General

What Is Hindu Undivided Family (HUF)? By definition, HUF consists of all individuals who are lineally descended from a common ancestor and also comprises of daughters. HUF is not formed by a contract but by the status of a family i.e., it is created automatically in any Hindu Family. Having a common ancestor is a pre-requisite to form a HUF. Hindu Undivided Family (HUF) is not defined under the Income Tax Act but is covered under the Hindu Law. How to form a HUF? Minimum two members are required to form a HUF, constituting a joint family. A HUF is automatically formed when a person marries and start their family. It is not compulsory for the couple to have kids. Owning an estate or a property is also not mandatory to form a HUF. The Hindu Law though does not govern Buddhists, Jains, and Sikhs; it can be treated as a HUF for taxation purpose. In HUF, the income generated belongs to the whole family, instead of a specific individual. Thus, this income is then taxed in the hands of the HUF. Naturally, HUF is treated as a distinct entity for tax purposes. HUF need to have a separate PAN card and need to file separate IT returns. One of the major benefits of the Hindu Undivided Family is that it is considered a separate legal entity. This entitles HUF to obtain a separate PAN card and bank accounts in the name of the HUF. Once a HUF is formed, typically the head of the family becomes the “Karta”. Until January 2016, women were not eligible to be the Karta of a HUF. However, the Delhi High Court, in a landmark case, gave the decision in favour of a woman being the Karta of HUF.  Basic Requirement for existence of HUF Only one member or co-parceners cannot form HUF. Family is a group of people related by blood or marriage. A single person male or female, does not constitute a family. Joint family continues even in the hands of female after the death of sole male. Even after the death of the sole male member so long as the original property of the joint family remains in the hands of the widows of the members of the family and the same is not divided among them; the Joint Hindu Family continues to exist. An HUF need not consists of two male members. The plea that there must be at least two male members to form an HUF as a taxable entity, has no force. A father and his unmarried daughter can also form an HUF. Who are Coparceners and Members of HUF? The male members are called coparceners, while the females are referred to as just members. The difference between the two is that any of the coparceners can demand partition of the HUF. The female members do not have this right in most parts of the country, except for some states like Maharashtra and Tamil Nadu that have allowed unmarried daughters to function as coparceners. The Hindu Succession (Amendment) Act, 2005 which came into force from September 9th September 2005 removed this gender discrimination by giving equal rights to daughters as sons. The daughters become the coparceners of their father’s families on birth in the same manner as sons and have the same rights as sons in the family properties.

Know your Bank There are some parameters that bank customers should monitor regularly to avoid a shock later. Gross Non-performing assets NPA’s indicate how much of a bank’s loan are in danger of not being repaid. If interest is not received for 3 months, a loan turn into NPA. A very high gross NPA ratio means the bank’s asset quality is in very poor shape. Net Non-performing Asset Banks provide for some loans going bad. The net NPA is that portion of bad loans which has not been provided for in the books. Net NPA is the better indicator of the health of the bank. Provisioning Coverage Ratio Banks usually set aside a portion of their profits as a provision against Bad Loans. A high PCR ratio (Ideally above 70%) means most assets qualify issues have been taken care of and the bank is not vulnerable. Capital Adequacy Ratio It’s a ratio of a Bank’s capital in relations to its risk weighted assets and current liabilities. This is a measure of a bank’s ability to meet its obligations. A high Capital Adequacy Ratio means the bank can absorb losses without diluting capital. Ascertain if the bank is properly capitalised by checking its capital adequacy ratio. A low Capital Adequacy Ratio suggests the bank’s net worth may be eroding. CASA Ratio It is the proportion of current account and savings account deposits in the total deposits of the bank. A low Current Account and Saving Account ratio means the bank relies heavily on costlier institutional borrowings to fund its operations, which can hurt its margins. Credit Deposit Ratio This shows how much a bank lends out of its deposits or how much of its core funds are used for lending. A high credit-deposit suggests an overstretched balance sheet, and may also hint at capital adequacy issues. Net Interest Margin This is the difference between interest earned by a bank on loans and the interest it pays on deposits. Net interest margin will be high for the banks with higher low-cost deposits or high lending rates. Low net asset margin and high non-performing assets is a bad combination. Return on Assets It shows how profitable a bank’s assets are in generating revenue. A low return on assets means that bank is not able to utilise assets efficiently. Negative return on assets implies the bank’s assets are yielding negative return. There is no smoke without fire. Several signs can alert you when a bank is in trouble. If the bank has