In an interactive session at Moneylife Foundation, advocate Bapoo Malcolm explained to a packed house the practical aspects of making a will
Through a Will, we offer specific instructions about what has to be done with movable and immovable properties after our death. As simple as it sounds, there are several misconceptions and many are left confused with the legalities, while preparing a Will. Having conducted many sessions on making a Will in the past, Moneylife Foundation conducted yet another seminar on ‘How to write your own Will’ at the request of the Foundation members. Like the other events, this event too, received an overwhelming response. Bapoo Malcolm, advocate, Bombay High Court, a man of many interests and the speaker for the event, covered issues related to wills, like registration, litigation possibilities, witnesses, executors, intestate problems and adoption. He also discussed types of wills, including privileged wills, joint wills and holographic wills.
Who can prepare a Will? Mr Malcolm, a well experienced lawyer in both civil and criminal matters, said, “A Will can be made by any person who is not a minor and who is of sound mind. You need two witnesses, preferably independent of each other. The Will must list all the immovable and movable properties you own, and who you wish to will them to after your death.” Remember, however, that you can only bequeath what belongs to you and what is self-earned; otherwise the distribution is governed by various Succession Acts.
Explaining the simplicity of creating a Will, Mr Malcolm described that, “A Will is a simple document to be written in simple language. Preferably, avoid legalese. You simply have to give specific instructions about what has to be done with the movable and immovable properties you own and the property you might acquire in future. It would be best if it reads like a balance sheet. Just specify the property and the person.” A Will should be legible and clear to understand.
There appear to be several misconceptions about the making of a Will. One was that a Will needs to be registered. Mr Malcolm cleared the doubt. He said, “The government does want to encourage people to make Wills, so they haven’t made it compulsory to register a Will. You can even make a Will on a serviette. So long as the basic requirements are fulfilled, the Will is legal. Registration is a grey area, mainly because if you then wish to make a second Will, you may not have the time to register it. If you realise the day you die that a relative is useless, you may not be able register this second Will. Then, does the unregistered Will have more value than the registered one? An unregistered Will could easily be lost; however, registration takes care of the safety issue. At least, if it is registered, you know that it is always in some government ward.”
A Will needs to be clear and concise, leaving no room for misinterpretation. “A Will would be interpreted according to the word of the law, which may not assign the same meaning as you intended.” For example, while mentioning names it is important to specify the relationship along with the date of birth of the person, as there could be common names. Also, if you wish to intentionally leave someone out of your Will, especially, if it is a close family member, it is better to mention the name in the Will. If not, the person may contest the Will by saying you have forgotten his/ her name, he explained.
Mr Malcolm spoke of the basic components of a Will as well as terms such as testator, executor, codicil, testamentary guardian and a detailed discussion on probate of a Will. He covered issues related to Wills, like registration, litigation possibilities, witnesses, executors, intestate problems. He also answered the queries of Moneylife Foundation members who raised their doubts.
RBI launched inflation indexed bonds will be available till 31st December. The good news is that the rate will be linked to CPI instead of WPI - the less accurate gauge of inflation. The bad news is that early redemption, even after the lock-in period is over, will entail hefty penalty. Should savers bite into the offering?
The Reserve Bank of India (RBI)’s Inflation Indexed National Savings Securities-Cumulative (IINSS-C) securities are open for subscription till 31st December. The central bank is using authorised agency banks and Stock Holding Corporation of India (SHCIL) to invest in IINSS-C. The authorized banks are State Bank of India (SBI) and its associates, all nationalized banks, HDFC Bank, ICICI Bank and Axis Bank.
The Union Budget of 2013-14 had announced the introduction of instruments that will protect retail savings from inflation. These are internationally known as inflation-linked securities or simply linkers. The distribution/sale of linkers would be through banks, for retail investors. Interest rate on these securities would be linked to final combined consumer price index [CPI (Base: 2010=100)]. Interest rate would comprise two parts: fixed rate (1.5%) and inflation rate, based on three-month lag CPI which will be compounded with the principal on a half-yearly basis and paid only at the time of maturity. So, if a bond is being valued in December, the reference rate will be CPI of September. The issuance of non-cumulative inflation indexed bonds for retail investors will be examined in due course. The minimum and maximum investment per annum is Rs5,000 and Rs5 lakh, respectively. The tenor is fixed at 10 years. The new offering should attract higher attention from savers, especially due to its link to CPI instead of wholesale price index (WPI) which is a less accurate gauge of inflation. In June 2013, RBI sold WPI-linked bonds offering a yield of 1.44% above WPI, but the retail response was dismal. In November 2013, the WPI was 7.52% and CPI was 11.24%. The new offering linked to CPI will fetch 12.74% compared to the WPI-linked bonds that would give only 8.96%; a 10-year bank FD gives approximately 9%.
CPI is considered a more accurate gauge of the impact of inflation on consumers because it takes into account increases in the cost of education, food, transportation, housing and medical care; in WPI, the emphasis is on measuring the prices of traded goods and services.
Advantages of IINSS-C
• Inflation has been high in India in recent years; this bodes good returns and protection from inflation by investment in IINSS-C. The safety of the principal should not be a cause of concern as the bonds are a part of the government’s borrowing programme. IINSS-C will be considered at par with sovereign rated government securities (G-Secs).
