Checklist for children turning into majors.

Checklist for children turning into majors.

It is a Big Milestone in our lives when our children reach majority. At 18 years, the person is recognized as an adult eligible to cast their vote in  elections, have assets in their name without any mention of guardian and also can have their own driving licenses.

Many parents make investments in the name of their minor children for various reasons – from earmarking investments separately for children to saving taxes. However when the child reaches majority, the financial assets must have a re-look.

There are various processes which require submission of many documents to convert an account from minor to major. The two important steps to start the process is

1. Correction or reissue of PAN Card with signature and photograph/ Application of new PAN in the name of major, if not already done.
2. Obtain an Id proof like passport, Driving Licenses etc. with recent photo, signature and address updated.

1. Request for new PAN Card

Since copy of PAN card is mandatory for most of the financial transactions, it is important to apply for a new PAN Card with photo and signature of the child included and address change, if any. This is important as copy of PAN is mandatory for most financial assets and it also serves as a proof of identity. However, the PAN number of the child remains the same.

Please refer the below link for more details:

https://www.tin-nsdl.com/

2. Conversion of bank accounts from minor account to major/regular account

All banks have certain rules and regulations for minor account holder. Many banks even have certain accounts specifically designed for minors such as ICICI Young Star Account, HDFC Kids Advantage Account etc.  These type of accounts provide few privileges to minor account holder – with withdrawal and deposit allowed after 10 years of age, and debit card also issued after 10 years of age. They could also do the transactions and use the internet banking facility, kid friendly freebies and preferential rates of interest for some minor account holders.

However when a child turns major, these accounts have to be mandatorily converted to major accounts. It depends on the rules and regulations of the bank on how they convert a minor account to a major one. Some banks upgrade the bank account to a regular saving account using the same account number. Some banks request a new regular account to be opened and transfer the balance to this account and close the minor account. On having a regular savings account, the child will be issued a cheque book and debit card with her/his name on it. The guardian name given earlier will be removed.

The document required for conversion/upgradation from minor to major bank account are as below:

1. Copy of PAN Card self-attested
2. Age Proof like School Leaving Certificates of State Boards, ICSE, CBSE etc., Birth Certificate, Passport etc.
3. Address Proof – Passport, Electricity Bill, Voter Id etc.
4. Id proof such as Passport/Driving License/Aadhar etc.

Having a regular bank account for the child is highly important as this is required to change the status of Mutual Funds, Demat Accounts etc.

1. Conversion/Transfer of assets such as FDs, RDs etc. in banks

The transfer/conversion of assets such as FDs/RDs in banks from minor to major is typically done after the bank account is converted to a major account. The process for change is similar to that of savings account. However, the linked savings account to which the maturity amount is to be credited has to be updated.

2. Changing Status of Mutual Funds from minor to major

The most important step before change of status from minor to major is to get KYC done for the child. The required documents for individual KYC are:

1. Updated KYC Form
2. Copy of PAN attested with signature
3. Address Proof(Passport, Electricity Bill, Voter Id, Driving License etc.)

Once the KYC gets done, to change the status of the Mutual Funds from major to minor, the following document are required:

1. PAN Card copy with self-attestation
2. Address Proof (Passport Copy, etc.) with self-attestation
3. KYC proof
4. Birth Certificate as a proof
5. Bank Details showing change from Minor to Major account along with cancelled cheque with name printed on the same and should be self-attested.

A sample online form can be seen on clicking the link below:

https://www.camsonline.com/InvestorServices/COL_ISMinor%20attains%20Major%20form.aspx

3. Shares and corresponding Demat Account

A Demat account can be opened and shares can be traded/held in a child’s name through a guardian. When the child turns major, the change/conversion to a major or regular account depends on the regulations of the brokerage firm.

Some firms request for a new account to be opened in the name of the major child and transfer the existing holding to the new account. The minor account is then closed.

