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Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
The best time to start investing is today You are different and so are your needs Why your returns are not the same as the market’s return? Understanding Taxation in Mutual Fund Investments
Holding an EPF account with your company or investing separately in PPF could be the only retirement plan in place. This means of saving may have held water about a decade ago. But for the upcoming generation of retirees, dependence on EPF and lack of pension may mean that they are at a real risk of falling short of capital, post retirement.

Just take a look at the kind of returns that your Employee’s Provident Fund (interest declared by the central government) was delivering about 2 decades ago and how steadily the rates have been declining. This is no different with your PPF account.

Now, if you have not built enough wealth for your retirement, chances are that you will not sustain yourself costs post retirement with just the interest income from your kitty. You will have to start spending your capital as well; reducing the corpus left to generate interest income. Now that is not a happy proposition.

Elsewhere too, lower interest on traditional options has meant that people looking to save for investment scout for mutual funds.

So what is preventing Indians from investing in mutual funds? Here are some of the myths that need to be busted for you to ensure you are not left grappling at the last minute:

1.      Mutual funds are risky, I will lose my money

No doubt, mutual funds, especially equity funds, move with the market forces and can therefore be risky. But long-term equity fund data shows that the risks are evened out over the long term.

2.      Mutual funds will give too much exposure to equity markets

 Mutual funds, for most people, mean investing in equity markets. This is not true. Mutual funds offer exposure to a wide range of low-risk to medium- risk debt instruments too.

A well-diversified basket provides sufficient exposure to various asset classes using a single product called mutual fund.

 3.      Mutual funds cannot give steady returns like deposits

The objective behind saving for retirement is to build a decent corpus until you retire. A healthy corpus can then be invested in reasonably safe investment avenues, to generate some monthly or annual income for you, to substitute the loss of salary/business income, once you retire.

This being the objective, going for regular interest payout options do not help the purpose of building wealth because chances are that you will not diligently reinvest.

Rules for retirement investing using mutual funds

The first rule to follow in mutual fund investing, when you invest for retirement, is to hold reasonable exposure to equities in the early years and gradually reduce them by moving them to debt funds and other traditional saving options such as tax-free bonds and deposits. The shifting process, if you have been investing for at least 15-20 years, can start even 5 years ahead of your retirement.

The second rule is to re-balance your mutual fund portfolio, preferably every year. This involves bringing your portfolio to the original asset allocation, if the equity, debt, gold proportion in your portfolio moves out of kilter.

The third rule is that your retirement portfolio can do without any theme or fancied sector funds to pep your portfolio. If you do wish to take such exposure, limit it to 10% and ensure you exit the theme at least a few years ahead of your retirement. The last thing a retirement portfolio needs is volatility from cyclical funds.

The fourth rule is that your retirement kitty should be a basket – EPF, PPF, mutual funds (equity and debt; with gold being optional) and other traditional debt options such as deposits.

The fifth rule is that if you have some exposure to mutual funds post retirement, don’t depend on them to declare dividends, if you need monthly income, use the systematic withdrawal plan (SWP) option to create your own annuity plan. SWPs are also very tax efficient, as they enjoy capital gains indexation benefit in the case of debt funds held over a year (equity funds are exempt from capital gains tax).

Following the above will likely ensure that you build a comfortable retirement corpus without burning your fingers.
The most important factor in investment is the time period. You should know when and what kind of research has to be done before investing. As the idiom goes - haste makes waste - it's is better to do your homework before the taxman comes knocking at your door so that you do not end-up making hasty investment decisions.

While it is important to have adequate knowledge about the various tax-saving provisions under the Income Tax Act, it is also critical to learn about the major tax saving instruments that let you benefit from these provisions.

Section 80C:

One of the most important sections for tax saving is the Section 80/C of the Indian Income Tax Act. The total limit under this section is Rs 1.50 lakh. Before FY 2014-15 the limit was Rs 1 lakh. One should plan to utilize this section to the fullest by investing in some of the instruments shown alongside. Do consider the factors such as your financial needs and goals, your risk appetite, etc. before making your tax saving investment choices.

Equity Linked Savings Scheme (ELSS):

There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C. It also provides an opportunity for long term capital appreciation. An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high-returns.

Since it is an equity fund, the returns from this scheme are market determined.

Top five features of ELSS Funds

1. Tax-saving

2. Three-year lock-in period

3. Can be held even after the completion of three years

4. Offers dividend as well as growth options

5. Tax Saving instrument

Tax Treatment

The returns from an ELSS fund are tax free in your hands. The long term capital gains from an ELSS are tax free as well. This is because no tax is levied on equities that are held for more than a year. Since an ELSS falls under section 80C, you can claim up to Rs 1.50 lakh from your investment as a deduction from your gross total income.

Why prefer ELSS over other tax saving schemes

Shorter lock-in period: An ELSS has a lock-in period of only three years as compared to other tax saving instruments such as Tax Saving Fixed Deposit which has lock-in period of five years and a NCS which has a lock-in for six years.

