Posted: 30 Jan 2015 09:48 AM PST

When Budget 2014 raised the deduction under Section 80C from `1 lakh to `1.5 lakh, it also hiked the annual investment limit in the Public Provident Fund (PPF). Risk-averse investors can now sock away more in this ultra-safe scheme.

The PPF scores high on safety, taxability and costs, but the returns are not so attractive and liquidity is not very high. The scheme will give 8.7% this year, but don't count on it in the following years. The interest rate on small savings schemes like the PPF is linked to the government bond yield and it is likely to come down in the coming years.

Though it is a 15-year scheme, the money isn't locked for this period. You can make partial withdrawals from the sixth year or take a loan. The interest rate on a loan is 2 percentage points higher than the prevailing PPF interest rate. For 2014-15, the rate will be 10.7%. Besides, the lock-in period depends on how long ago you opened the account. For those who started investing in the PPF 10-12 years ago, the effective lock-in period will be only 3-5 years.

You can extend your PPF account for blocks of five years even after the scheme matures. An account can be opened in a post office or at designated bank branches. Some banks even give online access to the PPF account. It's a useful feature that will reduce the effort to invest in the scheme.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

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For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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ULIPs

Posted: 30 Jan 2015 09:00 AM PST

For a lot of people, Ulip is still a four-letter word. However, investors need to wake up to the new reality. After Irda capped the charges and introduced new rules for Ulips in 2010, these plans have become more customer-friendly. An ordinary Ulip is still a costly proposition, but the online avatar of these market-linked insurance plans is a low-cost version far removed from the one mis-sold to investors a few years ago. The Click2Invest plan from HDFC Life, for instance, charges only 1.35% a year for fund management. The only other deduction is mortality charge for the life cover, while the rest of the premium is invested. The iGrowth plan from Aviva Life Insurance charges 1.21% a year for a 20-year policy with an annual premium of over `1 lakh.

While the low charges are a big advantage in the long run, experts say one should not go by cost alone. Don't buy a Ulip only because it has low charges. The performance of funds should also be taken into consideration. That's true. If you save 2-3% on cost by investing in an online plan, but the funds underperform by 4-5%, you will be a net loser.

Ulips have not done too badly in recent years. Ulip funds with an aggressive allocation (50-75% of the portfolio in stocks) have risen 28% in the past year (see graphic). However, these returns reflect only the rise in the fund's NAV. The returns for the investor may be lower because some of the monthly charges levied by Ulips are by deduction of units. So, if you started the year with 5,000 units of a fund with an NAV of `20, your corpus would be `1 lakh. If the NAV rises to `25 by the end of the year, your returns may not be 25% because some units may have been deducted. If 100 units have been deducted, your returns will be lower at 22.5%. Keep this math in mind when looking at the returns from Ulips.

Even so, these can be used as a rebalancing tool by the savvy investor. The switching facility in a Ulip allows the policyholder to switch from equity to debt, and vice versa, based on his reading of the market.

There is no tax implication on such switches and the process is fairly simple.

Online access has made it even easier.

Though financial planners frown on this combination of insurance and investment, they feel that Ulips are a better option for those who are reckless with money. If a spendthrift invests in an ELSS fund, he is likely to withdraw after the lock-in period and blow it away. Ulips have a lock-in period of five years and one is forced to invest every year.

Buy a Ulip only if you can pay the premiums for the full term and take one for at least 15 years. A short-term plan may not help recover the high charges in the initial years.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

NPS

Posted: 30 Jan 2015 06:32 AM PST

More than five years after it was thrown open to the public, the New Pension Scheme (NPS) is yet to become a popular choice. Despite very low charges, the scheme has not attracted investors in droves because of the complex procedure involved in the opening of an account. You have to literally beg the post office staff to get the paperwork done. In bank branches, the investor himself has to guide the staff on the basics of the NPS.

However, the investors who have managed to cross these barriers have found it rewarding. The NPS funds have not done badly in the past five years. The returns from the E class funds are in line with those from the Nifty, the benchmark index they are supposed to follow. It is the corporate bond funds that have been the best performers in the past five years. Even the gilt funds have given reasonably attractive returns (see graphic).

Some financial planners believe that the NPS puts the investor in a strait jacket. The exposure to E class (equity) funds cannot be more than 50%. That is too conservative, especially for the young people who want to stay invested for longer periods and prefer a higher exposure to equity. While this is a major drawback, the NPS is flexible in other ways. It allows investors to rejig their asset allocation and even change the pension fund manager once a year. In a pension plan or Ulip, you cannot change from one company to another without terminating the plan. The other sore point is the lack of liquidity and taxability of income. The investment is locked up till the investor turns 60 years old. Before this age, a subscriber can withdraw only 20% of the corpus and use the balance 80% to buy an annuity. If he waits till he turns 60, up to 60% of the corpus can be withdrawn and the balance 40% would be annuitised. However, un like pension plans from insurance companies, the amount withdrawn will not be tax-free. The annuity income will also be fully taxable.

The NPS also offers a feature of life cycle fund. It is meant for those who are not financially savvy and can't manage their asset allocation themselves. It is taken as the default option for someone who has not indicated the desired asset allocation. Here, the asset allocation is driven by the investor's age. The 50% equity allocation reduces by 2% every year once the investor turns 35, till it touches 10%.

The NPS also offers tax benefits, besides the deduction under Section 80C. Contributions of up to `1 lakh in a year made by an employer on behalf of an employee are eligible for additional deduction under a new Section 80CCD. The contribution under this section is limited to 10% of the salary (basic plus dearness pay).

However, not all NPS investments are locked up till you retire. The investments in Tier II accounts can be withdrawn anytime. Some investors look at Tier II accounts as low-cost mutual funds. However, the low cost alone should not be the reason to invest in these funds.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds