Mutual Fund Advisory Services
LKP Investment Advisory Service Offers tailor – made wealth management services
to Retail, High Networth Individual and Corporate Clients. We strongly believe that
Investment Planning is the stepping stone to achieve one's financial aspirations.
Our in- house research provides unbiased and independent advice.
The Investment Advisory Process can be summarized as follows :–
- Goal Setting – Determine Financial objectives, time
scale s and risk tolerance
- Asset allocation – Decide an appropriate mix on various
investment choices.
- Portfolio Construction – Based on asset mix, we build
a customized, portfolio of investment in insurance products.
- Review – Regular portfolio Monitoring, to ensure necessary
adjustments in line with set goal
What are Tax Saver Funds?
Investments in Mutual Funds are a very popular now. Under the section 80C of the
Income tax (IT) act which allows you to file claims for the deductions from your
taxable income by investing in certain investments. The most widely known is Sec
80C investment which is tax saving mutual funds or Equity linked saving scheme (ELSS).
Planning your taxes is a very important part of your financial planning. In these
equity diversified funds, investors not only enjoy the benefits of capital appreciation
but also the tax benefits.
Tax saving mutual funds is just like any other mutual funds with an additional benefit
that investing in them will be benefited under sec80C IT Act.
What is the significance of ELSS?
An ELSS is a funds which has its major corpus invested in equities. Since it is
an equity categorized fund, returns from ELSS is related with the returns from the
equity markets. This is an open ended Mutual Fund that not only helps you save tax
but also helps you to grow your money
ELSS has a lock in period of 3 years from the date of investment. Hence any investments
in these funds will be locked for 3 years from the date you start your investment.
An investor can only exit ELSS by placing redemption order after 3 years.
What are the types of options available under ELSS? : Growth and Dividend options
Under growth option the returns are cumulated and the value of the NAV increases
accordingly.Under dividend option, investors get a regular dividend income as and
when the dividend is declared by that particular fund, even during the lock in period.
Returns from ELSS are tax freeand you can claim up to Rs. 1, 50,000 of your ELSS
investment as a deduction from your gross total income in a financial year under
Sec 80C of the Income Tax Act.
It is very important to get your research done and your facts right before investing
in Tax saver funds. You can look into the long term track record of the fund before
investing in it. Also remember to look at the fund details like the fund manager's
investment approach, portfolio of the fund, the expense ratio of the fund and how
volatile the fund has been in the past.
What are the advantages of ELSS over the other tax saving instruments?
In comparison to the Public provident fund (PPF), National saving certificate (NSC)
& bank fixed deposits; the lock in period in an ELSS is much shorter.
In a Public Provident Fund (PPF) the investments are locked in for 15 years, National
Saving Certificate the investments are locked in for 6 years & the Bank Fixed Deposits
the investments are locked in for 5 years, whereas in an ELSS the investments are
locked in for 3 years. The returns received from an ELSS fund are much higher, as
the returns are related directly to the returns in the equity markets. Hence by
investing long term in equity markets will definitely give you higher returns compared
to other asset classes over the long term.
You can also opt for Systematic Investment Plan (SIP) which brings a discipline
by regularizing your investments. You can also get income from your investment amount
in the lock in period if you opt for dividend schemes. Other instruments like PPF
and bank deposits permit premature withdrawal, subject to certain conditions.
High inflows into ELSS funds are determined by the performance of the stock market
in general. Also, if an investor gets better tax-adjusted returns from other investment
avenues like debt, he will prefer to go for this, as risk is lower. But over a long
term, ELSS funds are the best tax saving instruments; especially if you are an investor
who can take on high risk.
How do Tax Saving Mutual Funds work?
When an investor invests their money in mutual funds, the funds are added to the
pool. The funds are then invested in the equity markets in such a way that even
if one sector incurs losses, the other sectors may manage to mitigate the loss.
its also called diversification of portfolio. For example, the breakup of an investment
in a particular fund may look like:
- Automotive industry 6.56%
- Banks 17.56%
- Consumable durables 5.34%
- Consumer non-durables 5.66%
- Power 5.92%
- Software 8.93%
- Pharmaceuticals 9.99%
This means that 6.56% of the investment will be put in the automotive industry and
17.56% in banks and so on.
