India Infoline News Service | Mumbai | December 30, 2017 18:41 IST
Learn about ELSS investment & answer to all your questions like what is ELSS, how to invest in ELSS, tax benefits in ELSS at Indiainfoline
Equity Linked Savings Scheme or ELSS funds are a type of mutual funds whichbase their returns from the equity market. These funds are tax saving in nature and are eligible for a tax deduction of up to Rs1.50 lakhunder Section 80C of the Income Tax Act. Below are a few things that an investor must know before investing in ELSS funds.
What is ELSS?
ELSS schemes are a category of mutual funds promoted by the government in order to encourage long term equity investments. Under this scheme, most of the fund corpus is invested in equities or equity-related products.
Types of ELSS:
There are two categories in ELSS mutual funds i.e. dividend and growth.
The dividend fund is further divided into Dividend Payout and Dividend Reinvestment. If an investor opts fordividend payout option, he receives the dividend which is also tax-free,however,underthe dividend reinvestment option, the dividend is reinvested as a fresh investment to purchase more shares.
Under the growth option, an investor can look for longterm wealth creation. It works like a cumulative option whose full value is realized on redemption of the fund.
How to invest in ELSS?
One can invest in ELSS via two methods i.e. lumpsum or SIP.
SIP or Systematic Investment Plan, is a process where an investor needs to invest a fixed amount of money every month at a specified date. SIP inculcates a disciplined approach towards investing in an investor. SIP also gives the benefit of rupee cost averaging to an investor.
What is the lock-in period in ELSS?
ELSS funds have a lock-in period of three years. Whencompared to EPF, PPF, NSC and other prevalentinvestments under Section 80C, ELSS has the shortest lock-in period.
What is the benefit of tax in ELSS?
The primary purpose of any investment is to gain deductions under income tax for wealth creation. ELSS funds fit that bill perfectly. An investor gets a doubleedged benefit of tax saving and wealth creation at the same time. Dividends earned from ELSS funds are also exempted from tax. ELSS funds also provide the benefit of long term capital gains as they have a lock-in period of three years.
What is the investment limit of ELSS funds?
One can start investing in ELSS mutual funds with a minimum amount of Rs500, and there is no upper limit on how much a person can invest in ELSS funds. However, the tax saving ceiling is only up to a maximum of Rs1,50,000 a year.
What are the risks involved in ELSS funds?
ELSS mutual funds do not have ironclad guarantee over returns, as theygenerate their earnings from investments in the equity market. Nevertheless, some of the best performing ELSS mutual funds have given consistent and inflationbeating returns in the longrun. This quality is not possessed by the other fixed income tax saving investments like PPF andFD.
ELSS mutual fund investment has now become a popular tax saving investment under Section 80C, and it is also ideal for retirement planning and wealth creation coupled with the benefits of lower lock-in period, SIP method of investment, rupee cost averaging risk and no tax on dividends or the benefit of capital gains. ELSS funds should be taken into account by every investor while planning their investment goals.
Disclaimer: The contents herein is specifically prepared by ‘Dalal Street Investment Journal’, and is for your information & personal consumption only. India Infoline Limited or Dalal Street Investment Journal do not guarantee the accuracy, correctness, completeness or reliability of information contained herein and shall not be held responsible.
Everyone wants to be financially secure and well off by the age of 35-40. However, when we are in our 20’s, we tend to live life in the moment and forget saving for the future.
By: Sanjeev Sinha | Updated: November 27, 2017 2:25 PM | Financial Express
All of us have various financial goals in life. Everyone wants to be financially secure and well off by the age of 35-40. However, when we are in our 20’s, we tend to live life in the moment and forget saving for the future. This is not the right approach towards creating wealth. Therefore, to ensure that you are financially secure and on the right track with your money, here are 5 important investments that you must make before you hit your 30-year milestone:
1. Investment towards tax saving
Considering that you are working and earning, it is important for you to assess your tax liability and take advantage of tax deductions available under Section 80C of the Income Tax Act. “By proper tax planning, you can not only reduce your tax liability but also save some more to invest towards your other goals. One of the best tax-saving instruments is Equity-Linked Savings Schemes (ELSS). It is a type of open-ended equity mutual fund wherein an investor can avail a deduction u/s 80C up to Rs 1.50 lakh for a financial year,” says Amar Pandit, CFA and Founder & Chief Happiness Officer at HapynessFactory.in.
