How to improve your credit rating

Credit Score is a relatively new term in India after the CIBIL (Credit Information Bureau India Limited) came into effect in 2000, and it is catching up fast. CIBIL -- India's first credit information bureau contains the credit history of commercial and consumer borrowers.

A Credit Information Report (CIR) is a factual record of a borrower's credit payment history compiled from information received from different credit grantors (eg banks). Its purpose is to help credit grantors make informed lending decisions -- quickly and objectively.

The CIR includes the following information:

• Basic borrower information like:
• Name
• Address
  In case of individuals:
• Identification numbers
• Passport ID
• Voters ID
• Date of birth
  In case of non-individuals:
• D-U-N-S Number
• Registration Number
• Legal Constitution
• Records of all the credit facilities availed by the borrower
• Past payment history
• Amount overdue
• Number of inquiries made on that borrower, by different Members
• Suit-filed status

It is important for both the borrower and the lender. It will provide borrowers with fast and easy access to the lending resources they need. The use of CIRs will enable loan officers to make objective and informed credit decisions quickly and cost-effectively. This would result in lower cost to the lender and a part of these reduce costs will be passed to consumers with good credit performance in the form of lower interest rates.

How can you improve it?In order to ensure a good credit history, it is important to re-pay your loans on time. Financial discipline coupled with prudent credit management and a good payment history will ensure that you enjoy all the benefits associated with having a good credit record.

• Making your payments on time will have the most significant impact on your credit record. It is important for you to maintain appropriate, reasonable and affordable levels of credit and ensure regular and timely re-payment of loans.
• Keep your total debt under control. If your total borrowings are significantly high, use some of your savings to repay some of your debt.
• When you are seeking for a new loan or credit card, do it in a relatively short amount of time. You don't want to have your report show that you are constantly looking for credit!

You can access your CIR report at www.cibil.com/accesscredit.htm.

Ten things you must never do

• Make a late payment
• Pay only the "minimum amount due"
• Apply for new loans/ credit cards if you already have existing ones with a lot of debt
• If there's a late payment/ incorrect entry on the card, ignore it
• Leave old outstanding amounts as they are
• Not check your credit limits
• Use multiple credit cards and not track them
• Spend even while you are in the 'red zone' (negative cashflow)
• Pay for today's expenses with future incomes' expectations
• Carry forward loans from one card to another

Claiming tax deduction on education loans?

Income Tax Act provides a direct deduction on account of fees paid for the education of your dependent children and interest on loans taken for higher education of your children.

Since the last 25 years we have been noticing that cost of educating our children is rising consistently and today it is quite steep in all respects.

Education has geometric effect not only on the growth of an individual but also on the growth of a country. Hence it is a matter of concern for all of us, how to educate our children with steep pricing in urban centres and nearly non-existent infrastructure in rural centres.

But now that the HRD minister is on the mission to reform Indian education, it has paved the way for better value education for our children.

Thus while imparting education to your children, you are also benefited in certain ways. This way we see that fringe benefits are immense and so are tax benefits. Firstly the Income Tax Act provides a direct deduction of up to Rs 1 lakh on account of fees paid for the education of your dependent children.

In addition to the direct benefit, the act also provides for deduction on accounts of interest on loans taken for higher education of your children.

Benefit in respect of fees paid for children:

This deduction in respect of school fees paid is covered under Section 80C of the Income Tax Act. A parent can claim a deduction of payment made for the tuition fee to any university, college, school or any other educational institution. The deduction in respect of payments made towards tuition fee can be claimed upto Rs 1 lakh together with deduction in respect of life insurance premium, PF and PPF contributions and pension etc.

But there are certain conditions for being able to get this deduction.

This deduction can only be claimed in respect of two dependent children of an individual. An important point to be noted is that this deduction can only be claimed in respect of fees paid to any educational institution within India.

Any fee paid for education of a dependent child for education outside India is not allowed for deduction.

It is also worthwhile to note that the deduction upto Rs 1 lakh is allowed only for tuition fees paid. Any payment as donation to any of the educational institution does not qualify for deduction under this provision.