delayed earnings releases or if the auditor has resigned or made an adverse comment, find out why? Watch out for exit of key managerial personnel as it may be a signal that trouble is brewing within the bank. Also monitor any rating downgrades by credit rating agencies. Beyond this, monitoring some basic operating metrics of a bank can give you a fair idea of its health. All listed banks provide financial statements on their websites, giving a break up of various performance metrics. Asset quality is a key monitorable. If your bank’s net NPAs exceed 5%, it shows bad lending practices. Ensure that your bank provisioning coverage ratio does not dip below 65-70%. The bank will struggle to remain solvent if its bad loans have to be written off. Are your Fixed Deposit safe? Reserve Bank of India (RBI) has made deposit insurance compulsory for all banks. Your investment in a bank is insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, which covers your deposits up to Rs. 5 lakhs for both principal and interest amount held in the same capacity and same right as on the date of liquidation/cancellation of bank\’s licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force. So, even if the bank you have an FD in goes insolvent, your money would be safe. The DICGC while registering the banks as insured banks furnishes them with printed leaflets for display giving information relating to the protection afforded by the Corporation to the depositors of the insured banks. In case of doubt, depositor should make specific enquiry from the branch official in this regard. If you have deposits with more than one bank, deposit insurance coverage limit is applied separately to the deposits in each bank. The deposit insurance scheme is compulsory and no bank can withdraw from it. The Corporation may cancel the registration of an insured bank if it fails to pay the premium for three consecutive periods. In the event of the DICGC withdrawing its coverage from any bank for default in the payment of premium the public will be notified through newspapers. If a bank goes into liquidation, DICGC is liable to pay to the liquidator the claim amount of each depositor upto Rupees five lakhs within two months from the date of receipt of claim list from the liquidator.

Common Mistakes BUYING INSURANCE POLICIES FOR INVESTMENT PURPOSE Have you invested your money in insurance plan to get a return in future..? Big mistake! Out of 100 people,95 have made this mistake. Very few people understand the difference between term plan, endowment plan, etc. NOT ABLE TO CRACK THE CREDIT CARD MYSTERY Are you paying minimum amount due on credit card…? If yes, you are trapped in credit card mystery. On the other side, very few people really enjoy the benefits like free lounge access, buy one get one movie ticket, etc. NO IDEA ABOUT THE POWER OF COMPOUNDING Everyone has come across the formula of compounding but very few people really understand its power. This is the reason people do not start saving early and hence lost out on the power of compounding. Albert Einstein said that power of compounding is the eighth wonder of the world. BUYING STOCKS BASED ON TIPS WITHOUT ANY KNOWLEDGE You will find every Tom, Dick and Harry giving stock tips over Facebook, Whatsapp and TV. Unfortunately, a lot of people fall in trap of these people and invest money without any knowledge. What is the end result..? They lose everything! BECOMING A VICTIM OF LIFESTYLE INFLATION Moving from 2BHK to 3BHK just because you have got a good hike, upgrading your car because you have got some bonus are some of the examples of lifestyle inflation destroying financial lives. BUYING THINGS JUST BECAUSE THEY ARE ON DISCOUNT From Amazon’s “Great Indian Sale” to Flipkart’s “The Big Billion Days”, everyone is encashing on the  weakness of Indians buying things just because it is on discount. Funny things is now you will find such sales every other month. GETTING TEMPTED TO GO FOR AN EXOTIC VACATION BECAUSE SOMEONE POST ON SOCIAL MEDIA Instagram and Facebook are introduced as Social Media Platform but they are actually destroying the entire social fabric. Facebook and Instagram are more of a marketing platform where people post stuff just to get some likes and companies promote their product and services. SPENDING A BOMB ON WEEKEND PARTIES 5 days work and 2 days party: This is the new culture in India. Pubs are jam-packed on weekends where people would spend a bomb on drinks. By the end of the month, they are left with no money. NO TRACK OF CASH FLOW Very few people keep a track of their expenses. Most of them just dont know where the money is gone. NO EMERGENCY BUDGET Not having any extra money in the case of an emergency results in embarrassing situations of borrowing money from friends and relative. Some people even break their investments and make a big mistake. NO MEDICAL INSURANCE People are losing out the lifetime savings because they did not take medical insurance. One accident can shatter all financial dreams. Better be insured. Healthcare cost is rising and it is impossible to manage it without insurance. NO FINANCIAL PLAN People do not know why they need to save money because they don’t know their financial goals. NO DIVERSIFICATION Some people would invest all their money in real estate, some would invest all the money in gold, some would just keep it in locker, some would invest all the money in the stock market. Very few people understand the right way of diversifying the investments. SPENDING