2. Investment towards emergency corpus
There are various events like accidents, illnesses and other unforeseen events that we may encounter in our lives. These events should never occur, but if they do, one needs to be adequately prepared for the same. In critical cases, such events may hamper one’s ability to work and may even lead to a loss in earnings for a few months or years. Hence, “it is advisable to build a contingency corpus, which is equivalent to at least 5-6 months of living expenses. Further, your emergency fund should be safe and easily accessible (liquid in nature) at short notice, in case of an emergency. Hence, savings bank accounts and liquid mutual funds are two options for setting aside the emergency corpus. However, considering that liquid and ultra-short term mutual funds are more tax efficient in nature, it is advisable to park a major portion of your corpus in the same,” says Pandit.
3. Investment towards long-term goals
It is very important to save and invest towards your long-term goals such as marriage, buying a house, starting your own venture, retirement, and so on. You must start with determining how much each goal will need and the savings required to achieve the goal. Once the corpus is fixed, you can invest towards the goal regularly. As an investment strategy, start fixed monthly investments – SIPs (Systematic Investment Plan) in mutual funds. Always remember, the earlier you start investing towards your goals, the longer time your investments will have to grow and the more you will benefit from the power of compounding. Equity mutual funds which are growth oriented are a preferable investment option for long-term goals.
4. Investment towards short-term goals
There are many short-term goals that are recurring in nature, such annual vacation, buying a car or any asset in the near term and so on. For such goals, you are advised to park your funds in liquid or arbitrage mutual funds rather than a savings account. “Mutual funds are more tax efficient than savings accounts and also there are different funds for different time horizons. For example, for goals to be achieved within a year, you can opt for liquid or ultra-short term funds whereas for goals to be achieved post one year, you can opt for arbitrage funds,” advises Pandit.
5. Investment towards health and life cover
Life and health insurance typically are not supposed to be considered as investments. However, both are very important and must be considered as one of the priority money move to be made before turning 30. If you are earning and have a family dependent on you, you must assess and buy the right life insurance term cover for yourself. Further, with costs of health care and medical on the rise, any untoward illness without sufficient cover will have you dip into capital which is unnecessary. Hence, there cannot be any compromise on health insurance. Thankfully, there are various health covers available in the market today. You should opt for the right cover for yourself, depending on your needs and post considering all the options.
Equity investing have always been associated with high riskiness and the proverbial doom and crash in India
ANUPAM SINGHI | Fri, 16 Jun 2017-07:25am | DNA
Systematic investment plans (SIPs) were first introduced in India about 20 years ago by Franklin Templeton, a global investment firm. SIPs entail recurring disciplined investing via experienced portfolio managers. By necessitating fixed periodic (monthly, quarterly etc.) investments, it makes the timing of the markets, which can be risky, irrelevant, and at the same time, it typically provides above average market returns over a long period. Therefore, SIPs can be relatively less risky and also offer a hedge against inflation risk.
The top SIP funds have consistently given annualised returns of about 20% over the last two decades. The return from SIPs are calculated by a methodology called XIRR, which is a variant of internal rate of return (IRR). In the recent times, SIP fund managers usually tend to invest not more than 2% of the total capital available in a single stock. Portfolios are usually well diversified.
Currently, there are scores and scores of SIP funds to choose from. Different types of SIPs are available to suit an individual’s risk appetite, ROI goals, the time period of investment, and liquidity. Unlike PPF or Ulip, there are no restrictions and penalties on regular SIP payments and withdrawals. Investment can be as low as Rs 500 per month. Retail investors can look to invest in small-cap SIP funds initially, and once their capital builds up significantly, can shift to the less risky large-cap SIPs.
Equity investing have always been associated with high riskiness and the proverbial doom and crash in India. However, the trend is changing in recent times. Increased availability of information about investing, and greater digital marketing, has led to more and more individuals taking the SIP route. The number of SIP accounts has gone up by about 30% in the last 12-15 months alone. SIP monthly inflow volume now stands at about 3,000-3,500 crore, as opposed to about 1,000-1,500 crore in 2013. Retail participation is low India but is bound to increase at an accelerated rate.
