Oh my God! Look at these investment advices..

One of my friend called me to ask for my second opinion when he had these investment options offered to him.

First my friend was visiting his auditor ( Chartered Accountant) for some income tax advise. the Chartered Accountant suggested him to avail some good investment options from LIC ( pension plans).He also offered that it can be done through an LIC agent known to him.( His wife???)

Second my friend visited his bank to get a tax saving fixed deposit for his mom. The Manager of the PSU bank almost pleadingly forced him into buying a policy where he had to pay some amount annually for 5 years and after that he would get pension from the tenth year onward.

Last he visited a well known financial service provider for investing in an ELSS scheme.There he was lectured on the virtues of a pension policy from a private sector insurance provider.

In all of the cases, people were force selling him some insurance policies just for the sake of some hefty commission!

When the true RO (return on investment)was calculated for all of the schemes . it was less than savings bank interest currently being offered.

In none of the cases, the people selling these schemes were aware of the underlying securities in which the premium will be invested.

None of the parties who were selling these products had any true personal finance knowledge. All of them (except the Shattered accountant) were genuinely doing their job ( for what they were being paid for).

My friend at least had the guts to ask some basic questions and asked for a second opinion. if someone blindly makes an investment based on such random advises, they get tied to poor quality products due to their financial illiteracy.

God only can insure the investors from getting trapped by the insurance agents and insurance companies.

Happy New Year 2016 !

ELSS and PPF

Among the tax saving investment options, ELSS and PPF/EPF are unique in the sense that returns from are absolutely tax free.

1) Interest earned from PPF is not taxed during accrual or pay out.

2) Dividend from ELSS is tax free.

3) ELSS has a lock-in period of three years. So,Profit on sale of units held after 3 years is a long term capital gain. It is subject to Nil tax as per current IT act.

ELSS and PPF are the way to go...

ELSS- equity linked saving scheme of Mutual Funds

PPF- Public provident fund

RPF- Contribution to Employee Provident Fund

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Advantage of planning for tax (investments) in advance

Planning for you tax saving investments at the beginning of the financial year is very critical (April - it's time to plan your taxes )and can be very handy for you. I would like to quote examples of two persons I know. The first person always plans for his tax saving investments in advance. This year too, he needed to save Rs 48,000. He planned out an SIP for 8000 for 6 months starting May'07 in a ELSS MF (tax saving mutual fund). His SIP got over in Oct07 and he is ready to present his savings to his employer by end of October'07 ( his employer needs it only by Jan'08). Now apart from saving 30% taxes on amount invested, he also has earned more than 10,000 as unrealised profits on his investments( thanks to the bull run !!).

My second friend starts thinking about tax planning only on January 1. His employer needs tax proof to be submitted by Jan'10. He never saves too. So, he is thinking between taking a personal loan for investing or paying 30% tax instead of saving.

Both of these friends almost earn the same amount and spending patterns are also similar. But the second person also spends a bit extra as there is no commitment like SIP.Planning for your tax investments always makes a difference. If you keep investing throughout the year, you tend to gain a lot as you don't feel the burden of investing a huge amount. You also need not fall prey to year end rush which can make you take a wrong investment decision too.

Always plan for your taxes in advance.Happy tax saving!!.

ELSS= Equity linked saving scheme.

Tax Saving-ELSS Advantage!

Tax saving-Dividend Reinvestment option in ELSS – Think about it

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ELSS -Good way to start

For salaried class who pay income tax and not investing in equity/ equity MF, ELSS fundwould be the best way to start investing in MFs.

This is because.

1) You start an investment for tax saving and straight away get a return equal to your income tax rate notionally. This takes you off the initial fear of investing in equity.

2) The Lock-in period of 3 years allows you to get a feel of equity market.both ups and downs.

3) The confidence you gain by investing in ELSS can then be extended to equity investing.

SIP should be the preferred way to invest in ELSS too. More on ELSS

ELSS= Equity Linked Savings Scheme. Investment in this fund upto Rs.100000 can be used for availing tax exemption.

Know your taxes when investing in GLOBAL funds.

EARN A CRORE

Comparing PPF and ELSS as tax saving instruments

Contributions to PPF ( Public Provident Fund) and ELSS ( Equity Linked Savings Scheme of Mutual funds) are eligible for tax deductions.

PPF gives a return of 8% p.a. The most attractive part being the interest is tax free*. 15 years is the minimum term that you need to hold this account for. It definitely helps in compounding your money in such a period of time.

ELSS also generates tax free dividend (if you opt for dividend payout ) and the capital gains you make out of this scheme is also tax free*.

These two schemes definitely stand out of the rest in terms of tax saving schemes. Fixed Deposits, NSC ( National Savings Certificate ) do not enjoy tax free* returns. ULIPs also enjoy some tax benefits but we have emphasised the need to separate insurance from investment enough on this blog.

