If you invest in NPS (National Pension System), then I am sure you would be interested in knowing the following:
How much money you can accumulate in NPS by retirement?
How much NPS retirement corpus will you have?
How much tax-free withdrawal is allowed from NPS at retirement?
How much will be your retirement NPS pension?
For answering such questions, I have created a small free excel NPS calculator. This NPS calculator acts as a tool that you can use to estimate the NPS retirement corpus and monthly pension when you retire at 60.
You can call it NPS maturity Value calculator or NPS family pension calculator or National Pension Scheme calculator or NPS monthly pension calculator too.
It is a simple, easy-to-use and can be used as a NPS Pension Calculator as well. It’s a basic version and hence, illustrates only the following:
NPS Corpus accumulated by retirement (age 60)
Tax-Free Lumpsum withdrawal available
Pension amount or annuity payable on retirement (after the purchase of annuity using minimum 40% of the NPS corpus accumulated)
Under latest NPS rules 2019-20, you are not allowed to withdraw the entire amount at maturity and need to purchase annuities worth at least40% of your accumulated NPS corpus at retirement. The remaining 60% of the corpus can be withdrawn tax-free. This annuity purchased is the source of pension income after retirement. Hence, once you are able to estimate your final retirement NPS corpus, you can then easily estimate post-retirement monthly pension using prevalent annuity rates.
Note – The new pension scheme calculation formula is already embedded in the NPS calculator excel sheet but please remember that the calculations and figures shown by the NPS calculator are indicative only. Is this NPS Tier 1 and Tier 2 calculator? You can say that. Or just assume that Tier 1 (which is locked-in till retirement) is the one being used mostly for actual retirement planning.
This National Pension Scheme Calculator gives a reasonable idea of how much retirement savings can you do using NPS. A lot of people have been looking to download NPS excel calculator and hence, will find this useful as a pension calculator.
As you already know, the government gives extra tax benefits via additional deduction of up to Rs 50,000 per year to NPS investors under Section 80CCD (1B). This benefit is in addition to the Rs 1.5 lac limit of Section 80C.
By investing Rs 50,000 per year in NPS (or less than Rs 5000 per month in NPS), you can create a large enough corpus by the time you retire (assuming you start saving early). And since NPS can give market-based returns if you choose correct asset allocation between Equity, Corporate Bonds and Government Securities, it is a fairly decent product to have in your retirement savings portfolio.
With this NPS calculator, you will know how much Pension and tax-free lump sum amount you will get at retirement at 60.
As for the NPS Calculator Inputs, you need to provide the following:
Your current age (assumed you start investing at this age)
Retirement Age – fixed here at 60
Monthly NPS contribution
Annual increase in monthly contributions
Asset Allocation of NPS portfolio (to be provided for Equity, Government Bonds and Corporate Bonds)*
Starting Corpus if any (if you put lumpsum at the start of NPS)
Lumpsum withdrawal at retirement (can be between 0% to 60%)
Amount used for Annuity Purchase (can be between 40% and 100%)
NPS Annuity Rate % during the post-retirement period
* With regards to the choice of asset allocation in NPS, the NPS has 2 broad Investment options:
Active – Under NPS Active option, you decide how much to invest (exact percentages) in each asset (and their schemes). As of now, there are 4 asset classes:
Asset class E – Equity and related instruments
Asset class G – Government Bonds and related instruments
Asset class C – Corporate debt and related instruments
Asset Class A – Alternative Investment Funds
The total allocation across E, G, C and A asset classes must be equal to 100%. And the maximum permitted Equity Investment is 75% of the total asset allocation till the age of 50. Post that, the upper cap reduces by about 2.5% every year to 50% at the age of 60.
Auto – Under NPS Auto option, fund allocation takes place automatically. This option is best for those subscribers who do not have the required knowledge to manage their NPS investments. In this option, the investments are made in life-cycle funds and depending on the risk appetite of NPS Subscriber, there are three options available within ‘Auto Choice’:
Aggressive – LC75 – Aggressive Life Cycle Fund: This Life cycle fund provides a cap of 75% of the total assets for Equity investment. The exposure in Equity Investments starts with 75% till 35 years of age and gradually reduces and goes down to 15% by the age of 55 and beyond.
Moderate – LC50 – Moderate Life Cycle Fund: This Life cycle fund provides a cap of 50% of the total assets for Equity investment. The exposure in Equity Investments starts with 50% till 35 years of age and gradually reduces and goes down to 10% by the age of 55 and beyond.
Conservative – LC25 – Conservative Life Cycle Fund: This Life cycle fund provides a cap of 25% of the total assets for Equity investment. The exposure in Equity Investments starts with 25% till 35 years of age and gradually reduces and goes down to 5% by the age of 55 and beyond.
That was about the NPS portfolio allocation between various assets and schemes.
Now here is what the National Pension Scheme Calculator (or NPS calculator) calculates and shows as output once the inputs are provided:
The total amount invested (contributed) during the accumulation phase
The total corpus accumulated
Amount available as one-time tax-free withdrawal
Amount used for Annuity Purchase
Monthly Pension Amount during retirement years
Like any other investment product, NPS also benefits from compounding. So more the invested money, the more the accumulated amount and the larger would be the eventual benefit of the accumulated pension wealth. To find out the Best NPS Funds Managers (2019 2020) and to check returns generated by NPS schemes, please check out this link – NPS Scheme Fund Manager Returns.
