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As we leave behind another memorable year and step ahead to welcome 2012, we look back at all the news and events that made headlines in the world of personal finance. Here is a snapshot of the 10 most important news items of 2011 that is sure to have an impact on most investors in some way or the other.
1. Deregulation of Savings Account
The interest rate on savings account, have always been regulated by the Reserve Bank of India (RBI). Banks seldom had much control, and the regulated interest rate always hovered around 3.5% to 4%. In a landmark move by the RBI, the interest rate on savings account has now been deregulated. This means that banks would now have a free hand in deciding the interest rates on savings account deposits and what they wish to pay to their customers.
Impact: Investors could now expect to earn much more from their liquid money parked in their savings accounts.
2. Portability of Health Insurance
After a lot of delay, Insurance Regulatory Development Authority of India (IRDA) finally gave a go ahead to portability of health insurance. This facility lets health insurance policy holders to switch over from one health insurance provider to another under the same terms that exist under his current medical insurance policy. Though still in its nascent stage, portability would bring in a good amount of flexibility to policy holders.
Impact: Those unhappy with their insurance company and are seeking to switch over, no longer need to sacrifice their existing benefits or waiting period of Pre-Existing Diseases (PED).
3. No need to file returns for income less than Rs. 5 lakhs
Central Board of Direct Taxes (CBDT) passed a move to exempt all salaried individuals with an income of less than Rs. 5 lakhs from filing income tax returns. Applicable from assessment year 2011-2012 onwards, this exemption covers only income from salary and excludes income from other sources like house property, capital gains and gains from profession and business. If however a claim for tax refund exists for a salaried individual, he must file his returns.
Impact: The move comes as a great relief for a large number of tax payers.
4. IRDA Regulations on Distance Marketing
The year 2011 saw a number of regulations and guidelines set forth by IRDA to protect the interest of insurance investors. One such guideline is to regulate the distance marketing of insurance products. Marketing of insurance products through phone calls, SMS and emails, should be done by employees of insurance companies or their brokers or persons of a corporate agent only. The person engaged in making sales, shall not promote a product but should assist the customer to choose a product that would suit him best. The guidelines also mandate brokers to provide a chart displaying the up-to-date price comparison of the available products under each category.
Impact: This directive makes it more reliable for customers to use alternative modes to buy insurance.
5. Stricter Know Your Customer (KYC) Guidelines
KYC or Know your Customer is the first step in customer identification that is employed by all financial institutions. KYC was earlier mandatory only if the investment was above Rs. 50,000. Under the new KYC guidelines, all retail investors must comply with KYC norms, irrespective of the amount invested. So whether it is a bank account, mutual fund scheme or a pension plan investors would now have to comply with the norms and furnish relevant documents for identity, address, and Permanent Account Number (PAN).
Impact: KYC is a measure to prevent issues relating to identity theft, fraud and money laundering.
6. More Time to Revive Discontinued ULIPs
Your discontinued ULIP could now be revived, if done so within two years from the date of its discontinuance, and before the expiry of its lock in period. The new norms set by IRDA allow insurers to review policies which would otherwise have been cancelled. The norms also make it mandatory for insurers to provide minimum returns for the discontinued period, equivalent to the savings deposit of State Bank of India at around 4%.
Impact: Now get more time to revive your policies and earn better returns for the discontinued period.
7. No Pre-payment penalties on your home loan
The National Housing Bank (NHB), the regulator of Home Finance companies, issued a directive to all Housing Finance Companies (HFC) to remove prepayment penalty on home loans. Though the move is currently applicable to HFC borrowers, the RBI too is in the process of making a directive to banks to remove this penalty.
Impact: Relief to lakhs of home loan borrowers from.
8. Term Insurance Gets Cheaper
With the gaining popularity of the World Wide Web to purchase anything, insurance too is seldom left behind. Many insurance companies now provide an option to buy term plans through their websites. With the absence of any agents or pushy sales executives term plans are cheaper and are easier to buy too. Such online term plans are definitely here to stay and could be purchased from the comforts of your home or office.
Impact: A hassle free and cost effective way to take a life cover.
9. Widening of Tax Slabs
The Union budget of 2011 increased the basic tax exemption limit to Rs. 1, 80,000 from the Financial Year 2011 – 2012 (or Assessment Year 2012 – 2013). For senior citizens too, the exemption limit has been increased to Rs. 2, 50,000 along with reducing their qualifying age from 65 years to 60 years. A new tax slab has been introduced for senior citizens over 80 years in age-called as Super Seniors who will not be required to pay taxes for income up to Rs 5, 00,000
Impact: This widening has brought about great relief for the common man.
10. Fresh IPO Guidelines for the Insurance Sector
Insurance companies seeking to raise capital from an Initial Public Offering (IPO) now have to adhere to a fresh set of norms. As per the IRDA prescribed guidelines, an insurer before raising an IPO must have completed 10 years of operation in the sector. The company must obtain a go ahead from both the capital market regulator SEBI and from IRDA. Such approval from IRDA will be based on the insurer’s financial position, reputation, track record and the company’s post issue capital structure. IRDA holds the rights to decide on factors relating to the minimum lock in period, the maximum subscription of the IPO and even the extent of dilution of stake by promoters.
Impact: The guidelines prescribe certain disclosures that are mandatory for the insurance companies while raising capital through an IPO, thereby reducing problems related to mis-selling of a product.