Prajna Capital - An Investment Guide

Is it prudent to keep your money in a tax-saving mutual fund scheme beyond the mandatory lock in period of three years? A large number of investment experts think otherwise. They believe that transferring the money from a tax-saving scheme to a diversified scheme after the lock-in period would help you as an investor to maximise your returns as most tax-saving schemes are trailing diversified schemes on returns posted in the three- and five year periods. Tax-saving schemes or equity linked saving schemes ( ELSS ) qualify for tax deduction of up to Rs 1 lakh under section 80C of the Income Tax Act. Though we recommend ELSS because of the prospects of getting better returns among available options under section 80C, we don’t encourage staying invested in it beyond the mandatory period. Financial advisors maintain that ELSS can deliver double digit tax-free returns after the lock in period, whereas most other tax saving options — mostly government-backed investments like PPF, NSC, e...

IT ISthat time of the year when employees have to submit proof of having made tax-savings investments to their employers. With tax season around the corner, here are 10 reasons for you to consider equity-linked savings schemes ( ELSS ). Why invest in ELSS funds? All investments in ELSS are eligible for tax benefit under Section 80C of the Income-Tax Act, subject to a ceiling of up to Rs 1 lakh a year. ELSS funds invest in equities, and equities as an asset class are known to give higher returns over a longer period against, say, debt or fixed income instruments. Does ELSS score over NSC, PPF? An investment in ELSS is locked in for a mere three years against six years in post office schemes such as national savings certificates ( NSC ) and 15 years in public provident fund (PPF) scheme from the date of opening with compulsory contribution every year. However, returns from ELSS are linked to the performance of stock markets, while that of NSC and PPF are currently fixed at 8%. Dividend i...

Now that the financial year is coming to an end, it is time to start tax planning. One of the options for tax planning is the equity-linked saving scheme ( ELSS ). Investments in ELSS are eligible for tax benefit. The maximum amount that can be invested is Rs 1 lakh during a year. ELSS funds invest in equities. An investment in ELSS is locked-in for three years. As against this, investments in the national savings certificate ( NSC ) is locked-in for six years, and in public provident fund ( PPF ) scheme the lock-in period is 15 years. It is to be noted that the returns on ELSS are linked to the performance of the stock markets. As against this, the returns on NSC and PPF are guaranteed. The present rate of interest is fixed at eight percent on NSC and PPF. The dividend income from an ELSS schemes is tax-free. The sale proceeds on sale are exempt from long-term capital gains tax too. As against this, the interest on NSC is taxable. The interest earned on PPF however is tax-...

ELSS returns may look better that home loan repayment benefits, given their attractive returns. But it is still better to opt for the latter. THIS is a scenario that confronts most home loan borrowers at some point of time. It is close to the end of the fiscal, you have received some annual payouts and have a surplus of Rs 1 lakh lying in your bank account. Do you - a) repay your home loan? or b) do you invest the money in an ELSS scheme? Both, home loan pre-payment and investment in mutual funds get you the same tax breaks. Of course this dilemma would not come into play if the total repayment that you make during the year through your monthly instalments, includes a principal repayment of close to Rs 1 lakh. If you are already repaying Rs 1 lakh of you loan through your instalments, there is no headroom. This by itself would qualify as investment up to the Rs 1 lakh limit under Section 80C. In other words, those borrowers who have to make this choice include a new...

Canara Robeco Taxsaver has made a strong comeback from the wilderness with a new identity and has emerged as a strong competitor to some of the well-established diversified equity schemes in the tax saving category LAUNCHED in March 1993, Canara Robeco Taxsaver is one of the oldest, yet one of the smallest tax savings ( ELSS ) schemes in the country today with assets under management of just about Rs 80 crore. Known as Canequity Taxsaver earlier, this fund has seen a big turnaround in performance after its foreign partner – Robeco Groep NV of Netherlands, acquired 49% stake in the erstwhile Canbank asset management. PERFORMANCE In its 17 year long performance history, Canara Robeco Taxsaver has been just about an average performer until 2008. Barring the two block-buster years of 1998 and 1999, when the fund had raced way ahead of its benchmark index, the BSE 100, as well as the broader market indices – the Sensex and the Nifty, this fund had in fact failed to garner any investor inter...