Here again, is the link to download the calculator:
NPS is one of the few products that have been made specifically for retirement savings. Other good ones being PPF (Public Provident Fund Interest Rates and How to become a PPF Crorepati and Free PPF Calculator), EPF and doing regular long term SIP in Equity Funds. The investment in NPS also offers tax benefit under Section 80C (within Rs 1.5 lac per year) and extra benefit under Section 80CCD (1B) upto Rs 50,000 per year. This makes NPS as an attractive retirement solution for many people who are looking for NPS tier 1 and tier 2 tax benefits. As for NPS Tier 1 and Tier 2 which is better? Since Tier 1 has a lock-in practically till retirement, its better option for retirement planning. Tier 2 is best for non-retirement related savings – which can be for other financial goals as well.
But it must be noted that whether it should be the only retirement product that you invest in or not is debatable. There is a case for investing separately in equity funds for retirement as well.
Hopefully, this excel based NPS Pension calculator will help you understand the retirement savings product NPS better and also act as a decision-making tool to make informed investment decisions about how much to invest in NPS for retirement savings.
Note – This is a guest post by Ajay. He has previously written on this topic here. Since a few years had passed, he was kind enough to share his views again (with a useful real-life example). Ajay has also authored other interest posts here like How He created a corpus of Rs 3.7 Crore in just 10 years. So over to Ajay for this post…
Are mutual funds better than real estate for investing in India?
Can investing in real estate be better than investing in equity funds?
Mutual Funds Vs Real Estate – which is better
And similar versions asking the same things…
So let me try and address this again…
I once again reiterate that there will be many reasons for investing (or let’s say putting money) in real estate – such as peer pressure, family pressure, social status etc. and I am not debating the same. This question of whether you should invest in Real Estate (for investment) or Mutual Funds, can only be answered by you and you alone.
And therefore, this article should ideally be read in that spirit.
The intention of this post is to present facts based on the actual data, from both real estate and mutual funds from an investor’s perspective and ofcourse, my opinion on the same. 🙂
Also, as stated in the earlier post:
A home is a place to live and it should not be linked to one’s investment strategy. There should not be any second thought about buying your 1st property for self-occupancy whether with or without tax benefits.
I am aware and acknowledge the fact that being Equity and Equity Funds oriented investor, my views will tend to be biased towards Equity investments than Real Estate investments.
The experience and the actual investment returns of Real Estate investors vary from location to location. And therefore, many of you may not agree with the conclusion or findings of this post. Nevertheless, through this article, I have analyzed the actual data from the Real estate and mutual fund investments in India.
So let’s go ahead…
Real Estate Investment
In August-2010, a friend of mine decided to buy a 1200 Square feet (Sq.ft). Flat in the outskirts of Bangalore (@ Rs 2290 per Sq.ft.) through a housing loan. The details are as follows:
Cost of Flat (including Car parking, Utilities, Legal costs, Deposits etc.): Rs 31,39,500
VAT, Registration & Stamp paper: Rs 3,02,566
Total Cost of Flat (all Inclusive): Rs 34,42,066
To fund this purchase, he used:
His own money (Rs 12,42,066) and
Took a home loan for Rs 22,00,000 from a bank.
The loan EMI was Rs.21,343.
As like many of you committed individuals, he paid all the loan EMI on or before the due dates, and also increased the EMI amounts as his salary increased during the loan tenure. He also made part payments many times to accelerate the loan closure and to settle the loan as early as possible. He also put this house on monthly rental as he had to live in another city for professional reasons.
Now let’s look at the numbers below (if you are interested in the actual loan cashflow data):
Now the loan ended recently (in May-2019).
So I sat with my friend and re-calculated the actual cost of his flat:
Total Cost (Flat in Hand) – Rs 34.4 lac
Downpayment – Rs 12.42 lac
Loan – Rs 22.00 lac
Total EMI Paid – Rs 25.73 lac
Total Initial Downpayment & Prepayments – Rs 18.67 lac
Actual Cost of Flat (excl. rent)- Rs 44.40 lac
Rent Received – Rs 11.36 lac
Net Amount Paid for Flat – Rs 33.04 lac
These are real numbers. Real actual numbers.
Let’s move further.
With the loan completed in almost 9 years time, and with the general assumption of property appreciation, we expected the property to fetch at least double the investment (value) of net amount paid for the flat.
So we expected Rs 66 lac from the sale of the property.
However, we did not find a single buyer even at Rs 55 lac!!
From the local brokers and available market information, we got to know that the property could be sold immediately for Rs 40 to 42 lac and if we were lucky, it can be sold for a stretched value of Rs 45-48 lac (let’s say max Rs 50 lac). Also, there will be capital gains tax on the profit amount.
While it is concerning that there was no value appreciation despite the area is connected and having all the basic amenities in the near vicinity, I decided to take this as a case study to see an alternative scenario – where investments had been made in Mutual Funds. I wanted to know what would have been the outcome.
Mutual Fund Investment
I chose 3 funds to feed the investment data in MF (same amount invested as EMI, downpayment and prepayment on the same date as the loan payments were made).
