Tuesday, February 12, 2008
How To Save On Tax
What's special about January? Lots of things, actually. But from a tax point of view, it will be that time of the year when a lot of you will actually start figuring what your tax saving avenues should be. Little wonder that mutual funds report the highest inflows into equity linked savings schemes (ELSS) and life insurance companies record their highest sales in the first three months of the calendar year.
Guilty as charged? Well, here's some help. Here's the first part of our special section dedicated to tax saving. We start right now with the absolute basics.
You would have noticed that the tax department is more partial to women and specially, senior citizens. But those rates are the maximum you would have to pay if you did absolutely no tax planning.
The very first step that you have to follow is to figure out what Section 80C (of the Income Tax Act) is and how you can use it for your benefit. Any individual, irrespective of how much s/he earns, can reduce his taxable income by up to Rs 1 lakh, which is the limit under this section. You can decide how much you want to invest in each of the options or whether you intend putting the entire amount in just one of them. For instance, someone may choose to invest Rs 1 lakh in tax saving mutual funds, while another may fulfill his limit by making the payment towards his home loan. There are no sub-limits on any one of them except the Public Provident Fund (Rs 70,000 per financial year). And, tuition fees are limited to two children.
So if you are a salaried individual, check the exact amount of your contribution to the Employee Provident Fund (EPF). Also check your existing life insurance policies and pension plans. If it totals up to Rs 1 lakh, then you are done. If not, then you have to figure out where to put your money. When making a decision on which investments to opt for under Section 80C, there are three factors to consider: time horizon, risk appetite and tax on interest.
A lot of these investment avenues have lock-in periods that extend for a number of years. For PPF, it is 15 years, for NSC, 6 years. The ones with the lowest lock-in period are ELSS (three years) and infrastructure bonds which generally start at three years. You will have to simultaneously also consider the risk factor. ELSS are the riskiest since they are diversified equity mutual funds. On the other hand you have PPF and NSC which are the safest since they are backed by the government. Finally, look at the tax implication on the return on your investment. For instance, the interest you earn on PPF is totally tax free. Not so in the case of NSC or your bank fixed deposits. But the capital appreciation on your ELSS will be totally free from any capital gains tax and the dividends you earn are tax-free too.
But there is more to tax saving than just Section 80C. If you are servicing a home loan, you would get a benefit on the principal amount being repaid under Section 80C. But you also get a tax exemption on the interest paid on the loan under Section 24. And under this section, the limit is Rs 1,50,000 in one financial year.
You would definitely be familiar with Section 80D. Under this section, you can claim an exemption on the premium you pay for your medical insurance, popularly known as mediclaim policy. There is a ceiling here though - Rs 15,000. Add Rs 5,000 to that amount if you are a senior citizen. The good news is that you can claim it not only for your own policy but also for your dependents, provided you are paying the premium.
And, if you have a charitable bent, then Section 80G is meant for you. Donations made under this section are eligible for a 50 per cent tax relief. To get a 100 per cent tax benefit, your donation will have to go to specified organisations/trusts like the Prime Minister's Relief Fund, CARE and Help Age India.
Tuesday, January 29, 2008
All You Need To Know About SIP (Systematic Investment Plan)
All You Wanted to Know About SIP
Source: http://mutualfunds4india.blogspot.com/2008/01/all-you-need-to-know-about-sip.html
Regular visitors and clients of Personalfn appreciate the importance of the systematic investment plan (SIP) route of investing in mutual funds. However it is surprising to note that it takes difficult times (read volatile markets) for the investing community at large, to appreciate the importance of such a handy facility.
Simply put, investing via an SIP entails making regular investments (generally) in smaller denominations as opposed to making an one-time lump sum investment. The intention is to capitalise on the volatility in equity markets by lowering the average purchase cost. While few would dispute the utility that an SIP can offer, there is a flipside to the same as well. In this article, we discuss the pros and cons of SIP investing.