Some firms allow the same minor account to continue but the child has to complete all the formalities required for opening a new demat account. The child also has to sign a new agreement with the Delivery Participant (DP) like NSDL or CDSL. The guardian details entered earlier will be deleted.

https://www.cdslindia.com/downloads/faq/02.Demat%20CDSL%20Way%20-%20II%20-%20Account%20Opening.pdf

4. Converting minor PPF account into major

PPF account can be opened for a minor by any of the parents or guardians. There are two options possible when the PPF account matures:

1. When PPF account of minor matures before he turns major

In this case, the guardian can withdraw the maturity amount or choose to extend the tenure by any number of years If the tenure is extended, then by the end of the first extension tenure, the child would have turned major. The child has to submit photo, birth certificate, cancelled cheque with name included and address proof to change the status to major for a PPF account.

1. When PPF account matures after the child turns major.

The child has to submit copy of PAN card, birth certificate, cancelled cheque with name included and address proof to change the status to major for a PPF account. The maturity amount in this case is tax free in  the child’s name.

5. Post Office Monthly Income Schemes(POMIS) – changing status from minor to major

POMIS accounts can be opened in the name of a minor if the child is 10 years of age and above. There is a separate limit of Rs.3,00,000 for the minor apart from the limit of the guardian. On turning major, the child has to apply for conversion of minor account to major along with birth certificate, copy of PAN Card and cancelled cheque of the child’s bank account. After the conversion, all income arising from this account will be considered as income of the child only. http://www.indiapost.gov.in/mis.aspx

6. Insurance Policies:

For insurance policies, many situations can arise for a minor depending on the policy, the policyholder and the nominee.

1. When the nominee of an insurance policy is a minor

The policyholder is supposed to specify an appointee if the nominee of the policy is a minor. The appointee is entitled to withdraw the policy amount on behalf of the minor. In case no appointee has been mentioned, the minor has to wait till majority to claim the amount. On turning 18 years of age, the child has to submit age proof like School leaving certificate and birth certificate, bank account details with cancelled cheque and policy document mentioned.

1. When a minor is the policyholder and life insured (in case of child policy)

When a policy is in the name of a minor and the policy benefits will be paid according to the payout terms in the policy. If the policy payouts are scheduled after the child turns major, the policy amount will be paid to the child’s bank account. To claim the amount, the child has to submit the age proof and cancelled cheque of own bank account along with a copy of the policy document to the insurer.However depending on features of the policies, some policies do make the pay outs to parents/guardians of the child to utilize for expenses related to the child.

1. When the policy is a child plan with life of parent insured and nominee is the child

In such policies, the regular payouts if any are made to the parent to meet the regular expenses of their children. However on the death of a parent before the child turns major,  the proceeds will be paid to the children or the legal guardian or the appointee of the policy as the situation arises. The child will receive the benefits on turning major.

It is important to note that only child policies are issued in case of minors. These may or may not include life cover for the children. Also, the maturity benefits and regular pay outs if any,  for child policies are mostly paid after the child turns 18 years of age when the child enters college. Since there are a wide variety of child policies available with different features and policy terms, the procedures to change the status from minor to major is different for different policies or it may not be required at all.

As listed above, the procedure for changing the status from minor to major varies for different assets. However the most important prerequisites for all procedures is to have a PAN card with photo and signature of the child and a regular bank account in the name of the child who has attained majority.

It is also important to note that once the status of the assets are changed from a minor child’s to a major’s name, the parents/guardians would lose all rights on it. The child has every right to use, withdraw, redeem or close the accounts according to their  wish. Also if the assets in the child’s name generate any income which are taxable, the taxes have to be paid in the name of the child and will not  be clubbed with the parents’ income, unlike when child was a minor. Also, the parents cannot enjoy the benefit of tax-free income of Rs.1500 per year per minor child up to a maximum of two minor children

Bank Fixed Deposits vs Debt Mutual Funds

For most of us, our search for debt investments begins and ends at bank fixed deposits. When we have idle money in our bank, we invest the excess amount in fixed deposits. Bank fixed deposits are easy to understand. You simply need to walk into nearest bank branch to invest. Moreover, with net banking becoming more and more popular, opening a fixed deposit is merely a click away for a number of us.