The choice of funds were as follows:
1 decent performing fund (Franklin India Equity),
1 market performer (UTI Nifty 50 Index Fund), and
1 worst performing fund (LIC Multi-Cap Fund)
Since the direct plans weren’t available in 2010, regular plan (i.e. ones with higher fee and lower returns) were chosen for data crunching. So here are the details below (or you can skip and go straight to the summary just after the table):
Summary of the above investment table is as follows:
From the table above, it is clearly evident that if instead of buying the flat, the investment was rather made in the worst performing mutual fund, it would still have given returns of Rs 55.5 lac against Rs 40-48 lac current market value of the flat.
Investment in the index fund would have fetched a much better Rs 67.94 lac. And if you luckily had invested in a very good fund, then it would have given you about Rs 78+ lac.
Not bad. Right?
I know what many of you might be thinking…
While we can debate the time of entry in mutual funds, time of entry or locality or high cost paid for the property etc., I still find merit in investing in Mutual Funds instead of Real Estate flats as an investment. And I very well know that irrespective of the above data favouring MFs, many will still argue in favour of the real estate. I leave the decision to you.
An important point that shouldn’t be missed in this Mutual fund vs real estate debate is the importance of selecting a good fund (or avoiding bad ones) for investment. And if we stretch this topic a little, it opens up another separate debate on the Active versus Passive Funds which I guess is best left for another post.
Note: In the calculation of Real Estate, the cost for Home Insurance, Home Maintenance, etc. was not included. Also, the Rs 2 Lac tax savings during this tenure was not considered as there will be a capital gain tax on property investment too. Equity investment until March-2018 were are tax-free and therefore, the tax implication would be negligible in case of equity investment in the above case study’s tenure.
As stated in the previous post on the debate of real estate vs mutual funds, I once again have the same concluding thoughts.
And this is a repetition of the earlier statement. One should not give any second thought about buying the 1st house/property for self-occupancy, whether it is with or without tax benefits.
However, based on the comparative analysis done above, one should think twice (or even ten times…) before buying a home for investment purpose. One should carefully weigh all the available data (Or as much reliable information you have) and then take a wise call.
Just because your friend or family members are investing in real estate does not mean that you should also do it.
Diversification aspect should also be looked at. But you should not avoid evaluating your own financial goals. This is extremely critical. And don’t just evaluate and feel helpless about it. Find out how you can plan to achieve them and then decide whether you actually need (or want) to ‘invest’ in real estate or not. Different people will get different answers.
Without doubt, a physical asset (like a house) will always give huge mental comfort and satisfaction over other financial assets like mutual funds. But it is also true that it may not always be the best available investment option. In fact, investing in house funded through a loan, is a huge long-term liability – which in many cases, chokes the person’s ability to save and invest for other goals in right instruments.
In my opinion (and it is mine so you can choose to ignore it), after the purchase of the 1st property for self-use, if there is any surplus cash left to invest, you should invest it as per your asset allocation (which includes debt, equity, gold & real estate). If the asset allocation permits you to invest in real estate, you may very well do it. But if it doesn’t, then you should refrain from investing in it just because it’s what everyone else around you is doing.
As stated at the beginning of this article too, this is one hell of a controversial debate.
And there is no one straight-forward or logical answer to it. There are no thumb rules either. You and you alone can answer the question of Real Estate Vs Mutual Funds.
In this article (and in the earlier one), all I have tried is to attempt to clear the myth that “Real estate investing is the only best Investment Option” available for everyone. As you might have noticed (if you have spent some time reading the tables above), that all calculations have been done by estimating the returns net of expenses. We just cannot ignore expenses like those many who just tell you the number of times their property has appreciated in value. It’s not correct.
Hope you found this analysis interesting and useful.
So if you understand the whole premise of asset allocation and also understand the need to have debt in the investment portfolio, then PPF is a great option. (Try thisPPF excel calculator). But ignoring equities just because it can be volatile in short term is not wise.
Equity will go up as well as down. It is in its nature. It’s not a bank FD. But if you stick to it for long, the returns delivered are much higher than debt products.
And that is what I wanted to convince my relative about.
He seems to be convinced now. Whether he takes any action on this new found conviction is another matter.
I also shared with him the idea of investing on a monthly basis viaSIP in equity funds if he (like most people) doesn’t have lumpsum amounts to invest. He got inspired by the severalSIP success storiesthat one can easily find.
So if you too feel that someone needs a little push to consider equity for long term investments, then you can use the examples above to convince them.
It instead means that he will get something like this:
-5%, 22%, 4%, 13%, -17%, 57%, 10%, 19%, -12%, 29%
Or let’s put it this way:
Related to the actual sequence of return an investor gets in real life, I came across an interesting post that talks about how the end-portfolio size differs depending on whether the investor gets strong early returns vs strong late returns.
What is the difference you may ask…
This simply means that in one case, you get good returns in early years while in other, you get good returns in later years.
Does it matter?
Yes indeed… as you will see soon in the remainder of this post.
Good Later Years – You earn 7% every year in the first 15 years and 14% every year during the next 15 years, on your investments.
Good Early Years – You earn 14% every year in the first 15 years and 7% every year during the next 15 years, on your investments.
What will be the value of your portfolio after 30 years in either case?
Rs 5.81 crore after 30 years (for sequence 7% followed by 14%)
Rs 3.95 crore after 30 years (for sequence 14% followed by 7%)
That’s a large difference of about Rs 1.86 crore!
And that too for the same ‘average return’ during the 30 year period. Isn’t it?
Many of you may have guessed the reason.