How an SIP helps...
1. Lowers the average purchase cost
Perhaps the single most important advantage offered by an SIP is the opportunity to lower the average purchase cost. This is achieved in periods when equity markets experience a turbulent patch. Since the investment amount for each installment is fixed, the investor gains by receiving a higher number of units. An example will clarify this better. Suppose the monthly investment installment is Rs 1,000 and the fund's net asset value (NAV) is Rs 50; this will lead to 20 units of the fund being credited to the investor. However, in the next month on account of the volatile markets, the fund's NAV falls to Rs 40. This will lead to a lowering in the average purchase cost; as a result, the investor will have 25 units credited to his account. In other words, an SIP can help investors benefit from volatility in equity markets.
2. Induces disciplined investing
Lack of disciplined investing is one of the major reasons for investors not achieving their financial goals. For example, often monies that are kept aside for investment purpose end up getting used for extraneous purposes. As a result, the investor is even further divorced from his goals. An SIP ensures that the investor continues to be invested in a disciplined manner and thereby stays on course to achieve his financial goals.
3. Lighter on the wallet
An often heard excuse for not investing is lack of monies. SIP takes care of this problem by lowering the minimum investment amount. For example, while the minimum investment amount for a lump sum investment in a diversified equity fund could typically be Rs 5,000, for an SIP it can be as low as Rs 500. As a result, investing via the SIP route becomes lighter on the wallet.
4. Makes market timing irrelevant
Alongwith cricket and movies, timing the market ranks as a popular pastime. Investors have an inexplicable urge for timing markets and trying to get invested when markets have bottomed out. It's a different matter that timing markets to perfection and doing so consistently is beyond most investors. An investment via the SIP route makes market timing irrelevant. On account of the on-going investments, investors can afford to bid adieu to one of their favourite pastimes and concentrate on more pressing matters.
When an SIP won't deliver...
1. In rising markets
An SIP could fail to deliver on its proposition of lowering the average purchase cost, if equity markets rise in a secular manner. Such a scenario is fairly possible over shorter time periods. As a result, investing via an SIP could prove to be more expensive vis-a-vis a lump sum investment. Hence, the solution lies in opting for an SIP that runs over an appropriate time frame, say at least 12-24 months.
2. A directionless SIP
By a directionless SIP, we are referring to an SIP that is not a part of an investment plan or an aimless SIP. It should be understood that an SIP is not an 'end'; instead, it is the 'means' to achieve an end. Hence starting an SIP in isolation is unlikely to be of too much help. Instead, the SIP should form part of an investment plan aimed at achieving a predetermined objective.
3. A SIP in the wrong fund
Investing via the SIP mode doesn't improve the prospects of a wrong fund. A poorly managed fund stays that irrespective of the investment mode. Its shortcomings will not be eliminated by an SIP. Hence the key lies in first selecting a well-managed fund that is right for the investor and then investing in it via an SIP.
As can be seen, the SIP mode of investing has a fair number of advantages to offer; conversely, there can be instances when it may not deliver as expected. Investors on their part should make well-informed investment decisions after acquainting themselves of both the pros and cons.
Tax Planning in 3 Easy Steps
Source: http://mutualfunds4india.blogspot.com/2008/01/tax-planning-in-3-easy-steps.html
Tax planning in three easy steps
With just a few months left for the financial year closure most investors are yet to get serious about tax-planning. Conventionally, tax-planning has always been considered as an end-of-the-financial year exercise.
So investors usually get very busy over the January-March period with paying their insurance premiums and investments in small savings schemes.
For a lot of investors, tax-planning is little more than a mandatory investment activity (under Section 80C) for saving tax. However, the fact is that there is a lot more to tax-planning than writing cheques indiscriminately to your insurance company and towards small savings schemes.
