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Type of Auto Choice Option 

Conservative Life Cycle Fund (LC-25)
      Age            Asset  Class E    Asset  Class C   Asset Class G '
Up to 35 years 25% 45% 30%
36 years 24% 43% 33%
37 years 23% 41% 36%
38 years 22% 39% 39%
39 years 21% 37% 42%
40 years 20% 35% 45%
41 years 19% 33% 48%
42 years 18% 31% 51%
43 years 17% 29% 54%
44 years 16% 27% 57%
45 years 15% 25% 60%
46 years 14% 23% 63%
47 years 13% 21% 66%
48 years 12% 19% 69%
49 years 11% 17% 72%
50 years 10% 15% 75%
51 years 9% 13% 78%
52 years 8% 11% 81%
53 years 7% 9% 84%
54 years 6% 7% 87%
55 years 5% 5% 90%

 

Moderate Life Cycle Fund (LC-50) ( existing Life Cycle Fund )
      Age            Asset  Class E    Asset  Class C   Asset Class G '
Up to 35 years 50% 30% 20%
36 years 48% 29% 23%
37 years 46% 28% 26%
38 years 44% 27% 29%
39 years 42% 26% 32%
40 years 40% 25% 35%
41 years 38% 24% 38%
42 years 36% 23% 41%
43 years 34% 22% 44%
44 years 32% 21% 47%
45 years 30% 20% 50%
46 years 28% 19% 53%
47 years 26% 18% 56%
48 years 24% 17% 59%
49 years 22% 16% 62%
50 years 20% 15% 65%
51 years 18% 14% 68%
52 years 16% 13% 71%
53 years 14% 12% 74%
54 years 12% 11% 77%
55 years 10% 10% 80%

 

Aggressive  Life  Cycle Fund (LC-75)
      Age            Asset  Class E    Asset  Class C   Asset Class G '
Up to 35 years 75% 10% 15%
36 years 71% 11% 18%
37 years 69 12% 21%
38 years 63% 13% 24%
39 years 59% 14% 27%
40 years 55% 15% 30%
41 years 51% 16% 33%
42 years 47% 17% 36%
43 years 43% 18% 39%
44 years 39% 19% 42%
45 years 35% 20% 45%
46 years 32% 20% 48%
47 years 29% 20% 51%
48 years 26% 20% 54%
49 years 23% 20% 57%
50 years 20% 20% 60%
51 years 19% 18% 63%
52 years 18% 16% 67%
53 years 17% 14% 70%
54 years 16% 12% 73%
55 years 15% 10% 75%

 

Invest Smart, Start Early, Save Tax and Create Wealth!!!

Equity Linked Saving Scheme (ELSS) VS Public Provident Funds (PPFs)

ELSS : - The equity-linked saving scheme (ELSS) is a category of diversified mutual funds that the government created to encourage long-term equity investments in equity and equity oriented instruments. The broad aim of ELSS funds is to focus on generating investor wealth over the long term. ELSS qualifies for tax exemption under section 80C of income tax act and comes under EEE tax status. It has a low lock in period of 3 years and high growth potential as an equity based instrument.

PPF : – PPF is the tax saving instrument for the risk averse investor whose purpose is to mobilize small saving of individual by offering investments that carry reasonable return along with income tax benefits. PPF fully guaranteed by the government of India. It comes under EEE tax regime, i.e. contribution, interest and maturity amount all are tax free.

Which one to choose?

The answer is ELSS.

It is always important for investors to choose investments options based on your goal and investment horizon. Do not base them on the basis of market conditions.

Over a long time frame, wealth creation potential is much higher with ELSS. Young investors should opt for ELSS, since they usually have high risk tolerance and a sufficiently long time horizon to ride out the volatilities associated with equity investments.

Returns – ELSS is expected to offer better returns than PPF in long term. Currently, average 5 year compounded return for ELSS schemes is 20% pa and average 10 year compounded return for ELSS schemes is 14% pa. This is far better than PPF rate of return of more than 8%. 

As we can see the below chart, the last 5 years CAGR return in ELSS Scheme is 20%. If someone has put Rs 1,00,000 in  ELSS five years ago, his/her investment increase by Rs 1,48,832. On the other hand, if one go through PPF, his/her investment grew by only Rs 46,993.

Also, the return in PPF has declined over the years. From 9.5% at the start of 2013, it dropped down to 9.2%, then 9%, 8.7.1% and finally 8.10%. Between FY14 and FY17 the rate hovered between 8.1% and 8.7%. If you take the average inflation by year, the CPI from 2013 to 2017 has fluctuated between 7% and 9%. All in all, the PPF has not done an excellent job in consistently beating inflation over the last few years. You need some equity to create wealth.