ALL THE HARD EARNED MONEY ON CHILDREN MARRIAGE Thanks to our hippocratic society! People save their entire life just to spend all the money on random relatives who only bother about the food and arrangements. BUYING EXCESSIVE GOLD ONLY TO KEEP IT IN THE LOCKER Gold worth lakhs is kept in lockers only to be used once or twice a year. This is resulting in the money getting blocked and hence not getting any returns on it. AN EXTREMELY CONSERVATIVE APPROACH WITH INVESTMENT Traditionally, people have been risk –averse. They would just have an FD and live on 6-7% annual interest. Some would just keep the cash at home. LACK OF CLARITY BETWEEN ASSET AND LIABILITY Having a car is not an asset because it consumes fuel and has a maintenance cost. Its price will only depreciate in the future. Car is a necessity but people spend a lot of money and even take the loan to buy a luxury car over and above their budget. CONSIDERING FRUGAL AS CHEAP A lot of people confuse economic spending with being cheap. An economic spender does not compromise with quality but does his research well enough to buy the product or service at the lowest rate. PROCRASTINATING INVESTMENT DECISIONS “I will invest tomorrow.” But the problem is that tomorrow never comes SPENDING A LOT OF MONEY ON FANCY STUFF A fancy car, a fancy house, a fancy watch, a fancy vacation. People want fancy stuff and willing to pay a premium irrespective of the value it generates. LACK OF PATIENCE “I can’t wait for my wealth to grow. I want to double my investments in 6 months. I need to invest in the stock market. A lot of people lose their lifetime of savings because they don’t have the patience to understand the investment option and would blindly trust anyone with their investment. DEPENDING UPON OTHERS FOR INVESTMENT DECISIONS “ I don’t know  anything about investment. Please manage my money.” Unfortunately, a lot of people are dependent upon others with their hard earned money. This is the reason we have a lot of self proclaimed experts giving stock market tips. NOT DISCUSSING THE MONEY MATTERS IN THE FAMILY Discussions related to money are considered as a taboo in Indian families. Nobody really discusses money matters. GETTING TOO GREEDY WITH INVESTMENT People blindly invest their money in penny stocks, day trading, futures and options. They eventually lose all their hard earned money. What is the root cause..? GREED WASTING TIME ON UNPRODUCTIVE THINGS Rather than learning new stuff and growing the skillset, people end up wasting time on Social Media and YouTube. LACK OF DISCIPLINED INVESTMENT Instead

Domicile A person is said to have a domicile in a country in which he/she is considered to have his/her permanent home. IN WHICH COUNTRY WAS THE PERSON DOMICILED…? Every person has one domicile from his birth to death. As soon as person is born the domicile of his/her father attaches to him/her. This is called domicile of origin. A man can give up his domicile of origin and acquire a new domicile of choice by taking up a fixed habitation in another country. The domicile of origin prevails until a new domicile has been acquired. DOMICILE OF ORIGIN FOR A CHILD The father\’s domicile, where the father was alive at the child\’s birth. The mother\’s domicile, where the father was not alive at the child\’s birth, or where the child was illegitimate. Where the parents were not known, the domicile was the place in which the child was found. DOMICILE OF ORIGIN Example: At the time of the birth of A, his father was domiciled in England. A’s domicile of origin is England, whatever may be the country in which he was born. DOMICILE BY CHOICE When a child reached the age of majority, and had subsequently settled in another jurisdiction with the intention of making it his permanent home. When a person moves away from a domicile of choice with the intention of settling in another jurisdiction, but has not yet done so, his domicile reverts to the domicile of origin until settlement in a new permanent home has taken place. DOMICILE OF DEPENDENCY A child\’s domicile would change when the relevant parent had acquired a new domicile of choice. A wife would acquire her husband\’s domicile upon marriage. A person born mentally incapacitated, or becomes mentally incapacitated while still a minor, continues to be treated in the same way as a dependent child until the incapacity no longer exists. PROPERTY BASED APPLICABLE LAWS Law regulating succession to deceased person’s immoveable and moveable property, respectively. Succession to the immoveable property in India of a person deceased shall be regulated by the law of India wherever such person may have had his domicile at the time of his death. Succession to the moveable property of a person deceased is regulated by the law of the country in which such person had his domicile at the time of his death. PROPERTY BASED APPLICABLE LAWS Example: Mr.  A, having his domicile in India dies in France, leaving moveable property in France, moveable property in England, and property, both moveable and immoveable in India. The succession to the whole is regulated by the law of India. Mr. A, an Englishman, having his domicile in France, dies in India and leaves property, both moveable and immoveable, in India. The succession to the moveable property is regulated by the rules which govern, in France, the succession to the moveable property of the Englishman dying domiciled in France, and the succession to the immoveable property is regulated by the law of India.