In addition to donations to educational institution payments made to the educational institutions towards development fee by under whatever head can not be claimed under this provision.

Benefit in respect of interest paid on loan taken for education of children:

Not only this you can also get the benefit of direct deduction in respect of interest paid for loan taken for the purpose of higher education of certain relatives. This deduction is available under Section 80E of the Income Tax, Act. This benefit can only be claimed in respect of interest paid on loans taken for higher education which implies educational course done after completion of Senior Secondary Examination.

This deduction in respect of interest can be claimed in respect of loan taken for education of yourself, your spouse, your children and the child for whom you are a legal guardian. This deduction can be claimed for eight years in a row beginning from the year when the interest payment starts.

As the benefit can be claimed by the parent as well as the child, the person taking the education can start claiming this deduction, once s/he starts earning and paying the interest himself. There is no cap on the amount up to which the deduction can be claimed.

In order to take the benefit of interest payment under Income Tax provision, the loan can be taken from any financial institution or any approved charitable institution recognised by the central government. But deduction under this section is allowed for payment of interest only. The interest can be claimed in respect of loan taken for education anywhere in the world.

This way educational reforms complimented with tax benefits can surely remove the woes related to education and all of us can look forward to quality education for our children at value for money prices.

All you need to know about Portfolio Management Services

Portfolio Management Services (PMS) is a specialised service that offers a range of specialised investment strategies to capitalise on the opportunities in the market.

Investing requires knowledge, time and the right mind-set. This is besides constant monitoring. PMS gives you professional managers who strategise to deliver you consistent returns keeping your risk appetite in mind. Every portfolio manager has a well-defined investment philosophy and strategy that acts as a guiding principle.

PMS relieves the investor from all the administrative hassles of investments. You receive periodic reports on your portfolio performance and other aspects of your investments. Investments are tracked continuously to maximise returns.

In a PMS setup, your relationship manager defines your financial goals and advises you the right product mix. They give personalised service and ensure that you receive periodic updates and account performance reports.

Here are some of the most frequently asked questions about PMS, answered!

What are the advantages of investing in PMS vis-a-vis mutual funds? 
You have greater control over the asset allocation in PMS, whereas it is automatic in mutual funds. The portfolio can be customised to suit your risk-return profile.

The PMS portfolio manager also has relatively greater flexibility to move in and out of cash as and when required depending on the market view.

How can I introduce my initial corpus to portfolio management services (PMS)? The initial corpus can be brought into the PMS ambit by way of either cash and/or securities. The initial portfolio of securities will be re-aligned as per the desired investment model.

Does PMS guarantee the initial corpus and any return thereon?
Returns cannot be guaranteed as per regulations governing portfolio management services in India [ Images ].

What is the difference between discretionary and non-discretionary Portfolio Management Services?The discretionary portfolio manager will independently manage the funds of each client in accordance with the needs of the client. The non-discretionary portfolio manager will provide advisory services enabling the client to take decisions with regards to his portfolio.

Is the payment upfront?
Yes, payment is upfront.

Does portfolio management services have any lock-in period?
There is no lock-in period according as per regulations. But some companies may have a lock-in period depending upon their company polices.

What are the tax implications of investments in PMS?
Each PMS transaction is considered an independent trade and capital gains will be applied on each depending upon whether the relevant stock was held long-term or short-term. At present, 10 per cent tax is chargeable for short-term capital gains and no tax is chargeable on long-term capital gains. Securities transaction tax (STT) is also applicable.

What is the fee structure for PMS?
The fee structure depends from company to company. There may be many options such as:

• A fixed proportion of the fund amount (for eg 2 per cent of the initial corpus)
• A fixed proportion of the fund amount + variable depending upon the performance of the portfolio (2 per cent above 10 per cent of the returns)
• Variable depending upon the performance of the portfolio

Can I withdraw my profit any time?
It completely depends if your PMS has a lock-in period or not. If not, you can withdraw your profit as and when you want, provided you maintain the minimum ticket size. If you have a lock-in period, you will have to either wait till the end of the lock-in period or pay the exit load.