Advantages of ELSS funds

ELSS funds are an advantageous way to use the Rs 1.5 lakh limit for tax saving investments under Section 80C

The Many Advantages of ELSS Funds
Under Indian tax laws, savers have a complete range of tax saving instruments available to them. And yet, individuals often take sub-optimal investment decisions with their tax-saving investments. Deposits with long lock-ins that hardly pay anything more than inflation; insurance schemes that eat away a lot of the gains in agent commissions; Equity linked Savings Schemes (ELSS) of mutual funds chosen with scant regard to performance track-records–all these (and more) are often seen when it comes to tax-saving investments.

Why does this happen? One common reason is that there is a confusion of goals between saving tax and making investments. The typical investor makes this decision either in late March under the duress of having the deadline slip by, or under intense pressure by a salesman who drives home the fact that time is running out. At the end of the day, we make suboptimal investment decisions and when they ever realise it, they console themselves by saying that that at least they got tax benefits for the investments.

This duality of concern–tax as well as investments–prevents clear-headed thinking about just exactly what one is getting out of an investment and whether the quantum of any disadvantages are actually worth the quantum of tax benefits that are being obtained. Investors should work on eliminating both these sources of poor decision-making–time pressure as well as not thinking about these investments as investments.

Eliminating time pressure is simple–just plan these investments as early in the year as possible–if you haven’t done so, then this is the right time to do so. And once you start in time, there’s no need to stop for next year. Since the best way to invest regularly in a fund is through an SIP, you should just start an SIP in a carefully-chosen ELSS fund and let it run for a long duration.

These investments are investments and should not be made if you would not make them otherwise. For example, if you otherwise do not need to make a fixed deposit but would rather invest in equity, then do so in your tax-saving investments as well. Any investment has to first make sense as an investment, and only incidentally be a tax-saver.

Within this framework, ELSS funds are an advantageous way to use the R1.5 lakh limit that is there for tax saving investments under Section 80C. This limit has been sharply enhanced in FY 14-15 than it was earlier, but, for many people, a good part of it gets consumed by statutory deductions.

Unfortunately, all the statutory deductions are invested into fixed income instruments Now, the Government has even placed some tax deductible expenses under Section 80C.

Within this limit, ELSS is the better way to get the advantages of equity investing.

Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds. Save Tax Get Rich

Top 10 Tax Saver Mutual Funds for 2017 – 2018

Best 10 ELSS Mutual Funds to Invest in India for 2017

1. DSP BlackRock Tax Saver Fund

2. Tata India Tax Savings Fund

3. Birla Sun Life Tax Relief 96

4. ICICI Prudential Long Term Equity Fund

5. Invesco India Tax Plan

6. Franklin India TaxShield

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Sundaram Diversified Equity Fund

Invest in Best Performing 2017 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms

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Capital Gains Tax for Debt Mutual Fund Returns

Debt funds Capital gains tax

Short-term capital gains (if exit is within 3 years) on debt funds will be added to your income and taxed as per your applicable tax slab

f you sell them within 3 years, capital gains on debt funds are treated as short term. It will be added to your income and taxed as per your applicable tax slab. Long term capital gains (if exit is after 3 years) are taxed at 20 per cent with an indexation benefit on your cost.

Investment holding period Taxation
Short Term Capital Gain 36 months or lesser added to income and taxed as per applicable slab rate
Long Term Capital Gain more than 36 months 20% with indexation or 10% without indexation

Let us take an example, Since we do not have the Cost Inflation Index for future years, we will take an example of past. Say you invested R10 lakhs in 2010-2011. Assuming the fund returned 9 percent a year, and you redeem it for R15,38,624 in 2016-17, your long term capital gain would be R5,38,624.

However, if you index the cost with the Cost Inflation Index (provided by the IT department) for 2010-11 and 2015-16, then the cost would be R1,52,0393 (R10 Lakh * 1081/711). Then the long term capital gain would be R18231 (1538624-1520393). A 20 percent tax on this would be R3646.

So, as per this example, your capital gains tax for this financial year will be R3646.

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Principal Emerging Bluechip Fund

Invest Principal Emerging Bluechip Fund Online
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  • Achieve long term capital appreciation by investing in equity of Mid and Small Cap companies
  • Stock selection focused on stocks of higher growth companies at attractive valuations
  • Performance History of more than 7 years
  • Actively managed yet benchmark aware portfolio management

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ELSS Investment or ULIP Investment

ELSS or ULIP

Savers sometimes think of ELSS funds and ULIPs as alternatives. This is a mistake

Functionally, there is nothing common between ELSS funds and ULIPs. It’s a basic rule of saving to not mix up insurance and investments. ELSS and ULIPs are two different products that serve different purposes. While ULIP is a mix of life insurance and investment offered by life insurance companies, ELSS is an equity fund. Both are eligible tax-saving investments but there the similarity ends.

ELSS have predictable cost, and easily understandable returns and are transparent about how the fund operates and what it invests in. Not so with ULIPs. From the premium paid, the insurer deducts charges towards life insurance (mortality charges), administration expenses and fund management fees. So only the balance amount is invested. ULIPs have high first year charges towards acquisition (including agents commissions). In order to evaluate the return generated by a ULIP and thus compare it with another investment, you need to take into consideration only that portion of the premium that is invested in a fund. This information is not easy to come by.