Returns are fixed and guaranteed. You don’t really need to worry about whether banks can default. You believe that Reserve Bank of India, the banking regulator, will take pro-active steps or in the worst case, the Government will come to your rescue.

Hence, it is no surprise that a number of investors don’t look beyond fixed deposits for their debt investments.

Of late, you would have read a lot about how debt mutual funds can present a credible alternative to bank fixed deposits. Some argue, and correctly so, that the debt mutual funds are more tax-efficient than fixed deposits. Others counter that the returns from debt mutual funds are not fixed, face credit risk and thus your money might be at risk.

In this post, I will compare tax treatment of fixed deposits and debt mutual funds with the help of illustrations. I will compare fixed deposits and debt MF schemes on a few other parameters too.

Please understand I am referring to only bank fixed deposits. I advise readers to stay away corporate fixed deposits and fixed deposits from small co-operative banks.

Tax Treatment of Fixed Deposits and Debt Mutual Funds

This is an area where debt mutual funds score over fixed deposits.

Interest on fixed deposits is taxed at your marginal income tax rate. For example, if you make a fixed deposit of Rs 1 lac at 8% for 5 years, you will earn Rs 8,000 as annual interest.

You will have to pay tax on this interest income at your marginal income tax rate. If you fall in the highest income tax bracket, you will have to pay income tax of Rs 2,400 on this income (30% of Rs 8,000). I have ignored surcharge and cess.

On the other hand, in case of debt mutual funds, the tax liability arises only at the time of sale of mutual fund units. So, if you purchase debt MF units today, you won’t have to pay any tax till such time you sell those units. It does not matter how long you hold those units.

If holding period for debt mutual fund units (at the time of sale)  is less than or equal to 3 years, the resulting capital gains shall be treated as short term capital gains and taxed at the marginal income tax rate (income tax slab).

However, if the holding period is greater than 3 years, the resulting capital gains shall be treated as long term capital gains and taxed at 20% after accounting for indexation.

Tax Deduction at Source (TDS) for Bank Fixed Deposits

A bank is required to deduct TDS (Tax deducted at source) if the interest paid during the financial year exceeds Rs 10,000 across all its branches. TDS is the tax deducted upfront by the bank (from the interest) and deposited with the Government.

So, if your annual interest from fixed deposits (from a particular bank) is Rs 8,000, there is no TDS applicable. However, if the annual interest is Rs 13,000, the bank will deduct TDS at 10% i.e. Rs 1,300. I have not considered cess and surcharge.

If you have furnished PAN with the bank, TDS will be deducted at 10%. Otherwise, the bank will deduct TDS at 20%. Please understand TDS has no relation to your marginal income tax rate (income tax slab).

5 Financial Lessons From Baahubali's Blockbuster Success

From being patient to never letting emotions cloud one's judgement, Bahubali carries many important lessons for investors.

Like Baahubali, one must be ready to play the waiting game when investing.

In less than two weeks, the worldwide box office collections of 'Baahubali 2: The Conclusion' has surpassed the Rs 1,000 crore mark, making it by far the most successful movie in Indian history. The movie directed by SS Rajamouli, has been released in Hindi, Tamil, Telugu and Malayalam in over 6,500 screens across India, and in 9,000 plus screens worldwide.

While Rajmouli’s magnum opus continues its dream run at the box office, the story about a young prince (Baahubali) who lets go of short-term gains as a matter of principle has an important lesson for traders and investors.