Growth of Rs 1,00,000 - Comparison of Average Return in ELSS and PPF in last 5 years

 

 

Also, the return in PPF has declined over the years. From 9.5% at the start of 2013, it dropped down to 9.2%, then 9%, 8.7.1% and finally 8.10%. Between FY14 and FY17 the rate hovered between 8.1% and 8.7%. If you take the average inflation by year, the CPI from 2013 to 2017 has fluctuated between 7% and 9%. All in all, the PPF has not done an excellent job in consistently beating inflation over the last few years. You need some equity to create wealth.

Risks – Over longer term, volatility (price risk) reduces significantly, in equity instruments. There is little risk of capital in PPF, as it is backed by Central Government of India.

 

Comparison between ELSS Vs PPF

Features

ELSS

PPF

Type

Mutual Fund

Bank/Post Office Account

Lock-in/Maturity

3 years

15 years

Assumed Returns

Market Linked (17% for last 5 years)

Fixed (7.8% revised quarterly by Finance Ministry)

Minimum Investment

Rs 500

Rs 500

Maximum Investment Limit

No Limit

Rs 1.5 Lac

Taxation

Exempt

Exempt

Maximum Deduction Allowed under Section 80 C

Upto Rs 1.50 Lacs

Upto Rs 1.50 Lacs

Risk

Medium to High

Low

Tax on Maturity /Withdrawal/ Redemption?

No

No

 

Last Five Year Best Performing Debt Mutual Fund ELSS Scheme

% Return

ELSS Scheme

3mth

6mth

1yr

2yr

3yr

5yr

Reliance Tax Saver (ELSS) (G)  

6.90

13.00

35.70

20.60

11.00

21.60

SBI Tax Advantage Sr-2 (G) 

9.10

16.40

40.80

28.00

17.50

24.00

ICICI Pru RIGHT Fund (G) 

9.00

13.70

34.50

19.90

12.90

22.40

Reliance Tax Saver (ELSS) (G) 

6.90

13.00

35.70

20.60

11.00

21.60

Axis Long Term Equity Fund (G)

2.60

8.40

28.60

15.50

11.40

21.50

ABSL Tax Relief 96 (G) 

7.60

12.70

36.50

19.70

15.00

21.10

DSP-BRTax Saver Fund (G)  

1.90

7.40

26.70

20.10

13.70

19.40

 

  

Debt funds are the mutual funds which invest in different types of fixed income instruments such as Government Bonds, Corporate Bonds, Money Market instruments, Treasury bills etc. They are recommended for short- to medium-term allocation, often as a substitute to bank fixed deposits. For such investments, safety of capital and regular income are an important objective.

 

Invest in debt mutual funds over traditional investments in Banks and FDs.

  • To get indexation benefit for investment held more than three years
  • To get superior returns as compared to fixed deposits
  • Safe investment for risk averse investors
  • To get portfolio allocation
  • High Liquidity & Suitable for investors in higher tax bracket
  • To avoid volatility and willing to adjust your growth expectations accordingly
  • To invest for regular income
  • To beat inflation

Make Debt Fund work for you

Systematic investment in debt mutual fund to achieve financial goals plays a major role at a time when fixed deposit rates are falling, Debt funds offered by mutual funds could be the best bet for the risk-averse investors to consider for fairly decent returns.

Interest income is combined with your income and taxed as per your slab. However, mutual fund investments are taxed only when you redeem them. There is no TDS. When you actually redeem your liquid fund units, you will be taxed for capital gains. Units held for under three years are liable for short-term capital gains tax as per your slab. Units held longer than three years are liable for Long Term Capital Gains tax at 20.6 per cent with indexation benefit. This makes liquid mutual fund investing more tax-efficient than FDs.

Inflation is a silent killer lurks in the midst of all our investments. When we invest our money in any instrument then we must keep in mind the safety, return, liquidity and most important is the inflation rate.

