INSUBCONTINENT EXCLUSIVE:
Mutual fund investment: Financial planners advise considering a few things before making a decision
Many investors looking to enter mutual funds are quick to take the ELSS or ELSS via
Reason: ease of use and, most importantly, tax benefit
Investors often confuse SIP with ELSS
While ELSS or Equity-Linked Saving Scheme is a type of mutual fund that is eligible for tax exemption under Section 80C of the Income Tax
(I-T) Act, SIP or Systematic Investment Plan is only a way of investing in a mutual fund
Simply put, the option of SIP enables an investor to schedule parking of a fixed amount of money in an instrument on regular intervals
For example, Rs 1,000 every month
But how should you select a mutual fund, or invest in it What are the factors you should keep in mind while investing your money
TheIndianSubcontinent.com here gives you a lowdown on everything you should know about mutual funds:Before you rush your money into a mutual
fund, financial planners advise considering a few important points
Explained below are some of those:Financial goalMany experts emphasise that a potential mutual fund investor should be clear of his or her
Ask yourself: What is it that you want to achieve Is it high returns over a time period of 10 years, or a wedding about three years awayRisk
appetiteMutual funds are broadly categorized according to three types of investors: aggressive, moderate and conservative
Again, the mutual fund should fit an investor's comfort level, say financial planners
For instance, an aggressive fund may comprise stocks with higher - thus riskier - growth estimates."Investors should keep in mind their
financial goals and risk appetite
Once that is done, then they should look for funds which are in sync with their goals," said Amit Kachroo, managing partner, AANEEV Wealth
It's important to learn about the nature of a mutual fund, whether it's a large cap, midcap or largecap, he points out.Expense ratioExpense
ratio (TER) determines how much money will be deducted from the net asset value of a mutual fund towards towards management of the
fund.Historical performanceInformation on a desired mutual fund is public and can be found on the website of the mutual fund institution as
well as that of the AMFI (Association of Mutual Funds of India).Besides, the reputation of the fund manager, fund size and turnover ratio
are some of the other aspects to look at."It is pretty important to check who the fund manager is
Study the fund manager's style of stock picking and check the performance of other funds which he is managing
Also an important point to note is fund managers' tenure: how long he has been associated with the fund house," said Mr Kachroo.When to
invest in mutual funds through ELSSELSS qualifies for tax deduction up to Rs 1.5 lakh in a year under Section 80C of the I-T Act
Investment in an ELSS mutual fund comes with a lock-in period of three years
An investor who wants to save tax under Section 80C should invest in an ELSS
However, from 2018-19, ELSS returns - after the lock-in period of three years - have lost their tax-free status
Returns above Rs 1 lakh are taxed at 10 per cent under the latest long-term capital gains tax rules
"These new policy changes have raised a lot of valid questions and the attractiveness of ELSS instrument purely for capital gains purposes
has come under a shadow," Rahul Agarwal, director, Wealth Discovery, told TheIndianSubcontinent."In spite of these changes, ELSS investments
do have certain benefits that direct mutual fund investments do not have
ELSS is the only equity-oriented mutual fund scheme that provides 80C benefits
In addition, ELSS continues to have the shortest lock-in period among various tax-saving investment options available under the Section 80C
basket," he said.Returns from any mutual fund are taxed in either of the following two ways: Short-Term Capital Gains (STCG) or Long-Term
While STCG is applicable in case of a holding period of less than one year, LTCG is for a holding period of more than one year
LTCG in excess of Rs 1 lakh is taxed at the rate of 10 per cent without the benefit of indexation
STCG is taxed at 15 per cent.Mr Agarwal explains the income tax savings for an individual with a gross annual income of Rs 9 lakh via an
Section 80CGross Total Income of the personRs 9,00,000Rs 9,00,000Tax Exemptions under section 80CRs 1,50,0000Total IncomeRs 7,50,000Rs
9,00,000Tax on Total IncomeRs 51,500Rs 95,275Amount of Tax SavedRs 43,7750Note: Assumed no other deduction from gross income
Tax is calculated including applicable cess.The example is based on assumption of no other deduction from gross income and tax is calculated
including applicable cess.So while investing in a mutual fund via ELSS or ELSS through SIP, you should go through all the aspects of these
routes and only then invest your money.