Here are some important financial lessons from Baahubali that every investor can use:

Playing The Waiting Game
Baahubali forfeits his right to the throne but never loses sight of the kingdom. It took two generations to finally gain the kingdom. Similarly in the field of investing, the waiting game eventually pays off, Spend Big To Earn Big.

Baahubali pays a huge price throughout his life. He forfeits the throne. He also gives up a life of luxury to live among the commoners. Eventually, he also gives up his own life. While investing the same principles hold true as Most of us tend to trade and invest without understanding the actual costs and the opportunity costs. We hold on to our investments for a long time and get out at the wrong time.

Greed At The Wrong Time Can Be Your Undoing
Baahubali’s brother succumbs to greed and that eventually proves to be his undoing. Baahubali, on the other hand, was greedy at the right time. Similarly, in the investment arena you need to know when to be greedy and when to be fearful. Greed at the bottom of the investing cycle and fear at the top is positive. The reverse can be disastrous for you.You Don’t Need Superstars
Baahubali proved that you do not need big stars to create a blockbuster movie. That is true of your portfolio too. You need star potential; not just superstars in your investment portfolio.

Never Let Emotions Cloud Your Judgement
This was the underlying theme of Baahubali; the character. Whether he was confronted by his affection towards his mother or his commitment towards his wife, Baahubali never allowed emotion to get the better of his judgement. Emotions are your biggest enemy while investing, You normally tend to follow the herd mentality and you tend to get swept away by emotions. Like Baahubali, your investment decisions must be driven by cold logic and incisive analysis.

This time it's different...........There were four things that stood out in the Budget 2017.

The budget was wholly aimed at improving the infrastructure of the country, especially in infrastructure sector. The budget had many provisions addressing the rural segment of the economy.

Meanwhile, there was also driving force on entrepreneurship and rationalisation of tax structure for start-ups and new setups in the manufacturing sector.

Valuations getting better across the board, focus on themes like Focused Government reforms, Digital Money this all beneficiaries could benefit your portfolio significantly.

There were four things that stood out in the Budget 2017. 

One, focus on unsung India – rural poor & agriculture.

Two was continued focus on fiscal disciple,

Three there was focus on infrastructure spending and fourth was to bring transparency in transactions. Spending on housing and roads would help create jobs and in turn boost consumption, Only if consumption improves one will see an improvement in capex and corporate earnings. According to me, I look at it in the backdrop of global uncertainty and the fact that there has been quite a lot of difficulty in raving up domestic growth. The fiscal muscle available to the government was fairly limited. So I saw this Budget straddling the short-term and the long-term.

fourth was to bring transparency in transactions. Spending on housing and roads would help create jobs and in turn boost consumption.

Now, Lets Come back to Our Money… main topic.

So, The world of investing can be cold and hard. But if you do thorough research and keep your head on straight, your chances of long-term success are good. 

Aggressive strategy: We should look at 2-3 years horizon on Infrastructure sector adding money thru systematic investment basis. After recent demonetization effect we can expectant superior returns from banking and financial sector funds.

Moderate Strategy: We should look at 3-5 years Continue or add money to our existing funds like diversified equity Funds.

Conservative Strategy: Stick to Balanced Fund category with minimum time frame of 3 Years.

I strongly feel adding regular and disciplined investment in equity Mutual Funds will make good Long Term Wealth.

Just Reminded me quote by Sir John Templeton.

"The four most dangerous words in investing are: 'this time it's different.'

Follow market trends and history. Don't speculate that this particular time will be any different. For example, a major key to investing in a particular stock or bond fund is its performance over five years. Nothing shorter.

Please feel free to call me for more detailed discussion.

Regards,

 

Ritesh.Sheth CWM^®

CHARTERED WEALTH MANAGER

              Helping you invest better...  

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2016 will be different

The domestic stock market has reacted negatively to demonetisation and opened lower after digesting the intense social media heat both for and against demonetisation. However, the market gained sanity later and reacted calmly by the close of the week. 

