Have you done your tax planning?

I am sure most of you have done your investment to save the taxes but still some people will wait for the last moment and will make fatal decision in hurry as the result of last rush. Many insurance advisors are very active in these days to trap the investors in the name of insurance with the false promise of sky rocketing return. Poor investors also do not care of investment as they want only trust not return. I wonder sometime when I meet such investors who are very happy to invest in endowment, money back or ULIP and still don’t know about their insurance cover and expected return.

They easily ignore the biggest threat of their investment. Do you know what is the biggest threat return your investment? It is Inflation. Due to this inflation most of time your real return become negative also. Please before any investment be very clear about the inflation concept. You should ask some question to yourself. How inflation and taxes eats your return? What will be real rate of return after adjust inflation and taxes?

Section 80C is very popular section among investors and for the financial year 2014-15 the investment limit has also increased till 1.5 lakh under section 80C. First calculate your other investment under section 80C like PF, PPF, home loan repayment, insurance premium etc. After consider all other available provision under this section determine your shortfall to complete 1.5 lakh limit.

During January to March there are many companies come with attractive and catchy advertisement. They show the high possible numerical figure in the name of save tax. In most of cases, these companies assume that investor is in 30% tax bracket and will investment full available amount 1.5 lakh available under section 80C. Due to this confusing advertisement people who are in 10% or 20% or nil tax bracket get misguided and make the wrong decision.

According to me if your investment horizon more than 8 year then ELSS is the best option to create wealth and beat the inflation. If you do not have time to plan your finances then you should contact certified financial planner.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

PPF or ELSS ...Which one is good ?

PPF or ELSS…. Which one is good?

The best tax saving investment (80C): Should you invest in PPF or ELSS…………….

PPF does not give fixed returns

Though the Government changed the PPF interest rate from time to time, for a long period of time it had been fixed at 8%. Traditionally investors expected a yield of around 8% from their PPF deposits. However, from 2011 onwards, PPF interest rate has been made market linked and pegged with the 10 year Government bond yield. The chart below shows the historical PPF interest rates.

The benchmark 10 year government bond yield is at 8.8%, which is nearly at its 5 years historical high. Debt market experts consider 9% as the inflection point, since rates usually soften from this point. Interest rate in India has been high for a long period of time now and many experts believe that interest rates will start softening from next year. While a benign interest rate regime is good news for equity investors, since PPF interest rate is linked with the 10 year bond yield, we may see lower PPF interest rates in the future.

Mutual Fund ELSS as a tax saving Investment:

For investors with risk appetite, Equity Linked Saving Schemes (ELSS) is one of the most popular investments allowed under Section 80C. Investors can avail triple benefits of tax savings, capital appreciation and tax free returns in ELSS. An ELSS is essentially a diversified equity fund with a lock in period of three years from the date of the investment. From a taxability of returns perspective, both capital gains and dividends from ELSS are tax free. Over a long time horizon equities give much higher returns compared to other asset classes. However, since ELSS funds are market linked investments, they are subject to market risk and volatilities. Historically, good ELSS funds have given excellent returns. In the last ten years ELSS funds on average have given more than 19% trailing annualized returns. Find the below ELSS Scheme Performances:-

Scheme Name	NAV	1 Year Return	2 Year Return	3 Year Return	5 Year Return	Since Inception	AUM (Crore)
Axis LT Equity Fund	29.29	69.10%	40.37%	36.42%	23.95%	23.74%	3594.86
Reliance Tax Saver (ELSS) Fund	47.59	93.70%	38.94	37.85%	20.84%	18.22%	3796.37
Franklin India Tax Shield Fund	407.85	60.32%	29.20%	28.13%	17.54%	26.50%	1788.99
ICICI Pru Tax Plan	263.83	52.47%	27.83%	28.84%	16.31%	23.66%	2411.75
Canara Robeco Equity Tax Saver Fund	45.68	46.55%	23.65%	24.85%	15.52%	28.21%	871
DSP BR Tax Saver Fund	31.27	54.58%	27.83%	30.40%	15.20%	15.33%	1059.70
HDFC Long Term Advantage Fund	235.02	43.75%	23.59%	25.77%	14.85%	25.22%	1186.49

(All returns in above table in CAGR)
Comparison of PPF and ELSS returns

In the strict sense, it is not fair to compare PPF and ELSS. PPF is a risk free investment, whereas as ELSS is subject to market risks. For the sake of illustration we have shown the comparison of returns of Rs 50,000 annual investment in PPF and a good ELSS fund, over a long investment.

