Prajna Capital |
- Benefits of Mutual Fund Systematic Withdrawal Plan ( SWP )
- Tax Planning via investment under the Income tax Act 1961
- Mutual Fund SIP better investment than lump sum investment in mutual fund
| Benefits of Mutual Fund Systematic Withdrawal Plan ( SWP ) Posted: 26 Apr 2013 05:01 AM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
Benefits of Mutual Fund SWP
Regularity: With an SWP, you are assured of get-ting a fixed amount at your pre-determined frequency. The problem with other options like a monthly income plans, which pay dividends, is that the amount and the frequency of the payouts is not fixed. Sometimes, if there is no appreciation which can be distributed, you might have no dividends to be paid. Hence every month you will have different amounts coming in and some month there might be no money received.
Taxation: SWP is better from the taxation point of view too. In debt funds dividends are paid after deduction of dividend distribution tax (DDT) of 28.32%. So that will be your tax in case you depend on dividend income from your debt mutual funds. In case of SWP, you will pay a short term capital gain (STCG) or a long term capital gains tax (LTCG). Though STCG may be more ex-pensive as it is on the income slab of the investor, LTCG will be beneficial as it is a fixed rate of 10% or 20% with indexation. Things get better in case of SWP from equity funds. As the long term capital gains from equity mutual funds are exempt in case of holding beyond a year, you end up paying no tax on the withdrawals.
Inflation Protection: Most of the fixed income instruments do not offer inflation beating returns. So, though the principal may be secure, the income might fall short of needs in future. Here again SWP scores in terms of generating returns to keep up with inflation especially if you opt for an equity fund.
The only drawback in the SWP is that it will at some point eat into your capital. But judicious mix of investment instruments will ensure that your primary goal of income generation will be met without you running out of money in times of need.
So the conclusion is that SWP is a noteworthy strategy to use for generation of regular income in various scenarios.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
|
| Tax Planning via investment under the Income tax Act 1961 Posted: 26 Apr 2013 02:15 AM PDT Invest In Tax Saving Mutual Funds Online Tax planning through the investment route, under the Income-tax Act, 1961 (IT Act), has a wider scope than the commonly known Section 80C benefits
TAX-SAVING measures exist in many forms, from availing certain types of loans, buying certain types of insurance policies, making specified investments to making donations to approved charities. Among these, one tends to favour the investment route due to the prospects of returns and creation of wealth over the long run.
Tax planning through the investment route, under the Income-tax Act, 1961 (IT Act), has a wider scope than the commonly known Section 80C benefits. Tax on investments is done in three ways based on the type of financial instrument, the time of subscription, accrual of income and maturity of the instrument. It is essential to understand each instrument for effective tax planning within one's overall financial plan.
Under the EEE route, there is a tax benefit at every stage of investment. Under Section 80C of the IT Act, investments such as public provident fund (PPF), equity-linked savings scheme (ELSS) and life insurance policies qualify under the EEE route. For instance, the investor gets a tax break of up to Rs 1,00,000 for making a contribution in PPF; the interest earned during the tenure of the fund is tax-free and when the investment matures after 15 years, the corpus is also tax-free.
Additionally, under Section 80CCG of the IT Act, the Rajiv Gandhi Equity Savings Scheme is an incentive for first time stock market investors having an income of Rs 10,00,000 or less. Under this provision, an individual has an opportunity to avail a tax deduction of 50 per cent of the amount of invested subject to a maximum of Rs 50,000. Such benefit is over and above the deduction of Rs 1,00,000 available under Section 80C.
In EET instruments, while the first two stages of investment are exempt, one pays a tax at the maturity stage. So, the first step, or your contribution, enjoys a tax break, but subsequently, either during the tenure, or on maturity, you need to pay a tax on your gains.
For example, in case of an investment in National Savings Certificate VIII issue (NSC) six years, investments up to Rs 1,00,000 qualifies for deduction under Section 80C of the IT Act.
Under this route, tax benefit may be partially or completely available at one stage of investment, that is, either on subscription, or income accrual stage, or maturity/sale. Some examples for the same are gains arising from sale of capital assets are exempt where the same are invested in residential property/ specified bonds issued by the government, and also fixed deposits with a tenure of five years.
Under Section 54 of the IT Act, where a house property held for long term is sold and seller entirely utilises such capital gains for purchasing a new house, then capital gains on the sold property will not be chargeable to tax during that financial year.