It is because of the Sequence of Returns you get. That is, the order of annual returns that your portfolio is subjected to.
In the first case (where portfolio grows to a larger Rs 5.81 crore), you get strong late returns – due to which, a bigger corpus earns better returns (14%) in the later years. Whereas in the second case (where portfolio grows to a comparatively smaller Rs 3.95 crore), you get strong early returns – due to which, a smaller corpus earns better returns (14%) early on while the bigger corpus earns lower returns (7%) in later years.
And how do these two cases compare with the actual average return (10.5%)?
Here is how different the 3 scenarios end up looking, even though all have the same exact average returns:
And this is exactly what I wanted to highlight.
The sequence of returns that investor gets has a big impact on the final overall portfolio size.
You may be hoping to get a portfolio size based on your average return assumption. But the actual size may vary even though average returns are same, due to a different sequence of returns your portfolio undergoes. Averages and Actual differ (River Depth example).
And let’s take this a step further.
Let’s see how the actual investment in Sensex in the last 20 years fared when compared to the reverse sequence of returns.
In this scenario analysis, Rs 2.4 lakh (or Rs 20,000 per month) is invested in Sensex every year during the last 20 years. The sequence of returns that are given in the second column in the image below are the actual Sensex returns in the last 20 years. The value of portfolio changes as depicted by the green line in graph below. Also, a portfolio that runs on the basis of the reverse Sensex returns (the returns have been reversed in the third column) is shown as the blue line in the graph.
As you can see, depending on the different sequence of returns considered (one real other reversed), the portfolio value varies every year and also, the final values are different.
So the sequence of returns does matter a lot.
All said and done, can anything be done for this?
To be honest, it’s difficult.
You don’t get to decide what sequence of market returns you get in future.
You don’t get to decide what sequence of market returns you get in future.
This simply but unfortunately means that we have no control over the sequence of returns in the markets.
It is possible that some of you may get better markets early in your investing career and worse ones later. Or if powers above favour you, then you may have not-so-great market returns during initial years but super returns in later ones. This is the very reason why young investors should pray for bad markets in initial years. It may be painful and may not be for everyone, but it’s a wonderful thing for real long-term investors.
But even though we cannot control the sequence of returns, we can manage the risk to some extent.
At times, using market valuations as an indicator can help you estimate the possibility of a weak or a strong market in the coming years and rebalance your portfolio accordingly. By doing this, only a part of the portfolio may be exposed to market returns when required tactically.
So to more practically manage the Sequence of Return Risk, you should be slightly conservative in your return expectations. It’s better to have lower return expectations and save more than having higher return expectations and saving less but getting shocked later on when it is already late to do anything.
Health insurance is like an umbrella – something that you don’t need every day; but once in a while when it rains, it really saves the day for you. On all other days, you won’t miss it. But when it rains and if you don’t have it, you will feel its need.
And besides the obvious medical coverage, health insurance plans also provide tax benefits to you.
Luckily, under Section 80D of the Income Tax Act, you get tax benefits for expenses towards health insurance premiums, preventive health checkup and other medical expenses.
Since most of you will not be hospitalized ever (I hope so!), you would be more interested in the tax benefits on the medical insurance premiums. And yes, indeed the premium paid towards health insurance is tax deductible under section 80D of the Income Tax Act, 1961.
Let’s move on and understand the tax benefits on health insurance in a bit more detail.
What is Section 80D that gives Tax Benefits on Health & Medical Insurance?
Why would you want to pay big hospital bills when you can buy medical insurance by paying a small premium to cover that risk.
Imagine not buying health insurance and saving Rs 10,000 for 3-4 years and then getting hospitalized with a big bill of Rs 5 lakh. All small savings you made by ‘not buying’ health insurance is screwed up with a medical bill several times larger.
Unfortunately, most Indians still don’t see it like that.
They feel its an unnecessary expense and waste of money. Luckily, our governments have offered additional freebies in form of tax benefits to push people to buy health insurance.
And this benefit is offered via the Section 80D of the Income Tax Act, 1961 which relates to the tax deductions on medical insurance.
Section 80D specifically provides deduction in taxable income to the extent of the premiums paid on the purchase of health insurance or medical insurance or mediclaim products.
It even includes the premiums paid for the health insurance of your parents, children and spouse (wife/ husband).
And it doesn’t matter whether you purchase health insurance through a person or go for an online health insurance cover which are gaining popularity these days. You will get tax benefits in either case.
Also, the tax benefits under Section 80D are over and above the benefits under other sections like Section 80C.
Who is eligible for Tax Benefits under Section 80D?
If you are paying premiums for health or medical insurance purchased for the following, you will get tax benefits under section 80D:
What about other family members?
Like, let’s say your brothers, sisters, father-in-law, mother-in-law, uncles, aunts, cousins, etc.?
Health insurance premium paid for any other person is not eligible for tax deduction. But you can ofcourse include other family members in the health insurance coverage if you wish to. It is just that the premium paid for them cannot be considered for tax benefits.
Maximum Deduction Limit under Section 80D for FY 2018-19 (AY 2019-20)
There are several different types of deductions that you can be claimed for tax benefits under Section 80D:
Tax deduction on health insurance premiums paid for yourself, spouse & children
Tax deduction on health insurance premiums paid for parents
Tax deduction on medical expenses of super senior citizens
Tax deduction on preventive health check-up expenses
Let’s have a look at each of these in detail:
Tax Deduction on Health Insurance Premiums Paid for Self, Spouse & Children (Family):
If you pay the premium for health insurance taken for you, spouse and children, then you can claim a total deduction of up to Rs 25,000 for FY 2018-19 (AY 2019-20).
