Opt for Basic Services Demat Account

Most of us have one or multiple demat accounts where the investments (stocks and mutual fund units in this case) are held.  The charges for demat account varies across players but generally are upwards of Rs. 400 per annum.  For eg: ICICI Securities charges Rs. 500 per annum for a demat account.

However what many of us are not aware about is in case the holding in our demat account is not significant, we can opt to switch to Basic Services Demat Account (BSDA) where charges are capped at Rs 100 per annum. 

Though Rs. 400 per annum of savings may not be a significant amount, the objective here to use the low cost facility available without compromising on the features and benefits.  In this post, we shall delve into features about BSDA and who can open it.

Who can have BSDA?

Sebi vide its circular dated August 27, 2012 mandated depositories to provide an option from October 1, 2012 to all retail individual investors to open BSDA.  Thus this is an old concept but not many are aware about it since it has not been publicised by depositories for obvious reasons.  An individual can have one BSDA account across all depositories.  Such individual should be a sole or first account holder and the demat account can be treated as BSDA if the total value of the securities held in such account does not exceeds Rs 2,00,000 at any point of time.

For eg: If you are having two demat accounts, say one with ICICI Securities and another with HDFC Securities, only one out of the it can be BSDA provided the value of securities in such demat account does not exceeds Rs. 2,00,000.

Similarly if in one demat account you are the sole holder and in the other you are not the first holder, then the demat account where you are the sole holder is only eligible for BSDA, again provided the value of the securities does not exceeds Rs 2,00,000.  However the other demat account can be eligible for BSDA for the first holder of that account.

Charges

The charge for BSDA depends on value of securities in the demat account.  If the value of securities does not exceeds Rs. 50,000, then there is no annual maintenance charge.  In case the value of securities is between Rs. 50,001 to Rs. 2,00,000, then the maximum amount the depository can charge is Rs. 100.  If the value of securities in a BSDA account exceeds the above limit on any day during the tenure, then it ceases to be BSDA account and charges applicable to regular accounts shall apply from that date onwards.

How is value of securities determined?

Value of securities is determined based on the market value of securities held in the account. In case of unlisted securities, face value shall be taken into account.  In case of mutual fund units held in demat account, daily NAV shall be used to determine the value.  Such value should not exceed Rs. 2,00,000 to qualify for BSDA.

How to open BSDA account?

An individual can choose for BSDA account at the time of opening a demat account.  In case one already has a demat account, there is an option to convert the same into BSDA account at the end of the billing cycle provided the value of securities in demat account does not exceeds Rs. 2,00,000.  Infact your depository shall provide you the option to convert your account into BSDA before commencement of next billing cycle based on the value of your holdings.

Other features of BSDA account

• An individual shall receive transaction statement at the end of each quarter provided there are transactions during the period. 
• An annual physical statement of holding shall be sent at the end of the year.
• Electronic statements shall be provided free of cost.
• In case of physical statements, the depository shall provide at least two statements free of cost during the billing cycle. Additional physical statement may be charged at a fee not exceeding Rs.25/- per statement.
• SMS facilities for transaction alert is provided without any additional cost.
• Minimum two delivery instruction slips shall be issued at the time of opening BSDA.

Bachhat’s take

While the monetary benefit is not significant in absolute term, it is always preferable to have services with minimal cost and one can opt for BSDA if the holding does not exceeds Rs. 2,00,000.  Further in case of a family having multiple demat accounts, each account is eligible for BSDA if the accounts are in the name of different family members.

Where you aware about BSDA?  Will you opt for or have opted for BSDA?  Do share your thoughts and comments in the comment section below.

National Housing Board Tax Free Bonds – March 7, 2014 to March 18, 2014

NHB has joined the bandwagon with its tax free bonds.  The issue is open for subscription till March 18, 2014 with best available interest rates amongst other live issues.  While IRFC is facing problem with attracting investors forcing it to extent the closing date to March 14, 2014, NHB is providing short window of 12 days for subscription.

Key Features of Bond Issue:

For other details about the issue as well as risk factors, kindly go through the Prospectus before investing.

Comparison

Out of all the current bond issues live for subscription, NHB provides the best interest rates and hence should be the first choice of investment for individuals looking for investment in tax free bonds.  However, one should invest immediately and should not wait till the closing date since the issue is on first cum first serve basis and the issue size is small.

