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- Use higher 80C limit to Invest in ELSS Mutual funds
- The Best Tax Saving Option for You
- International funds – Invest or Not to?
| Use higher 80C limit to Invest in ELSS Mutual funds Posted: 01 Aug 2014 06:49 AM PDT Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300
In effect, the ₹ 50,000 rise in the Section 80C limit will help individuals save anywhere between ₹ 5,000 ( in the 10 per cent tax bracket) and ₹ 15,000 (in the 30 per cent tax bracket).
Though my gross package is ₹ 20 lakh, my annual contribution towards Employee Provident Fund ( EPF) is pretty low. Last year, my annual contribution totalled ₹ 65,000. That time, I only had to take care of ₹ 35,000 worth of investments. This year, I will have to make investments worth ₹ 85,000. I am in a fix as to which 80C instruments to choose. Additionally, as employers deduct their portion of the EPF contribution from the employees salary, the amount you will get on deduction reduces by half, though your annual contribution looks big on the salary slip.
Last year, Kumar had invested ₹ 25,000 in a ₹ 5 lakh endowment policy and invested ₹ 10,000 in a bank deposit.
Many professionals across industries are facing this issue, say investment experts. They add this is the time when people will make incorrect investment decisions and lock their money in illiquid instruments.
How do you decide? Start with assessing your expenses that will get exemption under Section 80C. Typically, these would be prepayment of a housing loan and tuition fee paid for child/ ren. Then, check the commitments you've already made. For instance, EPF, premium payment towards life insurance policy and so on. Now, decide on which instrument to pick ( from among those qualifying under Section 80C), according to you goal in life
The most popular instruments under Section 80C of the Income Tax Act are EPF, Public Provident Fund (PPF), life insurance, principal repayment of housing loans, fixed deposits (FDs) and equity- linked savings schemes (ELSS). However, most end up investing in all sorts of insurance products, like Kumar, complain financial planners. This is not the right thing to do.
EPF up to ~ 50,000
The best investment options for such individuals are term insurance (for those who dont have one), PPF and ELSS, say financial planners. As an individual is able to contribute less towards EPF or his retirement corpus, it makes sense for such a person to have a PPF account. This is for conservative investors. PPF gives 8.7 per cent annual tax- free returns, which no other debt products offer
At the same time, it will help enhance their debt portfolio if they dont have a decent debt exposure. Typically, a portfolio should have 2530 per cent exposure to debt, as it helps hedge the downside in a bad market. Such investors can also add bank FDs to their portfolio, which are giving 8.5- 9 per cent returns for a year. However, the capital invested will be exempted from tax but the interest will be taxable at slab rate.
The other view is: Those who are 40- 45 years of age and have no other investment under 80C, other than EPF, should buy a term cover of up to ₹ 50 lakh ( annual premium of ₹ 8,0009,000), if they don't have one already. This will take care of roughly ₹ 60,000. Invest the remaining in equity.
You will get a neat retirement corpus, much more than what you'll get from PPF, If one starts a ₹ 4,000- 5,000 Systematic Investment Plan ( SIP) in an ELSS scheme and earns even 12 per cent ( a conservative estimate), the person is likely to triple his investment amount. With PPF, he is only likely to double his money." If a 40- year old invests ₹ 5,000 a month for the next 20 years, he will have a corpus of ₹ 49.50 lakh, as against a total investment of ₹ 12 lakh (at the rate of 12 per cent annually). If he invests the same amount in PPF every month, he will get back only ₹ 18.50 lakh. As equities are known to perform over a very long term, these are the best bet when seen in the backdrop of inflation indexation of around 10 per cent. This number stood at six seven per cent three years earlier.
This investment will also hold good for individuals ( in their 40s and late 30s) who want to save for their children's education 10- 15 years down the line. If a 40- year old invests ₹ 5,000 a month for the next 15 years in ELSS, he will have a corpus of ₹ 24.97 lakh, as against a total investment of ₹ 9 lakh (at the rate of 12 per cent annually).
