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

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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.

Common mistake during tax planning

Common Mistakes during Tax Planning

All of us want to save tax more and more or in fact no one want to pay tax happily. Most of us don’t plan in the beginning of financial year. We awake for it when our office accountant remind us or our CA. The main reason behind wrong tax planning is to wait last moment of financial year (Feb-March) closing. In the hurry of tax planning in last moment we often ignore the essential element of financial planning like our financial goal, risk appetite, income and investment product.

If you have ever felt that during Jan to March we will get so many telephone calls from insurance company for ULIP (Unit Linked insurance Plan). ULIPs are insurance cum investment product and have many charges which are not mostly disclosed by an agent. In fact you should not mix your insurance with investment, one of the golden rules of financial planning. In these products, you don’t get adequate risk cover so your insurance planning spoil and you get raw deal in the hurry of tax saving.

We often do not optimize all tax saving options. Many of us only stuck with Section 80(C). There are also so many other options exist which you should explore with the tax expert. There are many other relaxation of tax like medical treatment of dependant handicapped, loan for higher study, suffering from specified diseases and many more.

If your age, income and risk appetite allow you to some degree risk you must invest in ELSS mutual fund. These funds come with 3 year lock in period and worth for invest. It is the good option for tax saving. If we keep in mind the mentioned things in this article, we can make optimal financial planning.

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

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