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

REC Tax Free Bonds

REC Tax Free Bond : Is it right tax saving instrument for every tax payer ?

Rural Electrification Corporation (REC) is the first company to start offering tax free bonds in this financial year 2012 – 13 and their issue opens on December 3rd 2012 and ends on December 10 2012. Such type of issues may come sure in next 3 months. Now the common question among investors whether they should invest or not in this tax free bond issue.

Why you should invest ?

First of all it is ideal instrument for 30% or 20% tax bracket investors only. There is not much difference in different companies tax free bond. More or less almost all companies offer same return and for the security issue of your investment amount, these all issues are secured by government’s support. If you invest in bank fix deposit, the money insured up to Rs 1 lakh only. So for security of your investment amount these bonds have more score than bank fix deposit.
Interest income on these bonds being tax-free, the returns are higher than the after-tax returns on bank fixed deposits for investors in the 30 per cent tax bracket. The maximum highest interest rate available on bank deposits is 9.5 per cent compounded quarterly after tax adjusted return it gives 6.8% to 30 percent tax slab investor. So it is much lower than the REC tax free bond offer. It is the best option for 30% tax bracket investors. For 20 % tax bracket investor it is not much attractive for return wise but at the safety point of view they also can consider it. The interest rate on tax free bonds is also capped to the average G-Sec yield of the same maturity so there’s not much you can expect in terms of a better rate.

Features of REC Tax Free Bond Issue

There are two series of bonds, one with a 10 year maturity and another with a 15 year maturity and then there are 4 categories of investors that can invest in them. Retail investors are under category IV an get 7.72 % for 10 year and 7.88% for 15 years tenure.
It is available in both physical and dematerialized form. It means that no demat account is necessary to buy these bonds. Bonds will be listed within 15 days of closing of issue on both NSE and BSE. This bonds are exempt under Section 10 (15)(iv)(h) of the Income Tax Act 1961.
There are four categories of investors for these bonds and the last category of investors which is the retail category get a higher interest rate (half a percent). A retail investor is someone who invests less than Rs. 10 lakhs in these bonds.
It has got excellent rating from rating agencies. They have been rated CRISIL AAA/Stable by CRISIL, CARE AAA by CARE, IND AAA by IRRPL and ICRA AAA by ICRA. The interest on the REC tax free bonds will be paid once a year on December 1st.
If you purchase it from secondary market then you will get lower rate from primary market (directly from company) and this difference is half percent.
In the last I would like to say that it is good investment avenue for 30 % and 20% tax bracket investor. But keep in mind first plan your sec 80(c) tax deduction benefit and after that you should plan such types of bonds.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com