5 Financial Gifts To Give Your Loved Ones – Forbes

Financial gifts are often not on our radar when it comes to gifting our loved ones. However, they go a long way in securing the future of those we love, helping them accomplish their life goals and hence make for an ideal gift. Until a decade ago, your options were limited, but today there are multiple choices for you to choose from to show how much you care for your near and dear ones.

Health Insurance

Given the current times, health insurance is an absolute must. It reduces out-of-pocket expenses and keeps a family’s savings intact amid a health contingency. There are other benefits too. A health insurance plan ensures that your loved ones can efficiently address other crucial commitments.

You can give an individual health plan or buy a family floater plan. The latter offers covers to all family members at a cost-effective price point. If you are in a metro where hospitalisation costs are high, it’s recommended to buy a health plan of INR 10 lakh. 

Compare different policies and go for the one that best fits the requirement. If your loved one already possesses health insurance, you can gift a top-up plan. The benefits of a top-up plan kick in once the sum insured in the basic plan gets exhausted. Top-up plans are cheaper than regular health plans and widen the cushion net.

Health Insurance Taxation

Health insurance not only prevents out-of-pocket expenses but also lowers tax outgo. The table below highlights tax benefits offered by health plans under Section 80D:

Stocks

Investing in robust stocks for the long term can help generate inflation-beating returns and build a corpus for key goals such as children’s higher education, marriage, etc. While earlier gifting them was a tedious task, today it isn’t. Because of the introduction of electronic delivery instruction slips by the Central Depository Services (India) Limited (CDSL), you can easily present stocks.

Gifting stocks is also a prudent way to introduce your loved ones to invest in capital markets for long-term wealth creation. Many brokerage houses offer this facility, whereby you can easily gift stocks to your family members and friends. You can select the stocks and the quantity you want to give and transfer them with just a few taps.

If the recipient doesn’t have an account with the brokerage house, the same can be opened quickly before accepting the gift. Indian stock markets have several multi-baggers adding which to one’s portfolio can augment riches in the long run. Investing in these stocks can have a multiplier effect on wealth creation.

Stocks Taxation

Stocks are taxed based on their holding period and under the head ‘capital gains’, which are further classified into long-term capital gains (LTCG) and short-term capital gains (STCG). Equity shares sold within 12 months of purchase fall within the purview of STCG that is charged at a flat rate of 15%.

On the other hand, stocks sold after 12 months fall within the purview of LTCG. LTCG up to INR 1 lakh don’t attract any tax but gains beyond that are charged at 10%. 

Life Insurance

The lynchpin of a financial plan, life insurance protects the financial interest of your loved ones. They also help accumulate funds for various short and long-term goals. You can gift a term plan that will ensure people close to you are not in a lurch in case of an untoward incident. A term life insurance policy offers a high life cover at an affordable premium.

You can also contemplate gifting an endowment plan or a unit-linked insurance plan (ULIP). Endowment plans offer death and maturity benefits. On the other hand, ULIPs serve the twin purposes of investment and insurance. In ULIPs, a part of the premium provides life cover while the other is invested in capital markets to earn returns. 

Life Insurance Taxation

Just like health insurance, investment in life insurance also helps lower tax outgo. Premiums paid towards life insurance plans qualify for tax exemption under Section 80C of the Income Tax Act. Maturity benefits received are fully exempt under Section 10(10D).

Enroll in an Online Course

Knowledge is the shining armor in one’s knight for sustainable wealth building. It helps one make prudent choices and mitigates the threat of falling prey to mis-selling and making impulsive decisions. You can enroll your loved ones in online courses by financial institutions to understand several aspects of finance and investment.

Financial institutions, including brokerage houses and asset management companies, have come up with various online courses on personal finance and stock market investment that help decode the multiple aspects in a simple and lucid manner. 

Participating in these courses go a long way in honing financial knowledge that can help your near and dear ones better plan their finances and investments to achieve financial goals. 

Mutual Funds

Mutual funds have rapidly made their mark in the Indian financial landscape. They have witnessed increased participation from retail and institutional investors. Offering diversification, mutual funds help invest in different stocks in diverse segments. 

Systematic investment plans (SIPs) are a prudent vehicle to invest in mutual funds as they imbibe disciplined savings habits and help stay invested across market cycles. While you can’t transfer mutual fund units from your account to another holder, unlike stocks, you can start a SIP for your minor child. 

You can purchase units in your child’s name, and you can continue making payments until your child becomes major. Once your child turns into an adult, fresh KYC needs to be done, and your child can benefit from the investments made by you. 

Mutual Fund Taxation

Mutual funds are taxed based on the type of fund and their holding period. Equity funds where the holding period is more than 1 year are subject to LTCG. If sold within a year of investment, the gains are subjected to STCG tax. 

LTCG tax of 10% is applicable on gains beyond INR 1 lakh. On the other hand, STCG tax is charged at a flat rate of 15% if the fund is sold within one year of investment.

For debt funds, LTCG is applicable if the fund is held for three years or more. If sold after three years, LTCG tax of 20% is levied. On the other hand, if sold within three years, STCG tax is levied as per the applicable income tax slab.