Tax-planning is as much about contributing to your financial goals as it is about reducing your tax liability. Therefore, while planning to save tax, change your perspective from tax-planning to financial planning. At Personalfn, we urge investors to begin tax-planning from day one of the financial year (i.e. April 1), however, it’s not too late to begin now, in case you have missed the bus. Investors must note that while tax-planning can assume many forms (i.e. Section 80C, Section 80D, Section 24(b)) we have considered the more flexible Section 80C because of the breadth of options available under it. For the uninitiated, Section 80C allows for a deduction of upto Rs 1,00,000 from the gross total income.
We have divided the tax-planning exercise in to three easy steps:
*Compute your liabilities
The easiest and quickest way to go about tax-planning is to first get a fix on your liabilities that earn a tax benefit. The lone avenue over here that qualifies for a tax benefit is home loans (maximum limit of Rs 1,00,000 on repayment of principal).
So if you have an outstanding home loan, you need to isolate the principal amount from the interest (in the EMI – equated monthly installment) to calculate the tax savings under Section 80C. Of course, if you do not have a home loan, then you can skip this step completely.
*Compute your fixed investments/contributions
The second logical step is to calculate your annual contribution to EPF (employees’ provident fund) and life insurance premium. Your EPF contribution is best discussed with your employer; he can tell you exactly how much you will contribute to your EPF. Add this amount to your annual life insurance premium, if any.
We have not considered PPF (public provident fund) as a fixed investment simply because it’s not fixed as investors can choose to increase/decrease their contribution upto a maximum of Rs 70,000 (there is a minimum annual contribution of Rs 500 to keep the account active). More importantly, we think investments in PPF (if any), must be made under Step 3 below.
*Invest the balance in other suitable avenues
Although it comes at the end, this is easily the most critical step in the tax-planning process. Once you have a fix on your liability (principal amount on home loan), EPF and life insurance contributions, you need to compute how much is still available under the Section 80C ceiling of Rs 1,00,000. The balance must be invested in avenues that suit your risk profile and help you fulfill your investment objectives.
For instance, if you can take on risk and plan to set aside money for your child’s education over the next 10 years, then investing in tax-saving funds (also known as ELSS – equity-linked saving schemes) could be the answer.
If you can take on only moderate risk, then you could divide the money between tax-saving funds and PPF. The idea is that you should invest exactly where your risk appetite and investment objectives permit you to invest.
Although, it appears relatively simple at the end, unfortunately this is not the way most investors plan their tax-savings. For a lot of investors, it’s still about investing in PPF and NSC (National Savings Certificate) because it is convenient and government-backed and therefore safe. In our view, investors need to give tax-planning a lot more thought and evaluate how they can use the Rs 1,00,000 tax-saving bounty in a more fruitful and judicious manner.
3 Essential Tips for Investing in Tax Saving Mutual Funds
* Equity Linked Saving Schemes - Performance Report
However, that being said, there are various things an investor needs to keep in mind before deciding to jump into an ELSS investment.
1. 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), Post Office Monthly Income Scheme (POMIS) etc also offer a similar tax benefit. Then there are mandatory payments such as your PF, tuition fees of children and even housing loan repayments that are covered under Sec. 80C. Let us say an individual contributes Rs 40,000 to the PPF every year and Rs 30,000 is his provident fund deduction. So for him it makes sense to invest only the remaining Rs 30,000 [Rs 1 lakh – (Rs 40,000 + Rs 30,000) = Rs 30,000] for tax deduction under Sec. 80C. This is primarily because if he invests more than Rs 30,000, he will cross the overall level of Rs 1 lakh and the deduction is limited to Rs 1 lakh.
2. Lock-in of three years: Like all investment avenues under Section 80C, ELSS funds also involve a certain lock in. In this case the lock in is for three years. Hence an ELSS investment cannot be withdrawn....
to continue read....
