Everything about tax saving mutual funds

Benefits of ELSS Funds

Tax Saving Mutual Funds or ELSS (Equity Linked Savings Scheme) funds are a type of mutual funds which give you tax benefits under section 80C and also enable growth in your investment. Like all other equity mutual funds, they too invest in the equity market. So what makes them unique and desirable?

  • Potential of generating high returns (historically, the good funds have generated an average annual return of more than 15% )
  • Least lock-in period of 3 years compared to other tax-saving options
  • Deduction of ₹1.5 Lacs every year from taxable income, thus a saving of up to INR 45000 in tax
  • More equity exposure (linked with higher returns) than any other tax saving options
  • Available to HUFs also (Unlike individuals, HUFs have limited alternatives to save tax)

So, basically an individual or HUF (Hindu Undivided Family) can avail an exemption of ₹1.5 Lacs from their total taxable income in every financial year by investing in ELSS Mutual Funds under Sec 80C of Income Tax Act, 1961. In addition to this, a capital gain of ₹1 Lac is tax-free. Gains above ₹1 Lac are taxable @10% under Growth plans. Dividend plans will have a 10% tax levied from April, 2018.

How is ELSS better than other investment options (ULIP, FD, NPS, PPF, and NSC)?

Comparison of different tax saving optionsELSS will therefore be appealing to an investor who has a higher risk appetite as ELSS funds have the potential to outperform and generate better returns than FDs, NSCs, and PPF/EPF.

Final Thoughts:

There’s a widespread misconception that equity is too risky for older investors or for retirees and therefore they should not use ELSS. The truth being that every investor, who has a high risk appetite and wishes to invest in equity, has ELSS as a great investment option. It benefits your finances by saving on tax and generating better returns than traditional investment options.

The main issue that we, as Indians, face is inflation (6-7%). Fixed deposits and similar investments take a big hit because of inflation and the falling rupee rate. The returns are simply not rewarding and barely help to keep the value of the principal investment. For an investor saving for his children’s education, FD may not suffice as education inflation grows by 15% while for a retired person, prices for goods and services from healthcare grow by 20% due to inflation. Such long term investments maybe very underwhelming.

Of course, like all equity investments, the best way of investing in ELSS funds is through monthly SIPs throughout the year. Equity investment is a higher risk instrument over the short term. However over a span over 3 to 5 years, the market fluctuations are averaged out and the returns are usually healthy.

Investors can choose to invest lump sum too. Although, it is riskier than SIP as your returns can vary with the market highs and low. During a market high, it seems attractive to invest and during lows investors rush to stop investments. This is where they make lose on an opportunity. High markets fetch lower units and hence lower returns. Low markets fetch higher units and hence higher returns. Although, timing the market is never certain and it’s advisable to invest through SIPs as market highs and lows will produce a healthy average return in the long run.

Track Your Mutual Fund Investments Real Time

Till some time ago, every family had a relationship manager who would periodically come and meet our parents and discuss his mutual fund investments with him. And that was the only time our parents could get to know how their funds were doing. This is similar to those times when the only way to send money to someone was to visit a bank branch and deposit some cash/cheque.

With the onslaught of technology, everyone is seeking more convenience in everything that they do. So we don’t want to visit bank branches anymore and neither do we want to depend on our advisor to tell us how our money is doing. At CAGRfunds, we realized this urge for independence and therefore provided our clients with the convenience of tracking their investments on their own personal CAGR dashboard.

Once you register and start investing through the CAGR platform, you are assigned your own login details with which you get access to your own dashboard. Not only can you invest in mutual funds online but also track how your funds are performing.

But you do get a bunch of statements on your email, right? So what is there to track? Well, three reasons why our dashboard helps:

Comprehensive Data:

Some reports give you the value of how much your money has grown while others show you the list of transactions you have made. We give you everything relevant at one place. We show you how much you have invested, the current invested value, the absolute return and the annual return.Not only that, we show you the individual funds that you are invested in and what is the return you are making both at the fund and portfolio level. We also show you how your investments are split between asset classes and if it is in sync with your decided asset-allocation.