Several brokerages are now waking up to the fact that higher P/E ratios are the new normal, as they are warranted by a fundamentally strong economy. Currently, the Indian stock market capitalisation to GDP ratio is approximately 98%, compared to 149% in 2007. With only about 250 Futures and Options (F&O) available out of approximately 4,200 individual securities, shorting opportunities are limited. Increased inflow SIP money could very well drive and support quality stocks in a growing economy.
The writer is COO, William O’Neil India
Sidhartha | TNN | May 5, 2017, 06.22 AM IST | Times of India
ICICI Prudential Asset Management Company managing director & CEO Nimesh Shah believes in speaking his mind. While most market players are euphoric about the recent rise in stock market indices, Shah cautions investors against chasing high returns, given that the valuations are high. But he is optimistic about the medium term prospects and insists that mutual funds will be the preferred mode of investment, given the “repair work” in real estate. Excerpts:
What should someone looking to enter the stock market either with cash or via SIP do at this time?
On a price-to-earnings basis, market is over-valued at current levels. Because of the persistent flows from both foreign and domestic portfolio investors, the market is currently running a year ahead given that earnings per share (EPS) is expected to improve significantly by 2018-19. This is because we believe that over the next twothree years, capacity utilisation can increase and so can the return on equity . Currently , the macros are strong but Indian companies are facing various pockets of challenges. But consumption across the spectrum is likely to hold strong. Given this expected improvement, it is likely that there could be a consistent flow of investment from institutional investors, thereby lending a reasonable investment experience over next twothree years. But since the market is already slightly over-priced, one cannot expect abnormal returns.
For those investing via SIP , they can continue with their investments because over the next three years, the investment price will average out, thereby yielding better returns. For someone who is coming in when sensex is at 30,000 level, can consider dynamic asset allocation funds which result in lower equity exposure when the equity level is up and vice versa.
But it gives you conservative returns…
Yes, it does. But it is good to opt for conservative returns when sensex is at 30,000 level.Even if the index were to head higher say 33,000 level, the only limitation here would be that the entire upside is not captured. But when market turns volatile at higher levels, this class of funds can limit downside. As we all acknowledge, there is more pain in losing Rs 5 than the joy in gaining Rs 30.
If you are investing in equity MFs, one should consider large-caps because mid-caps are over-valued at present. Continue investing but invest with caution because returns may not be too high from current levels. Just because banking funds as a category has delivered 40% plus returns, it does not mean everyone should invest in it based on past one-year return.
A few years ago, the government was worried about the huge inflows from FIIs and feared the impact post withdrawal. But now mutual funds seem to have emerged as an effective counter-balance. Has the domestic MF industry matured?
To a certain extent domestic institutions have emerged as a strong counterbalance. Over the last few months, mutual funds and foreigners have pumped in money into stock markets, thereby pushing up benchmark indices. However, even if foreign investors were to withdraw tomorrow, Indian MF and insurance industry which is putting in over $3 billion a month, will be able to balance it out, thereby limiting any adverse shocks. Today , people refrain from investing in real estate, gold and bank FDs, which is currently yielding 6-7% return pre-tax. In such an environment, equities are becoming a TINA factor -there is no alternative. So, we believe that steady inflows may continue.
How much of small investor money is coming into the market?
Mutual fund in India is all about small investors; high net worth individuals form a very miniscule portion. We are opening nearly 120 offices across smaller towns such as Nadiad (Gujarat) and Arrah (Bihar) because we believe that MF is a viable business. We have ensured that we are present pan-India, including North East. If we can give a better alternative to unorganised investment avenues, people can invest. While people in Gujarat who are more evolved investors can move to value investing, in the East, money can be moved into mutual funds from unorganized sector, there by giving us an opportunity to show the importance of well-regulated businesses.
Will the recent change in regulations push MFs?