What are the features of Tax Saving Mutual Funds?
- The minimum investment in TAX Saver funds begins with Rs. 500 SIP
and Lumpsum investment is Rs. 5000, with no upper limit unlike PPF and NSC.
- Investments worth 1, 50,000 will be eligible for tax benefits.
- Investments in tax saving funds come with a lock in period of 3
years and you can also continue further even after 3 years .
- ELSS is an open ended fund, which means you can enter anytime, but
can exit only after 3 years.
- There are also nomination facilities.
- Tax Saver schemes do not have entry or exit load.
What are the benefits of Tax Saving Mutual Funds?
- There are many benefits to invest in a tax saving fund like a few
mentioned below.
- It gives you a tax benefit of up to Rs. 1, 50,000
- Long term capital gains are not taxed.
- Investment in these can be done via SIP, which means one can conveniently
make these investments by paying a pre decided fixed amount on a monthly basis.
- The funds are not invested in one sector; it is diversified to minimize
the risk and any massive losses to even it out.
- Even if you cannot withdraw the principal amount, you can choose
to opt for dividends as and when the fund declares within the 3 year lock-in period.
- Other funds offer a lock-in period of 5 to 15 years; an ELSS offers
a lock-in period of only 3 years.
- As these schemes are open ended, they can be purchased all round
the year.
- The particular fund that an investor invests in is run by a qualified
funds manager thereby negating the need for investors to have knowledge of the markets.
Mutual Funds compared to PPF, NSC and FDs
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Characteristics
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Mutual Funds(MF)
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Public Provident Fund (PPF)
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National Savings Certificates(NSC)
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Fixed Deposits(FD)
|
|
Minimum investment
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Rs.500.00
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Rs.500.00
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Rs.100.00
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Rs.100.00
|
|
Maximum investment
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Unlimited
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Rs. 1.5 lakhs per year
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Unlimited
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Determined by bank
|
|
Returns
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Not guaranteed
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Guaranteed
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Guaranteed
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Guaranteed
|
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ROI
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Determined by the market situation
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8.70% per annum (approximate)
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8.50% per annum (approximate)
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7.5% per annum
|
|
Income tax benefit
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Yes
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Yes
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Yes
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Yes
|
|
Tax on returns
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None for long term capital gains
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None
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Yes
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Yes
|
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Safety
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Risky
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Safe
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Safe
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Safe
|
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Lock in period
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3 years
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15 years
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6 years
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None
|
|
Premature withdrawal
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Not allowed
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Partial withdrawal after 6 years
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Not allowed
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Allowed with penalty
|
Top Performing Tax Saving funds in India
- Reliance Tax Saver (ELSS) Fund
- HDFC Tax Saver Fund
- DSPBR Tax Saver Fund
- Axis LT Equity Fund
- Birla SL Tax Relief '96
- ICICI Pru LT Equity Fund (Tax Saving)
Some commonly asked Q&A’s
HOW DO I MAKE PAYMENTS TOWARDS THE MUTUAL FUND?
PAYMENTS CAN BE MADE BY CHEQUE OR DIRECT DEBIT, THE MOST CONVENIENT MODE IS DIRECT
DEBIT AS IT WILL BE AUTO DEBITED FROM YOUR ACCOUNT ON A MONTHLY BASIS IN CASE OF
SIP.
WHEN SHOULD I PAY FOR MY SIP?
DATE OF PAYMENT WILL BE INFORMED ONCE YOU START YOUR SIP, YOU CAN ALSO CHOOSE A
DATE OF PAYMENT FROM AVAILABLE OPTIONS
IS THERE A MINIMUM INVESTMENT REQUIRED FOR ELSS?
YES, IT DEPENDS ON THE MUTUAL FUND; IN GENERAL IT IS RS. 5000 FOR LUMPSUM AND 500/-
IN SIP
WHAT IS NAV?
