Section 80C of the Income Tax Act allows a deduction up to a sum of Rs. 1.5 lakhs on certain tax saving investment options. These tax-saving investment plans include Life Insurance Premium, 5-Year Tax Deposits, Public Provident Fund, National Savings Certificate, and so on. This is the key reason Section 80C is a sought-after section when we talk about tax planning.
However, instead of investing in an ad hoc way, if you choose the tax-saving investment options as per your risk profile, it can prove to be more beneficial. It may even help you to achieve your financial goals in a better way.
In this article, we discuss 4 best tax saving investment options offering market-linked returns that can help you create long-term wealth.
1. Equity Linked Savings Schemes (ELSS)
Commonly known as Tax Saving Fund, ELSS is a diversified equity mutual fund offering tax-saving benefits. This tax-saving investment option has a mandatory lock-in period of 3 years. The minimum application amount is as little as Rs. 500 and there is no upper limit to the amount you can invest.
The investments can be made either in lumpsum or by SIPs (Systematic Investment Plans). SIPs are regarded as the better way of investing in ELSS as they provide the advantage of compounding and rupee cost averaging.
While selecting this tax saving investment scheme, look for funds which have a consistent performance record and follow robust investment processes. If you choose the right scheme, ELSS has the potential to offer attractive inflation-adjusted returns. The investment style could be value, growth or a combination of the two based on the investment mandate of the scheme.
2. Pension Funds
Pension funds offered by Mutual funds, are one of the preferred tax saving investment options in India. They are effective investment tools for retirement planning and tax planning. Most of the pension funds are hybrid in nature i.e. they invest in equity as well as debt. The returns on pension funds depend on the proportion in which the scheme invests in equity and debt. It also depends on how efficiently the scheme has been managed across the market conditions.
Pension funds have a 5 year lock-in period and an exit load which can extend up to retirement. At the vesting age, you can systematically redeem the units held in the folio/account by opting for a regular pension. This is the reason most people opt for pension funds for tax saving investment options in India.
3. Unit-linked Insurance Plans (ULIPs)
Typically, these tax saving investment options are insurance cum investment plans. They enable you to invest in equity and/or debt instruments. You can simply select the allocation option as offered by ULIPs. Fund options are classified as aggressive, moderate and conservative. Aggressive funds invest only in equity, moderate funds invest in a mix of equity and debt whereas conservative funds invest purely in debt instruments.
ULIPs not only offer investment returns that are market-linked but also provide insurance cover which is generally 10 times the insurance premium you pay. To enable you to track the performance of the fund, this tax saving investment option declares its Net Asset Value at regular intervals.
ULIPs come with a compulsory lock-in period of 5 years and also have a minimum premium paying term. The overall term of the policy differs from one product to the other. However, if you want to claim the tax benefit, the policy should remain active for a minimum of 5 years. In the case of eventualities, the fund value or the sum assured (whichever is higher) is paid to the beneficiary.
An important point to consider is while ULIPs may serve as a great tax saving investment option you must handle your investment and insurance needs separately. This helps you to pick the right investment instrument for long-term wealth creation and also have optimum insurance coverage.
4. National Pension System (NPS)
Erstwhile available only to the government employees, NPS is a trusted tax saving investment scheme which was introduced to the private sector in 2009. If you are between 18 years of age to 60 years and belong to the unorganised (private) sector you are eligible for NPS. The contributions towards this tax saving investment plan are voluntary.
You can invest in any of the following two accounts:
• Tier-I Account
This is a mandatory account where the minimum investment required is Rs. 500 per contribution and Rs. 1,000 per year. The account is frozen if you fail to pay the yearly minimum contribution. In order to unfreeze this account, you must contribute the total sum of contributions missed along with a penalty of Rs. 100 per year.
Under this account, premature withdrawals are not permitted before you attain the age of 60 years. However, they can be allowed only in the form of repayable advance if you have completed 15 years. In addition, such withdrawals are permitted only in case of emergency or critical illness. This is because the main aim of this account is to build a retirement corpus and buy a life annuity. This account can be operated anywhere in the country irrespective of the job location and employer.