This apart, equity has the lowest lock- in period compared to all other products qualifying under Section 80C. ELSS has a lock- in of three years, lower than the six years for PPF, five years of a tax- saving FD and even higher for insurance- cum- investment products. Also, keep in mind that insurance cum investment products will be taxed on maturity from this year; they come under the EET ( exempt exempt tax) regime.
Term plans come under a EEE (exempt- exempt- exempt) regime.
Taking into account your horizon for retirement. If your retirement is 10 years away or more, opt for ELSS. Otherwise, divide the money between ELSS and PPF.
Those less than 10 years away from retirement should invest in PPF only if they have an existing account. Otherwise, the product is not viable with its long lock- in. Avoid small exemption like that for children's tuition fee, as it is way too less to claim.
Some might argue that they would be better off prepaying their home loans and claiming deduction for it. While that's not a bad idea, investment is always better for you as it earns a return on your money. Also, the ratio of rise in property price and rise in loan rate is not proportional. Then, you anyway get a tax benefit for repaying the loan – a portion of the equated monthly instalment (EMI) goes towards principal repayment under 80C and the rest towards servicing the interest portion. So, there should be no hurry to repay that.
Instead, use the profits from the investment you make today to prepay the loan at a later stage. Even today, prepay home loans only if you have profit surplus, he says; most youngsters have very little investments for the future.
Prepaying a home loan will impact your EMI only marginally in the initial years. A better way to prepay could be using small amounts to do the same every month, over and above the regular EMI.
Of course, those near retirement and still repaying a housing loan would be better off prepaying than saving. It is assumed that such individuals will have some form of savings for near- term goals like retirement, children's needs and health insurance.
EPF up to ~ 1 lakh
For such individuals, the remaining limit is not much – only ₹ 50,000. So, take a call based on your age and long term goals. As mentioned above, those below the age of 40 or 45 years will be better off investing in ELSS and not only earning from tax benefits but also from high returns.
Those above 45 years of age may opt for both, hedging with a debt product –PPF – and earning from ELSS. While those at the beginning of their career have a high risk appetite, those at the end of their career can also look at diversifying through equities, as their other needs — life/ health insurance, retirement corpus, children's requirements — are mostly taken care of by then. And, it is even more imperative to invest in equities for those in the middle of their career, as they are fast approaching the end of their career and need savings for various goals .
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
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--------------------------------------------- Invest Mutual Funds Online
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Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
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F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
H. International funds Invest Online 1. Birla Sun Life International Equity Plan A 2. DSP BlackRock US Flexible Equity 3. FT India Feeder Franklin US Opportunities 4. ICICI Prudential US Bluechip Equity 5. Motilal Oswal MOSt Shares NASDAQ-100 ETF | ||||||||
| The Best Tax Saving Option for You Posted: 01 Aug 2014 05:48 AM PDT Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300 The Best Tax Saving Option for You
The deduction under Section 80C has been increased. Instead of random investments, use the additional limit to fill the gaps in your financial plan. Taxpayers should align their Section 80C investments with their financial goals.
Imagine you have won a gift voucher worth `50,000 at the local hypermarket. When you go to the store, there is a vast array of items you can purchase with it. Sales persons try to draw your attention to their counters, pitching their merchandise aggressively. Will you buy whatever new gizmo they are trying to sell? Or will you utilise the money to purchase something you actually need for the household?
In the lower income segments, taxpayers may not need to save too much. Keep in mind that the basic exemption limit has also been raised by `50,000 to `2.5 lakh for ordinary citizens and to `3 lakh for senior citizens. So, if a person has a taxable income of `3.5 lakh, he needs to invest only `1 lakh to reduce his tax liability to zero. Even otherwise, a person earning less than `4 lakh a year might find it difficult to invest an additional `50,000 under Section 80C just to save tax. Unfortunately, many people are either not aware of their actual tax liability or are fooled into investing more. Turn to page 16 to calculate how much more you need to invest.