Much has been said about demonetisation but no one denies the pragmatic outcome of the same. Banks have started reducing interest rates and some of the private lenders have already reduced rates by 15 to 20 bps. The stock market is altogether an independent animal with has scant regard to demonetisation, if any. However, such moves should bring a positive shift towards a cashless economy. Combined with GST, it would possibly help tame corruption and a new era of meritorious society should emerge. 

In the stock market, open interests in index futures have fallen sharply and are running on the lower side of the annual averages. Volatility, too, is cooling down slowly, which is good for the health of the market. 

Stocks that are banned in the derivative segment stand at a negligible level, indicating a moderation in leveraged positions. Normalcy is creeping back into both the stock market and the economy. 

The stock market is limping back to normalcy. Greed and fear seem to have abated and all the external macro-factors have almost been discounted. 

The massive fall in stock prices on fears of a slowdown seems to be overblown from market’s perspective. It is well known that the market is a six-monthly forward discounting machine. 

Any negative event, whose effects are to be felt within one or two quarters, is almost always discounted. Thus, there is nothing that investors must worry about regarding the effects of demonetising high-value notes, as it has already been discounted by the market. 

The recent fall, therefore, creates a compelling opportunity to buy great businesses. 

Investors should take the opportunity and start purchasing Equity Mutual Fund for long-term portfolio.

views and recommendations expressed in this section are personal. Please consult your financial advisor before taking any position. 

Principle of Wealth Building 5 of 5

If you thought building wealth was about how much you make then you would be wrong: it's about how much you keep. 

The single biggest expense standing between your earnings and savings is (drum roll, please)... taxes. 

Nothing else comes close. 

When you add together all taxes on items like income and consumption, factor in the pass through of all other taxes like corporate taxes, import duties, etc., you quickly see what an extraordinary burden taxes have become regardless of your income level. 

That's why legally controlling this expense is the 5th essential wealth building principle. You must learn how to keep more of what you make. 

The key point is how your government (in it's infinite "wisdom") has decided to favor certain financial practices through tax incentives. 

How does this all fit together? Well, remember a few emails back when I taught you the 3 Principle of Wealth Building - paper assets, real estate, and business? 

At the time, I explained how paper assets were a wealth parking vehicle, but real estate and owning your own business were wealth building vehicles. This critical distinction surprised a lot of readers. 

While the stats make this claim indisputable, I wanted to give you two reasons why it's true. 

The first reason was contained in the last lesson - leverage. Few leverage opportunities exist in paper assets (and all carry significant risk and cost). However, business ownership and real estate offer maximum leverage opportunities (many without increasing risk or cost - some even lower costs). 

Now you're learning a second reason these two asset classes are favored wealth building vehicles - tax advantages. Real estate and business ownership offer tax advantages not available to Salary earners or paper asset investors. 

(Yes, I know I'm using India-centric terminology; however, similar laws and principles apply in most common law countries for my readers outside India) 

The government has decided to make these two asset classes the most tax-favored wealth building vehicles available. 

For example, it's entirely possible to own real estate that puts cash in your pocket every month while providing valuable tax deductions that give you a bigger tax refund at the end of the year as well. You can't do that with earned income from your job or capital gains from stocks and bonds... without going to jail. 

Similarly, when you own a business many expenses are paid partially by the government as legal tax deductions. This can put more money in your pocket for any given level of income. 

Now, it's beyond this brief email instruction to give detailed analysis of all the deductions available or how they work. There are too many countries, too many rules, and everyone's situation is unique. You'll need to learn the details from one of the many books focused exclusively on this topic or consult with a competent tax professional. 

Instead, what is important for this lesson is to understand how real estate and owning your own business are two wealth building vehicles that afford both valuable tax deductions and leverage opportunities. 

The leverage and tax advantages can dramatically affect your rate of compound growth which will shorten the amount of time it takes to achieve wealth. In short, these two principles allow you to create more wealth with fewer resources - both time and money. You can't apply these two principles to paper assets. 

