Today debt is becoming common place all over the world. Even in India that originally boasted about having the highest savings rate in the world, debt is slowly spreading its tentacles. Many people, especially youngsters fall prey to the easy availability of the credit. If you are in this position, then here are some tips to get out of your debt.

• Inform your spouse/parents: This is the biggest mistake many people make. They hide their debt situation from their near and dear ones. Don’t do that. Discussing your financial problem with them will help you solve your debt problem.
• Draw a repayment plan: Chalk out a plan to repay your debt. Cut down on unnecessary expenses like shopping for latest gizmos, eating out at a restaurant or going to movies at a multiplex. Use the amount saved to pay off your debt.
• Switch over to low-cost loans: Replace the loans with high interest like credit card debt and personal loan to low-cost loans like loans against securities, NSC, KVP and mutual funds. It will save you the money by reducing your interest costs.
• Opt for one time settlement: Many banks would prefer settling outstanding dues with their creditors. They will try to offer you a settlement as they would be happy recovering even a part of their dues, instead of letting the entire sum go down the drain. If you get such an offer, opt for it. But ensure the bank gives you a settlement letter and declare the account closed.
• Restructure the loan: Banks let you restructure the loan,  in such a way that you pay higher EMIs when your financial condition improves. Write a letter asking the bank to offer you this facility.
• Declare bankruptcy: This should be your last resort and should be used when everything else fails. Approach the bank and declare your inability to pay and also tell them you don’t have any assets. The bank will then take up the matter with the court, who will then attach your assets like property. Then it will commence the liquidation procedure to pay the bank. It is a complex process that can last for 3 years.

There are numerous mutual funds available in the Indian market. All this can be very confusing to an ordinary investor. So if you are looking to invest in a mutual fund but are confused as to how to go about selecting them, here are some tips that will help you in choosing a good mutual fund.

• Long-term consistent performance: Has the fund been a consistent performer over a long term? By long-term I mean we are looking at a time horizon of 10-15 years. Has it managed to deliver good returns during good and bad times consistently? If yes, then this fund should be considered. HDFC Top 200, Franklin Taxshield are some such funds.
• Fund management: Is the fund management headed by a reputed company? Has the company been in business for a long time? AMCs like Reliance, Franklin Templeton, HDFC and SBI have been in business for a long time. They have the necessary expertise to run the mutual fund business. So you know you are in safe hands.
• Portfolio allocation: Does the fund have a higher mid-cap and small-cap bias? If yes, then these funds have higher risk than the funds with large cap bias. Funds like Reliance Growth and Franklin Prima have mid-cap bias and so are riskier than funds like Reliance Vision and Franklin Prima Plus.
• Your risk profile: Can you withstand the risk associated with imid-cap and small-cap funds? If no, then stay away from such funds. If you cannot bear any type of risk then avoid equity fundgs completely.

The government wants to introduce changes in the existing tax regime. It is going to change the way you invest, save tax as well as your overall tax structure. Let us see how with this example.

Ravi earns an annual salary of Rs. 10 lakhs. He invests Rs. 50,000 in PPF, Rs. 30,000 in tax-saving mutual funds and Rs. 20,000 in insurance. He has a home loan of which he has already paid Rs. 2 lakhs in interest along with the principal outstanding of Rs. 1 lakh. Let us see how his tax liability will change.

Ravi’s present tax paid: Ravi invests in mutual funds, insurance PPF and home loan principal. The amounts invested in these options are tax exempted under section 80C up to Rs. 1 lakh. So Ravi’s taxable income goes down to Rs. 9 lakh. He has also paid Rs 2 lakhs towards the interest on his home loan. Hence his total taxable amount goes down to Rs. 7 lakhs. Now out of this, Rs. 1.5 lakhs don’t attract any tax, so his taxable income further reduces to Rs. 5.5 lakhs. Of this, he pays 10% tax on amounts up to Rs. 3 lakhs and 20% tax on amounts up to Rs. 5 lakhs. So the total tax, he pays is 10% of Rs. 3 lakhs and 20% on Rs. 2.5 lakhs  =  Rs. 80,000.

Now when the new tax code comes into effect, his total tax exempted income becomes Rs. 1 lakh (contributions towards PPF + insurance + mutual funds) + Rs. 1 lakh towards home loan principal repayment. Hence his total taxable income now becomes Rs. 7 lakhs. Of this, there is no tax on his income up to Rs. 1.6 lakhs. Hence his total taxable income now becomes Rs. 5.4 lakhs. On this he pays only 10% tax. Hence the total tax he will pay is Rs. 54,000.

Hence with the new tax code, he ends up saving Rs. 26,000.

In the last article on best tax-savings options, we saw the best the options available to you to save tax. Now let us see how to make the best use of them.

First make the best possible use of PPF. You can invest up to Rs. 70,000 in a PPF account in a year. So try to invest as much as possible in PPF.

Next calculate your insurance needs and find out if you are adequately covered or not. If not, then opt for a life insurance policy. Take a simple term plan as you can get high life cover at low cost.

Once you have done this, now is the time to take a look at your investments. Are you a risk taker? Then invest the balance portion of the investment amount in ELSS. If not, then you can opt for bank FDs and NSCs.

E.g. if your taxable amount is Rs 1,00,00,00, then invest Rs. 70,000 in PPF.

This leaves you with an amount of Rs. 30,000. If you have selected an insurance policy with a premium of Rs 10,000, then Rs. 10,000 will be deducted from Rs. 30,000. This leaves you with Rs. 20,000 that you can invest either in ELSS or NSC and bank FDs.

This will ensure you get the best possible returns from your investment.

We are already in the month of February and very soon March will be upon us. So it is time to think about taxes and how to save them. But which are the best tax savings options available? Here we give you a list of some of the best tax savings options open for you.

• ELSS: Are you ready to take risks in order to earn high returns? If your answer is yes, then this is the best option. ELSS or equity linked savings schemes are mutual funds with a lock-in period of 3 years and they invest in equities. Here you not only save tax but also get capital growth.
• PPF: It is one of the best debt products available in the market. It is backed by Government of India and has a lock-in period of 15 years. You get 8% interest on the amount deposited and both interest as well as capital withdrawal are tax-free. However you cannot invest more than Rs 70,000 in any one financial year.
• Medical insurance: You can get a deduction of Rs 15,000 if you are paying a medical insurance premium for you and your dependants. But if your dependents are your parents, you get further deduction of up to Rs 15,000. If you are senior citizen, your deduction amount goes up to Rs. 20,000.
• Home loan principal: The principal portion of your EMI will also help you save tax.
• Life insurance: This investment will not only save you tax but will also give you a peace of mind should you die or are unable to work. Opt for a simple term plan that will give you higher life cover at low premium.