We are in an infinite market as the MF penetration is hardly 4% in the country . The one major challenge now is simplified onboarding process for investors. Today, 85% of our business comes from existing consumers and this shows that the market is not expanding adequately . As a fund house, we receive several queries on our website, but the conversion rate is disheartening. We have come to realize that investors are wary of the entire KYC process. Like insurance, AMCs too should be allowed to use the bank KYC details, thereby eliminating the duplication of paperwork.
The reason why bank KYC should suffice is because entire industry does not deal in cash transactions. MFs receive funds via bank accounts and at the time of redemption the funds are transferred to the same bank account. So there is absolute transparency .
Source : https://goo.gl/y2MtpW
RAJEEB DASH | October 8, 2016 | The Hindu BusinessLine
A property buying guide for millennials by Rajeeb Dash
For a millennial, the decision to buy a home can be a life-altering one.
For young individuals or couples, getting into a long-term debt commitment such as a home loan can be a daunting task.
However, as financial advisors would agree, buying your first home in your 20’s or early 30’s can be one of the smartest moves you can make financially, as it gives you a great head start in more ways than one.
Firstly, unlike rent payments, a mortgage payment (though it may seem overwhelming in the first few years), goes a long way in asset building and increases your home equity.
Secondly, it restricts you from making unnecessary purchases and keeps from accumulating credit card debt. Thirdly, a secured loan such as a home loan early in life and making timely repayments on the same gives your credit score a boost and paves your way for further access of credit when you require it.
Now that we have established the advantages of a millennial attempting purchase of property, here is a comprehensive guide for first-time home buyers:
1. Getting over the initial fear
Those who have just about completed hefty student loans may develop cold feet at the thought of skimping once again and preparing to take a home loan.
At this stage in your lives, it is important to see the bigger picture.
In a few years from now, a roof over your head that you can call your own before you reach your middle years will feel like a great achievement.
2. Invest with a specific goal
If you have firmed up your mind to purchase your first property, the first thing you must do is begin investing with this specific goal in mind.
Set a budget and pick an investment option that will help you meet your goal in a specific number of years.
While setting a budget, do not be too hard on yourself and try to stretch limits.
Your first home need not be your only home and you can always graduate to a bigger place when you can afford one.
While saving for your first home, equities may be your best bet as they offer you the best inflation adjusted returns as compared to other instruments despite the risk factor.
If you do not have the expertise or the time to invest in equities yourself, you can choose the systematic investment plan (SIP) route of mutual funds.
By investing in equities through the SIP option of mutual funds you also get the advantage of compounding, which means your returns are reinvested over the term you choose to remain invested in the fund, thus helping you achieve your financial goal of saving up enough for the down payment of the property.
3. Home loan options
Do enough research before you decide on a lender.
Many lenders want young and dynamic home owners as customers and have specific loan products that make it easier for you to make repayments in your initial years and increase the quantum with the rise in your career.
Checkout such options and read in between the lines to understand each nuance carefully.
4. Begin with clean credit records
One of the most important factors that will decide whether or not you are creditworthy, is your Credit Information Bureau (India) Limited (CIBIL) score.
Your CIBIL score is a three digit numeric between 300-900 that is assigned to you by India’s premier credit bureau.
This score is based on your credit behaviour or how you have serviced your credit lines you have availed of thus far.
In order to maintain a good CIBIL score (750 and above) it is necessary for you to have serviced debt regularly and well before applying for a fresh loan.
One of the best ways to ensure that your CIBIL score remains intact is by making a habit of not building up credit card debt.
Spending very small amount and ensuring that you make a habit of properly repaying your credit card bills before the end of each and every billing cycle is a good way to ensure that you do not get into a debt trap and also maintain a fairly good CIBIL score.
5. The quest for your first home
In this world dominated by the internet, the search for your first home must necessarily begin online.
There are a host of websites such as 99acres.com, magicbricks.com, indiaproperty.com, makaan.com that have made it easy to filter searches according to your requirements, budget and location preferences.
It is a good idea to go through all of these portals and shortlist properties that you would like to see personally.
Besides using such websites, make the best use of the internet and social media to reach out to actual buyers and check the reputation of the builder, the living experiences and the problem areas if any.
A thorough virtual search gives you a firm footing before you start visiting the properties personally and finally zero in on a choice that is best suited to your needs and budget.