If you started an Rs 50,000 annual PPF deposit in 2002, your PPF corpus as on September 1 2014 will be Rs 11.4 lacs, with a cumulative investment of Rs 6.5 lacs.

If you had started an Rs 50,000 annual investment in a top ELSS fund like the ICICI Prudential Tax Plan in 2002, your corpus will be Rs 37.5 lacs.

Should you invest in PPF or ELSS:

Both PPF and ELSS have their merits and demerits. Your investment choice should be informed by your investment objectives and your risk tolerance level. Age and financial situation are certainly two important factors that determine risk tolerance of an investor.
Investors with high risk tolerance should invest in ELSS, while investors with low risk tolerance should invest in PPF. Over a long time frame wealth creation potential is much higher with ELSS, as we saw in the charts above.
Young investors should opt for ELSS, since they usually have high risk tolerance and a sufficiently long time horizon to ride out the volatilities associated with equity investments.

Conclusion:

Both PPF and ELSS are wonderful tax saving investment options. However, their suitability depends on the financial objectives and the risk profiles of the individual investors.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Tax saving option in Section 80C

Some Tax Saving option in Section 80C

When we talk about tax planning, most common term flash in mind is Section 80C. The Section 80C offers various options to fulfill people’s different need. In Jan-March quarter most of the person rush for tax saving instrument and often make wrong decision in hurry. They don’t even realize that they have invested their money in those products which is really not suited them. The right time to make tax plan is the beginning of fiscal year (April-May).Today I am throwing some light on those products which are available in under section 80C.

Provident Fund: It is the very common and popular in service class people. As employer deduct the some portion of money for contribution in provident fund from employee’s salary. PF gives 8.5% per annum and is very secure in terms of safety. Employee can liquidate it at the time of retirement. However, partial withdrawal is also permitted with some condition. 

Public Provident Fund or PPF: It is very good option available with low risk and offer tax free return after maturity. It offer return market linked for current year it is 8.8%.The lock-in period is 15 year but partial withdrawal is possible after fifth year.

Bank Fix Deposit: The 5 year bank fix deposit is also available. Various bank offer return 8-9% this year (See earlier blog). The return is taxable as per one’s tax slab. The lock in period is 5 year. It is low risk product but keep in mind the post tax return also before investing in fix deposit.

National Saving Certificates or NSCs: It offer 8.5% return and is very safe investment. The lock in period of these instruments are 5 and 10 years. The person can choose any maturity 5 or 10 year based on their need.

Senior Citizen’s Saving Scheme: It offer 9.3 % return and added in taxable income. It is the most suitable option for senior citizens (above age 60 year) as it gives regular interest income in each quarter. It has no risk and very safe investment option. The lock-in period is 5 year.

Insurance Policies: It is long term product and lock in period depend on plan’s maturity. It has highest degree of safety but its average return around 6-7% only.

ULIP or Unit Linked Insurance Plan: The return is market linked as no fix return offer. Partial withdrawals possible. It is in the form of bundle which offer insurance, tax exemption and return also. The cost and charges is high compare with other products. The risk is depend on which option you have chosen.

ELSS or Equity Linked Saving Scheme: It is market linked product. There is no fix return. The lock in period for this product is 3 year. It has shortest lock-in period among all Section 80C options. It is high risky investment product.

NPS or National Pension Scheme: It is retirement goal oriented product. No withdrawal allowed before retirement. The return is market linked and it has very low expense ratio means low cost product.

Besides the above mentioned investment products which are in under section 80C, there are some expenses also eligible in under this section.

Home loan repayment: Principal portion of EMI is eligible for deduction till Rs 1,00,000 limit.

School Fees: Tuition fees of up to two children in a recognized educational institute for eligible for Section 80C

Home Purchase: During the purchase of home whatever stamp fee and registration fee you pay is also deductible from taxable income.