If you or spouse is a senior citizen, then you can claim a higher total deduction of up to Rs 50,000 for FY 2018-19 (AY 2019-20). This limit for senior citizen was revised upwards in the past years. Earlier (in FY 2017-18 AY 2018-19), if you or spouse were a senior citizen, then the maximum deduction that could be claimed was up to Rs 30,000. This has now been revised to Rs 50,000.
In addition to the above deduction, you can also get tax deductions for premiums paid for parents.
Tax Deduction on Health Insurance Premium Paid for Parents:
If you pay the premium for medical or health insurance of your parents’, then you can claim deductions as follows:
If both parents are not senior citizens (< 60 years), then you can claim a deduction of up to Rs 25,000 for FY 2018-19 (AY 2019-20)
If even one parent is a senior citizen (>=60 years), then you can claim a deduction of up to Rs 50,000 for FY 2018-19 (AY 2019-20). This limit for senior citizen was revised in the past year. Earlier (in FY 2017-18 AY 2018-19), if your parents were senior citizens, then the maximum deduction that could be claimed was up to Rs 30,000. This has now been revised to Rs 50,000.
It is worth noting that while claiming deductions under Section 80D, you cannot include premiums paid for children who are earning. But you can still claim the benefit for earning spouse and parents.
Tax Deduction on Preventive Health Checkup Expenses:
If you spend money on getting health checkups done during the financial year, then you can also claim a deduction of up to Rs 5000 for preventive health checkup for self, spouse and children under Section 80D.
But this is not an additional benefit but is inclusive within the overall limits discussed above. That is, the total tax benefit for health insurance premium and preventive health checkup is limited to Rs 25,000 (or Rs 50,000), as the case may be. Remember that the limit of Rs 5000 is the maximum total deduction allowed for preventive health check-ups.
Also, this deduction cannot be claimed on a per person basis but as an aggregate option available – so the total deduction allowed cannot be more than Rs 5000.
For example – Suppose you pay a health insurance premium of Rs 21,000 for self, wife and children. In addition, you also get yourself a preventive health checkup that costs Rs 6000. Now, how much tax deduction are you eligible for? You are allowed a maximum deduction of Rs 25,000 under Section 80D. So you get a deduction of Rs 21,000 towards insurance premiums paid; and Rs 4000 for expenses towards preventive health check-up. The deduction towards preventive health check-up has been restricted to Rs 4000 (against your actual expense of Rs 6000) as the overall deduction cannot exceed Rs 25,000 in this case (i.e. Rs 21,000 + Rs 4000).
Side Note – As you cross 35-40, it actually makes sense to get yourself evaluated medically atleast once a year so that any condition/disease in its early stages can be better handled and addressed appropriately. So this tax deduction on preventive health check-up expenses under section 80D also has positive health side effects!
Tax Deduction on Medical Expenses for Uninsured Senior Citizens (>= 60 years) (Section 80D) – You or Parents
If you or any of your parents are a senior citizen, i.e. above 60 years, and have not purchased any health or medical insurance, then you can avail a deduction for any medical expenditure incurred up to Rs 50,000 in FY 2018-19 (AY 2019-20).
Remember, to claim this deduction for actual medical expense, the concerned person must be a senior citizen (you, spouse or parents) and also uninsured (i.e. no premium should have been paid for any health insurance).
Before FY2018-19 and till FY2017-18, this rule was applicable for uninsured ‘very senior’ citizen (above 80 years) and the limit was set at Rs 30,000 per financial year. Now, this benefit is available to younger(!) senior citizens (who are above 60 years) too.
So let me summarize the Income Tax deduction of Health Insurance Premiums in India.
Tax Deductions under Section 80D for Health Insurance (Financial Year 2018-19 or Assessment Year 2019-20)
The table below lists the tax deduction limits applicable to health insurance premiums (for the financial year 2018-2019 or assessment year 2019-2020):
So what will be combined limits on tax deductions for a family with self, spouse, children and parents?
If you, spouse, children and parents are all below 60 years of age, then the total limit is Rs 25,000 + Rs 25,000 = Rs 50,000 under Section 80D
If you, spouse, children are below 60 years; and if even one of your parents is above 60 years of age, then the total limit is Rs 25,000 + Rs 50,000 = Rs 75,000 under Section 80D
If any of you or spouse is above age 60; and if even one of your parents is also above 60 years of age, then the total limit is Rs 50,000 + Rs 50,000 = Rs 1,00,000 Rs 1 lakh under Section 80D
But please do remember that these are maximum limits specified under Section 80D. If the actual premium paid is less than the limits, then the benefit will be limited to the actual premiums paid only.
To further aid the understanding, allow me to share a few examples.
Examples of Medical Insurance Premiums & Section 80D Tax Benefits
Case 1: You (28), Spouse (27), Child (2), Father (58), Mother (56)
You are eligible for Rs 25,000 towards health insurance premium and checkup for self, spouse and child. In addition, you are also eligible for Rs 25,000 towards health insurance premium and checkup for parents. Since no one in the family has attained 60 years of age, the total deduction eligible under Section 80D is Rs 50,000 for the financial year.