Mutual Funds: Your best personal Portfolio Manager
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Source: http://www.moneycontrol.com/india/news/mfexperts/sandeepshanbhagpersonalportfoliomanager/mutualfundsyourbestpersonalportfoliomanager/market/stocks/article/205643
Wednesday, January 16, 2008
Mutual Fund Investment Opportunities for Indians/NRI/PIO in India
Dear Friends,
Wish You n Family A Very Happy n Prosperous New Year. Let this new year brings all happiness and wealth. Rather than just wish by words, I wish to share my happiness, learning & experience to save, accumulate and grow our wealth.
So far, most of us invest mainly in gold, real estate or FD in banks/post office etc. and like to introduce Mutual Fund (or ParasparFund) an alternative investment.
Gold is a preferable investment across everyone. But with the recent price of the gold (it's peak in past 27 years), it doesn't seem to be a good investment. Also we all consider gold as just jewelry and not real investment. The price we are paying in excess to gold as making charge, wastage, stones etc. After few years, the jewelry may consider as out of fashion and if we think of remaking, its another big expense on it. Only very few of us, really making gold as a true investment by getting as gold coins or gold bars. In addition, for the safety reasons, we need to keep it in safety lockers which again require extra expense as fee.
Next if we think of real estate investment, it became a dream or lifetime achievement for many of us, due to a very high price these days. Even if we have money, getting a plot with proper documents and maintenance became a big question. In spite of all, only very few people doing successful investment in real estate and making good returns.
Rest of us maintain money in savings account (with a fee in some cases) or in fixed deposit (FD).
Investment still seems to be a big word for many of us. It may be true if we consider buying flat or getting jewelry for big amount. But through mutual fund, we can invest as little as from few thousand rupees to few hundred thousand whenever possible. Also we can choose to invest regularly by Systematic Investment Plan (SIP) (as little as Rs. 50) like RD. And we can expect a good return on long term and we can make use of this for our high value investment.
The following table quantifies the extent to which equity has outpaced other asset classes such as gold and fixed deposits.
-
Period
Investment (Rs)
FD (Rs)
Gold (Rs)
SENSEX (Rs)
5 Years
60,000
69,393
99,080
141,790
10 Years
120,000
174,495
222,893
311,032
15 Years
180,000
357,569
322,968
532,467
20 Years
240,000
667.431
415,269
1,525,423
25 Years
300,000
1,159,971
515,986
3,902,159
This is to indicate invest Rs. 1000 per month for 5 years i.e. total of Rs. 60,000 in FD may become Rs. 69,393. And the same Rs. 60,000 may gain 99,080 if invests in gold. But the same amount would translate as Rs. 141,790 on invest in stock market.
Even though BSE Sensex gain is above 40% for the past few consecutive years, only about 6.3% household income invested in it. Trading in the stock market is really can gain good value, but at the same time it’s very risky if we are not doing it professionally. Due to this most of us away from stock market and many still treat it as gambling!
If we could invest through professionals in the financial/stock market
Unlike gold or real estate, if we can invest depends on our income, risk taking capacity
If we have option to buy/sell any time
Depends on our age, background and expectations, if we could decide whether to invest in equity based or money market
If we have possibility of 100% growth in few years
We all will interest towards the investment right! Yes Mutual Fund is the one that provides all the above features.
Whether you wish to invest for Tax Relief (ELSS)
Whether you just wish to get better return than FD but as safe as FD (FMP, Debt funds)
Wish to invest a good sum and expect a monthly return like pension (MIP)
Whether you are OK to take some extend of risk, but expect good return (Diversified Equity)
If you wish to invest regularly either every month or every few months for fixed amount on long term like RD (SIP)
If you can wait for 3 or more years but interested to invest in high return funds (Closed End Equity)
If you wish to invest in booming sector companies like: Infrastructure, Banking, IT, Energy, Power, FMCG (Thematic/Sector Funds)
Whether you wish to invest in large cap companies who’s part of SENSEX or NIFTY (Index Funds)
Or instead of investing in gold, if you wish to invest in Gold based funds (Gold ETF)
For any type of your investment wish, there might be a solution in Mutual Fund. What’s mutual fund, how it return good money? Don’t we get loss by get in to it? This also again stock market? You may have thousands of questions & more confusion may be. Don’t worry, I’m here to help on all your queries.