 

Let’s understand through example :-

Parameters

Fixed Deposits

Fixed Term Plan (With Indexation)

Investment Amount (A)

1,00,000.00

1,00,000.00

Return

6.20%

8.00%

Value after 3 years (B)

1,19,777

1,25,971

Index Cost (C)

-

120000

Tax Rate (D)

30.00%

20.00%

Taxable Gain (E)

(B-A)             19777.00

(B–C)                                 5971.00

Tax Amount (F = E*D%)

5933.10

1194.20

Post Tax Gains (G = B - F)

113843.90

124776.80

Post Tax Returns (CAGR%*)

4.42

7.66

In order to determine the gains from the sale of debt mutual fund units are classified as capital gains, which allows the investor to use indexation while computing tax on them. This is applicable on long-term capital gains on investments that have been held for 3 years and more.
Many investors are seriously considering parking money in debt mutual funds as banks have started
cutting rates on deposits. Hopes of a policy rate cut by the Reserve Bank of India are also contributing to the decision. However, most investors forget to include the most important factor in their calculations: indexation benefit.  Indexation helps investors in long-term debt funds to save taxes.
Indexation Benefit in Mutual Fund

For example if someone has invested a lumpsum amount of Rs 100000 in a debt mutual fund in the year 2013  and sold it for Rs 123373 since the investment was held for more than three years, it qualifies for long term capital gains taxes with indexation benefit and will get far more return as compare to traditional investment. 

 

Last Five Year Best Performing Debt Mutual Fund     

 Mutual Fund Scheme

6mth

1yr

2yr

3yr

5yr

L&T Flexi Bond - Regular (G) 

8.2

12.8

11.9

11.5

10.5

IDFC Dynamic Bond - Plan A (G) 

4.9

12.4

7.8

10.8

9.4

Kotak Bond (Deposit Plan) (G) 

8.2

11.5

11.3

10.7

10.1

DHFL Pramerica Dynamic Bond -Direct (G)

5.1

9.9

10.7

11

--

SBI Short Term Debt - Direct (G)

4

7.6

8.8

9

--

Tata Short Term Bond - Direct (G) 

4

7.6

8.7

9

--

UTI Short Term Income - IP (G) 

3.7

7.4

8.5

8.7

9.2

DSP Banking & PSU Debt-Dir (G)

4.2

7.1

8.9

9.1

--

ABSL Treasury Optimizer-Reg (G) 

4.2

6.7

9.3

9.4

9.9

DHFL Pramerica Short Maturity Fund-Direct

4.5

8.8

9.8

9.8

--

The following are the advantages of investing in mutual funds:

Professional Management: Your money is managed by professionals who have the experience and resources to thoroughly analyse the economy and financial markets, and spot good opportunities.

Diversification: With smaller amounts, you can achieve a higher degree of diversification and reduce your risk.

Liquidity and Convenience: Investing and getting back your money is easy. Also, there is very little paper work, and it is very easy to track and monitor your investments.

Tax Benefits: Some mutual fund schemes offer you tax deductions under particular sections of Income Tax Act. In addition, your returns from mutual funds (dividends and capital appreciation) are also eligible for favourable tax treatment. 

Who can invest?

⦁ Resident Indians 

⦁ Non-resident Indians (NRI) 

⦁ Persons of Indian Origin (POI) 

⦁ Indian Public Sector Undertakings 

⦁ Indian Private Sector Undertakings 

⦁ Parents/Guardians on behalf of minors 

⦁ Wakf Boards 

⦁ Hindu Undivided Family 

⦁ Sole Proprietorship Firms 

⦁ Partnership Firms 

⦁ Cooperative Societies 

⦁ Charitable or Religious Trusts 

⦁ Trustee, AMC or Sponsor of their associates 

⦁ Endowment or Registered Societies 

⦁ Army/Air Force/Navy/Para-Military funds and other eligible institutions 

⦁ Scientific and/or industrial research organizations 

⦁ And other associations, institutions, bodies, etc., authorized to invest in mutual funds 

 

What is SIP & what is role of SIP in mutual fund ? 

SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP allows one to buy units on a given date each month, so that one can implement a saving plan for themselves. The biggest advantage of SIP is that one need not time the market. In timing the market, one can miss the larger rally and may stay out while markets were doing well or may enter at a wrong time when either valuation have peaked or markets are on the verge of declining. Rather than timing the market, investing every month will ensure that one is invested at the high and the low, and make the best out of an opportunity that could be tough to predict in advance

an investor can invest a pre-determined fixed amount in a scheme every month or quarterly, depending on his convenience through post-dated cheques or through ECS (auto-debit) facility. Investors need to fill up an Application form and SIP mandate form on which they need to indicate their choice for the SIP date (on which the amount will be invested). Subsequent SIPs will be auto-debited through a standing instruction given or post-dated cheques. The forms and cheques can be submitted to the office of the Mutual Fund / Investor ServiceCentre or nearest service centre of the Registrar &Transfer Agent. The amount is invested at the closing Net Asset Value (NAV) of the date of realisation of the cheque.  

Investors who wish to invest in mutual funds have to contact Abhipra Capital Ltd.

