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 Planning: Debt Product in Section 80C

Tax Planning: Debt Product in Section 80C

We have witnessed a sharp market rally in last couple of months due to stable and much awaited leadership. The next big event is union budget which is coming next month July. There may be some changes regarding tax exemption in this coming budget. Let us discuss about the currently fixed income instrument available option under section 80C. However I always recommend ELSS scheme is good option available under section 80C if you have risk appetite for equity market and have a long term vision. Today we are going to discuss only about fixed income instrument.

Under section 80C, there are many options available like PPF, EPF, NSC, Post Office Time Deposit and 5 year tax saving bank FD. Before choose any option you should also understand liquidity and tax treatment of particular option which you are going to choose along with return.

Employee Provident Fund (EPF):

In this option employer deduct every month 12 % of your basic salary and deposit the deducted amount in your provident fund account. At present it gives return of 8.5%, the rate of interest rate announce every year by the government of India. The maturity amount and accrued interest during the entire investment term is tax free.

Public Provident Fund (PPF):

 In this option you can contribute any amount but your tax exempt limit is Rs 1 Lakh including all investment option under section 80C. The lock in period is 15 year and maturity amount is tax free. At present it offer 8.7% return. The rate of interest is announced every year by the government of India. The maturity amount and earned interest during the investment period both are tax free.

National Saving Certificate (NSC):

 It comes with 5 year and 10 year fix term. The 5 year NSC offers 8.5% and the 10 year NSC offer 8.8% fix return. The return of NSC is taxable. Every year earned interest is taxable and maturity is also taxable. If accrued interest during the investment time is not declared every year in IT return then the accrued interest amount for all years is taxable at the time of maturity according to your income tax slab.

Post Office 5 year Time Deposit:

 It offers 8.4% return and lock in period is 5 year. The accrued interest during the tenure and maturity both is taxable as per your tax slab. However, tax not deducted at source. You should specify it your IT return.

Tax Saving 5 year Bank FD:

 It is bank fixed deposit with lock in period 5 year. The banks offer the return between 8.5% to 9% range. The bank deducts the tax every year from your earned accrued interest. So the accrued interest and maturity is taxable.

After reading about above mentioned fixed income instruments, you can easily find out that except EPF and PPF all instruments are taxable. So before investment in the above mentioned instruments calculate your real rate of return after paying the tax. It is very clear that none of the above mentioned instrument beat the inflation.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

A New Tax Saving option in FY 2013-14...

A new tax saving option…Section 80EE

After 13 days break, I have come back to my routine Mumbai life. I was travelling in these days. Due to travelling there had some disconnect to our readers. During my journey, I have observed most of people are rushing for tax saving and talking about various tax saving options like section 80C, section 80D etc. Today, I am going to talk about very little known section 80EE.

you have purchased new house in the financial year 2013-14 then you can save more tax. As per existing rule you can avail tax benefit up to Rs 1.5 lakh interest paid on your home loan under section 24. In the FY 2013-14 during budget speech, the finance minister has announce the new tax saving option section 80EE for new home buyer in 2013-14. New home buyer will be entitled to a tax deduction of up to Rs 1 lakh on interest paid on home loan under section 80EE. It will be additional benefit apart from section 24.

There are some conditions for availing this deduction:

·         Home loan should be taken in 2013-14.

·         It is for the first time home buyer.

·         The maximum cap of loan amount is Rs 25 lakh.

·         Property value should not be more than Rs 40 lakh.

·         If your interest amount is less than Rs 1 lakh then you can claim remaining amount in next financial year.

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.

Some Tax Saving Instruments

Some Tax Saving Options under section 80C & 80D

The tax season has already begun. With the new year many people has started to make the tax plan and want the optimal use of available tax option for tax saving. As per my personal view, tax planning should be start more early after the beginning of financial year. At the last moment, we often make wrong decision in hurry of tax saving. Here we are going to explore the suitable options under most popular income tax section 80(C) and section 80(D).

Section 80C allows tax exemption to everyone irrespective of under any income group on certain spending and investment. It means if you invest or spend in products under section 80C your income reduce upto Rs 1 lakh and you have not to pay any tax on this Rs. 1Lakh. If you are in 10%, 20% or 30% tax bracket you clearly save Rs 10,000 , Rs. 20,000 and 30,000 respectively.

If you are conservative investor then debt instruments are suitable for you and if you are moderate or aggressive investor then you should invest in equity category products. First, we are going to discuss some equity option available for tax saving and decent return.

Equity instrument for Tax saving

Equity Linked Saving Scheme (ELSS): It is diversified equity mutual fund which invest majority of corpus in equities across all type of companies like bluechip and value stocks. It is the only more popular instrument which is available for tax saving in equity category. It has 3 year locked in period which means the amount you have invested in these types of schemes cannot be withdraw before 3 year completion.

The return from ELSS is total tax free in the hand of investors. ELSS category has generated 22% CAGR average return over last 10 years.

It is good for those who have vision for long term corpus building and tax savings. By investing in ELSS schemes you can save tax and get the benefit of equity market both.

Debt Instruments for Tax saving

Debt instrument promise the fix return but of course the return is often less compare with equity return in long term. There are many options available in this category.

Public Provident Fund (PPF): It is the best instrument available in debt category. The return on this instrument announced every year. For FY 2013-14 the return is 8.70%. It has lock in period of 15 years and the return is total tax free so it is safe instrument for higher tax bracket investor.

National Saving Certificate (NSC): It is available for 5 year and 10 year period. The return for 5 year NSC is 8.60% compounded half yearly and for 10 year NSC the return is 8.80% compounded half yearly. The tax is applicable on return as per your tax slab. It is also the safe option for conservative investors who do not fall in any tax slab.

5 year bank fix deposit: At present banks are offering 9% compounded quarterly. The return is taxable here also as per your tax slab. It is also for the suited those who are not in any tax bracket. It also offer safe and fix return.

Life Insurance Premium: In this category ULIP and endowment policy often recommended by agents or advisor as it offer lucrative commissions to the agents. The main difference between ULIP and endowment policy is that in endowment policy investment decision taken by the company which often invest in debt product and in ULIP the investment decision taken by investor himself. These types of plans offer insurance and investment both. Historical returns of endowment policies are between merely 5% to 6%. ULIP comes with high inbuilt cost which makes it less attractive than other investment instruments.

Mediclaim Policies Premium:  Apart from above mentioned you can claim some tax exemption for your medical insurance policy cover under section 80D. It allows deduction up to Rs 15,000 for premium paid to purchase health insurance cover for yourself, wife and children. You can also claim more Rs 20,000 apart from this Rs 15,000 if you purchase medical cover for your dependent parents

In today’s life in view of increasing medical cost day by day, I personally advise to all of you to cover yourself and your parents with medical cover. It would be very useful for your medical emergency and tax saving.

Once again my best wish to all of you for good financial health and physical health on the eve one year 2014. 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

Available Tax Saver 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