NET ASSET VALUE IS THE PRICE OF THE UNIT WHEN IT SOLD AT THAT PARTICULAR DATE IN
TIME. FOR INSTANCE IF A WITHDRAWAL REQUEST IS GIVEN, THE NUMBER OF UNITS ARE MULTIPLIED
BY THE NAV WHICH IS CREDITED TO THE INVESTORS ACCOUNT.
HOW IS NAV CALCULATED?
THE VALUE OF ALL UNITS OF A MUTUAL FUND PORTFOLIO ARE CALCULATED ON A DAILY BASIS,
FROM THIS ALL EXPENSES ARE THEN SUBTRACTED. THE RESULT IS THEN DIVIDED BY THE TOTAL
NUMBER OF UNITS THE RESULTANT VALUE IS THE NAV.
I RECEIVED A LESS AMOUNT THAN THE NAV PROMISED, WHY IS THAT?
NAV CHANGES EVERYDAY, SO THE DATE THE WITHDRAWAL REQUEST IS GIVEN, THE NAV IS TAKEN
INTO ACCOUNT FOR THAT DAY AND NOT THE DAY WHEN IT IS ISSUED OUT.
IF THE NAV IS GOOD DOES IT MEAN THE FUND IS GOOD?
NO. HIGH NAV DOES NOT INDICATE THE FUND TO BE A GOOD ONE, TO KNOW IF THE FUND IS
GOOD WE NEED TO SEE THE HISTORICAL RETURNS THE FUND HAS PROVIDED AND CHECK ITS RATINGS
WITH CREDIT RATING COMPANIES LIKE CRISIL, ETC.
IS IT BETTER TO INVEST IN LUMPSUM OR MONTHLY INSTALLMENTS?
IT DEPENDS ON THE INVESTOR; BOTH ARE ALLOWED IN MUTUAL FUNDS. THE ADVANTAGE TO PAY
MONTHLY INSTALLMENTS IS THAT THE RISK OF LOSS THROUGHT THE MARKET PERFOMANCE CAN
BE AVOIDED ON THE ENTIRE INVESTMENT.
WHAT IS THE UPPER LIMIT TO INVEST IN ELSS?
NO, THERE IS NO UPPER LIMIT. IT DEPENDS ON THE INVESTOR WITH THE AMOUNT THAT HE
WISHES TO INVEST.
WHAT IS THE MAXIMUM AMOUNT THAT CAN BE WITHDRAWN?
NO LIMIT ON WITHDROWAL. CLIENT CAN WITHDROW ENTIRE INVESTMENT AFTER COMLITION OF
LOCKIN PERIOD.
EVEN IF I INVEST MORE THAT 1.5 LAKHS INTO ELSS, CAN I CLAIM TAX BENEFIT FOR THE
ENTIRE INVESTMENT?
NO, THE LIMIT FOR TAX BENEFIT IS ONLY UPTO 1.5 LAKHS, TILL ANY FURTHER ANNOUCEMENTS
FROM MF REGULATORS.
HOW MUCH TAX WILL I HAVE TO PAY ON MY LONG TERM CAPITAL GAIN?
LONG TERM CAPITAL GAINS FROM ELSS FUNDS ARE EXEMPTED FROM TAXES.
CAN I SWITCH FROM ONE FUND TO ANOTHER?
SWITCHES ARE ALLOWED ONLY AFTER COMLITION OF LOCKIN PERIOD AND WITH IN THE FUND
HOUSE.
HOW DO I KNOW WHERE THE MONEY IS BEING INVESTED?
SCHEME PORTFOLIO ARE PUBLICALLY AVAILABLE DATA. IT CAN BE ACCESSED THROUGH INDIVIDUAL
FUND HOUSE’S WBSITE, FACTSHEETS, OR ANY MF RESERCH WESITES LIKE MONEY CONTROL, VALUE
RESEARCH ETC.
IS WITHDRAWAL POSSIBLE IN THE LOCK IN PERIOD?
NO, IT CANNOT BE WITHDRAWN UNTILL THE COMLITION OF LOCKIN PERIOD.
CAN A NRI INVEST IN ELSS?
YES, NRI CAN INVEST IN TAX SAVING FUNDS.