Who is Nominee? As per law, a nominee is a trustee, not the owner of the assets. In other words, a nominee is only a caretaker of the assets. It Means The nominee will only hold assets as a trustee and will be legally bound to transfer the assets to the legal heirs. What is nomination and why it is important? Nomination is a process whereby any person who is the owner of the assets, appoints one or more Person(s) as nominee(s) respectively who can receive the assets wherever nominated after the death of the owner. Nomination is usually done solely for the purpose of simplifying the procedure for settlement of claims of the deceased and is an ideal tool to reduce hardships during the settlement of claims in the event of the death of the person who has done the nomination. Even it will ensure that the property does not remain unclaimed or become subject to litigation. Important Things To Remember While Appointing A Nominee Mention the Full Name, Address, age, relationship with the nominee. Do not write the nomination in favour of wife and children as a class. i.e. I nominate my wife. Instead give their specific names and particulars existing at that moment. If the nominee is a minor, appoint a person who is a major as a guardian giving his full name, age, address and relationship to the nominee. In the case of deposits with a bank the Reserve Bank of India (RBI) has clarified that upon the demise of an account holder, the nominee would receive the balance from the deceased\’s account, to hold \”as a trustee of the legal heirs of the deceased\”, and that such payment by the bank shall not affect the right or claim of any person against the nominee. With respect to mutual fund folios, on a cohesive reading of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, and the applicable forms, it can be understood that upon the demise of a mutual fund unit holder, the nominee will merely be holding it \”in trust\”, and the legal heir is free to make a claim over the folios against the nominee. In 2016, the Bombay High Court laid to rest the position of a nominee versus a legal heir in relation to the shares of an Indian company. The Court held that a nomination does not in fact, override the laws of succession in India. A nomination is made with a view to ensure that the estate of the deceased is protected until such time the legal representatives of the deceased can take appropriate steps towards succeeding to such estate. Thus, the nominee of shares of an Indian company is not the legal owner of the shares and therefore, the legal heirs of the deceased shareholder would have a rightful claim over such shares. In case of immovable property, the property can be transferred to the nominee but the actual ownership of the Immovable property clearly lay with the legal heirs of the deceased. Are there any exceptions to this rule? In relation to succession of insurance proceeds, it should be noted that there was a relevant change in insurance law, in 2015, whereby the concept of a \”beneficial nominee\” was introduced. The change provides that if a policy holder names his parents, or spouse, or his children, or his spouse and children, or any of them, as the nominee, such person(s) shall not act as a mere caretaker or trustee but shall in fact be treated as the ultimate beneficiary of the monies payable by the insurer, to the exclusion of other legal heirs. However, it is not mandatory to nominate a beneficial nominee, and if the nominee is a person other than those specified above, the general rule would prevail, and such nominee would hold the monies as a caretaker / trustee for the legal heirs. A Nominee and a Beneficial Nominee – what does it mean? A nominee is just the receiver of the money. He has to eventually hand over the monies to the legal heirs. He himself cannot consume the money unless he is the legal heir. In case of death of the life assured, benefits are payable either to the nominee(s) where a valid nomination has been registered by the company or to the legal representatives who obtain representation to the estate of the policyholder or to such person(s) as directed by a court of competent jurisdiction in India. A beneficial nominee is the end consumer of the money received under the insurance policy claim. Therefore, if you have made someone a beneficial nominee during the issuance of policy then in such case that beneficial nominee has the right to use money received during the claim settlement. Under the new Insurance act, Parents, Spouse and Children, if any one of them is the nominee in the policy, they automatically become the Beneficial Nominee and hence they can consume the monies too.