6. Be aware of your rights
The real estate market can turn out to be a head spinner when you are out there on a house hunt.
It is important to be mindful of what your requirements are and be aware of your rights when seeking out a home.
7. The final step
Once you have taken possession of your new house, the first thing to do is store all your property documents.
Make a few photocopies and keep them in at least three different locations.
It is a good idea to get all your property documents digitized and locked in an e-safe.
Next, update all your official documents with your new address and finally transfer all property related paperwork such as water and electricity meters, society membership and property tax records in the local municipal body in your name.
Once you have taken possession, the first thing to do is store all your property documents safely.
The author is AVP-Marketing, Tata Housing
Source : https://goo.gl/W6aXJn
RAJESHWARI ADAPPA | Tue, 28 Jun 2016-06:55am | dna
Experts advise that you should park the lump sum in avenues such as liquid or ultra-short term funds till you decide where to invest it as putting the money in a savings account not only earns low interest but also tempts you to blow it
Windfalls or coming into large sums of money sure makes you feel rich but if you want to stay rich, then the challenge is to ensure that the money lasts for a really long time.
Incidentally, experts advise that when one does not know what to do with a large sum, the first thing to do is take it off the bank savings account.
“The money lying there not only earns low interest but tempts you to blow it. Hence, park it in short-term avenues such as liquid funds or ultra-short term funds until you decide or get advice on where to invest the money in,” says Vidya Bala, head of mutual fund research, FundsIndia.
If you have a lump sum to invest, it is best to revisit your investment plan, advises certified financial planner Gaurav Mashruwala.
“Firstly, buy adequate health and life insurance. Secondly, if you have any loans, pay up the loans. After that, you can start goal-based investing,” says Mashruwala.
Most people are confused where to invest for the best returns. “Where to invest would depend on whether they have a near-term use for the money,” says Bala.
“If it is retirement money and the investor needs to create an income stream, they could deploy it in a combination of ultra-short and short-term debt funds and do a systematic withdrawal plan to generate their own income. If it is for the long term, a combination of equity and debt funds will work well. So one needs to know the purpose and the time frame before they can decide where to invest,” says Bala.
The most important task is to create a goal for such money and then allocate and invest accordingly. While goals would depend on the individual’s requirements, broadly your goals could include creating funds for a specific purpose such as a retirement fund, an emergency fund, a kids education or a marriage fund or even a fund for personal goals (say a foreign trip), etc.
A retirement fund is a must. HDFC Pension’s CEO Sumit Shukla advises that 20-30% of the sum should be invested for retirement. He suggests investing the lump sum initially in Tier II account of NPS from which some money could be transferred into the Tier I account every month via systematic withdrawal plan. “This would help to ensure that initially the money is invested in debt (Tier II account) and as one invests in the Tier I account, slowly the equity portfolio is also built up,” says Shukla.
“Corporate debt has earned 10.47% while government debt has earned 10.35%. Compared to the 8.8% returns from PF, this difference would work out to be huge over a period of time,” points out Shukla.
Depending on your risk and return profiles, there is a range of avenues. “Investors seeking low to medium risk can examine fixed deposits, debt mutual funds, corporate bonds, tax-free bonds and monthly income plans.
However, investors with higher risk preference can look at balanced & equity funds, direct equities, private equity & real estate funds,” according to a DBS spokesperson.
“Lump Sum investing is fine when it comes to low-risk debt funds. However, when it comes to equity funds, it is important to understand the risk of timing the market by investing in one go. Ability to take near-term falls is a must of one chooses to invest lump sum,” says Bala. A better option is to invest in a phased manner through an SIP (systematic investment plan).
It may be a good idea to take professional advice. “Also, consider the impact of tax on the returns,” says the DBS spokesperson.
The mistake that many people who come into big money suddenly make is that they start living a lavish lifestyle. “Instead, invest in income generating and growth-oriented assets. Use the returns from these assets to enhance your lifestyle,” advises Mashruwala.
The solution is to invest wisely keeping in mind two primary goals: ensuring safety of capital and also growth.
