In this second series I will discuss on the one out of the two most hot picked tax saving investment tools.
Normally there is a thumb rule which one should follow for tax saving is that what ever is ones age, he should go for equity investment according to that age limit. It might sound confusing don’t worry I am removing the confusion. If my age is 25 years then according to the financial thumb rule I should have an investment portfolio of 25% in debt and remaining 75% in equity. This is calculated by simply deducting your age from a value of 100. If my age is 45 then I should have an equity portfolio of 65% in equity and 45% in debt.
- This thumb rule is equally important for doing investment in Tax Saving too. Since in many case we find that all the investments in tax saving now a days is being parked in equity where ones exposure is often more than 100%.
- Its true that equity investments fetches much higher returns as compared to other investment avenues. But just remember what happened to your tax saving funds when the Indian equity markets went for a rock bottom decline. We find that all the NAV of the major tax saving funds having exposure in equity went for a cascading fall in their NAV values.
- Mark there is another thumb rule which needs to be abide that is always make calculation for negative returns too which will help you to calculate the amount of risk one can take. This is very much important at times when the market enters for a prolonged Bear market phase.
- Now many of friends will say that equity investment is for long term. Since we all ways gain in log term equity investments. True. I agree will all of you but tell me one situation where one is having all his eggs in one basket.
- So before doing any investment in tax saving instrument please calculate your current tax saving investment portfolios.
- One should plan in this way that apart from doing investment in equity one should also try the other avenues available under section 80C for tax saving.
This year doing investment in ELSS will fetch more advantage. As SEBI have scrapped Entry Load on Mutual Funds, all these tax saving ELSS are now free of entry load. This makes your investment corpus to get invested without any deduction of charges as earlier their used to be a deduction of 2.25%. So if one does an investment of Rs.10000 his total investment will be Rs.10000.Where as in earlier case there is used to be a deduction of 2.25% which amounted to your investment of Rs.9775.This makes the ELSS more attractive this time for doing investment in tax saving.
One more thing I would like to inform all my tax saving friends that this time you’re Financial Agent or Advisor might not suggest you to do investment in ELSS. Since as entry load have been scrapped by SEBI the agents will not get any commission out of the ELSS. So you might find some new marketing strategies by your advisor pushing you hard to do investment in insurance or some other product which carries some commission.
So in this situation all you need to do is to do an advance planning for tax saving. That’s the main reason why I have started asking you before 4 months to do your tax saving investment calculation.