Portfolio : A collection of investments owned by the same individual or organization.
Will : legal declaration of how a person wish his/her possession to be disposed after their death
Fund : An amount of money saved or collected for a particular purpose
Investor : An investor is any party that makes an investment.
Risk Adjusted Return :It is a comparative tool, this is a process of comparing amount of risk involved in two investments producing same amount of return.
It is a type of pure insurance plan where the beneficiary will get the benefit only in case of death of the policy holder during the policy term.
In this type of mutual funds, your funds will be in invested in equities i.e. in the stock market..
Amount deducted UPFRONT from the investment generally in insurance for sales charges/ agent commission which will in turn reduces the investment value
Unit Linked Insurance Plans are the type of insurance where part of your money is invested in units that represent Shares and debt instruments and the remaining is used for your premium.
A set of assets which an investor holds. This may contain equities, mutual funds, insurance and other cash equivalents.
There are so many tax saving investment options; how Mutual fund ELSS Schemes stand out from all other options?
A Mutual Fund ELSS is similar to diversified equity funds. That means the fund manager can invest in shares of various companies across various industries. The difference is ELSS has got the added tax benefit, something a diversified equity fund does not offer.
ELSS is part of the Section 80C instruments which are cumulatively eligible for a deduction from income up to Rs.1 Lakh. This gives the tax payers benefits from 10 per cent to 30 per cent (excluding the educational cess) based on their current tax slab.
The other tax saving investments like NSC, PPF will give only 8% return p.a whereas the Mutual Fund ELSS has got the potential to deliver more than 12% return p.a. Also the lock-in period in Mutual Fund ELSS is 3 years and with NSC it is 6 yrs lock-in and with PPF it is 15 years. Among the various tax saving investment option, Mutual fund ELSS has got the least lock-in period.
Ulips are also one of the tax saving investment options. But now everyone has realized that Ulips has got heavy front loaded charges. Moreover smart investors want to separate their Insurance from their investments. They no longer see insurance as an investment; they see insurance as a protection plan. So the smart investors go only for pure term insurance and reject ulips.
This is how Mutual Fund ELSS stands out of the crowd.
Before deciding to go for Mutual fund ELSS, here are some points to ponder over. First check your overall portfolio. Does it need more equity exposure? If yes then you can go for ELSS; if no then you can go for PPF or NSC.
Second thing is to keep in mind, the equity investments are for long term, say 5 years or more. Though the lock-in period in ELSS is 3 years it is better to invest with a time horizon of 5 yrs or more.
Also investors need to keep in mind, Mutual fund SIP is the best form of investing in mutual funds and ELSS is not an exception. So doing an SIP in ELSS is a good strategy to be followed.
The poor performing ELSS has given around 10% annualized return in the last 5 years whereas the best performing ELSS has delivered around 25% annualized return in the last 5 years. So investors need to be careful in choosing the right ELSS scheme. Past performance, risk adjusted return, consistency are a few parameters to be evaluated in selecting a best performing ELSS scheme. Investors also can approach financial advisors for selecting the right scheme.
There are two groups of ELSS investors. Majority of investors belong to the first group. They will wake up late to these tax saving investments. For salaried individuals, it is typical that they will be informed by their accounts department somewhere around end of January to provide proof of tax saving investment immediately or else extra tax will be deducted from their February salary. At the neck of the moment, the choice ends up being guided by convenience alone. They tend to think about tax first and investments later. As long as something saves tax, its real benefits and features as an investment are paid less attention to. That means the investments will be chosen more for convenience than for suitability.
There is another group of investors. Though this group is a very small group, it is a very smart group. They will not rush for tax saving scheme at the last minute. They will plan in advance. That means they will have more time to choose the right product. They will save tax as well as choose a good investment option. They will also check whether this particular tax saving scheme will suit their overall portfolio or not; will this tax saving investment is going to fit into their comprehensive financial plan. That means they will consciously choose an investment which saves tax as well as helps them in achieving their financial goals like children’s higher education, , buying a house, retirement plans.
So…now just check up which group you are in.
In order to be on the right group, the pre-requisite is to have a financial plan customized to suit your financial commitments and dreams. If you are really interested in creating a personalised comprehensive financial plan for yourself and your family, I strongly recommend you to take advantage of