So, When we compare PPF and ELSS , Equity is capable of generating greater returns in the long run( esp ..like PPF period of 15 years). So, if one is ready to lock in his money for 15 years or so, he can prefer equity based investments . ( ELSS have yielded 40% return in last 5 years # Same performance however cannot be expected year on year, but around 12% returns can make a huge difference!!! in a 15 year period).

NSC/ FD VS Equity/ MF Comparison table
FD vs FMP/Debt Funds

NSC and PPF Comparison

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* tax free as per income tax laws applicable in Sep'07

Two obvious choices in ELSS

We have been receiving a lot of mails asking to suggest good ELSS funds. HDFC tax saver and Magnum tax gain have been consistent performers and are five star rated funds from Value research.

Both of them have had strong track records and you can opt for an SIP in any of the these funds.

Fund Name, Launch Date ,Risk Grade, Return Grade, 5 year return

HDFC Taxsaver ,Mar-1996, Low, High, 49.87

Magnum Taxgain, Mar-1993 ,Below Average ,High ,57.66

Tax Saving-ELSS Advantage! Equity top up investment SIP returns - Analysis Traffic signal

* data source -Value research

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NSC/ FD VS Equity MF Comparison table

A self explanatory table of comparison between investments

( Fixed Deposit/ National Savings Certificate Vs Diversified Mutual Fund)

		Amount in Rs
Investment	F.D./ NSC	Diversified Equity MF
Amount	10000	10000
Period	6 years	6 years
Maturity Value	15868.74	29859.84
Tax on Income/ Capital gains	1573.68	0
Inflation	4185.19	4185.19
Value of Investment after 5 Years	10109.87	25674.65
(post tax post inflation)
Difference	(15564.78)
Rates	Per annum
Inflation	6%
Rate of Interest on F.D./NSC	8%
Rate of Return on MF	20%***	(Last five years average 40%)
Income Tax rate	30%

***This post was published originally in Dec 2006 ( When the global equities were moving to a  peak ). In those times,an average equity mutual fund had annualized returns over 40% for five years ( 2001-2006). In 2013, the average annualized return for equity funds stand at around 5 % (considering the last five year period 2008-13).

So, Please know your facts and risks associated well before investing. Blind extrapolation of the past would lead to great failures.

Also read, http://ideasmoney.blogspot.in/2013/09/fixed-deposits-or-debt-funds.html

Tax Saving-ELSS Advantage!

Which is the best tax saving instrument? (under Section 80c - 1 Lakh limit)

There are wide spectrums of choices available

1.NSC
2.PPF
3.Insurance / Pension Plan
4.FDs ( 5 Year Tenure)
5.Infrastructure Bonds
6.ELSS * and a few more

*(ELSS refers to Equity Linked Saving Scheme of mutual funds)

ELSS is one of the best choices

1)It has the potential for highest returns (Last five year average returns well above 30 % p.a. **).
2)It has the minimum lock in period (3 years) compared to other tax saving instruments.
3)Dividend from equity schemes are tax free (for Dividend Payout option)
4)No Long term capital gain tax on redemption as the period of investment is greater than a year.
5)An SIP investment can help you hedge against market fluctuations while investing.

With so many advantages, ELSS is the most attractive investment option available to us.

(SIP#- Systematic Investment Plan. Where a fixed portion is invested in a fund every month like a Recurring Deposit)(** Returns Subject to market risk)


Also read http://ideasmoney.blogspot.com/2006/11/tax-saving-dividend-reinvestment-option.html

Tax saving-Dividend Reinvestment option in ELSS – Think about it

ELSS Schemes provide for 3 options while investing like any other equity scheme.

The options being

1) Dividend Payout
2) Dividend Reinvestment
3) Growth.

Dividend Reinvestment is an option which you can avoid when investing in tax saving ELSS.

Whenever Dividend is declared and reinvested in tax saving ELSS, it is subject to a lock-in period of three years.

So, there is a high probability that a fraction of your dividend goes on a continuous circle of 3-year lock-in. In that sense, you will never be able to withdraw the full amount of dividend paid out of the scheme. (Unless the scheme does not declare a dividend for three continuous years).

Confused!@#$% J . Let me give an example
Assume~
You invest 10,000 in a ELSS scheme with dividend reinvestment in 2006. (You can redeem these units only after a three-year lock in 2009)
Assume -Dividend of 1000 declared in 2007. The dividend units get added to your kitty by way of reinvestment (these units can only be redeemed in 2010)
Assume -Dividend of 1200 declared in 2008. The dividend units get added to your kitty again (these units can only be redeemed in 2011)…and it goes on like that…so a fraction of your investment can go unredeemable.

Still confused …Let go...
So, please stay away from dividend reinvestment option while investing in tax saving ELSS.

Also read http://ideasmoney.blogspot.com/2006/11/tax-saving-elss-advantage.html