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

Top 4 Tax Saver Mutual Funds for 2017 – 2018

Best 4 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. BNP Paribas Long Term Equity Fund

Invest in Best Performing 2017 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

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Taxation of Mutual Funds

If you sell your investments in stocks/equity mutual funds after 12 months, your investments would qualify for long-term capital gains tax which is zero at the moment.

If you sell your stocks/equity mutual fund investments before 12 months, you will have to pay a short-term capital gains tax at the rate of 15 per cent.

However, debt mutual funds qualify for long-term capital gains tax only if investments are held for three years.

The long-term capital gains tax on debt funds are 20 per cent with the indexation benefit. If debt mutual fund investments are sold before three years, the short-term gains are taxed as per the Income Tax slab applicable to the investor.

Debt Funds Returns Jump High

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The benchmark 10-year bond yield has come down sharply after the demonetisation

The demonetisation has injected adrenaline into the debt market. A large number of old `500 and ` 1,000 notes have been deposited in banks. Rough estimates say deposits have crossed the `4.5 lakh crore mark. But the outflow has not happened because of withdrawal restrictions imposed by the RBI. With abundant money already in the bag, banks have started cutting fixed deposits rates. SBI, ICICI Bank, HDFC Bank, IDBI Bank and Kotak Bank have already cut rates and others are expected to follow suit soon. Investors should rush to open fixed deposits if they wish to lock in at the prevailing rates.

Since banks are flush with funds and don’t have much lending opportunity, they have started buying government securities aggressively, resulting in a sudden rise in bond prices. The benchmark 10-yield came down to 6.43% (see chart). The yield on 3-month bonds have also crashed from 6.40% on 8 November to just 5.94% now.

Long-term bonds have seen the highest price appreciation due to the drop in yields. Debt mutual funds holding long-term bonds have shot up 2.8% in the past 10 days since Prime Minister Narendra Modi made the earth shattering announcement (see table). This is what the category normally earns in 3-4 months. Some long-term gilt funds rose more than 3% absolute returns during this period. What should debt fund investors do now? Experts are advising investors not to get into liquid funds and take some accrual based duration funds. Yields are coming down and two-month commercial papers are now quoting between 6.1% and 6.3%. Large reverse repo size indicates that the pressure on yield may continue till the end of the year.

Since the 10-year yield has already came down to 6.43%, does it makes sense to invest in long-term gilt or debt funds now? The general view is that the trend will continue to go down in the short term. The yield may fall further in the short term because of the pending incremental demand and trending down in inflation. Adding fuel to the bond rally is the expected rate cuts by the RBI. Since there is a consensus in the market on this, is the rate cut already priced in? Not fully, says Iyer.“Of the 50 bps cut we are expecting, it seems the market has already priced in the 25 bps cut

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ICICI Prudential Long Term Equity Fund – Tax Saving Fund

The ICICI Prudential Long Term Equity Scheme seeks long-term capital appreciation by investing approximately 90 per cent of the investments in equity instruments, while the balance 10 per cent would be a parked in debt and money market instrument and cash ( Including-money at call).

This fund has outpaced its benchmark over not one but three different market cycles; it has beaten its benchmark in 13 of the last 15 years. A rare ELSS fund that focuses on the value style of investing, it has managed a four- or five-star rating pretty consistently since 2011.

The fund’s valuation-focused style has helped it regain its four-star rating recently after a blip to three stars for a brief period. The portfolio is constructed around stocks and sectors with cheaper valuation that nevertheless goes with reasonable growth expectations.

Typically 55-65 per cent of its portfolio is allocated to large caps, 20-30 per cent to mid caps and 10-15 per cent to small caps. In the last one year, mid-cap allocations have been raised from 25 to 40 per cent, with small-cap weights trimmed.

ICICI Prudential Long Term Equity Fund is a rare ELSS fund that has managed to stay one step ahead of the benchmark on a trailing one-, three-, five- and ten-year basis, while also beating the category over these periods. The fund’s investment strategy typically delivers outsized returns in the beginning stages of a bull market when sector rotation is in vogue. It trails when markets are overheated. It also works well in containing losses when bears are in control. The value style of stock-picking has suffered setbacks in the last five years but seems to be back on the saddle in the last one year or so.

Overall, with the market tide turning currently, this fund is a good option to get in on trends ahead of the stampeding herd.

Save Tax and Grow Wealth

There’s a slight nip in the air and there are a galore of offers from e-commerce bigwigs; the festive season it seems has arrived. While this is certainly a time to splurge and be merry, do consider putting away a little bit of your funds to save tax.