Simple Enough For Anyone To Get It:

The fine print and numbers overload on the statements you get on email makes it all the more complicated. Either you sift through all the information yourself or stay uninformed. We obviously don’t want that and hence our dashboard and reports are quite simple. Our clients told this to us! Don’t believe? Read here.

Any Time Visibility:

Reports generally come to you at the end of the month or when you transact. But with us, the next time you are discussing investments with your friend, just log in, check your current portfolio value and returns and have a more informed discussion!

We, therefore, ensure that you stay in complete control of your portfolio. So the next time you call us, it is only to discuss your portfolio, not to get data – because your dashboard gives you all the data you need!

If you have been facing trouble tracking your investments and want to switch to a truly delightful investing experience, do not hesitate to call / Whatsapp us on +91 97693 56440. You can also comment on this post or email us on contact@cagrfunds.com.

Everything that you wanted to know about an SIP

SIP or Systematic Investment Plan – A term which has off late been doing the rounds in the world of investing. Every financial advisor you meet will recommend a few SIPs to you. Do you often feel bogged down by the what(s), why(s) and how(s) of these SIPs? Read on to find out everything you need to know about SIPs before you move on to start one.

  1. Mode of investment and not a fund: SIPs are a mode of investment and not the fund or the instrument where you invest. Therefore SIPs don’t represent any asset class. They are a way of investing in any of the asset classes. In other words, they are more of an approach to investing.
  2. Defined periodic instalments: As the term indicates, SIPs are defined instalments which get invested on a pre decided date every month or quarter. For example, you can decide that Rs. 10,000 should get invested on the 10th of every month.
  3. ECS / Deducted directly from bank: Every SIP application is accompanied by a NACH mandate also known as an ECS mandate. By signing the mandate you authorize your bank to debit the pre decided amount on the specified date. This means that you do not need to put a separate transaction every month to make your investment. For example, when you sign the mandate, your bank automatically debits Rs. 10,000 on the 10th of every month and this gets invested without any action on your part. At CAGRfunds, we have introduced the concept of 1 mandate, which means you do not need to sign separate mandates for separate SIPs. One mandate for any number of SIPs across any number of mutual funds.
  1. Pre decided funds: When you make an application for registering a SIP, you also decide the funds where the investment shall happen every month or quarter. O every month, Rs. 10,000 gets automatically deducted from your bank account and gets invested in the fund you had selected.
  2. Start date and end date: You can choose the start date and end date of your SIP. Most funds have a criteria for minimum number of instalments (wither 6 or 12). However, having a perpetual SIP is beneficial for those who want to create wealth in the long run and want to follow a disciplined approach for the same.
  3. Any number of SIPs: You can have any number of SIPs. Each SIP is for a particular fund that you decide and hence you can have as many SIPs as the number of funds you decide to invest in.
  4. ELSS SIP: Taxation is a necessary evil and none of us should leave an opportunity to save our taxes. Section 80c of the IT Act gives us a benefit of Rs. 1,50,000 which we can deduct from our taxable income. Some of us who are more aware and believe in the potential of wealth creation through equity investment, choose to invest in ELSS funds (Tax saving mutual funds). However, very few of us choose the SIP route. ELSS investments if made through SIPs, helps reduce the risk arising out of market volatility to some extent. For example, you need to invest Rs. 60,000 to cover your 80C investments and you choose to invest in ELSS funds. You should invest Rs. 5,000 every month over a period of 12 months rather than invest Rs. 60,000 as a lump sum investment at one go.

How do we help?

At CAGRfunds, we help you with all your financial queries. Whether it is about a SIP or otherwise, we promise to give an answer to each one of them. For any query, post a comment to this article. Or whatsapp us on +91 9769356440