Prajna Capital - An Investment Guide

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-...

‘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...

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...

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...