Problem and Solution -1

Q. I along with my 2 brothers earn nearly Rs.20lac per annum. All of us have to make Tax savings in Tax saving instruments every year. We have been investing in ELSS schemes for some time now. Looking at poor market conditions and negative returns on my MF portfolio last year, I Plan to invest in some other asset class. Is it possible to buy a house in our name and get the tax exemption limit on interest income individually?RAMESHWAR UMRE

A. It is a good idea to diversify your investments and you can certainly consider investing across different asset classes. Since you have been investing in equities, we would suggest that you invest in safer fixed income avenues as PPF to moderate the overall risk associated with your portfolio.

If you are keen to buy in real estate together, then few points deserve attention as follows:

1. Source of income for all of you should be specific and different.
2. Availability of home loan for real estate purchase.
3. Banks normally insist that all co-owners in a joint home loan.
4. If you all will be occupying the house of not.

In a case, where the house is owned by more than one person and is also self occupied shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs.1.5lakh.

The above given is only a sketch and the exact implications with respect to tax saving can be figured only as we have the necessary details relevant for discussion.

Income Funds

Income Funds- Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of “Investment Grade”. Debt funds that target high returns are more risky.

– Ajay Jain