There is also other option available for tax deduction other than Section 80C which we will discuss later. If you want more clearity on these products pleas ask through email

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com
www.artofinvest.com

Is only tax saving important enough?

Is only tax saving important enough?

Jan to march, in this quarter people rush for tax saving. Some people wait till last week of the march and make a investment decision in hurry. Often they stuck with those investments which they don’t need and return also come very poor. In today’s article we will discuss about some points which are also important when you make investment decision for tax saving.

• ·         Before go to nearest bank, investment advisor or your CA do your proper homework.

• ·         Avoid to rush for save tax. Make your tax planning well before the end of financial year. It will prevent you make wrong decision in hurry.

• ·         Do not purchase a small new insurance or ULIP policy every year. Keep in mind your section 80(C) limit. You can save only upto Rs  lakh including all your investment and expenses under this section .

• ·         If you are salaried, calculate your PF and PPF contribution, HRA if applicable. Your principal repayment on home loan and tution fee for children also come under section 80(C).

• ·         Today’s many government backed companies bonds like IIFCL (Indian Infrastructure Finance Company), IREDA (Indian Renewable Energy Development Agency) and many more in the market. It is good for long term investment and safety points but it is not as good if you need liquidity in short to near term.

• ·         The return of these bonds are tax free but the investment in these bonds are taxable. These bonds are not under section 80(C).

• ·         Tax planning mutual funds (ELSS) have the shortest lock-in period of 3 years and PPF (Public Provident Fund) have longest lock-in period of 5 years.

• ·         If your investment horizon more than 5-7 years then the most suitable option is ELSS for tax saving.

• At last the more important thing please do not ignore return and liquidity need in rush to save tax.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

What is ELSS...?

What is ELSS ?

ELSS stands for Equity Linked Saving Schemes. It is very good option for tax saving and better return. It has better potential returns and comes with 3 year lock-in period which is lower than other available tax saving instrument under section 80(C).

ELSS schemes are mutual funds which are professionally managed and invest major part of corpus in equity which have potential to beat inflation.

In India, equity market has been negative to range bound for more than 5 years. It make sense to invest in ELSS due to the expected positive development in domestic market within next couple of years.

Like other mutual funds it also comes with two options growth and dividend. You can choose any one of these. Growth plans gives you a chance for compounded growth with capital appreciation and you can get it only minimum 3 year lock-in period. Dividend plan provides some income in your hand during the lock-in period which is tax free in investor’s hands.

After 3 year lock-in period investor can reinvest again in ELSS schemes and claim again section 80(C) benefit. By this method you can less the burden on your pocket for tax saving.

Apart from ELSS many other sections and investment instruments available which we will discuss later.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Common error during tax planning

Avoid common error while Tax Planning

Between January to March the people keep busy and rush to find the tax saving instrument. I am also getting more queries about tax saving in these days. I have observed that many small and basic things about investment investor ignore in hurry for tax saving as dead line approached. So I have decided those common errors which happen very frequently by the investors. Many of these, you may be already know but here I am mentioning again.

Try to find out actual return: There are many products in the market which are offering same return and another offer more or less return. For meaningful comparison among any investment products, try to find whether the return on product is taxable, whether investment amount tax free or not. For example, the interest on PPF is tax free but interest earned on NSC (National Saving Certificate) is taxable. So there are need to compare the post tax return to find out which tax saving instrument more appropriate.

Investment Limit: Before any investment check the investment limit eligible for tax deduction. If you invest more than 1 lakh under section 80C then you will get only tax benefit of Rs 1 lakh. Before any investment to save tax under section 80C please check your other expenses which comes under section 80C like, provident fund, school fee of children, housing loan principal repayment, life insurance premium etc.

Check the eligibility of the product: It is very important that the instrument in which you are going to invest whether come under tax saving category or not. All life insurance products, mutual funds and 5 year bank fix deposits are not eligible for tax deduction. So it is very important to make sure to check the eligibility of the product before invest for tax saving.

The best way to avoid above mentioned error to make your tax plan in well advance at the start of financial year. Keep in mind the real rate of return, tax eligibility and limit of investment before make your investment decision.