  • Open a PPF account – Need a secure investment that gives tax free returns? Consider PPF. Withdrawals from PPF are also exempt from tax. You can deposit a maximum of Rs 1,50,000 in a year and earn a tax free interest of 8.7%. Amount deposited each year is allowed a deduction under section 80C. Section 80C allowed you to reduce your taxable income by the amount you deposit. PPF matures after 15 years, and if you continue to put away money in it, you’ll have a large corpus on maturity.
  • Make additional deposits to EPF – 12% of your basic salary is deducted each month and deposited in EPF, employer also contributes to it. Find out from your company if they allow you to make additional deposits to your EPF. A lot of companies allow employees to put in a higher % in their EPF. A spare Rs 10,000 may get spent from your pocket, but will be put to good use when you keep adding to your EPF kitty. If you plan to complete 5 years at your current organisation, you would land up an even larger sum by these extra deposits. EPF withdrawals are tax free after 5 years of employment.
  • Consider an ELSS fund – Equities have had a bear phase recently and it seems like a good time to enter. If you don’t want your money to get locked for long term, look up a fund house that has a good performance and buy an ELSS mutual fund. ELSS purchases are also covered in Section 80C. And come with a lock in of 3 years. You can also enrol into a SIP to get into ELSS. A SIP or systematic investment plan means that you make small deposits monthly (or some other interval) instead of a lump sum. Your returns shall be fully tax free besides the Section 80C benefit.
  • Buy a medical insurance – Consider securing the health of your family via a medical insurance. A deduction of Rs 25,000 is allowed under section 80D. If you have parents who are senior citizens, you can claim Rs 30,000 to secure their health. For uninsured super senior citizens (more than 80 years old) medical expenses up to Rs 30,000 can be claimed under section 80D. Do note that you can claim a maximum of Rs 30,000 in this section, so plan it well. If your parents are super senior citizens you may claim Rs 30,000 medical expenses for them, while your spouse can insure you as a couple & kids for Rs 25,000. That way, both of you can take the benefit.

Make the most of the festive season! Now that six months of the financial year have gone by, do spend some time to plan your taxes.

Invest in Mutual Funds from Abroad

You have been misguided by your adviser. Firstly, you can invest in mutual funds from abroad or if you become a non-resident Indian (NRI). But US and Canada-based NRIs are restricted from investing by most mutual fund houses. You will need to update the KYC (Know Your Client) details with the change in residential status. As an NRI, you can invest in mutual funds either on repatriable basis or on non-repatriable basis. To invest on a repatriable basis you must have an NRE account with a bank in India. In this case the investment amount should be remitted from the NRE account of the NRI investor.

In case you choose the non-repatriable mode, you are allowed to use the NRO account. Mutual fund investments cannot be made in a foreign currency in India.

Balanced Funds Investing and Tax

Balanced Funds Investing Online

Balanced funds (or hybrid funds) invest their portfolio in a mix of debt and equity. They can be equity-oriented or debt-oriented, depending on their exposure to equity. If a fund invests minimum 65 per cent in equities, it is called equity-oriented balanced fund. If a fund invests less than 65 percent in equities, it is called debt-oriented balanced fund. This category is clearly segregated in our funds list.

Equity oriented balanced funds, if held for more than 12 months are exempt from long term capital gains tax. For periods less than that, short term capital gains tax is applicable at 15 percent.

For debt oriented balanced funds, long-term capital gains tax is applicable if the fund is held for 36 months or more. This is at 10 percent without indexation benefits or 20 percent with indexation benefits. Short-term capital gains tax on debt funds is as per your tax bracket.

Avoid DELAYED TAX PLANNING

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People often procrastinate about tax saving and rush through during the last quarter of the financial year. There are some pitfalls to such an approach.

When people think about tax saving investments, the main problem that arises is that they see this as an option to save taxes. Ideally they should look at this as an investment option where they can get good return and also can lower their tax burden. If one starts investing from the beginning of the year to save taxes under the section 80C of the Income Tax Act, they can average out their cost through the whole year.

Secondly, when an investor saves a small amount every month, there is no problem of liquidity as one nears the end of the year.

In case the person doesn’t invest through the year to save taxes, and waits for the last three months to meet the whole year’s obligation, he would not have much funds left in case there is some emergency during those three months.

If the person decides to invest during the last three months, he will not have much option to choose the price at which to invest. Whether the market is at a peak or at a low, the person will be forced to take that price.

If one decides to buy a medical insurance, it’s better to buy at the start of the year so that he could remain protected through the year.