In a ULIP, the mix of investment and insurance prevents savers from having a clear cost-vs-benefit understanding of either of the two components.

Also, with a ULIP, you have to block your money for long periods of time. So you sacrifice on transparency and liquidity. In theory, ULIPs have a five year lock-in, but since terminating the policy early returns adversely, in effect is a ten to fifteen years commitment.

All the charges, which could be as high as 60 per cent in the first year, begin to taper from the fourth year onwards. So you will have to stick on for at least 10 – 15 years to make sure you get a decent overall return on the investment you have made.

The high costs, difficulty in evaluation, lack of transparency and low liquidity don’t make a ULIP a suitable avenue to put one’s money. It is the agents who benefit most since commissions can go up to 25 per cent. Insurance should never be an investment.

Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds. Save Tax Get Rich

Top 10 Tax Saver Mutual Funds for 2017 – 2018

Best 10 ELSS Mutual Funds to Invest in India for 2017

1. DSP BlackRock Tax Saver Fund

2. Tata India Tax Savings Fund

3. Birla Sun Life Tax Relief 96

4. ICICI Prudential Long Term Equity Fund

5. Invesco India Tax Plan

6. Franklin India TaxShield

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Sundaram Diversified Equity Fund

Invest in Best Performing 2017 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms

For further information contact SaveTaxGetRich on 94 8300 8300

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You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

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Call us on 94 8300 8300

ICICI PRUDENTIAL SELECT LARGE CAP

Invest Online ICICI PRU SELECT LARGE CAP

This large-cap fund stands out because of its highly focused approach to stock selection. It runs a compact portfolio of just 14 stocks, while remaining true to its label with its strict large-cap focus. Unlike peers, it has an aggressive approach to outperforming the benchmark.

Over the years, the fund has built a healthy track record of outperforming peers. A trigger-based fund in its earlier avatar, it continues to allow investors a trigger-based automatic rebalancing tool into one of the pre-selected schemes as a profit-booking mechanism. Those comfortable with a focused strategy in the large-cap space may consider this fund, others may prefer its sister fund ICICI Pru Focused Bluechip which has a more diversified approach and a better risk-return profile.

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Mirae Asset Great Consumer Fund

Invest Mirae Asset Great Consumer Fund Online

For retail investors, investing in the current market scenario seems to be a tricky exercise. One theme that works not only in the short term but also in the long term is consumption. Among schemes which have sharp focus on consumption theme, Mirae Asset Great Consumer Fund has consistently delivered good returns.

At present, close to 25% of the scheme’s portfolio is exposed to banking and financials. One of the chief reasons for this is that these sectors serve as the backbone of the economy by funding growth. The scheme also has reasonably good exposure to other themes under the broad consumption category. One such theme is automobiles. The scheme’s fund managers Neelesh Surana, Bharti Sawant and Sumil Agrawal have consistently stuck to the fund house’s philosophy of refraining from buying overvalued stocks and buying those firms which have high cash flows and good investment ratios.

Due to this, the scheme has beaten its peers by a wide margin and benchmark indices BSE 200 (65%) and S&P Asia Pacific Emerging BMI Index (35%). The only concern about the scheme is its assets under management at `42 crore. But considering the performance of Mirae Asset as a fund house, the performance of this scheme is expected to sustain given its investment philosophy.

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Invest every month for years – MF SIPs

As you invest every month for years, look for a healthy rate of return

Most people want to be a crorepati because they want to spend like a crorepati. But, if you did so, you would never become a crorepati in the first place. The first principle of becoming wealthy is to have patience to see your money grow. Most wealthy people around you accumulated the wealth over a long period of time. There would always be a small percentage of people who became wealthy overnight, but they are the exceptions.

It is the drops that make an ocean.This adage holds good for creating wealth too. Small investments done periodically over a long period of time accumulate to become a large sum of money. What you then need is a healthy rate at which your periodic investments are compounding.

SIPs in equity funds provide you both, the discipline to invest regularly and a healthy rate of growth. In India, in the last 20 years, the sensex has generated a return of more than 15%. If one invested even Rs 5,000 per month for 25 years, at 12% average annual rate, it would grow to around Rs 1 crore. However, if the return was 15%, the corpus would be 1.5 times more.

You can follow a few more techniques.

Always remain invest ed in equity funds. Do not time the markets.

Increase the SIP amount annually.

Monitor the health of the funds vis-à-vis the index. Do separate SIPs for each goal. Pick up 4-5 funds so that your portfolio has enough diversification.

Start MF SIP Online

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IDFC Tax Advantage Fund

IDFC Tax Advantage scheme seeks to build a diversified portfolio comprising of stocks of companies with strong fundamentals that are available at reasonable valuations. The scheme can be fully into equities (and equity related securities) and upto 20% in debt & money market instruments.

This is a fund which has earned its stripes by beating its benchmark every year except the first one (2009). This performance has earned it a four-star rating for much of the last three years.