• Tier-II Account
Unlike the Tier-I account, Tier-II account is a voluntary account. You first need to have a Tier-I account to open a Tier-II account. It can be opened with a minimum contribution of Rs. 1,000. From Tier-II account, you can withdraw as and when you wish to. The withdrawals do not attract a penalty of any sorts. So, this account serves just like your savings account.
There are two investment choices while investing money in NPS – Active or Auto. Under ‘Active', your money is invested in various asset classes. You can decide your asset allocation into the specific asset classes such as ECG. E stands for Equity and C denotes credit risk-bearing fixed income instruments other than government securities. G represents the central government and state government bonds.
Under ‘Auto’, money automatically gets invested according to your age profile. If you do not choose an option out of the two, the default option is always ‘Auto Choice’.
These are the best tax saving investment options that can be ideal for risk takers. ELSS is the most liquid option but to reap more benefits it is best to stay invested in it for at least 5 years. Pension Funds and NPS are good investment avenues for tax planning as well as retirement planning. As far as ULIPs are concerned, remember to deal with your investment and insurance needs separately. You can contact IndiaNivesh Ltd. if you need assistance with tax planning and investment guidance.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Portfolio Management - What is Portfolio Management, Objectives, Types & Process
Portfolio ManagementIndia today is home to many successful businessmen and high salaried corporate individuals. With increasing income levels, there is a need for lucrative investment avenues for high net worth individuals to earn good returns on their investment corpus. High-income individuals especially those with limited financial knowledge turn to portfolio managers to manage their investments more profitably. Now, what is portfolio management? Portfolio management involves prudently managing one’s investments, ensuring the right mix of investments which are regularly monitored and adjusted to earn a maximum return. Portfolio management services involve the application of investment strategies by expert fund managers to the investment portfolio of its client with the intent of maximizing returns within the acceptable risk level. Portfolio managers earn a commission which can be in the range of 3 to 5% of the portfolio value for undertaking these services. In India, portfolio management services are mostly opted for by HNIs as portfolio managers require a minimum investment commitment of INR 25 lakhs.The key to portfolio management services is that the entire responsibility of investment portfolio management is handed over to the portfolio manager. The portfolio manager, generally a domain expert undertakes all the required stock research and continuously monitors the investments. The portfolio managers take investment decisions in line with the investor’s goal and keep them updated about the developments in their portfolio. Objectives of Portfolio Management ServicesThe major objectives of Portfolio Management can be listed as below.o Customization of the investment portfolio of the HNI client, which is not possible for other investment options like mutual fundso The flexibility of choosing your own stocks as compared to mutual funds, which depends on the fund manager's discretiono Transparency of the costs and the fees along with the charges for the portfolio management servicesNeed for Portfolio Management ServicesAfter knowing about portfolio management meaning, let us have a look at why portfolio management is important in investments. o Extensive Research & ExpertisePortfolio management services are provided by professional and expert portfolio managers. Backed with years of expertise and detailed research on the market and specific stocks, they are in a better position to optimize the mix of stocks. This level of expertise is unlikely to be available to an individual and thus it can be more beneficial. o Continuous monitoringPortfolio managers are entrusted with the responsibility of the investor’s portfolio and are dedicated to growing the investor’s corpus. They continuously monitor the market trends as well as its impact on the investor’s portfolio and take timely decisions to maximize returns or minimize losses. This type of dedicated monitoring is difficult to achieve at an individual level. o Provides a customized portfolio for high net worth individualsPortfolio managers do not have a ‘one size fits all’ approach. They consider the specific investment goals of each investor and tailor make the portfolio mix to suit the investor. Investor’s need not worry about whether their portfolio is aligned with their goals as portfolio management services take care of this aspect. o Generation of better returnsThe cumulative effect of the above factors results in portfolio management services having a greater potential to earn higher returns as compared to what an inexperienced individual investor may be able to achieve on his own.Understanding Portfolio Management ServicesWe covered earlier about the portfolio management meaning. Now, the main objective of portfolio management is