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Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. suriseetaram.com and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. suriseetaram.com, its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
Tax saving mutual funds are just like any other mutual funds with the added bonus that investments made in them are eligible for tax benefits under section 80C. Most of the tax saving mutual funds are ELSS schemes and make investments in equity markets.

How do Tax Saving Mutual Funds work When an investor invests their money in mutual funds, the funds are added to the pool. The funds are then invested in the equity markets in such a way that even if one investment incurs losses, the other investment manage to mitigate the loss. For example, the breakup of an invest in a particular fund may look like:

  • Automotive industry 6.56%
  • Banks 17.56%
  • Consumer durables 5.34%
  • Consumer durables 5.34%
  • Consumer non-durables 5.66%
  • Power 5.92%
  • Software 8.93%
  • Pharmaceuticals 9.99%


This means that 6.56% of the invest will be put in the automotive industry and 17.56% in banks and so on. ELSS schemes tend to come with a lock-in period of 3 years, which means that the investment cannot be withdrawn for till the end of that time. If the investment is being made in monthly installments (SIP) then the lock-in period for each instalment is 3 years. For example, if the first investment was made on the 1st of Jan 2015 and the second one on 1st of February 2015 then on the 1st of January 2018 ONLY the first installments will get unlocked. The second instalment will remain locked till the 1st of February 2018.

When it comes time to withdrawals, investors can see how many units have gotten unlocked and redeem them at the current NAV. The NAV (Net Asset Value) is the amount you will get for each unit. To make withdrawals, you will need to know the number of available units and submit a claim form to the mutual fund provider. They will credit the amount to your account as soon as it is processed.

Types of ELSS

  • There are two types of schemes under these mutual funds. One is the dividend scheme and the other is the growth scheme.
  • The difference between the two is that in the dividend scheme, if the fund announces dividend then investors get an extra income based on those dividends. These dividends are not subject to tax or lock-in periods and can be withdrawn or reinvested in the fund and will become eligible for tax benefits.
  • There are no such provisions under the growth schemes.


Features of Tax Saving Mutual Funds

  • If you can't afford to put in large sums to invest then the investing in ELSS can begin with Rs. 500 and has no upper limit, unlike PPF and NSC.
  • While there is no upper limit, only investments worth Rs. 100,000 will be eligible for tax benefits.
  • Investments made in tax saving mutual funds come with lock in periods of 3 years.
  • As a result of being mutual funds these investments come with an inherent risk factor which can either low, medium or high based on where the funds are invested.
  • Typically, tax saving mutual funds are ELSS' (Equity Linked Savings Schemes) and open ended.
  • These mutual funds also offer nomination facilities.
  • Many of the ELSS schemes will feature entry and exit loads. These are the fees paid to the mutual fund providers.


Source:bankbazaar.com

Small but regular investments in mutual funds can help you build a large corpus over time

Most of us won't deny that becoming a parent is one of the most pleasant feelings to have. While parenthood is a joyful phase, it does come with a lot of responsibilities also. These responsibilities are not just limited to attending to the needs of the child but also extend to planning for his/her future.

In today's inflationary times, bringing up your young one can be a challenging task in itself. For example, look at the school-related expenses: fees, books, school bag, transportation and so on. These can put significant strain on parents' finances. Hence, it is necessary for every parent to plan for his/her child's needs.

Know the goals and goal amounts
Planning for your child's future starts with first listing the various goals, like higher education and wedding. Once you have established the goals, you have to estimate the goal amounts. When it comes to estimating the goal amounts for their children's future, many parents turn clueless. They cannot be blamed for their ignorance because planning for the future requires estimating what amount of money they will need in the future.

How does one know that?
In finance, such calculations are done by estimating the amount in today's rupee terms and then inflating it by a certain rate. This rate is the rate of inflation. 'Inflation' is nothing but the price rise that you see happening over time. For instance, if you will need Rs10 lakh for your child's education today, 10 years hence, you will need Rs21.59 lakh if the cost of education rises by 8 per cent per annum. What's the underlying formula for this? Worry not. You can use compound-interest calculators available online in order to arrive at your goal amounts. Alternatively, you can seek help of a financial advisor.