Source : http://goo.gl/4KucZz
By Narendra Nathan, ET Bureau| 9 May, 2016, 12.29PM IST | Economic Times
If you have an outstanding home loan, and happen to have just received an annual bonus or any other lump sum payment, should you use it to prepay your loan? Or, should you invest it to meet some other goals? Assess the following conditions to arrive at the right decision.
The first variable to be considered is psyche: some people may not be comfortable with a large housing loan and to reduce their stress they may want to get rid of the loan burden at the earliest. For them, settling the question of how to use their bonus is simple: just pay off the loan. Gaurav Mashruwala, Sebi-registered investment adviser, categorically states: “You should pay off the home loan at the earliest. Several unfortunate happenings— job loss, death of the earning member, serious illness, etc—can cause trouble during the 10-15 year loan period. Treat it as a mind game and not a numbers game.”
Tax benefit is the next variable. If a home loan does not seem like the sword of Damocles hanging over your head, it makes sense to continue with the regular EMI schedule. This is because of the tax benefits that a home loan offers. The principal component of the EMI is treated as investment under Section 80C. The interest component is also deducted from your taxable income under Section 24. The annual deduction in respect of the interest component of a housing loan, for a self occupied house, is limited to Rs 2 lakh per annum.
You won’t be able to claim deduction on interest paid above Rs 2 lakh. So, if your annual interest outgo is higher than Rs 2 lakh, it makes sense to prepay the loan, and save on future interest payment. For example, the annual interest on a Rs 70 lakh outstanding loan, at 9.5%, comes out to be Rs 6.65 lakh. After taking into account the Rs 2 lakh deduction under Section 24C, the interest component will fall to Rs 4.65 lakh, and bring down the effective cost of interest from 9.5% to 8.64%, even for the people in the 30% tax bracket.
You can, however, optimise the tax benefits if the loan has been taken jointly, say, with your spouse. “If joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction,” says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction,” says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders, there is no need to prepay if the outstanding amount is less than Rs 40 lakh.
There is no cap on deduction in lieu of interest paid on home loan, if the property is not self-occupied. “Since there is no cap for interest on loan against second or rented out homes, there is no need to prepay it,” says Naveen Kukreja, CEO and Co-founder, Paisa Bazaar. Bear in mind, by prepaying your loan, you may also forego future tax benefits. For instance, if by prepayment, you bring down your outstanding loan amount to Rs 20 lakh, your annual interest outgo for subsequent years may fall below Rs 2 lakh. Thus, you won’t be able to avail of the entire tax-deductible limit and, in such a scenario, prepayment may not be a good strategy. Also, building an emergency fund, if you don’t have one, should take a priority over prepaying the housing loan: “Make sure that you have a contingency fund in place before opt for prepaying your home loan,” says Roongta.
The third key variable is returns from investment of the lump sum at hand. As a thumb rule, you should go for investment, instead of prepayment, only when the post-tax return from the investment is likely to be higher than the effective cost of the housing loan. For investors in the 30% tax bracket, and whose outstanding home loan balance is less than Rs 20 lakh, the effective cost of loan is only 6.65%. Since there are several risk-free, tax-free debt options such as PPF, Sukanya Samruddhi Yojana and listed tax-free bonds, which offer higher annualised return than this, it makes sense to invest in them.
All the debt products mentioned above are long-duration products. If your risk-taking ability is higher and time horizon is longer, you can consider investing in equities, which can generate better returns “It’s sensible for long-term investors (five year-plus holding period) to go for equities, provided they are savvy and understand the risks involved there,” says Kukreja.
There are some home loan products that provide an overdraft facility of sorts and help you maintain liquidity. All you have to do is to park the surplus money in these products and not bother with whether it’s a prepayment or not. It’s like prepayment with the option of taking out that money, in case you need it in future for personal use or for investment purpose. The strategy of maintaining the housing loan interest close to Rs 2 lakh per annum can also be managed by these special loan products. And even if you are going to invest, the SIPs can go from this account.
“I park my bonus and do SIPs in equity from the loan account,” says Kukreja. Most banks charge more for these special loan products. “Though the stack rate differential is more, you can bring it down by bargaining with the banks,” he adds.
Source : http://goo.gl/3ce3eL