Prajna Capital - An Investment Guide

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-...

My brother says that the investment in public provident fund ( PPF ), which gives 8 per cent, is the best. Isn't 8 per cent a low rate of return? An investment's pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF's 8 per cent. Formula: Pre-tax yield = ROI / (100-TR)*100 Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab) Also used for: Calculating the yield on an Employees' Provident Fund or any other tax-free instrument.

AVOID BIG GIFTS FROM FRIENDS If you are someone who’s used to friends showering you with expensive gifts, there’s some bad news. Postbudget, any gift – in cash or kind (including immovable property) – worth more than Rs 50,000 will attract tax. So, think twice before accepting such gifts. FACTOR IN PERKS If you’ve are rejoicing the increase in exemption limit across categories, here’s a dampener that could have escaped your attention: abolition of Fringe Benefit Tax ( FBT ). While the employers do not have to pay the tax, the tax burden has shifted to employees in case of certain perquisites, puffing up their taxable income. You would do well to take this into account when you undertake your annual tax-planning exercise. PAY LESS WEALTH TAX If you were paying 1% tax on your wealth exceeding Rs 15 lakh, you can afford to relax. Thanks to the Budget, now this limit stands enhanced to Rs 30 lakh. GOLD’S STILL SAFE The hike in customs duty on gold bars from Rs 100 to Rs 200 per 10 gram mea...

The macroeconomic factors world-wide have been quite shaky over the last couple of quarters. As a result, the stock markets have been quite volatile with a negative bias all over the world. In line with market conditions, the performance of equity based instruments remained quite subdued. As uncertainty prevails in stock markets, investors are not keen on putting their money in equity-based instruments. The meltdown in the equity markets started with the slowdown in some countries. This coupled with several other negative developments like a sharp rise and fall in commodity prices (crude oil, metals, food items etc), fall in the global inflation rate and meltdown of some of the large financial houses kept triggering negative sentiments in the markets. Analysts believe the negative sentiments will continue in the stock markets for a few more quarters, and therefore, the stock markets will remain volatile in the medium term. Therefore, it will be risky to invest in equity-based ins...

Like your colleagues who throw a warm farewell for you when you leave after putting in substantial years, your employer too has a small, but significant, way of singing 'he's a jolly good fellow' to reward you for your service to the organisation. He does so by giving you a free lump sum of cash - called gratuity in financial parlance - on your exit. The amount that he gives is based on the number of years of service you have put into the organisation. Read on to know more about this little-known windfall and some ideas about what you can do with the free money that comes your way. When are you entitled? Gratuity in earlier days was rather arbitrary and completely hostage to the whims of the employer. A wealthy, well-established employer would reward his dedicated employees and the not so rich would refuse such generosities. This led to a lot of discord and finally the government stepped in, passing the Payment of Gratuity Act, 1972, making it mandatory for all employers wi...

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 ...

Some investment avenues for those who don’t want to take the risks associated with stock markets When the stock markets go the downside way, investments in fixed deposits ( FDs ) become attractive again. FDs remained a dormant investment avenue for the past few years, mainly because of the fact that the interest rates were low, and these investments are unsecured. So, the government's saving schemes, especially the post office saving scheme, had an edge over FDs. Fixed deposits attractive again However, some recent changes have again brought FDs into the limelight. The contributing factors include the decision to give tax breaks in terms of coverage under Section 80C of the Income Tax Act. The second major factor has been the gradual increase in the interest rates on FDs. These deposits have been brought on par with small savings schemes. Investments in term deposits for those planning to take a tax deduction will have a lock-in period of five years. The government notification sa...