Save Tax And Seek To Create Wealth



Indians have historically favoured traditional fixed income instruments for their investments (normal as well as tax savings). This, however, does not marry well in terms of prudent financial planning, especially since the country has one of the largest young population in the world. Indeed, the median age of India’s population is far below those of the most comparable economies as well as the world, which means most Indians have a long vesting period of investment.

Indians have historically favoured traditional fixed income instruments for their investments (normal as well as tax savings). This, however, does not marry well in terms of prudent financial planning, especially since the country has one of the largest young population in the world. Indeed, the median age of India’s population is far below those of the most comparable economies as well as the world, which means most Indians have a long vesting period of investment.

Equity as an asset class, as represented by the market benchmark S&P BSE Sensex, has returned 15% CAGR on average for a 15-year holding period since its inception (1979), compared with just ~ 10% for the Public Provident Fund (PPF). In terms of actual money growth, based on the average return numbers, an investment of Rs 1 lakh would have grown to Rs 8.14 lakh in equity investments versus just half of that at Rs 4.18 lakh in PPF.

Typically, most of us slot tax saving and planning for the last fiscal quarter (January-March). Is this ideal? Evidently no, because:

  1. Last minute investments can be indiscriminate, oblivious to one’s own risk-return profile and long-term investment objectives, and
  2. One may not have sufficient funds to invest at that time, resulting in higher tax outflows.

Tax planning should ideally be a disciplined and planned activity. If you cannot have year-round investments, then ensure your tax planning is done earlier in the year. The earlier this is done, the better it is.

Investors should, however, understand that ELSS is market linked and does not offer guaranteed returns such as the vanilla fixed income tax-saving instruments. Hence, an investor should only invest after considering his/her risk profile and conducting proper due diligence.

Further, the proceeds from ELSS are subject to a 10% long-term capital gains tax. Investors should consider this factor although over the long term, the impact would be minimal on overall returns.

Finally, like with all equity investments, the best way to invest in ELSS funds is through an SIP throughout the year.

An investor education initiative by Mirae Asset Mutual Fund

All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF). For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the Knowledge Center section available on the website of Mirae Asset Mutual Fund.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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