Interest rates on small savings schemes for financial year 2014-2015

Government has announced interest rates on small savings schemes for financial year 2014-2015.  This is in line with recommendations of Shyamala Gopinath Committee for Comprehensive Review of National Small Savings Fund.

Interest Rates on small savings schemes

While interest rates for most of the instrument types have remained unchanged, rates on post office time deposits have been revised upwards by 10 bps to 20 bps (100 bps is equivalent to 1 percentage point.).  Public Provident Fund remains one of the best option for long term secured investment.

Update: Withdrawal of bank notes issued prior to 2005 extended till January 1, 2015

Subsequent to its advisory dated January 22, 2014 and as noted in our earlier post, RBI has extended the date for exchanging pre-2005 bank notes from March 31, 2014 to January 1, 2015. RBI has also clarified that public can continue to freely use these notes for any transaction as such notes continue to remain legal tender.

Exchange of notes - experience

While there has been minor hiccups while exchanging the notes with banks,carrying the printout of RBI's press release shall be handy at the time of exchange of notes.  Though the release says that there is no need to provide any details of depositor nor to have banking account with the bank where one is exchanging the pre-2005 notes, few banks are refusing to exchange the money and mandating to deposit the same in the account.

Where you able to exchange pre-2005 bank notes without any hassle?  Did your bank refuse to exchange the notes and mandated you to deposit the money in your account?  Kindly share your experiences in the comment section below.

IIFCL and Ennore Port Limited Tax Free Bond Issue - Comparison

Alongwith IREDA tax free bonds, IIFCL’s and Ennore Port Limited’s (EPL) tax free bond issue is also open for subscription this week.  While IIFCL issue opens on 17^th Feb 2014, EPL issue is schedule to open on 18^th Feb 2014.  Including IREDA, investors have 3 options to invest in tax free bond issues giving attractive interest rates.

Read about IREDA Tax Free Bond Issue here

Key Features of Bond Issues:

	IIFCL	EPL
Issue Size	Rs. 750 crores with option to retain oversubscription till Rs. 2,823 crores	Rs. 250 crores with option to retain oversubscription till Rs. 500 crores
Issue open & close date	17th Feb 2014 and 14th Mar 2014.  Allotment on first come first serve basis.	18th Feb 2014 and 14th Mar 2014.  Allotment on first come first serve basis.
Minimum investment	5 bonds of Rs. 1,000 FV (i.e. Rs. 5,000)
Secured	Yes. Ranked paripassu with the claims of other secured creditors.
Listed on	BSE
Mode of Allotment	Demat as well as Physical.  However, trading can take place in demat form only.
Credit Rating	Care AAA by Care (indicating lowest credit risk and highest safety)	Care AA by Care (indicating low credit risk and high safety)
Interest Payment	Annual

Issue structure and interest rates for retail investors:

Tenor (in years)	Series	Coupon Rate (%) p.a.
		IIFCL	EPL
10	Series 1B	8.41%	8.61%
15	Series 2B	8.80%	9.00%
20	Series 3B	8.80%	9.00%

For other details about the issue as well as risk factors, kindly go through the prospectus of IIFCL and EPL before investing.

Read about who should invest in tax free bonds here.

Comparison between IREDA, IIFCL and EPL

EPL provides slightly higher interest rates as compared to both IREDA and IIFCL which offers same interest rates.  However, the credit rating of EPL is lower than IREDA and IIFCL.  Further EPL’s issue is smaller in size as compared to other two.  Since 20 basis point additional interest for 15 years and 20 years tenure do not make any significant difference to the overall returns, it is advisable to stick to more secured issues of IREDA and IIFCL.

IREDA Tax Free Bonds Issue - 17th Feb 2014 to 10th March 2014

Post rate hike by RBI on 28th Jan, 2014, IREDA (which stands for Indian Renewable Energy Development Agency Limited) is the first company to come out with the tax free bond issue at an attractive interest rates.  In this post, we shall highlight key features of the bond issue:

Key Features of Bond Issue:

Issue Size	Total Rs. 1,000 crore including green shoe option
Issue open & close date	17th Feb 2014 and 10th Mar 2014.  Allotment on first come first serve basis.
Minimum investment	5 bonds of Rs. 1,000 FV (i.e. Rs. 5,000)
Secured	Yes. MNRE (which is Ministry of New and Renewable Energy) has given letter of comfort on behalf of IREDA for its payment obligations w.r.t. tax free bonds
Listed on	NSE and BSE
Mode of Allotment	Demat as well as Physical.  However, trading can take place in demat form only.
Credit Rating	Care AAA by Care (indicating lowest credit risk and highest safety)
Interest Payment	Annual

Issue structure and interest rates for retail investors:

Tranche – I SERIES	Coupon Rate (%) p.a.	Tenor (in years)
Series IB	8.41%	10
Series IIB	8.80%	15
Series IIIB	8.80%	20

For other details about the issue as well as risk factors, kindly go through the Prospectus before investing.  And do not forget to read who should invest in tax free bonds before investing in IREDA tax free bond issue.