Case 2: You (31), Spouse (29), Child (4), Father (63), Mother (58)
You are eligible for Rs 25,000 towards health insurance premium and checkup for self, spouse and child. In addition, you are also eligible for Rs 50,000 towards health insurance premium and checkup for parents (as one of the parent is above 60). Since one of the parents has attained the age of 60, the total deduction eligible under Section 80D is Rs 75,000 for the financial year.
Case 3: You (61), Spouse (55), Father (82), Mother (79)
You are eligible for Rs 50,000 towards health insurance premium and checkup for self and spouse as you are in senior citizen category yourself. In addition, you are also eligible for Rs 50,000 towards health insurance premium and checkup for parents (as one or both the parent are above 60). Since both you and your parents have crossed the age of 60, the total deduction eligible under Section 80D is Rs 1,00,000 or Rs 1 lakh for the financial year.
Sample Calculation of Tax Deductions under Section 80D
Suppose you are aged 38, your wife is 35, son is 8 and daughter is 5 years old.
You have taken a health insurance plan for all for of you that has an annual premium of Rs 23,000. In addition, you had to pay Rs 8000 for preventive health checkup during the financial year.
In addition, your parents aged 66 and 59 are also dependent on you. For insuring their health, you have taken a health cover for them separately for which the premium is Rs 57,000.
So what all tax deductions can be claimed by you for the financial year under Section 80D?
For Self (+ spouse + children) – All of you are under the age of 60. You are eligible for Rs 25,000 towards health insurance premium and checkup for self, spouse and child. Since the premium + health checkup costs exceed the limit (Rs 23,000 + Rs 8000 = Rs 31,000), the benefit available will be limited to Rs 25,000 only.
For Parents – One of the parents is above 60 and hence, senior citizen. Since you are paying medical insurance premium for them, you are eligible for Rs 50,000 towards health insurance premium. Since the premium exceeds the limit (Rs 57,000), the benefit available will be limited to Rs 50,000 only.
Therefore, the total deduction available in this case will be Rs 25,000 + Rs 50,000 = Rs 75,000 only.
I hope this fully explains everything there is about the tax savings that you can do with your health insurance under Section 80D.
So let’s move on…
Tax benefit on Multi-year Health Insurance policy under Section 80D
Many people pay health insurance premiums for several years in one go as there are discounts on offer for multi-year health insurance policies.
If that’s the case, then the tax deduction is allowed proportionately over the years for which the benefit of health insurance is available, subject obviously to the overall limit for each financial year).
So let’s say you are 35 years old (i.e. less than 60 years) and your health insurance policy for 1 year has a premium of Rs 15,000 and that for 2 years us Rs 27,000.
So if you go for the 2-year health insurance plan and pay the premium for two years in one financial year itself, then what will be the tax deductions eligible?
Since current rules state that an individual is allowed to claim a deduction of up to Rs 25,000 in a financial year, you will be allowed to claim the total premium paid, but proportionately, over the 2-year period. This means that you will get a tax deduction of Rs 13,500 each (Rs 27,000 divided by 2) in both the financial years.
More things to know about Section 80D tax benefits
It is not necessary to claim deduction using just one policy. You can claim deductions under multiple policies subject to overall limits of Rs 25,000 or Rs 50,000 as explained earlier.
The group health insurance premium paid by your employer is not eligible for deduction under Section 80D. However, if you pay an additional premium to increase the coverage of the existing group cover, then you can claim the deduction against this additional contribution.
The premiums paid for Critical Illness policies are also eligible for tax benefits under Section 80D.
The premiums paid for Top-Up or Super Top-Up health insurance plans are also eligible for tax benefits under Section 80D.
If you have taken a Critical Illness rider as part of the life insurance policy, then the premium paid for the specific rider is eligible for tax deduction under Section 80D.
Whether you are paying a health insurance premium for the first time or you are paying the renewal premium for continuing your existing health insurance, you can claim deductions in either case.
As mentioned earlier, you cannot get benefits on health premiums paid for your brother or sister. You can also not claim benefits for premiums of your father-in-law and mother-in-law. But your spouse, if paying the premiums from her own taxable income, then the benefits can be claimed by your spouse.
A lot of people get confused between Section 80D and very popular Section 80C of the Income Tax Act. Let’s briefly see what is the major difference between the two.
On the other hand, Section 80D is, in addition, to limit of Section 80C and is meant exclusively for health insurance premiums paid and preventive health checkup, etc. The tax benefit available under Section 80D varies from Rs 25,000 to Rs 1 lakh subject to certain conditions.
I am sure that by now, you would have a clear idea about how to save taxes using health insurance in India.
But let me remind you that whether you get tax benefits or not, health insurance is extremely important.
It’s a must-have for everyone!
Why would anyone want to be penny-wise-pound-foolish and try their lucks? The medical costs are rising and just one visit to a hospital and hospital bill can set you back by a lot of money which will be much higher than the money you can save by avoiding health insurance.
If you are unlucky and end up in a hospital without health insurance, it can erode your hard-earned savings and plunge you in a financial crisis. So do not test your luck for saving just a few thousands.
Luckily in India, you are getting tax benefits on the health insurance premiums you pay.
So you have an added incentive there. You can maximize your tax savings by using health insurance for yourself, family and parents by paying the premiums.