Apart from as an AMFI certified & registered mutual fund advisor & distributor - with mutual fund investment experience in India and Singapore, wish to share my experience as a co-investor.
To introduce you to Mutual Fund world and to get the passport: PAN Card as it’s compulsory to invest, starting 01/Jan/08
Based on your age, background, income, risk tolerance, investment horizon – to recommend good funds
To track and update you on the status of your investment periodically
To keep you updated on the market
Keep in touch with you on further investments, redemption requirements
I’m ready, to be a friend to involve in your long term financial planning, hope you too.
Let our hard-earned money work for us now. Come… let’s invest and grow with India.
Warm Regards,
Anbu. S
Note:
Currently we are distributing the funds from the major fund houses: Reliance, UTI, Sundaram BNP Paribas, Canara Robeco, AIG and Lotus India and more in progress.
Please refer to the table: Mutual Fund Performance in the last page on the fund category average and some of the best options in each category.
As per SEBI norms, mutual fund investments through distributors/agents still entitle to entry/exit load depends on the mutual fund scheme.
Saturday, January 5, 2008
Welcome to MutualFund World...
Greetings.
Wish You n Family A Very Happy n Prosperous New Year. Let this new year brings all happiness and wealth.
Not to just wish you all in words, I wish to share my learning & experience to save, accumulate and grow our wealth.
This is just an introduction to Mutual Fund (or Paraspar Fund) an alternative investment. So far, most of us invest in gold, real estate or FD in banks/post office etc.
And Gold is very preferable investment across everyone. But with the recent price of the gold (it's peak in past 27 years), it doesn't seem to be good investment. More over, we all treating gold as just jewelery and not real investment. The price we are paying is more towards, the making charge, wastage, stones etc. Again after few years, the jewelery we got became old fashion - if we think of remaking it, its another big expense on it. Very few people really taking gold as investment and getting gold coins or bars. Even for that, we need to to keep in locker which again require fee. So it gold doesn't seem to be good investment.
Next if we think of real estate investment, it become a dream or life time achievement for many due to very high price. Even if we are having money, getting a plot with proper documents and maintain it become a big question. In spite all, only very few, doing successful investment in real estate and making good returns.
Apart from this, most of us either keeping money in our bank account (with paying fee to them higher than getting interest from them:) or doing FD.
So, what's the alternative investment, which can beat Inflation and get decent return? A few people into Stock market and doing successfully or somehow making good money. But rest of us, from somewhere learn/read about the other side of Stock market, we just always try to be away from it. If there is anything related to Sensex, index or market - we just ignore it as it's no matter to us!
- If someone who is well experience in stock market helping us to handle our investment
- Unlike gold, real estate, depends on our income, risk averse - if we can invest/redeem whenever we feel like
- If we could tap the opportunity of high growth sector in India like, infrastructure related industries: road, railway, port, airport, telecom, energy/power, banks, real estate
- with tax benefits on the investment
- with very low tax for the return/capital gain
- even if we could invest as minimum as Rs. 50 or 100
- invest monthly or half-yearly or every few months on specific date from our (NRE/NRO) bank account (which brings a financial discipline)
- depends on our age and expectations, if we could decide ration of allotment in terms of equity:debt
- if we can expect the possibility of 100% growth in few years
we all will interest towards the investment right! Yes Mutual Fund, is the investment which provides all the above options.
From now on, we are going to learn & grow in Mutual Fund as I'm currently doing.
For further info:
www.parasparfund.com (English)
www.parasparfund.in (in Tamil தமிழில்)
Warm Regards,
Anbu. S
parasparfund@gmail.com