IDFC Tax Advantage Fund has a higher-than-category allocation to both mid-cap and small-cap stocks. Mid caps have made up anywhere between 30 and 45 per cent of the portfolio. Large caps have accounted for 40-50 per cent. Small caps have made up 20 odd per cent. The fund is managed on the basis of a growth-at-a-reasonable-price philosophy. It does take both cash and debt calls on occasion. The fund believes in identifying companies based on a deep understanding of the industry-growth potential and interaction with managements.

IDFC Tax Advantage Fund is yet to be tested in a severe bear market, as it was launched after 2008. Its record in 2011 showed ability to contain downside. The fund has beaten its benchmark by sizeable margins of 5-6 percentage points over three and five years, though one-year returns show it lagging behind the category. The fund hasn’t been a huge category outperformer but a return of 20 per cent (since launch) is not to be scoffed at. The higher mid- and small-cap tilt, however, may peg up volatility if the latter’s high valuations prompt a correction.

Investors can take smaller exposures to this fund until a longer track record is at hand.

Top 10 Tax Saver Mutual Funds for 2017 – 2018

Best 10 ELSS Mutual Funds to invest in India for 2017

1. DSP BlackRock Tax Saver Fund

2. Invesco India Tax Plan

3. Tata India Tax Savings Fund

4. ICICI Prudential Long Term Equity Fund

5. Birla Sun Life Tax Relief 96

6. Franklin India TaxShield

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Birla Sun Life Tax Plan

Invest in Best Performing 2017 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms

For further information contact SaveTaxGetRich on 94 8300 8300

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Gilt Funds

Invest Gilt Funds Online

The average small investor will find it much simpler to take the mutual fund route and invest in a gilt fund. Mutual funds are also more tax efficient compared to investing in G-Secs directly. This is because the interest received on G-Sec is taxable in the hands of investors. So it may not suit investors in the highest 30% tax bracket. If someone in this bracket buys a G-Sec with a coupon rate of 7.2%, his post-tax yield will be only 4.98%. However, in mutual funds, this taxable interest gets converted into capital gains. This is because the mutual funds are pass-through instruments and therefore, there is no tax-incidence at that time. The capital gains are taxed at 20% after indexation if the holding period exceeds three years. If we assume the same 7.2% return from the gilt fund and an indexation of 5% due to inflation, the 20% tax will be levied only on the remaining 2.2% (20% of the 2.2%). So the post tax yield from the gilt fund will be higher at 6.76%.

Another problem is the extreme volatility in the secondary bond market. Since bond prices are inversely correlated to interest rates, prices zoom when interest rates fall. On the other hand, G-Secs quote at a discount when rates are hiked. G-Secs are good products, but lay investors should not confuse them with assured return products such as bank FDs. There is a possibility of capital loss in GSecs. The volatility may emotionally impact investors even if they are ready to hold till maturity. If the interest rates start reversing and G-Secs trade at a discount, lay investors may feel cheated.

Who should invest

G-Secs can be a good option for senior citizens and retirees looking for long-term assured income. They can buy 20-25 year bonds and be assured of a steady income for the full tenure of the bonds. However, note that this income will be fully taxable. More importantly, it will progressively become insufficient as inflation pushes up their requirements every year. But it will still be a better option than annuities provided by insurers.

If you are investing for the shortto medium-term or don’t have a fixed invest ment horizon, then go through gilt funds. Direct G-Sec investors have to keep on reinvesting coupons and the mutual funds route relieve investors from that headache. Gilt funds offer better experience because of the fund management expertise it brings in. This expertise comes at a price: fund houses charge 0.5-1% every year for managing your money. Actively managed gilt funds usually recover the fund management costs and beat their benchmark comfortably

Open-ended gilt funds are also more liquid. You can redeem and get your money within a day’s time. In direct G-Sec investments, it can take longer. In the first step, only banks and PDs who have direct access to the NDS-OM will be doing it, so the liquidity may not be high, especially if you want to trade. Stock brokers are staying away for the time being because most of them are not PDs. As of now, we don’t have access to NDS-OM. So we are evaluating the possible options to offer this service to clients. Since there is not much business expected from here, banks also may not try to popularise this avenue. G-Secs may not become popular in near future because banks may continue to push the products they are interested in.

Is it time invest in GSecs now?

The bond market has been rallying for almost 6 months now. The 10 year benchmark bond yield fell below 7.17% on Friday. The general expectation is that rates will continue to decline in the short term. Due to several favourable factors, the 10-year yield may break the 7% lev el and may remain below that for some time. However, experts say this is not the time to take aggressive bets because we may be close to the lower end of the cycle. G-Sec yield has not yet bottomed out, but the risk-reward is not favourable anymore. We studied the average 1-year return from gilt funds at various bands of the bond yield. When the 10-year yield is between 9% and 10%, the average 1-year return was 16%. Investors lost when the yield was between 5% and 6%. As of now, it is placed between 7% and 8% and historically, gilt funds generated only 6% returns in the next one year in such situations.

However, very long-term investors can get in without much worry. Investors getting in now should get into 10-year plus duration. The interest rate will come down in the long term because we are transforming from a developing economy to a developed economy

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