For many home loan customers, the loan repayment alone can take care of the investments under Section 80C. Three benefits from the budget proposals but won't have to invest even a rupee more to avail of them. He gains from the increase in the basic exemption, the raising of the Section 80C limit and the increase in the home loan deduction under Section 24(b) to `2 lakh.
On the other hand, there are tax payers with higher incomes who may want to invest more to save tax. Salaried employees who contribute to the Provident Fund often find they have to invest very little under Section 80C.
Choose instruments carefully The enhanced deduction limit is certainly an opportunity for taxpayers to reduce their tax liability, but how much you benefit from it will depend on how you deploy the money.
Investment-linked insurance policies, also known as Ulips, may be offered to you for their `triple benefit' of meeting your tax saving goal as well as to help you `accumulate wealth', while providing life cover. Even those with adequate insurance will be coaxed into buying more. Insurance-cum-investment products neither offer you adequate cover nor give good returns. The worst part is that you are forced to continue with the product over the full term. Taxpayers must be careful while choosing their Section 80C basket of products. Buying a high cost product with a long lock-in period many not be the best idea. The good part is that Section 80C offers enough choices to fulfil all your financial needs. You can invest in long-term retirement products such as PPF or the Voluntary Provident Fund. You can buy insurance policies for life cover and ELSS funds for equity exposure. There are medium term instruments such as bank fixed deposits and NSCs as well. The key is to choose an option that fills a gap in your financial planning.
Is your insurance in place? Before taxpayers allocate money to ELSS, they should assess their insurance needs. Most experts say that adequate life insurance cover is the first step in a financial plan. A pure protection term plan can be useful here. It offers a large insurance cover at a low price. Grossly underinsured and should buy a term plan of `1 crore for himself. That will cost him around `18,000 a year. The balance amount of the additional limit can be put in ELSS funds. If he needs more equity exposure, he can go for diversified equity funds instead of ELSS plans. If you already have adequate life insurance, move to other tax-saving avenues. Do consider the tenure of the instrument you invest in. The lock-in ranges from three years for ELSS funds to 15 years for the PPF.
Saving for retirement Before deciding to invest more in the PPF, consider adding more to your EPF. The 12% of your basic salary that you contribute every month will help in building your retirement kitty. You also have the option of contributing a higher amount through the VPF. Both the PPF and EPF enjoy ex exempt-exempt-exempt tax status, which means that the initial contribution, interest earned and the maturity proceeds are all tax-free. However, if you encash your EPF before five years, the interest component is added to your total income and taxed at the rate corresponding to your tax slab.
Pension plans offered by insurers are back in the market. However, the charges of these policies are significantly higher than those of the government-promoted NPS. Also, given that annuity income is still fully taxable, these pension plans are not attractive. Harness the power of equities Experts advise against depending purely on the EPF and PPF for retirement needs. They are debt based instruments and their returns will not be able to beat inflation. People have been depending on the PPF for too long. It is time investors realised that these are not sufficient for their retirement needs. Those hoping to build a decent corpus for retirement may have to step out of their comfort zone and invest in equities. As mentioned earlier, ELSS funds can be an investor's first step in the equity market. Experts insist that young investors should especially use the additional investment limit to enhance their exposure to equities through ELSS funds. Besides your compulsory savings towards PF and insurance, investors should make use of this enhanced limit to take exposure to a different asset class like equity.
Ideally, you should start an SIP in an ELSS from the beginning of the financial year, spreading investments over 12 months. Narang plans to invest `5,000 a month in ELSS funds till March 2015 to use up the `50,000 additional limit.
The best thing about ELSS funds is the flexibility they offer. The minimum investment is very low at `500 and the investor can put in money on any trading day of the year. Unlike a Ulip or a pension plan, there is no compulsion to invest every year.