• Even though IINSS-C will be taxed like fixed-deposits (FD), the interest can be substantially higher than FDs during a period of high inflation. Conversely, the returns can go lower than FDs, when inflation is low. FD rates can also go low when inflation dips and, hence, IINSS-C should be preferred over FD, as long as you have a commitment to stay with the product for a long term. For example, CPI of 11.24% in November 2013 means you can expect to get 12.74%pa (per annum) assuming inflation stays at the same level. With inflation levels fluctuating, the returns from IINSS-C will have a zigzag pattern. Scheduled commercial banks offer approximately 9%pa for 10-year FDs which is guaranteed for the full period.
• The product should be easy to purchase from banks; servicing it should not be an issue due to bank involvement. It can be used as collateral for loans from banks, financial Institutions and Non Banking Financial Companies (NBFC). The transferability is limited to nominee(s) on death of holder (only individuals).
• IINSS-C can be used to diversify one’s debt portfolio. Their advantage over bonds is that technically the principal is protected in IINSS-C. Selling bonds (taxable or tax-free) during high interest regime can result in getting a price lower than the principal. Early redemption of IINSS-C, after expiry of the lock-in period will ensure that you get back your principal even if inflation falls drastically; but you will take a beating due to the penalty on the coupon rate. It works more like bank FDs which have a penalty on premature withdrawal.
IINSS-C is more like FD, less like a bond. IINSS-C surely has an advantage over taxable and tax-free bonds for the conservative saver who does not like the volatility of the investment amount, based on market interest rates.
• IINSS-C should dissuade savers from buying gold for investment purposes. Beating inflation with gold has been a fallacy; IINSS-C should be an option for this segment as it will actually make your money grow at a rate higher than inflation. It can be an instrument for retirement savings.
Disadvantages of IINSS-C
• The bonds are meant to be long-term savings instruments. They will not be tradable in the secondary market. Liquidity is certainly an issue with IINSS-C; bank FDs are completely liquid; some banks do not even have a penalty on premature withdrawals for all FDs or depending on the tenor of the FD.
• Early redemptions will be allowed after one year from the date of issue for senior citizens (those above 65 years of age) and three years for all others, subject to penalty charges at the rate of 50% of the last coupon payable for early redemption. For example, if you redeem after the third year, you lose half the interest of the previous year. Early redemptions, however, will be made only on coupon dates. Hefty penalty for early redemption is a major deterrent; but bank FDs too have premature withdrawal penalty of 1% lesser interest rate than the rate offered for the period for which the FD was kept. The calculation of bank FD penalty will be similar to IINSS-C penalty and, hence, there is no reason to overlook IINSS-C. If your investment horizon is shorter than three years, you should not go for this instrument.
• The Finance Bill of 2012 had lowered the age of senior citizens from 65 years to 60 years for tax benefit purposes. The circular of RBI on IINSS-C, which states that 65 years has to be considered for qualifying as a senior citizen, has brought back the debate on senior citizen’s age.
• IINSS-C does not match the charm of public provident fund ( PPF) which allows Rs1 lakh investment in a year for tax deduction under Section 80C. Moreover, interest on PPF is tax free. IINSS-C may not even score over tax-free bonds, especially for savers in the 30% tax bracket. The recent tax-free bonds issues offered coupon rates of 8.66% and 8.76% for AAA and AA+ rated bonds, respectively, of 10-year tenors.
• Rate of interest on IINSS-C will be floating which may not be suitable for those in need of fixed income. Moreover, absence of income flow can make the product unattractive for senior citizens. IINSS-C will have half-yearly compounded cumulative offer of 10-year tenor. Bank FD interest is compounded quarterly for the cumulative as well as non-cumulative option.
• Tax treatment on interest and principal repayment would be as per the extant taxation provisions. Tax will be levied on the interest as per your tax bracket, which is in line with bank FD. The product is suitable for those in the lower tax bracket (up to 10%). It may work out well for those in the 20% tax bracket, if inflation remains at the current level for much of the 10-year tenor. Some media reports talk about considering payment as capital gains which will lower the tax rate. But, ignore such misinterpretation and calculate tax payment, based on your tax slab.
There are doubts about the true consumer price inflation. If actual inflation is higher, IINSS-C returns will be lower, even in a high inflation regime. Flawed inflation data can be a major worry for IINSS-C investors; but investors, by and large, don’t see costs and returns in inflation-adjusted terms.
Kejriwal said he would personally invite Anna Hazare, his guru, but the Gandhian said he may not attend swearing-in ceremony due to his ill-health
Arvind Kejriwal, the founder of Aam Aadmi Party and Delhi's Chief Minister designate on Thursday said he would personally invite his 'guru' Anna Hazare for his swearing-in ceremony at the historic Ramlila Maidan on Saturday.
Speaking with reporters, Kejraiwal said, “Anna Hazare is my guru and I would personally talk to him on phone to invite him for the swearing-in ceremony”.
However, Hazare, the social activist when asked if he would travel to Delhi for the ceremony, said, “I am not well”. When asked again at in his native Ralegan Siddhi village, Hazare said, “I can’t say right now. I am not well”.
The Gandhian had said two days back that he is yet to receive an invitation for the swearing-in ceremony but would not attend even if he got one owing to ill-health.
Hazare had earlier declined to comment on the Kejriwal-led AAP’s decision to form the new government in Delhi, but added he would express his views when his former protégé acts on the Lokayukta issue.
Hazare had parted ways with Kejriwal following his decision to form a political party.
The relations between the Gandhian and the AAP convener had hit a new low when he recently ordered a frontline leader of Kejriwal’s party Gopal Rai to leave his fast venue and village after he engaged in a spat with former Army chief General VK Singh. Singh had slammed Kejriwal and others for having deserted Hazare and formed a political party.
The AAP had immediately recalled Rai from Hazare’s fast venue.