My best wish to all of you for good financial health and physical health on the eve of 26^th January Republic Day of India. For more detail and any other query related investment, you can contact me through my email.

How-to-pick-a-tax-saving-fund

How to pick a Tax saving fund (ELSS)

http://www.morningstar.in/posts/21311/how-to-pick-a-tax-saving-fund.aspx

The deadline is fast approaching. If you, as a taxpayer, have still not done your tax planning, you really don't have much time left. But be of good cheer. We shall be carrying a series of articles to help you make up your mind.

Right now, we will specifically look at equity linked savings schemes, or ELSS, which are diversified equity funds that offer a tax benefit under Section 80C. It is also the only tax-saving instrument that offers the lowest lock-in period of just 3 years.

As with any fund investment, when narrowing down on a pick, an error investors are prone to make is opting for the most recent chart topper. Despite the bold disclaimers about past performance not necessarily being sustained in the future, investors have a hard time resisting that lure. And when that is employed as a sole parameter, it’s not uncommon for disillusionment to set in rapidly.

A very in-your-face example would be Taurus Tax Shield. In 2007, it was the best performer in its category with a return of 112%, way ahead of the average 57%. Investors who went for it simply because of the great performance in 2007 would have been a disappointed lot. Barring 2009, the fund has underperformed the category average every other year. But had they done their homework, they would have seen that the fund was the worst performer in its category in 2006.

When looking at past performance, pay a lot of attention to consistency. Don’t get swayed by a sporadic burst in numbers. For instance, HSBC Tax Saver put its best foot forward in 2012. But a look at the performance prior to that year is far from impressive. Ditto with its 2013 returns. On the other hand, Axis Long Term Equity has been fairly consistent. It has been the best performer in its category in 2010, 2011 and 2013. Even when it missed this coveted spot in 2012, its performance was better than that of the category average.

Here are a few tax-saving funds, or equity linked saving schemes, that Morningstar analysts have looked at.

Franklin India Taxshield

This one boasts of a Gold rating. Fund manager Anand Radhakrishnan adopts a bottom-up investment style with a bias for large-cap stocks. His contrarian bent results in the portfolio standing out when compared to that of the typical peer. Click here for a detailed analysis.

HDFC TaxSaver

Vinay Kulkarni aims to derisk the portfolio by investing in uncorrelated sectors of the economy. Though the fund plies a multi-cap approach, he pays more attention to smaller caps than the typical category peer. His holdings tend to remain fairly consistent over long time periods, which is borne out by the fund's low turnover ratio. Our analyst has given this fund a Silver rating. Click here for a detailed analysis.

DSP BlackRock Tax Saver

The fund’s sector weights can deviate by a maximum of 15% (absolute) as compared with the benchmark CNX 500’s weights, with no particular bias to any market cap. To prevent concentration risk in a particular sector or market cap, Apoorva Shah ensures that individual stocks usually account for less than 5% of the fund’s assets, and the top 10 stocks account for roughly 35%, compared with 50% for a typical peer. The fund currently holds a Bronze rating. Click here for a detailed analysis.

The following 3 funds currently hold a Neutral rating.

ICICI Prudential Tax Plan

Chintan Haria is valuation conscious and uses a combination of top-down and bottom-up approaches to create a multi-cap portfolio. He maintains a fairly diversified portfolio and aggressively trades in the large-cap space. Click here for a detailed analysis.

Reliance Tax Saver

Ashwani Kumar typically scouts for companies with strong growth prospects that he believes are trading at a discount to their intrinsic value. He takes sizeable positions in smaller caps in the quest to deliver superior returns. Our analyst is of the view that the combination of substantial small/mid-cap exposure and big stock/sector bets make the fund an apt supporting player in a tax-saving portfolio. Click here for  a detailed analysis.

SBI Magnum Taxgain Scheme 93

Until 2011, manager Jayesh Shroff freely took active positions versus the benchmark index S&P BSE 100 as per his convictions. Since 2011, Shroff has been plying a benchmark-aligned growth-oriented approach in place of the erstwhile benchmark-agnostic process. As per the new strategy, the portfolio’s sector weights are loosely aligned with those of the benchmark. He focusses on growth stocks and largely follows a buy-and-hold approach. Click here for a detailed analysis.