Long term capital gains: Since an ELSS fund invests in equities, and is dynamically managed by a professional fund manager; it has the potential to provide long term capital gains compared to other passively managed asset classes.

SIP: Systematic Investment Plan (SIP) is an investment vehicle offered by mutual funds to investors, allowing them to invest using small periodically amounts instead of lump sums. One can plan effectively and invest in ELSS through the SIP (Systematic Investments Plans) route.

More often than not, we tend to believe that building wealth is stocking up cash inside a locker or trying to maintain a positive balance in a savings account. While undoubtedly prudent saving is the first step to building wealth, it remains just that – the first step. Building wealth, however, is more about the smarter process of multiplying your savings by investing in the right avenues for a secure future with realistic goals. So is there a way to make investing a habit? Could you do it on autopilot without having to remember it every time? Is it necessary to have a huge amount in order to invest?

What if we told you that an amount as little as Rs 1,000 a month can go a long way in building wealth? What if we told you there was an investment option that can get you great returns despite market uncertainties?

Well, you only have one answer to all these questions – Meet the SIP!

Systematic Investment Plan (SIP)

A SIP is that friend who will help you inculcate the habit of investing regularly and wisely. SIP stands for Systematic Investment Plan. It is the strategy of investing a fixed amount periodically (typically every month) in mutual funds that are apt for you and will help you achieve your goals.

 Here are some of the greatest advantages of SIPs:

Below are some plans provided under health insurance:
  • Invest on auto pilot – A SIP is a great way to inculcate the habit of disciplined investing as it is a commitment made by you to consciously invest a certain amount regularly. What’s more, once you set up your SIP, the amount is automatically debited from your bank account each month, ensuring that a structured investment is made consistently. In other words, you simply set it up and allow it to run on an auto pilot mode. You do not have to worry about missing an instalment.
  • Small sums, big money – SIPs allow you to invest small sums regularly. Unlike a fixed deposit where you need a chunk of money, you can start investing with as low as Rs 1,000 every month in mutual funds and allow it to grow over a period of time. That means you do not have to get rich to start investing. You can start investing early on in your career. The benefits of early investing are as high as, if not more than, those of disciplined investing.
  • The magic of rupee-cost averaging – SIPs allow you to invest in the ups and downs of the market. Since you get to invest across various market phases, you buy more units when the market is down and fewer units when the markets peak. In other words, you actually get to do some bargain hunting automatically! And you do this without the risk of having to time the market. You do not need to know when the market is high or when it is falling. Your SIPs do the job for you. So how does this help? This averaging effectively reduces your cost (as you buy in market lows as well) and therefore improves your returns.  But remember, for averaging to work, you will need to invest over long periods of time. Only then will you buy on dips.
  • Flexibility – In a SIP, the amount that you choose to invest periodically can be changed at any time. The key benefit here is that as you progress in your career and your income grows, you can increase your investment amount and thereby increase the value of your growing returns. This way, you ensure that your corpus grows as your income grows. In addition, there is no lock-in period in SIP, unlike a recurring deposit scheme in banks.
The power of compounding– One of the biggest advantages of a SIP is the impact of compounding it offers, which is much higher than a Recurring Deposit (RD).

So, going forward, the question is not ‘Are you going to invest?’, but ‘WHEN are you going to invest?’ And the answer is — Start today!

When anyone talks about investing, they say “Don’t work for money. Make money work for you”. And how does money work for you? It’s through compounding. What is it?

How is it useful?

Now look at it in the world of investments. Let’s say you invested Rs. 10,000 in a deposit which pays an interest rate of 10 per cent annually. You don’t opt for the payout of interest. In the first year, the interest earned is Rs. 1,000. You now have Rs. 11,000 (Rs. 10,000 + Rs. 1,000). This total amount will earn interest in the second year.

That results in an interest of Rs. 1,100. What is happening is that the Rs. 1,000 that you earned in the first year is in turn earning Rs. 100 in the second year. So at the end of the second year, you have Rs. 12,100 in your hand. By the end of year 10, the Rs. 10,000 would have grown to Rs. 25,937.

Mutual fund returns work in the same manner. Let’s say you invested Rs. 1 lakh in two mutual funds with NAVs of Rs. 10 and Rs. 250 respectively. A year later, both the funds’ NAVs rose by 10 percent to Rs. 11 and Rs. 275. Your investment is now worth Rs. 1.1 lakh. At the end of the second year, both funds again saw their NAV rise by 10 per cent. Their NAVs now become Rs. 12.1 and Rs. 302.5. The value of your investment has thus grown to Rs. 1.21 lakh.

The power of compounding is felt over a long period of time and not in a couple of years. This is why you are always told that the earlier you start investing, the better it is for you.

Of course, compounding is also greater when you invest higher sums at the outset. So if you had invested Rs. 2 lakh in the above example, by year 10, you would have Rs. 5.18 lakh. The Rs. 1 lakh differential in the investment amount reaps a difference of Rs. 2.59 lakh in return.
Please mark all your queries / responses to
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.