Building the corpus
But having known the target amount how do you go about accumulating it? You can do so in two ways: invest the entire amount in today's rupee terms in one go and make it grow by more than the inflation rate or invest small sums every month and make them grow at the desirable rate.

The problem with the first option mentioned above is that you may not have the required amount at hand. This makes periodic investments the best choice for most parents. When you make periodic investments in a mutual fund over time to build a corpus, such a method is termed as a systematic investment plan or SIP. Equities are known for giving inflation-beating returns, so SIPs in equity mutual funds are an effective way to build corpus for your child.

Source:valueresearchonline.com

Here is how to make a new beginning on managing your money better in the new financial year

Wealth creation does not happen by accident. There is some element of luck involved, but we can usually apply a simple rule to wealth creation. The rule is one of cause and effect. Wealth is created because of doing certain things systematically, over and over again. It is about being disciplined in the way you spend and invest. It is about maintaining the right behaviour towards investing, even when fear or greed overwhelm you.

Here is how to make a new beginning on managing your money better in the new financial year.
1.Pay yourself first: Most people invest what is left of their salary after meeting expenses. If we did the reverse and paid ourselves 30% of our salary first and spent the remaining, we will grow your wealth by more than three times compared to someone who invests only 10% of their income. Over a long term, the power of compounding helps us meet our goals faster. These goals could be long-term, such as education planning, asset building or even early retirement. Over the short term, putting away money systematically ensures you have enough to meet emergencies or take an extravagant vacation.

2.Set goals: This is important because you need to know what you are saving for. Not having a goal will make you live for the moment, leading to wrong investment choices. Immediate needs will precede long-term goals, compromising financial independence as you grow older. Each goal needs to have a specific plan, and each plan needs to be systematically followed. The amount you will need to invest to meet the same goal becomes larger each year you defer planning for it. The successful execution of a financial plan is as important as creating one.

3.Take a long-term view regarding your goals: Doing so will ensure your investment behaviour is aligned to these goals, and that you don't get swayed by short-term market movements. In long-term financial planning, patience is the biggest virtue. Stock markets can be volatile in the short term, but once you learn to ride the crests and troughs of the market, you will be glad for it, as equities outperform almost all other asset classes over the long term. Your money will not only grow, it will also beat inflation over time.

4.Spread your money across and within asset classes: This helps diversify your portfolio and minimize risk. Across asset classes, diversify between financial and non-financial assets. Within equity and debt, split your assets between liquid and illiquid equity and debt. Try not to lock in your assets over long periods of time. While equity will provide the growth engine to your portfolio, debt will bring in safety, income and capital preservation.

5.Insure yourself: There is no point in planning for the future unless you have covered the downside risks in life. Statistics indicate that one in four people become bankrupt when an emergency strikes. Often, these emergencies are related to death or medical conditions. Ensuring an adequate life and medical insurance, which covers liabilities as well as provides an income for the family for their lifetimes, is the bedrock of financial planning. It is prudent to have a private life and medical insurance in place and not depend on your organization.

6.Set aside funds for a rainy day: Always maintain an equivalent of 6 months of expenses as an emergency fund. You can build this fund through a systematic investment plan (SIP) into a liquid fund. These funds offer a higher return compared to a savings account with virtually no risk to capital. You can also use it to build a corpus to pay for annual expenses such as insurance premium payments, school fees, vacations, and others.

7.Pay down your loans: None of us like to live in debt. If you have outstanding credit card balances, car loans, personal or home loans, make a significant dent on those loans this year. You could start with the loan on which you pay the highest interest rate and get no tax benefits, such as credit card loans. Next, close any personal loans or car loans. Close your home loan or education loan the last since you get annual tax benefits on these. Start by investing a part of your income in a short-term debt fund and redeem the amount at regular intervals to bring down the loan.

8.Look for double benefit in tax saving investments:Saving tax should not be the main reason for investing. Be it equity, debt, real estate or insurance, saving tax is secondary to the main purpose that the instrument serves . If you are underexposed to equity, then invest in equity-linked savings schemes (ELSS) of mutual funds and subsequently enjoy the tax benefit.