The normal procedure is to fill-up the BSE MFSTAR application form with C-KYC submit it along with a cheque for the amount of investment. Cheques , NEFT & RTGS  Payment are allowed .The client would submit the application form with the cheque in the favour of “INDIAN CLEARING CORPORATION LIMITED . The mutual fund company would issue a Account Statement with 4 working days from the date of investment to the client.

 

Thanks to modern computers and the Internet, investing in mutual funds has never been easier, though there are many important considerations an investor should take into account before adding shares of a mutual fund to their portfolio. Mutual funds come in a multitude of varieties including those that focus on different asset classes, those that seek to mimic an index (also known as index funds), those that focus on dividend stocks; the list goes on and on covering everything from geographic mandates to those that specialize in investing in securities that fall within a certain market capitalization.

By answering the following three questions, it is my hope you'll gain a better understanding of what mutual funds are, how they work, and how they can be added to your investment portfolio

Types of Mutual Funds based on asset class

  • Equity Funds: These are funds that invest in equity stocks/shares of companies. These are considered high-risk funds but also tend to provide high returns. Equity funds can include specialty funds like infrastructure, fast moving consumer goods and banking to name a few. THey are linked to the markets and tend to
  • Debt Funds: These are funds that invest in debt instruments e.g. company debentures, government bonds and other fixed income assets. They are considered safe investments and provide fixed returns. These funds do not deduct tax at source so if the earning from the investment is more than Rs. 10,000 then the investor is liable to pay the tax on it himself.
  • Money Market Funds: These are funds that invest in liquid instruments e.g. T-Bills, CPs etc. They are considered safe investments for those looking to park surplus funds for immediate but moderate returns. Money markets are also referred to as cash markets and come with risks in terms of interest risk, reinvestment risk and credit risks.
  • Balanced or Hybrid Funds: These are funds that invest in a mix of asset classes. In some cases, the proportion of equity is higher than debt while in others it is the other way round. Risk and returns are balanced out this way. An example of a hybrid fund would be Franklin India Balanced Fund-DP (G) because in this fund, 65% to 80% of the investment is made in equities and the remaining 20% to 35% is invested in the debt market. This is so because the debt markets offer a lower risk than the equity market.

Types of Mutual Funds based on investment objective

  • Growth funds: Under these schemes, money is invested primarily in equity stocks with the purpose of providing capital appreciation. They are considered to be risky funds ideal for investors with a long-term investment timeline. Since they are risky funds they are also ideal for those who are looking for higher returns on their investments.
  • Income funds: Under these schemes, money is invested primarily in fixed-income instruments e.g. bonds, debentures etc. with the purpose of providing capital protection and regular income to investors.
  • Liquid funds: Under these schemes, money is invested primarily in short-term or very short-term instruments e.g. T-Bills, CPs etc. with the purpose of providing liquidity. They are considered to be low on risk with moderate returns and are ideal for investors with short-term investment timelines.
  • Tax-Saving Funds (ELSS): These are funds that invest primarily in equity shares. Investments made in these funds qualify for deductions under the Income Tax Act. They are considered high on risk but also offer high returns if the fund performs well.
  • Capital Protection Funds: These are funds where funds are are split between investment in fixed income instruments and equity markets. This is done to ensure protection of the principal that has been invested.
  • Fixed Maturity Funds: Fixed maturity funds are those in which the assets are invested in debt and money market instruments where the maturity date is either the same as that of the fund or earlier than it.
  • Pension Funds: Pension funds are mutual funds that are invested in with a really long term goal in mind. They are primarily meant to provide regular returns around the time that the investor is ready to retire. The investments in such a fund may be split between equities and debt markets where equities act as the risky part of the investment providing higher return and debt markets balance the risk and provide lower but steady returns. The returns from these funds can be taken in lump sums, as a pension or a combination of the two.

Types of Mutual Funds based on risk

  • Low risk: These are the mutual funds where the investments made are by those who do not want to take a risk with their money. The investment in such cases are made in places like the debt market and tend to be long term investments. As a result of them being low risk, the returns on these investments is also low. One example of a low risk fund would be gift funds where investments are made in government securities.
  • Medium risk: These are the investments that come with a medium amount of risk to the investor. They are ideal for those who are willing to take some risk with the investment and tends to offer higher returns. These funds can be used as an investment to build wealth over a longer period of time.
  • High risk: These are those mutual funds that are ideal for those who are willing to take higher risks with their money and are looking to build their wealth. One example of high risk funds would be inverse mutual funds. Even though the risks are high with these funds, they also offer higher returns.