Tax Saving Investments and their Features

Nutan Gupta

10 Jan 2017

This is the time of the year when you start getting calls from the HR of your company asking for investment declarations. If you have not made any investments yet, here is the list of instruments where you can invest.

Instrument Investment Section of IT Act Lock-in Period Returns Risk Taxation at Maturity
ELSS ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products. 80C 3 years Not fixed, depend upon the performance of equity market. However, in the past, ELSS has given average returns of 12-14%. Carries some risk Tax-free
PPF It is a type of investment which is provided by the Government of India 80C 15 years The rate of returns changes as per government policies.

Current returns - 8.1% compounded annually
Risk-free Tax-free
NSC NSC are bonds issued by the government for small savings and one can purchase these bonds from post offices. 80C 10 years The interest rate on NSC is decided by the government every year. It is linked to the yield of 10-year government bonds.

The current interest rate is 8%.
Low Risk Interest is Taxable
Pension Mutual Funds Pension Mutual Funds invest 40% of the money in equity and 60% in debt instruments. 80C Until you reach the age of 58 The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8-10% for a 5-year and 10-year period. Carries some risk Tax-free
Tax Saving FD It is a special fixed deposit made with any bank. 80C 5 years The interest rate varies from one bank to another. It usually ranges from 6.5-7.5%. Risk Free Interest earned is taxable
Rajiv Gandhi Equity Saving Scheme Exclusively for first time retail investors. Individuals with an annual income below Rs. 12 lakh can invest. 80CCG 3 years Depends on the performance of equity markets. Carries some risk 50% of the invested amount

Have Referral Code?

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Tax Saving Investments and their Features

Nutan Gupta

10 Jan 2017

This is the time of the year when you start getting calls from the HR of your company asking for investment declarations. If you have not made any investments yet, here is the list of instruments where you can invest.

Instrument Investment Section of IT Act Lock-in Period Returns Risk Taxation at Maturity
ELSS ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products. 80C 3 years Not fixed, depend upon the performance of equity market. However, in the past, ELSS has given average returns of 12-14%. Carries some risk Tax-free
PPF It is a type of investment which is provided by the Government of India 80C 15 years The rate of returns changes as per government policies.

Current returns - 8.1% compounded annually
Risk-free Tax-free
NSC NSC are bonds issued by the government for small savings and one can purchase these bonds from post offices. 80C 10 years The interest rate on NSC is decided by the government every year. It is linked to the yield of 10-year government bonds.

The current interest rate is 8%.
Low Risk Interest is Taxable
Pension Mutual Funds Pension Mutual Funds invest 40% of the money in equity and 60% in debt instruments. 80C Until you reach the age of 58 The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8-10% for a 5-year and 10-year period. Carries some risk Tax-free
Tax Saving FD It is a special fixed deposit made with any bank. 80C 5 years The interest rate varies from one bank to another. It usually ranges from 6.5-7.5%. Risk Free Interest earned is taxable
Rajiv Gandhi Equity Saving Scheme Exclusively for first time retail investors. Individuals with an annual income below Rs. 12 lakh can invest. 80CCG 3 years Depends on the performance of equity markets. Carries some risk 50% of the invested amount

Have Referral Code?