Investment based tax exemptions and a deduction on investments is to incentivise individuals to save more tax and channelise their savings towards long-term investing benefits. Where the prescribed conditions mentioned for availing a deduction during a particular financial year is violated or not fulfilled in any specified financial years, then such deduction would be deemed as one's income during such year of violation and added to their total income.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
|
| Mutual Fund SIP better investment than lump sum investment in mutual fund Posted: 25 Apr 2013 09:01 PM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
It is a way for regular investments, overcomes greed-and-fear cycles
WHETHER systematic investment plan (SIP), where investors allocate certain fixed amount into stocks/bonds at regular periods, or lump sum investment, would generate better returns has always been a point for debate among market participants.
Analysts at MorningStar India, a mutual fund tracker, tried to look at how things would pan out on the ground in India after a research from US-based mutual fund giant Vanguard said lump sum investment generated better returns for two-thirds of the time after portfolios were allocated going back to 1926 in the US, 1976 in the UK and 1984 in Australia.
Vanguard tested a variety of allocations ranging from all-stock to 60:40stock:bond to all-bond, and looked up the result for rolling 10-year periods (that is, from January 1926 to December 1935, followed by January 1927 to December 1936, and so on).
Their conclusion was lump sum investment portfolios outperformed dollar cost averaging (aka SIP) portfolios 66 per cent of the time for 100 per cent equity, 67 per cent for 60:40 stock: bond and 65 per cent for 100 per cent bond in the US.
Similar results were seen across the UK and Australia data. However, things may not work similarly in India.
MorningStar India said given an average investor putting any amount to invest via lump sum, and more likely to put it to work at the wrong time, that is, around the peak of a euphoric market when valuations are rich and the investment is more likely to lose money rather than at the trough of a bear market when recent returns have been poor but compellingly cheap, will result in greater future gains.
That small investors poured huge sums of money into stocks/stock mutual funds at the height of the 2007 bull-run, compared with outflows after the 2008 crash bear testimony to this point.
A similar back-testing exercise was done by Quantum Mutual Fund in India on SIP, value averaging investment plan (VIP) and lump sum investment. Jimmy Patel, CEO of Quantum MF, said both SIP and VIP returned matched in India, and both are ahead of lump sum investment. In the case of three year data, though value SIP may beat plain vanilla SIP, but after deducting for exit loads, both the SIPs generated better returns.
A VIP is an investment strategy that works like an SIP – you invest on a pre-determined date, into a fixed mutual fund scheme, thus achieving the purpose of disciplined investing and following the teachings of finance gurus when they say `buy low'.
But, while in an SIP , the amount is fixed and units may change, in a VIP , you have a target value of your portfolio, which increases by say Rs x,000 per month, and you invest the difference between the current value of your portfolio and the targeted portfolio investment value. By buying more when markets go down, you are also benefiting from the concept of rupee cost averaging.
Sameer Kamdhar, a mutual fund analyst and former CEO of ASK Investment Managers, said: "SIP gives you a disciplined investment approach. Buy low and sell high approach has never worked in Indian market for small investors. For salaried people too, SIP is much better suited."
Kamdhar also highlight ed the way investors reacted in India during past bull phases (they entered at near-peaks) and bear phases (when they exited at rock bottom levels) to show that SIP was a better investment strategy in India.
Patel of Quantum MF, added: "SIP investors tend to scare less easily than lump sum investors when the markets fall, as they get the chance to buy low, and later when they want, sell high".
In the study by Quantum, it was found that three to five years after completing a 12month VIP, the returns under the VIP method and SIP method are almost same. The convergence of returns happens post the last payment of instalment of SIP/VIP over a period of time, wherein, the true benefits of equity investments gets captured. Initially, at different levels, SIP and VIP showed performing better than the other, but ultimately in the long run, both give similar returns.
"….SIP scores over VIP in ensuring discipline of investments and over a long period of time gives return similar to that of VIP while doing away with risks of forced redemption or requirement of additional surplus cash for investments. SIP captures the potential of extracting a better valuation when investing in falling markets, while it also averages out risk of investing in a rising market," the study said.
The idea of an SIP is simple and forceful. It, by default, not only paves the way for regular investments, but also eliminates the behavioural greed-and-fear cycle, which could otherwise make the investor over or underinvest during up or down markets Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
|
| You are subscribed to email updates from Prajna Capital - An Investment Guide To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google Inc., 20 West Kinzie, Chicago IL USA 60610 | |
No comments:
Post a Comment