Tax planning and months of February and March

Sanjana and Sanjay were out on a stroll early wintry Thursday morning of February in Mumbai, which generally is a rarity for this city.

“What a pleasant weather today is!” Sanjana noticed and asked, “Let’s go outdoors during the weekend and enjoy the nature. What say, Sanjay?

“It’s a good idea and weather is also perfect for a day’s outing. But I have some important personal work to do and shall not be able to join you.” Sanjay replied.

“Oh! You and your so called important personal work!” Sanjana exclaimed, “You always have your excuses ready for everything!”

“No Sanjana”, Sanjay replied in a bit serious mood, “it’s already February and I need to do my tax related investments and planning for the year.  I need to submit the documents to my employer in next few days.

“I don't get any time to do this during weekdays and need to complete it during the coming weekend.  We shall plan for outing some other day, Sanjana.”

“You are not yet through with your tax related investments, Sanjay?” Sanjana quizzed, “I never expected you to be lazy in such matters.”

Irked by Sanjana’s question, Sanjay responded “Now where laziness comes in this? Last quarter of the year is meant for tax related investments and planning and I am bang on time.  Only issue is it is not possible for me to do it during weekdays and hence I am doing it during my off time.”

“That’s the problem with all you guys.” visibly upset Sanjana said, “You start your tax planning activities in the month of February or worst in March.  You wait till the end of the year and then start lamenting about it!”

Clueless Sanjay questioned, “Can you please elaborate on this?”

“I don’t want to ruin your pleasant Thursday morning.” Sanjana replied, “But still it is important for you and all others who start their tax related activities late to understand.

“Tax planning should not get started during the end of the year, but should be carried out right at the outset of the year.  By this what I mean is it should be carried out in the months of April or May.”

Still not convinced, Sanjay ask her to explain this further.

“Listen, whatever activities you are planning to do right now - like investments in PPF or tax savings mutual funds, insurance premium, etc - can take place anytime.

“Infact I do all these things in the month of April itself so I need not worry about my tax investments in the month of February or March.   Now all I need to do is take a print out and submit the proof to my employer.  That’s all!”

“That’s all?” Sanjay said, “How is this possible?  If there is a way to do all this earlier during the year, I am all ears.  Tell me how I can do that.”

“It’s simple.” Sanjana started explaining, “All you need to do is plan and start early.  Let’s say you are planning to invest Rs. 1 lac in PPF during the year.  All you need to do is give your bank standing instructions to transfer Rs. 10,000 p.m. from your savings account to your PPF account.  Similarly for mutual fund investment, you can start a SIP and invest during the year in ELSS scheme.  You can structure all your investments in a similar fashion.”

“This is interesting and very much practical.  I never thought about it in this way.” said Sanjay.

“As regards home loan and interest deductions, EMI on home loan is paid monthly so you need not do anything about it.  Same applies in case you pay rent periodically to your landlord.  You can also plan purchasing your insurance policies such that the premium is due early during the year so that is also taken care of.  Have I missed out anything?” asked Sanjana.

“You have covered almost everything.  For things like medical bills, etc. these gets accumulated during the year as and when the expense incurs.  All I need to do is keep record of these things and bingo I am free for you during the weekend for outing!” exclaimed Sanjay.

“Yes” said pleased Sanjana, “This is not only the most effective way, but also helps you to plan your investments quite early during the year.  This time I absolve you from the outing but next year I don’t want you to blubber about the same thing again!” winked Sanjana.

How are you planning your tax investments?  Do share your experiences and thoughts with other readers in the comment section.

Cheapest Term Insurance Plan

In our analysis of top life insurance companies based on claim processing efficiency, we shortlisted 4 insurance companies, viz, LIC, HDFC Life, ICICI Prudential and SBI Life which has the most efficient claim processing mechanism and where the probability of your claim getting settled and paid quickly is more than for other insurance companies.