Instead of waiting till March to make tax-saving investments, take advantage of the attractive prices in the stock markets now Only two things, they say, are certain - death and taxes. Oddly, both topics are usually avoided in polite society. The annual ritual of year-end investing to save on taxes is almost five months away. So why bring up this dreadful talk about taxes now? It's not March already, by any chance, is it? No, don't bother to look at your calendar. It's only November. But there are attractive investment opportunities available today, if you plan to look at tax-saving equity options - equity-linked savings schemes ( ELSS ) or unit-linked insurance plans ( ULIPs ). The recent drop in equity markets has brought stock valuations down to compelling levels. Mutual fund NAVs have plunged, some by as much as 50 percent over the past three months. While this is obviously unfortunate for existing investors, it's extremely good news for those who are evaluating ...

Term insurance may not be the most-marketed product by life cos, but it’s a must-have in today’s risk-prone lifestyle WHEN was the last time your insurance agent sold a term plan to you? It’s not a very popular policy among agents, as their commission in absolute terms is low because of the low-premium. Just as agents have their self interests in mind while selling, you need to make your own decision about your insurance needs, which are unique to your family. COST ADVANTAGE A term plan is pure protection. It is the cheapest type of life insurance policy. But what you see might not be what you get, most insurers have a range of health parameters for standard rates. If any of your health parameters — weight, blood pressure for instance fall outside this range, you will pay more. For some companies, the standard range is very narrow. EARLY BIRD GAINS A 30-year-old will pay 15% more premium than a 25-year-old. At 40, the premium is double of what is applicable for a 25-year old, points...

When choices are many you could end up feeling confused; it could be over buying a cell phone or for that matter an ice-cream flavour! So imagine, when your mutual fund ( MF ) agent throws an array of questions -- Which fund do you want to invest in? or Which MF option do you want? Chances are you might end up feeling confused. A MF offers three options-- dividend payout , dividend reinvestment and growth . Each of this option has its own pros and cons. We at Wealth tip you off on what's best for you. Let's understand the three options in detail. A. Dividend payout: Assuming you have 100 units in your MF and the net asset value ( NAV ) of the unit is Rs 10. Now, the fund house declares 50 per cent dividend (a dividend is the profit made by a MF that it distributes to its unit holders. These dividends are paid in cash and are a percentage of the unit value) on the scheme. So, for every unit you will get Rs 5 (50% of Rs 10), which makes it Rs 500 for 100 units. You might rejoi...

Some deductions you are eligible for to help you arrive at the right taxable income while filing returns. This time you don’t need to attach any documents to the form. The last date for individuals to file returns is July 31 The time to file the income tax returns is here. July 31 is the last date to file the IT returns for individuals. The returns has to be filed for the previous year - April 2008 to March 2009. So, the transactions should have taken place during that period only. Any subsequent transactions will be taken into account during the next year - 2009-10. An assessee also needs to compute taxes properly and pay off any outstanding dues. This can be done before the date of filing of the returns. It is of utmost importance that one uses the correct form, as is applicable to him. In a radical change from the past, no document (including TDS certificate) should be attached to this form. The officials receiving the returns have been instructed to detach all documents enclosed wi...

Fidelity AMC was set up in July 2004 but has managed quite a following in these few years. It is also very focussed on equity. Based on the brand equity of the Fidelity name, Fidelity Equity, its first fund, started off with a corpus of Rs 1,460 crore in April 2005. It has gone up over the years to over Rs 2,500 crore. While it impressed in 2006, it dipped in 2007 but in the recent slump has held on quite well. This has even been observed in its other domestic equity funds. The funds may be average performers when the market is on a roll, but they don't slump terribly in a downturn. The AMC has just five equity funds. One, Fidelity Tax Advantage, is an Equity Linked Savings Scheme ( ELSS ) and two (Fidelity International Opportunities and Fidelity India Growth) have a global tilt. Of these, only the former has actually started investing abroad-about 10 per cent of its holdings are outside India. The fund house does not have a huge and diverse product offering. Neither does it chas...

