once had a great credit score and made payment of bills on time could now face the fear of defaulting on their loans. 

Probably the next big thing on your monthly budgets after the mortgage loan is the car loan. And you would not want to default on this for obvious reasons. One, it will destroy your credit history and two you might lose your car to the repo man! 

But when does a default actually happen? Does making a deferred or skipping the payment for a month or so constitute a default? Will your car be repossessed then?

When does a default happen?

Technically, a car loan default happens when a customer repeatedly fails to make the agreed car loan payments to the lender/bank that lent the money for its purchase. But is there a prescribed number of payment failure mentioned? 

Yes. Usually, the car loan agreement that you signed with your lender/bank will have these terms clearly spelt out. Everything about your car loan, your loan repayment obligations and when you are in default are usually explained here. The agreement may also provide the risks involved and the possible solutions in case of a default. 

Though the term 'default' has no universal definition to it and differs from case to case, the general meaning of 'default' is if you are 30, 60 or 90 days late on not making one or more payments. Having said this it is vital to know what you should be doing when you wake up to the fact that you might have big difficulties in making your car loan payment for the month and avoid being tagged a customer at 'default.'

What should you do in the event of default?

The problem starts when you fear the inability for the car loan payment start to avoid the lender/bank. Never do this. Most lenders/banks will work with payment issues on a case to case basis. So the moment you see trouble in making your car loan payment, call up your lender/bank and be honest to explain the reason for the delay in payment. They might have heard the excuse a thousand times before but being straightforward could work in your favor and bring about a mutually beneficial adjusted term.

Apart from this, there are many other options available to you. Don't give up on your car until you try all of these.

1. Try to talk to your lender/bank to extend your car loan duration. For instance, if you had originally taken a car loan for 36 months you could request it to be extended to 48 months. This will ensure your monthly commitment is reduced.

2. Ask your lender/bank if he would consider allowing you to make a deferred payment. It means you will be allowed to skip the current month's payment and make it at a later date. Explain to him that having a month's jump on the payment will give you the much needed flexibility. 

3. See if you could convince your lender/bank to change the payment due date permanently.

4. Late charges are often levied on your late payments. If you feel that these accumulated late charges is actually straining you from making a timely payment, ask your lender/bank to waive these fees. If it would help you make a timely payment, the lender/bank might agree.

What if none of the above options works out?

As said if the payments are not made as said in your agreement, it is deemed as default. The obvious fallout of this is the lender/bank might repossess your car. Depending on your loan agreement, the lender/bank will send you a written notice of default asking you to make the remaining balance on your car loan or face repossession. If the notice is not honored within the time mentioned in it, your car will be repossessed.

What do banks do with such cars? How do they get their money back?

As said, a repossessed car is often sold at an auction to pay off your default loan amount. The auction details are well advertised and done in a commercially reasonable manner. Usually, the lender/bank informs you or the customer at default about the place and timing of the auction so that if you want to bid or just see how the auction goes you can do so.

Your troubles might not end when the repossessed car is sold off at an auction! There could be other serious fallouts of this default for you. Your credit record will take a beating and if it does you might not be in a position to avail any new loans for the next 7 years. This might force you to get into the bad credit market where the interest rates are ominously high! 

Next, you might face a default judgment. A default is the difference between the value of the car at the time the lender/bank sells it and the actual outstanding loan balance that you owe on the car loan. For instance, if you owe Rs. 4, 00, 000 to the lender/bank at the time of repossessing but the car only sells for Rs. 3, 00, 000, you will have to pay the difference of Rs. 1, 00, 000 to the lender/bank. If not, the lender/bank could move the court to claim it.

On the flip side if the car is sold off at a higher price than the money owed by you to the lender/bank, you will be reimbursed with the surplus amount.

Can a regular buyer with funds purchase a repossessed car at a discount price?

Certainly! Repossessed cars are often sold at a discount price for obvious reasons, mostly because it is technically not a new car and up for only a resale. As said, repossessed cars are sold at auction which is advertised. So if you are interested in buying repossessed cars then you can refer to these adverts or also call auction houses or local lenders/banks that repossess cars or local used car dealers. In some cases you can buy the repossessed cars online as some small lenders do it online.

All information including the preferred payment mode, the correct form to be filled etc are usually available in the adverts or the lenders/banks, auction houses or local used car dealers or at the place where the auction takes place. 

It is advisable to examine the repossessed car before buying it. You can take the help of someone like a car expert for this. It is also better to look at the vehicle history report, if it is available. A thorough check of the car interiors for defects and if possible taking a test drive will go a long way in ensuring that you buy a car in good condition.