9.Take expert advice: The path to wealth creation is complex and fraught with mistakes. Financial products are complicated and most of the risks associated with these products are buried in fine print. If you really want to plan your financial freedom or attain the level of wealth creation you desire, enlist the help of a financial planner.

10.Write your Will: Your Will determines how your assets will be distributed after your lifetime. In its absence, your assets will be divided according to Indian succession laws. Writing a Will gives you the liberty to divide your assets as you desire. You need to ensure that it is legally binding, so your inheritors do not run into legal issues while accessing the assets.

When you enter the new financial year, let your investment decisions not be primarily driven by short-term market movements or changes in tax rules. Hopefully, LTCG will mean more than paying additional tax. Hope it translates to 'Long Term Commitment to Goals' instead.

Source: valueresearchonline.com
A few financial discipline measures taken now will go a long way in making your money last longer

We do want you to be able to buy all the comfort and happiness that your hard earned money can buy, but we don’t want you to live in just the present. You should be able to enjoy your money not just today, but also tomorrow and even after you no longer earn. So you need to save before you spend. But should you save by cutting back important spends and being miserly or should you just save a fixed amount every month and spend the rest? Here are three steps that will give you answers to these questions.

Segregate your expenses
How much is available to spend will depend on your net surplus. Draw up a list of non-discretionary expenditure. These are boring but necessary spends such as household supplies, food, school fees and rent. Subtract this from the money you make and you get a net surplus. “Map your income on one side and non-discretionary expenses on the other side and net off your income. This is the surplus from which you make necessary savings first. What is then left is the amount for discretionary expenses and savings,” said Shyam Sekhar, chief ideator and founder, iThought, a financial advisory firm. But how much do you save? This will depend on two things: your goals and asset allocation.



Build your money goal
Save for a comfortable tomorrow, and according to Shweta Jain, founder, Investography Pvt. Ltd, a financial planning firm, how much to save depends on how much you want to spend tomorrow. “Drawing up financial goals helps in quantifying the amount you need to save,” she said. Money goals are important, even if you have just started working and the money is tight but your calendar of social do’s is full. “No one really teaches us how to manage money once we start earning it. We are left by ourselves or our elders’ or friends’ guidance and learn only by making mistakes,” added Jain. Build your goals from the word go. You don’t have to start planning for retirement right away, although that would be good, just start with small goals like saving for a car or a holiday or even for an unforeseen event. As you build that discipline and you move up the career graph, you will find it easier to invest for bigger goals like retirement or your child’s education. Build that discipline now.

Get your asset allocation right
Drawing up goals is the first step to understand how much you need to save; it’s the asset allocation that helps you close the loop. “You don’t have to save a lot of money but just the right amount if you have your asset allocation in place. So for a long-term need such as retirement, you should look at allocation more towards equity given they outperform all other asset classes over a long-term horizon,”said Surya Bhatia, managing partner, Asset Managers. Suppose you want to buy a house 10 years down the line and you want at least Rs20 lakh for the down payment. Work the math backwards. In the absence of an investment, it would mean you need to save Rs2 lakh every year, but if you invest in equities—equities are capable of generating double-digit returns over a long-term horizon—assuming a 12% return (pre-tax) on investment you only have to invest about Rs1.14 lakh every year.

Delayed gratification
According to Jain, one of the reasons people find it difficult to save is that it’s so much easier to spend. “Spending feels so good. There is hardly any feeling more powerful than swiping a card and not caring, at least at that point, to pay,” she said. But if you can control your impulses, plan your spends and provision for it, you will save yourself from a lot of wasteful expenditure. Delayed gratification is one of the biggest money lessons you need to learn by heart. Why? Because when you postpone impulse shopping, you have more at your disposal that you can choose to save or spend. In fact, the earlier you save the more you benefit: you give more time for your money to compound.

Unlike the previous three steps, this rule is the toughest to implement because it’s intangible. But it’s a sure shot winner to help you cultivate the right money habits.

Source: livemint.com
Please do not reply back to this mail. This is sent from an unattended mail box. Please mark all your queries / responses to suri@suriseetaram.com.
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. suriseetaram.com and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. suriseetaram.com, its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.