‘If you always do what you’ve always done, you’ll always get what you’ve always got.’ - Anonymous Most of us vow to do it early, but end up doing it in a hurry. Now is the time to start your tax savings investments. You can also use the ‘ Contrarian Style’ . Asset allocation While using tax saving investments, look at the overall asset allocation, since managing risk is the key to sustaining long term wealth creation. Tax saving avenues may restrict you to the available asset classes. While planning asset allocation, diversify across complementary avenues so that risks are managed better. A contrarian needs to study various asset cycles and accordingly choose the investment avenue where the trend is likely to change. For example, when interest rates are expected to fall, invest in a bank fixed deposit of about 7-10 years instead of just a 5-year deposit. To invest in equity or not? Most of us who have invested in equity linked saving scheme (ELSS) funds last year are likely t...

As soon as realisation hits that a new year is upon us, there is another one that lurks around the corner. And that is the start of a new financial year. Which means, you have till March 31 to complete your tax planning exercise. So if you have not completed your investments under Section 80C, you have a little more time to get your act together. If one takes a look at the past year, what would seem more appealing would be the fixed return instruments like National Savings Certificate ( NSC ) and Public Provident Fund ( PPF ). After all, at least you are guaranteed a positive return there. The equity markets are in the doldrums and don’t look like they will be reviving anytime soon. But what investors tend to forget is that investing in equity is not a short-term investment. Even though equity has the potential of delivering phenomenally over the short term, the risk of capital erosion is also very high. To truly benefit from equity, one should have the patience to stick around for at ...

How an equity-linked saving scheme works An equity-linked saving scheme ( ELSS ) is an excellent avenue if you are looking at investing in the equity markets, and saving on tax. As the investments are locked in for a period of three years, the returns are also good in these schemes. Further, considering the tax advantages, the yield on investments is generally high. ELSS is a type of diversified equity fund. Investing in ELSS is deductible under Section 80C of the Income Tax Act . ELSS is like any other equity fund. However, the lock-in period is three years. These funds come with all the usual trappings of an equity fund, which includes choice between dividend and growth options, and systematic investment plans. The amount you plan to invest in an ELSS should be in multiples of Rs 500 with a minimum of Rs 500. The fund allots units to all complete applications, made in the specified form, not later than March 31 every year. Further, the plan should be open for a minimum period of thr...

Like most budgets, these years' too had some minor measures that haven't attracted too much attention but are nonetheless interesting. One such measure has been the inclusion of the Senior Citizens Savings Scheme ( SCSS ) into Section 80C. Why is this interesting? Because it offers a significant new tax break to older people who still have an income but are short of options on saving taxes. Let me explain. The SCSS was introduced in 2004 budget. It is a deposit with the government that is serviced through the post office and is available only to those who are older than 60 years, or 55 years for those who have taken a VRS. The deposit fetches interest at the rate of nine per cent, which is a great return for a safe, government-guaranteed investment. Until now, this deposit had no tax-saving angle to it. Money put into it did not get the depositor any kind of a tax break and the interest earned was fully taxable. Mr. Chidambaram has changed this in this budget. Now, investments ...

There are some fund houses that offer a life insurance benefit if you opt for a systematic investment plan in their schemes. It was initiated by DSPML Mutual Fund in 2005 with the name of Super SIP. Some other players like Birla Sun Life Mutual Fund, Kotak Mutual Fund and Reliance Mutual Fund have come out with the same concept. You will have to look into the details to see which one suits you. For instance, here are some questions you can ask as a guideline. Is there a minimum amount that has to be invested in the SIP? Must the SIP be of a certain tenure? Are all equity schemes of AMC, eligible or is it offered only on certain schemes? Will the insured amount be given to the nominee or be used to continue with the SIP so that the investment plan continues? Will all the insurance expenses be borne by the AMC? Is there any age limit to avail of this scheme? Now coming to your second question; yes, if you switch your units from one scheme to Equity Linked Saving Scheme ( ELSS ) of the sa...

