Money Matters

Health Insurance

Rajesh Shukla: I have a corporate health cover of Rs 3 lakh for my family. I am now planning to buy a Rs 10 lakh super top-up plan with a deductible of Rs 3 lakh. Will this new plan work in the absence of a base plan when I leave my job?

Anand Roy, Joint Managing Director of Star Health and Allied Insurance, replies:

Yes, it will work when you leave the company. But as you may be aware, a top-up policy does not cover the deductible part. For instance, if your hospital bill amounts to Rs 3.75 lakh, the top-up plan will only pay Rs 75,000 (depending on terms and conditions). You have to pay the deductible amount of Rs 3 lakh from your pocket in the absence of a base plan. To avoid this situation, you should buy a standalone health insurance policy for the entire family, and the sum insured should be at least Rs 10-15 lakh.

Narender Kumar: I am a private sector employee and planning to open an NPS (National Pension System) Tier-II account. But I want to understand its tax implications. I may also invest in equity, corporate bonds or G-secs, but would like to know more about taxes on short-term and long-term capital gains.

Divya Baweja, Partner at Deloitte India, replies:

The NPS comes with two accounts - Tier I and Tier II. The first is a non-withdrawable retirement account featuring several tax breaks. The second is a voluntary account that allows Tier-I account holders to invest and withdraw money whenever they want. When you take out your money from a Tier-II account, the tax liability will be similar to mutual fund redemption and will be treated as capital gains. One has to pay security transaction tax or STT for equity-oriented funds, and the gains will be taxable as follows: Long-term capital gains: 10 per cent without indexation in case the amount is higher than Rs 1,00,000; short-term capital gains: 15 per cent. As for debt-oriented funds, long-term gains are taxable at the rate of 20 per cent with indexation, and short-term gains are taxable at slab rates.

Saket Lokhande: I have a two-year-old son, and I am planning to save Rs 20 lakh in the next 15 years for his higher education. I can save Rs 2,000 every month. Should I invest this amount in PPF to reach my goal? I will be able to save more after five years.

Rajesh Cheruvu, Chief Investment Officer of Validus Wealth, replies:

Equities give volatile returns in the short term but tend to perform better than debt investments in the longer term. As you have enough time to reach this goal, you can stay invested in equities for bigger returns. Monthly SIPs in mutual funds will help you get through market volatility. But one should not invest in stocks without market understanding or financial knowledge. PPF rates tend to move in line with ongoing policy rates. The current rate is 7.9 per cent, slightly above the fixed deposit rates. Also, investments in PPF will have a 15-year lock-in period.

Inflation must be taken into consideration as it will substantially increase the amount required. Annual inflation of 5 per cent means you must have an education corpus of Rs 42 lakh, more than double of what you are planning. A monthly SIP of Rs 2,000 will not be enough as you will get Rs 10 lakh in 15 years, assuming a 12 per cent CAGR. If you invest the same in PPF, you will get Rs 7 lakh at the current PPF rate. So, you should start a minimum monthly SIP of Rs 5,000, which will lead to a corpus of Rs 23 lakh in 15 years (at 12 per cent CAGR). A higher amount (say, Rs 9,000) is recommended to beat inflation and accumulate Rs 42 lakh in 15 years. The amount needs to be higher if you invest in PPF as expected returns will be lower than equity investments.