In this post, we shall compare premium amount for term insurance policies from these companies and check which one out of the four is the cheapest.

Premium Amount

Tabulated below is the premium of term insurance policy for sum assured of Rs. 1 crore with term of 30 years for an individual aged 30 years:

Insurance Company	Plan Name	Premium Amount
LIC	Amulya Jeevan – II	23,300
HDFC Life	Click2Protect	10,600
ICICI Prudential	iCare Term Plan	13,800
SBI Life	E Shield	11,690

Note: Premium amount is in rupees and excluding taxes.

Based on the above it can be seen that HDFC Life’s Click2Protect term plan is the cheapest term plan available, followed by SBI LIFE E-shield.

However, HDFC Life’s Click2Protect term plan do not have an option for accidental death benefits which is available with plans of other companies at an additional premium. Further the premium amount may vary differently amongst various policies depending on the term period and age of an individual and the above ranking may not hold true.

Also note that HDFC Life’s Click2Protect plan is cheapest amongst the four insurance companies which we have shortlisted.  It may not be cheapest amongst all the insurance companies.  For eg:  Similar term plan from Aegon Religare is available for Rs. 5,800/-.

Conclusion

Based on our analysis in this as well as previous post, we can conclude that HDFC Life’s claim processing is most efficient and it has one of the cheapest term insurance plan.

Top Life Insurance Companies based on Claim Processing Efficiency

It is always difficult to choose life insurance companies for insurance cover.  There are various parameters which one needs to go through.  One of the most important parameters out of this is claim processing efficiency of life insurance companies.  Remember, for term life insurance, claim arises after your death.  Hence your family members need to make a claim and follow up with life insurance company for settlement.  Thus you need to ensure that their experience is hassle-free.

With this in mind, Bachhat has analysed claim processing efficiency of all life insurance companies for last 4 years (from 2009-10 to 2012-13).  While there is lots of data to play around with, presented below are key charts and takeaways for the readers.

Best 5 companies in settling claims

This is ascertained from low claim rejection rates.  Lower the rate, the better.

The largest player, LIC has the lowest rejection percentage as compared to all other insurers.  HDFC Life (erstwhile HDFC Standard), Star Union Dai-ichi, ICICI Prudential and SBI Life follows in that order.

Worst 5 companies in settling claims

Edelweiss Tokio has the highest claim rejection rate.  This is followed by Aegon Religare, Shriram Life, India First and Future Generali.  Pertinent thing to note here is that new companies have high claim rejection rate in initial years.

Time taken to settle claims

Another aspect to look is the time taken to settle once the claim has been filed in all proper respect with the insurance company.  Lesser the time, the better.

Based on FY12-13 data, DLF Pramerica has the worst record in this with only 3% claims settled within 1 month and as much as 58% taking atleast 6 months to get settle.  Similarly, Sahara, Star Union Dai-ichi, Edelweiss Tokio and Canara HSBC have substantial delays in settlement.

Let us also take a look at claim settlement record of best 5 companies which were shortlisted based on claim rejection rate above.

All companies, except for Star Union Dai-ichi, have good claim settlement record.

Outstanding Claim Analysis

Another way to look at delays in claim settlement is by analysing the ageing of claims outstanding.  Lets look at the ageing of claims outstanding for above 5 companies as of 2012-13.

From the above, it can be seen that out of total claims outstanding at the end of 2012-2013, for LIC 60% of  claims were outstanding for more than 3 months and almost 1/4th were outstanding for more than a year.  ICICI Prudential and HDFC Life fared better in this with only 17% and 4% of claims respectively outstanding for more than 3 months.

Conclusion

Based on the above, it can be concluded that ICICI Prudential, HDFC Life and SBI Life are most efficient in claim settlement process.  LIC also has decent record of claim settlement, but at times claims may get stuck.  In our subsequent analysis, we shall compare the competitiveness of the term plans of these companies.

PS:  Kindly note that above analysis has some inherent limitation such as (i) new insurance companies having sub-optimal claim settlement ratios, (ii) the analysis covers not only term plans but all life insurance plans (settlement ratios for term plan may drastically vary from this, but specific information for term plan is not available), etc. 

What has been your claim settlement experience?  Kindly share it with other readers in the comment section below.