It's why more people build wealth through real estate and business entrepreneurship than any other asset classes. It's also why paper assets are generally used to park and preserve wealth built elsewhere. 

Sure, you can still achieve financial security the traditional way with aFixed Deposits and savings plan invested in paper assets (which we will cover in detail in the next several lessons). This strategy works (without leverage or tax advantages) if you have the time and discipline to make it work. 

It is well-proven financial path that is governed by strict mathematical limitations. 

However, many people want to turbo charge their results. They want financial security in 10-15 years instead of taking a lifetime. If you're one of those people then there is no getting around the necessity for leverage and tax advantages. 

Your homework from this lesson is to develop a working knowledge of the various tax strategies that apply to your chosen path to wealth. Develop this knowledge or find a professional to help you because it will pay you dividends for a lifetime. 

I know it has for me. That's why it's your 5th wealth building principle. 

I hope you've enjoyed these first 5 principles to wealth Building. Yes, there are many more wealth principles. Course on wealth Building teaches you everything required in carefully structured, step-by-step, learning modules so you walk away with your own personal plan for wealth. You can learn more about it.

In the next blog in I'll share more ideas explaining exactly how the traditional passive investment approach using paper assets can be applied in your wealth plan, and I'll show you the two essential factors required to make it work. This is important material since nearly everyone applies this strategy - for at least a portion of their wealth - me included. 

Thanks for your support, and I'll see you in few days...

Principle of Wealth Building 4 of 5

Dear Customer,

Unfortunately, other tasks require prioritization right now, and I'm not willing to rush the writing and sacrifice quality. Principle of Wealth Building. 

In other words, Principle of Wealth Building 4 and 5 lesson delayed. 

If you are disappointed then that is a good thing because it means I've been delivering value to you. 

Principle of Wealth Building 4

Why? You have limited time and capital resources. 

Time and money spent one place cannot be used elsewhere. At some point your financial growth hits a wall because it's limited by your personal resources. 

However, the world has unlimited time and unlimited resources. Your financial growth is literally limitless when you leverage other people's resources. It's how all fortunes - large and small - are built. 

Leverage is your 4th wealth building principle because it multiplies your results for any given expenditure of effort. It must be a part of any properly designed wealth plan. 

However, leverage can make the good times great and the bad times unbearable (if you apply it incorrectly). 

In other words, a common myth about leverage is it increases risk. This is only true for certain types of leverage such as financial leverage. 

Other types of leverage can actually increase results while reducing risk. 

Surprising... but true. 

For example, I'm using technology leverage to deliver this message to you. I write these lessons (knowledge leverage) once and leverage technology to build relationship and add value to thousands of people's lives. 

No risk - unlimited reward. 

Understanding leverage's many aspects at a very deep level is one of the most important principles in your wealth building plan. 

It's another make-or-break issue (like so many others... that is why so few people succeed financially. Each one of these principles is critical to your financial success.) 

Using my own life as an example, I became uncomfortable with the dangers inherent in financial leverage in late 2000. I sold all my holdings prior to the huge decline to eliminate financial leverage. As a replacement, I consciously chose to increase my knowledge and technology leverage instead by focusing on this business. 

None of that was by chance, yet it has been worth millions. It was the conscious matching of an appropriate leverage strategy to the current market environment that resulted in eliminating risky leverage because it was inappropriate. This is an essential wealth building principle that you would be wise to emulate. 

Your homework for this lesson is to look at your wealth plan. Where are you including leverage? Where could you add leverage without increasing risk? What changes would you have to make to open new potential for increased leverage and results? 

The answers to these questions can make-or-break your wealth. 

In a few days I will send you the 5th wealth building principle as part of this base education for developing a proper wealth plan.

I hope you are enjoying these insights. My goal is to help you break from ordinary thinking so you can produce extraordinary results. 

See you in a few days with the 5th principle...