to design investment strategies that give maximum returns at a nominal risk level. Now, let's look at the portfolio management process. The portfolio management process is a continuous process and not a one-time act. Let us have a look at the steps involved in the Portfolio Management Process. o Security AnalysisThis is the primary stage of the process. Here, the major task is to identify the risk factors and the returns expected from the securities. These should match up with the investor’s long term financial goals and their risk enduring capability. o Analysis of the PortfolioOnce the risks and securities are identified, a large number of portfolios can be created. These portfolios are known as feasible portfolios. o Portfolio SelectionOut of all those feasible portfolios that are created, the portfolio manager will select the ones which are the most suitable for the investors. o Portfolio RevisionAfter portfolio selection is done, the portfolio manager and his team will keep a close eye always on the selected portfolio to make sure that no opportunity for obtaining a maximum return for the investor is missed. o Evaluation of portfolioHere, in this phase, the portfolio is assessed periodically to find out the return that has been obtained from the portfolio against the risk that is involved. Here, if there is a necessity for making some changes into the portfolio, it is implemented to minimize risk and optimize return.The Key elements of Portfolio ManagementLet us have a look at the key elements of portfolio management. One of the major key elements of investment portfolio management is customization. Those investors who are not very aggressive can add more stable investments into their portfolio. On the contrary, investors having an aggressive profile can add up volatile investments into their portfolio Portfolio management requires fundamental analysis. This analysis helps to identify the selection of stocks that can meet the investment goal. Fundamental analysis involves assessing the financial position of the company Portfolio management also involves undertaking market research and determining risk factors that have an impact on the market and the stocks in the portfolio. Being updated with changes in these risk factors and managing the portfolio to mitigate these on time is key Successful investment portfolio management necessitates continuous monitoring of the market and performance of the portfolio relative to the market. A pro-active approach in this regard can help make timely decisions to maximize profits in a bullish market and minimize losses in a bearish market While these are some of the standard elements and steps involved in portfolio management process, it may vary from one company to another.Types of Portfolio ManagementPortfolio Management can be further classified into Discretionary Portfolio Management and Non-discretionary portfolio management. In discretionary portfolio management, the portfolio manager has the complete authority to take all decisions on behalf of the client. The Portfolio Manager is responsible for taking care of the financial objectives of the client, carrying out documentation and filing tasks as well. Non-discretionary portfolio management is somewhat different from discretionary portfolio management in terms of discretionary powers. Here, the portfolio manager can give suggestions and advice to the investor on investment strategies. However, the final decision is taken by the investor himself. Portfolio Management brings a lot of benefits to the investors but at the same time has certain pitfalls as well. If you select to opt for portfolio management for your investments, then it is inevitable that you keep your investment goals and level of risk exposure clear with the portfolio managers. This will be the main factor influencing your returns and your investment strategy. Experts at IndiaNivesh will provide the right advice keeping your risk-taking ability and goals in mind and thus, giving you a well-balanced portfolio.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
SIP Investment - Why Should You Increase Your SIP Every Year
Whenever people begin their investment journey, they secretly wish to become millionaires, almost overnight. However, to effectively create wealth you need years of consistent investing at a gradual pace. Investments need time and also a boost from time to time to grow. Mutual funds are an effective investment tool to build a corpus. When it comes to investing in mutual funds, Systematic Investment Plans (SIPs) are a convenient option. In this article, we look at SIP investments and how increasing your online SIP investment every year can be beneficial to you.What Are SIP Investments? Many investors think of SIPs and mutual fund schemes as synonyms, however, that is not the case. SIPs are merely tools that allow you to invest in a mutual fund scheme over a period of time. It can be monthly, quarterly or semi-annually depending on your financial goals. It acts as a convenient option for salaried individuals to regularly invest in mutual funds. The money can get deducted from their account automatically thereby engraining a financial discipline. Most mutual fund managers advise investing through SIP investment plans rather than lumpsum investments. This is because