The Section 80D of the Income Tax Act offers one of the best tax-saving benefits in India of up to Rs 1 lakh deduction specifically for premiums paid on the purchase of health insurance or medical insurance or mediclaim products. Do not ignore this tax benefit for your own good.
This is the February 2018 update for the State of Indian Stock Markets and includes historical analysis and Heat Maps of Nifty50 as well as Nifty500‘s key ratios, namely P/E, P/BV ratios and Dividend Yield.
Please remember that these numbers are averages of P/E, P/BV and Dividend Yield in each month. Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month. Also, note that NSE publishes PE ratios based on standalone numbers and not consolidated numbers (Read why this may matter too).
Caution – Never make any investment decision based on just one or two ‘average’ indicators (Why?) At most, treat these heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.
P/E Ratio (on the last day of February 2019): 26.32P/E Ratio (on the last day of January 2019): 26.26
The 12-month trend of P/E has been as follows:
And here are the average figures of Nifty50’s PE for some recent periods:
Historical P/BV Ratios – Nifty 50
P/BV Ratio (on the last day of February 2019): 3.41P/BV Ratio (on the last day of January 2019): 3.37
Historical Dividend Yield – Nifty 50
Dividend Yield (on the last day of February 2019): 1.25% Dividend Yield (on the last day of January 2019): 1.25%
Now, to the historical analysis of Nifty500 companies…
As the name suggests, Nifty500 is made up of top 500 companies which represent about 95% of the free float market capitalization of the stocks listed on NSE (March 2017).
Nifty50 on other hand is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 63% of the free float market capitalization of the NSE listed stocks (March 2017).
So obviously, Nifty500 is comparatively a much broader index than Nifty50.
Historical P/E Ratios – Nifty 500
P/E Ratio (on the last day of February 2019): 29.23P/E Ratio (on the last day of January 2019): 29.13
Historical P/BV Ratios – Nifty 500
P/BV Ratio (on the last day of February 2019): 3.17P/BV Ratio (on the last day of January 2019): 3.15
Historical Dividend Yield – Nifty 500
Dividend Yield (on last day of February 2019): 1.17%Dividend Yield (on last day of January 2019): 1.16%
You can read the previous update here. The State of Markets section has also been updated with new Nifty heat maps (link).
For a detailed analysis of how much return you can expect depending on when the investments have been made (at various P/E, P/BV and Dividend Yield levels), please have a look at these 3 posts:
Most Indians believe that financial advice should either be free or in most cases, is not needed at all!
In fact, it’s quite common to come across people who will tell you (if asked) that:
Why should I take financial advice from anyone? I already know it and isn’t that difficult.
My father (or other relatives) does this and that. They can’t be wrong.
And even if I do have to take advice from someone else, why should I pay for it? It is available freely.
Sometime back, I wrote an article for MoneyControl on this topic. If you wish to understand why Free Advice can be dangerous (and so can be not taking financial advice), then please do read the article by clicking the link below:
Is it better to invest lump sum or
monthly SIP in mutual funds?
A lot of people ask me such questions – whether SIP (Systematic Investment Plan) is better than lump sum investing in mutual funds in India? Or whether lumpsum investing is better than mutual fund SIP?
Why I don’t
like these questions (are SIPs better
than lumpsum investments?) is because as usual, there is no one right
shades of grey and it isn’t exactly an ideal comparison.
to simply compare SIP vs one time investment in mutual funds or just want to find
out which are top mutual funds for SIP in 2019 or best mutual funds for lump
sum investment in 2019 and what not. But there are no perfect answers or ready
lists that predict anything.
look at it from a common-sense perspective.
getting into lump sum vs monthly investment debate, the decision to invest in
lump sum or SIP depends on whether one actually has enough investible surplus
that can be called as lumpsum!
If one doesn’t
even have this ‘lump sum’ then this question of SIP or lump sum in itself is
meaningless. It’s only when this ‘lumpsum’ is actually available that the
question holds any relevance.
the lump sum is there, the next question should be whether investing in one go
is better or whether it’s wiser to spread that lump sum over a short period of
time, as there can be several best ways to invest a large sum of money in
mutual funds. Just because the lump sum is available doesn’t mean that the
money should be invested in one go. There are can various other tactics to
deploy it more efficiently.
But nevertheless, there are those who prefer SIP (and have SIP success stories to tell) and there are those who prefer lump sum investing.
And to be
honest, both methods work in different set of circumstances.
to do this comparison as objectively as possible.
SIP vs Lumpsum in Rising
In a rising
market, your lumpsum investments in mutual funds will produce higher returns
than SIPs. That’s because the cost of purchase in a lumpsum investment in a
rising market would always be lower than the average cost of purchase in SIP, which
is spread out across higher and higher purchase prices for each SIP
Let’s take a
very simple hypothetical example to show this.
Suppose one investor invests Rs 5000 per month in a rising market for 12 months. While the other invests Rs 60,000 as lumpsum at the start itself. Both invest in mutual funds a total of Rs 60,000. Here is how it pans out over the next 12 months:
As can be
seen above, the average cost (average NAV) for the SIP investor in a rising
market is higher. And hence, the future hypothetical profit when sold later,
will be lower for the SIP than that of the lumpsum investor.
look at a falling market scenario.
SIP vs Lumpsum in Falling
falling market, the SIP investing would result in comparatively lower losses
than that in lump sum. And that is because the cost of purchase in a lumpsum
investment in a falling market would always be higher than the average cost of
purchase in SIP.