You can take equity exposure through other instruments, such as Ulips, unit-linked pension plans and the NPS, as well. However, the high charges of Ulips and pension plans make them poor choices.
Saving for short-term goals Not all financial goals are 15-20 years away. For taxpayers who need the money sooner, NSCs and five-year tax-saving bank fixed deposits can be useful options. Tax-saving options for senior citizens Senior citizens looking to save tax should consider their cash flows carefully. Many may not find it easy to spare for tax-saving investment. They should also steer clear of long-term investments. It would not make sense for retirees to keep their money locked for long tenures. The Senior Citizens' Savings Scheme is a perfect option. There is a five-year lock-in period but interest is paid out every quarter to generate an income stream for the individual. Though premature withdrawals from the scheme are allowed, there is a penalty if the amount is withdrawn before five years.
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
Leave a missed Call on 94 8300 8300
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 Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
H. International funds Invest Online 1. Birla Sun Life International Equity Plan A 2. DSP BlackRock US Flexible Equity 3. FT India Feeder Franklin US Opportunities 4. ICICI Prudential US Bluechip Equity 5. Motilal Oswal MOSt Shares NASDAQ-100 ETF | ||||||||
| International funds – Invest or Not to? Posted: 31 Jul 2014 11:02 PM PDT Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300
International funds – Invest or Not to?
The recent changes in the tax structure, along with the expected economic recovery and stock market boom, have made the international funds lose their appeal.
Under the Indian income tax rules, international equity funds are categorised as non-equity funds. Consequently, they also took a hit when finance minister removed the option of 10% tax on capital gains before indexation. Now, they will be uniformly taxed at 20% with indexation benefits. Moreover, the holding period for such funds has gone up from one year to three years for the gains to be qualified as long term in nature. While this change may not impact the long-term investors (with a 3-5 year holding period), it will affect the active investors who alter their international fund allocation based on a medium-term review.
In addition to the changes in tax structure, the expected recovery in the Indian economy, reflected in the booming stock market, also makes international funds less attractive.
Still, you should not avoid the international funds entirely and can opt for them for specific reasons. Geographical diversification is one of them. It makes sense to keep a small portion, say, 510% of your equity allocation, outside the country. Those investing in international funds with a view to diversify their portfolios should consider developed markets, not other emerging markets, say experts. "Developed markets have a lower correlation with the Indian equity market compared to other emerging markets
ICICI Prudential US Bluechip fund, Franklin US Opportunities fund and Motilal Oswal Nasdaq 100 ETF are some of the International schemes worth considering. The US market did well last year, but it may not be the case this year. So, don't try to extrapolate future returns.
We need international funds that are more diversified rather than country-specific funds. Currently, most international funds focus on a particular theme or country.
Among these, the funds focused on global commodities and China hold greater promise than their peers. For commodities, the worst is over. Having come close to production cost, the commodity prices have started bouncing back. Most base metal prices have gained 10-20% in the past three months. Global commodity prices are expected to move up further because global growth in 2015 will be better than 2014. A withdrawal of liquidity by the US Federal Reserve poses a threat to this commodity rally, but the easing by the EU and Japan should balance this. Since the Indian stock market will be negatively impacted if there is a flare-up in the international commodity prices, these funds will also act as a good hedge against inflation.
The Chinese market has not been doing too well in the past few years. There are also worries about a possible `crash landing' due to a very high corporate debt. However, this means that investors get a good entry point.
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
Leave a missed Call on 94 8300 8300
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 Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
H. International funds Invest Online 1. Birla Sun Life International Equity Plan A 2. DSP BlackRock US Flexible Equity 3. FT India Feeder Franklin US Opportunities 4. ICICI Prudential US Bluechip Equity 5. Motilal Oswal MOSt Shares NASDAQ-100 ETF |
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