SIPs help you to average your purchase cost and maximise returns. Since you invest regularly over a period irrespective of how the market conditions are, you automatically end up buying fewer units when the market is high and vice versa. This helps to average out the purchase cost of your mutual fund units.How To Start SIP Investment? You can start an SIP with a minimum amount of Rs. 500. Here is how to start SIP investment if you wish to buy mutual funds. • Basic InformationThe first step of SIP investment requires you to provide all your basic personal information in an online form such as your name, date of birth, address, mobile number, etc. • Upload DocumentsIn the next step, you are required to upload a scanned copy of your PAN card and address proof. • Video CallNext, you are required to complete the IPV or In-Person Verification by selecting a time slot which is convenient for you. This requires confirming your physical existence through a webcam video call. It is advised to keep your address proof and original PAN card handy as you will be asked to show it during the video call. • Aadhar Based eKYCThe above procedure for SIP investment can be simplified if you have an Aadhar card. You have to enter your Aadhar number and authenticate it with a One-Time Password (OTP). This will pre-populate the online form with all your basic information details available in the UIDAI database. IPV through a video call is not required if you complete the eKYC procedure through Aadhar as the UIDAI database already has your biometric information. However, there is a statutory limit which will not allow you to invest more than Rs. 50,000 per fund house in a financial year if PAN card details are not submitted by you. You can submit your PAN card and enhance this limit. • The Final StepLastly, visit the website of IndiaNivesh Ltd. and register for a new account. Keep your phone and cheque book near you as you would be required to verify your account through OTP and enter your bank details. Once the account is created, you can log in and choose the mutual fund scheme you are interested in. Choose the SIP date and submit your request.Benefits of Increasing Your Online SIP Investment Every Year Here are some advantages of increasing your SIP every year.• Builds A Bigger CorpusWhen your income and surplus increase every year, it makes sense to increase your SIP investment too. It adds to the power of compounding and helps accumulate greater wealth by building a bigger corpus. Even a small 5% to 20% increase in the SIP investment plan at the end of 10, 15 or 20 years can make a big difference. In addition, you can avoid increased documentation as it will reduce the necessity of creating and tracking multiple stocks. • Counters InflationWhile investing, the return adjusted for inflation is a significant factor to be considered. As inflation increases every year, the amount you find substantial today may not have the same worth some years down the line. Hence, if you do not increase your SIP investment amount every year, you ignore inflation which erodes the purchasing power of your hard-earned money. • Achieve Your Financial Goals FasterSuppose you start a SIP investment plan of Rs. 5,000 per month. Assume an annual return rate of 12%. After 10 years, your corpus would grow to be Rs. 11.6 lakhs. However, if you decided to increase your SIP contributions by 10% every year, after 10 years your corpus would grow to be Rs. 16.8 lakhs. That is a difference of over Rs. 5 lakhs. As the years multiply, the difference would be a lot more.How To Increase Your Online SIP Investment? Here are three simple ways by which you can increase your online SIP investment.• Select The Right SchemeIf you are interested in SIP investment plans that allow step-up option where you can enhance the amount regularly, ensure that it matches your risk profile. For example, if you are an aggressive investor, you can opt for a mid-cap equity fund. Or, if you are a conservative investor, you can look at balanced funds. • Determine The FrequencyYou can choose the frequency and the amount by which you want to increase your SIPs. It can be semi-annual or annual. An appraisal or bonus is the best time to start increasing your SIPs. It is always a wise decision to align your additional earnings to existing financial goals. • Identify Your Investment CapYou can decide to put a cap on the maximum amount of money you wish to invest every month in SIPs. When you choose this option, your SIPs can keep increasing till they hit the ceiling amount set by you. Once this maximum limit has been hit, the SIP then acts as a regular SIP with the same investment amount every month. SIPs allow you to invest periodically and help your wealth grow. You can achieve your long-term financial goals with regular small investments and gradually increase your SIPs every year to achieve your financial goals sooner. You can either increase your SIPs by a fixed amount or a certain percentage, depending upon your financial goals. You may contact IndiaNivesh Ltd. if you wish to start a SIP investment plan. We can help you choose the right mutual fund schemes based on your financial goals, risk tolerance and investment horizon. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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