"Financial Planning among the Urban Middle Class – Startling Revelations from the Right Horizons’ Survey"

> Study of IT / ITES Tax Payers across Bangalore, Hyderabad and Chennai

  • 70% of the respondents did not have Medical Insurance.
  • More than 35% of the respondents did not have Life Insurance cover.
  • More than 60% of those surveyed(most of them Tax Payers) did not fully use benefits under Sec 80C.
  • 11% of the respondents in Hyderabad used only Provident Fund Investments to save tax.

Hyderabad|India|December'2008: The Annual Tax Survey by RIGHT HORIZONS, a leading Investment Advisory and Wealth Management firm shows that Financial Planning among salaried individuals is by and large conspicuous by its absence! The survey was conducted among 1169 salaried individuals from the IT/ITES segment in the age group of 22–54 years across the cities of Bangalore, Chennai and Hyderabad. A detailed analysis on the usage of various tax saving instruments was done based on the data collected. The survey threw up some really startling findings.  

The survey revealed that, though Life Insurance is one of the key elements of personal financial planning, 36% of the respondents did not have any kind of Life Insurance in Hyderabad. The surprise is even greater because many of these are people in the 30+ age group; when one could possibly have parents, spouse and children as dependents, lack of any Life Cover could have debilitating effects on dependents.


On the equally critical Medical Insurance front, the picture is even bleaker. 70% of those surveyed did not have any Medical Insurance and about 18% only had Medical Insurance cover provided by their employers. In other words, only about 12% of those surveyed chose to have voluntary medical insurance cover. It is evident that there is lack of awareness of rising health care risks and health care costs. The increase in the medical insurance premium exemption limit from Rs.10,000 to Rs.15,000 (Rs. 20,000 in case of any family member being a senior citizen) also does not seem to have helped.


Investments under Section 80c earn tax breaks for investors, upto a maximum investment limit of Rs.1,00,000. Long-term investment options like PF, PPF, Life Insurance Premium, NSC and ELSS (Equity Linked Savings Scheme) investments in Mutual Funds can be used within the limit, to earn tax benefits, in addition to the return on investments. It therefore comes as a surprise that more than 60% had not fully utilised the limit of Rs.1,00,000 and many of them actually went on to pay income tax which could have been saved through better financial / tax planning. It must also be mentioned that 34% of the respondents in Hyderabad completely used the Rs.1 Lakh limit.


Commenting on the Survey findings, Mr. Anil Rego, CEO, Right Horizons said, “Attention to Financial Planning and Tax Planning among individuals should occupy more mind space. Lack of Medical Insurance, lack of or inadequate Life Insurance, under utilisation of tax benefits – clearly indicate insufficient thought to personal finances.”


“The costs of being over invested / under invested, not being invested in the right class of assets based on one’s risk profile and appetite can result in high financial costs; or even worse, high social costs”, Mr. Rego said. “At times like these when the financial markets themselves are in turmoil there is an even greater need for paying attention to one’s finances”, he added.


Other interesting findings include the fact that 11% of the respondents in Hyderabad used only Provident Fund (PF) investments, among the various Tax Saving options available. Given that PF is a mandatory investment in most corporates, it indicates that, most, if not all of them, actually made no effort towards tax planning. Even though the majority of the respondents were in the 25-30 age group, ‘traditional / safe’ instruments like PPF, NSC, Life Insurance, etc.. dominated the investment profile with almost 59% of those surveyed using only such avenues.  A lot of the respondents either were not aware of the Mutual Fund investment option (ELSS) or considered it too risky because only about 35% those surveyed had ELSS featuring in their tax planning portfolio. On the other hand 5% of the respondents had more than 50% exposure to Mutual Funds as part of their 80C portfolio.


Exposure to Home Loans was also low among the respondents with only 18% of those surveyed featuring it in their portfolio of Tax Saving Instruments. This could be indicative of a couple of things; a lot of foreclosures of home loans happening because of rising interest rates as well as a lot of investors missing out on an asset class that offers the possibility of tax structuring along with steady income yields and capital appreciation. It is to be noted that among the ones who have used section 80c benefits completely without the home loan rebate, home loans would not be reflected in the tax data.


The big learning from the survey is certainly the seeming lack of attention paid by the urban middle class to Financial Planning. That too at a time of high decibel levels on matters of personal finance with enough light and sound in the media and among the public about the myriad investment options available. All that preaching is certainly not getting practiced!.

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