Here is how
As can be
seen, the average cost for the SIP investor in a falling market is lower. And
hence, the future hypothetical profit when sold later, will be higher for the SIP
investor than it is for the lumpsum investor.
basically what is happening is that if the market grows continuously, then lump
sum investing gives higher returns whereas if it falls continuously, then SIP
investing is better (lesser losses than that of lumpsum investing in such
Ofcourse in practice, the markets neither go up nor go down continuously for very long. So the actual reality may be somewhere in between the two above discussed scenarios of sip vs one time investment in mutual funds.
In some cases, SIP may give better
returns than lumpsum investing. While in other cases, lumpsum will give better
return than SIP investing. And in many other cases, the result of both will be
It all depends on the future sequence of returns that the investor gets. If you want to know how much wealth your SIP will create, try using this SIP maturity value calculator.
But let me
circle back to the original point I made – whether
you invest lumpsum or otherwise first depends on whether you have a lumpsum or
And if you
have, then obviously it would be wiser to just invest lumpsum when the market
is low. Remember Buy-low-sell-high?
is that you will never know when the market is really low. You can be wrong
about your assessment and enter at precisely wrong times.
said, what about our ‘real’ nature and how we behave?
investors are unable to use common sense when their portfolios are down.
few people have the guts to go out and invest more money (assuming they have
more). Fear plays a major role in investing and unfortunately, you can neither back-test
emotions nor fear. And you will only know in hindsight whether is it best time
to invest in mutual funds or not.
investing lumpsum in December 2007 when markets were peaking and then
helplessly witnessing the fall down till March 2009. On the other hand, if you
invested a lump sum in March 2009 instead (at the bottom), you would have been called
the next Warren Buffett!
extreme examples but show how lumpsum investors potentially expose their portfolios
to the vagaries of the market. There is always the risk of being completely
wrong and mistiming. And that is the problem. To be fair, one can also get the
timing right and if willing to spend sleepless nights in the short term, can go
on to make much higher returns than usual in medium to longer term. But that’s
how the dynamics of lumpsum investments are.
Due to their
structural nature, SIPs reduce this risk of being completely wrong as the
investments are spread out. So asking whether is this the right time to invest
in SIP is immaterial as SIP spreads out your investments. Ofcourse your returns
will depend on how the markets play out during the spreading-out period. But
that is how it is.
investors, SIP is also suitable from their cashflow perspective. They rarely have
access to large lumpsum that is ‘surplus enough’ to be available for long term
One can use the SIP investing to slowly build up a large corpus over the years without straining the finances in present or worrying about timing the markets perfectly. You can try to use this sort of yearly SIP calculator to understand how much money you need to save for various financial goals.
I know that
many of you are more focused on saving taxes.
And one popular way to save taxes these days is to go for best tax saving ELSS funds vs PPF. But there also, people tend to get confused whether to go for SIP or lump sum for ELSS when investing in top ELSS mutual funds. Nevertheless, the logic that we have been discussing till now remains the same irrespective of whether it’s an ELSS fund or a normal mutual fund.
Now let’s take
a step further…
What if you
have a lump sum that can be invested. Should you go ahead and invest it in one
go or do something else?
Should you Invest Lump Sum
In One Shot Or Systematically & Gradually?
investor would recognize the market bottoming out and invest in one go. But we
all aren’t smart. So if you aren’t sure if it’s the right time to invest in one
go, you can even deploy your lump sum gradually.
There is no
one single answer to which is the best
method to invest a lump sum in mutual funds?
depending on the market conditions, investor’s investment horizon and risk (and
volatility) appetite, a deployment strategy may have to be worked out. This
strategy may either aim for lowering risk or maximizing returns or a
combination of the two.
One way is
to put lump sum investment in debt mutual fund and gradually deploy the money using
STP or Systematic Transfer Plan into an equity fund.
investor needs would demand different lumpsum deployment strategies.
Being a small investor, it can be daunting to find out which are the best SIP plans that can be considered for long term investments. Or for that matter to find out which are the best mutual funds for lumpsum investment or the best tax saving mutual funds in India or whether to do ELSS SIP or lump sum.
If you don’t know how to find good funds or need help with planning your investments, do get in touch with a capable advisor to help you. It is worth it.
I am sorry
if you did not find the one specific answer to your question of SIP
or Lumpsum which is better for investing.
comparison between SIP and lumpsum investing is neither fair nor accurately
possible. And unless we know everything about the investor in question, one
cannot say confidently which is better suited for whom.
You may feel that there is a secret to find the best time to invest in mutual funds India but there is no secret. Different investors need to follow different investment strategies for SIP and lump sum investing. And ofcourse an awareness of market conditions and how market history plays out is absolutely necessary. You can’t be blind to that.
and done, SIP is a comparatively safer option but we cannot deny that at times,
lump sum investing will provide better returns if done correctly.
Which is better SIP or lump sum investment in top best mutual funds in 2019?
sound repetitive but the truth is the superiority of SIP over lump sum or of
lumpsum investments over SIP varies under different conditions.
Is SIP better
than one time investment? Or lump sum is better than SIP? Systematic Investment
Plan vs Lump sum Investment? It is all a matter of probability and what is the sequence
of returns that comes in future and how investor behaves during the period in
consideration. That’s all there is to it.