AT A time when most people are getting impacted by rising inflation and poor returns on their investments, tax planning assumes great importance. Most people look for avenues that would help them not only evade the claws of tax collectors but also save on money. Among the many options available, most financial experts recommend investment in tax-saving funds, tempting you to put all your money into this scheme. But before you take the plunge, here’s what you need to look into before investing in a tax-saving fund. TAX BENEFITS While the primary benefit of a tax-saving fund is implicit in its name, tax benefits are dependent on the investment made in the fund. According to Section 80C of the investment tax law, all investments up to Rs 1 lakh are exempt from tax. In addition, tax-saving schemes offer tax rebate under Section 88 up to a maximum of Rs 10,000. Also, since the lock-in period for tax saving funds exceeds one year, you can be guaranteed of exemptions from long-term capital ga...

Equity Linked Saving Schemes ( ELSS ) or tax saving mutual fund schemes as they are otherwise known as, are a popular tax saving investment. The major reason for this popularity has been the introduction of Section 80C of the Income Tax Act, from April 1, 2005. This section allows the investor to invest up to Rs 1 lakh in various investment products and get a tax deduction for the same. The list of investment products also includes ELSS. Earlier, till March 31, 2005, investment in these tax saving schemes only allowed for a tax deduction of up to Rs 10,000 under Section 88. However, that being said, there are various things an investor needs to keep in mind before deciding to jump into an ELSS investment. Section 80 C spoils you for choice: As has been mentioned above, ELSS is not the only investment avenue that comes under Section 80C. Other investments such as Life Insurance, Public Provident Fund (PPF), National Savings Certificates (NSCs), Senior Citizen Savings Scheme (SCSS), Pos...

In a breather to all mutual funds investors, the Securities and Exchange Board of India ( SEBI ) has asked fund house 'not to charge' entry and exit load on bonus units and units allotted on reinvestment of dividend, with effect from April 1, 2008. The new rule follows the recommendations of the Association of Mutual Funds in India's Working Group on Standardization of Key Operational Areas. An entry load is charged when an investor enters a mutual fund scheme. For redemptions made thereafter, investors are charged an exit load by the fund house. In the case of the dividend reinvestment option, the investor is assigned units for dividend that is re-invested in the scheme. At times, the fund manager converts earnings from the scheme into units and distributes them as bonus units to the investors. These bonus units are then charged entry load and exit load. The logical argument made against charging such loads is that it is investor's money that has contributed to the ea...

Investing money for short-term, say up to 1-11/2 years has generally been an issue. As it is the interest rates / returns are quite low. On top of this, there could be taxation issues, which will further reduce the effective returns. Equity/equity funds may not be a prudent option for short-term. Therefore, we need to consider mainly the interest-based investment options. What do we usually do? Since it is quite convenient, very often the money keeps lying in the Savings A/c itself (also, maybe it is psychologically satisfying to see a big balance in one’s account). But don’t forget - this earns you just 3.5% p.a. interest and that too taxable. Hence, it is not good to keep too much money in the Savings A/c. The next common thing to do is to make a Fixed Deposit ( FD ). This may earn you 6-9% interest depending on the tenure. But this too is taxable (if you are in the highest tax bracket, even a 9% FD will fetch you just 6.3% post-tax returns). So, given the fact that there are better ...

Peter Lynch of Fidelity, used to mentally classify stocks as: Perennials Growth Cyclicals Utilities Perennials Perennials like FMCGs offered predictable growth. Utilities (in the 1980s US context) meant power and telecom companies that offered stable dividends . Growth Growth is self-explanatory and so is cyclical. His take was that growth stocks usually offered the highest potential returns but carried the highest risks. Perennials offered steady returns but ideally offered best value during bear markets. Utilities Utilities, he felt were dividend plays or quasi-debt instruments. Cyclicals Cyclicals offered great returns only if bought in downtrends. Lynch's classifications are interesting in the context of India over the past two years, and especially, the past two months. The Sensex climbed from around 10,000 in February 2006 to a high of over 20,000 in December 2007. It has since corrected to a recent low of 16,608 and it's now trading at about 18,000. So we've seen a...