Friday, March 23, 2012


People tend to have this nasty habit of thinking of saving taxes only at the eleventh hour….

The last minute rush to save Taxes is on.
Here, I have observed that since people are in a rush to complete their Tax Savings., agents will make sure that these sitting ducks are handed the “Best”  product for them....for the  agents, not the investor. Typically, the agent manages to convince the investor to invest in Single Premium Insurance Policy and more often than not, since the investor is in a hurry and desperate to close the issue, does not bother to think whether the product fits into his Financial Planning.
That’s the reason JEEVAN VRIDDHI of LIC  is selling like hot cakes.
Just a little bit of thinking will make it possible for you to do both tax planning and long term financial planning together.
The answer is Equity Linked Savings Scheme from the Mutual funds. Also knows as Tax Planning Schemes, these schemes qualify for Tax Deduction under Sec 80C. ELSS has the lowest lock-in period of just three years among all tax saving instruments available under section 80C. The icing on the cake is that no tax is levied on the long-term capital gains from these funds.
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ELSS is only tax saving vehicle having substantial equity exposure and hence potential to earn higher returns. It also allows small-amount investments, as low as Rs 500, at regular intervals through Systematic Investment Plans (SIP), thereby helping investors benefit from disciplined long-term investing.
There are 48 schemes of this category available in the domestic mutual fund space. One needs to hold the units for a minimum period of three years to claim tax rebate. This serves well for the fund manager in terms of a lower portfolio churn, which in turn brings down transaction costs.

Investors generally prefer traditional debt instruments for tax saving. While these may provide safety and stability, they fall short of generating higher inflation adjusted returns over the long run.
For example, instruments earning 9% rate of interest when average inflation is around 9% will yield 0% real rate of return. Hence, investors willing to take some amount of market risk may look at equity linked investments via mutual funds for the long term. This asset class has historically provided high returns over longer periods.
The S&P CNX Nifty has returned over 16% in the 10-year period ended December 30, 2011, almost double compared with around 8-10% yielded by tax saving debt instruments.
Among equity tax saving instruments, ELSS, ULIPs and the equity option of the NPS are available for investment. The lock-in period for ELSS is three years, for ULIPs, it is five years, and NPS, has a lock-in period till 60 years of age.
Average 5 year annualised performance of ELSS funds was 26.43% as compared to average PPF rate of 8.32% and average NSC rate of 8.59% – outperformance of 18.11% and 17.94% respectively. In other words Rs. 100,000 invested in ELSS funds on an average would have grown to Rs. 323,036 in 5 year time whereas the same amount invested in PPF or NSC would have grown to just Rs.149,120 and Rs. 150,317 respectively.

Like most equity funds, ELSS funds also tend to be volatile in the short term but have the potential to help investor generate wealth in the long run. Their wealth generation potential along with the compulsory minimum investment period of at least 3 years makes it a great investment option for investors looking to benefit from tax deductions under Section 80C.
Do not take a hasty decision in the eleventh hour. Go through my other posts about Tax Planning Schemes and you will be able to zero in Good Funds which you can look at.
My picks would be
Religare Tax Plan
HDFC Tax Saver
L&T Tax Saver Fund
Fidelity Tax Advantage
CanRobecco Equity Tax Saver
Best of luck,
Srikanth Matrubai
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Thursday, March 15, 2012



Many investors riding the Infrastructure boom invested in Infrastructure funds only to see their investment languishing….What should they do now????

Sri Anandji wrote : "Srikanthji Namaskar, I had invested in two funds namely SBI Infrastructure and Sundaram Energy Fund and have still not yet recovered even my prinicipal amount.
Please guide me what I should do with these two funds"

Srikanth Shankar Matruai i  advises :
"Anandji, I can clearly understand your disappointment.

If there is one sector that has been a major major disappointment, then it is undoubtedly Infrastructure. And as such, Infrastructure Funds have been a huge huge disappointment for the past 3 years.

Infrastructure funds have been the biggest causality in the stock market downturn.
The Govt's lethargic moves have only added fuel to the fire and the Infrastructure is in a paralysis state.
High interest rates, environmental issues, delay in project execution, Govt inaction have taken a huge tool on Infrastructure companies and on the Funds which have taken an exposure in them.
Everything that could go wrong with Infrastructure has happened.
Consistently High Interest rates, depressed stock markets, political problems, scams, land acquisition issues have taken a huge toll on Infrastructure sector.
The general consensus is that the government will start allocating new core sector development projects this year.
The Infra space has a lot of promise and lots of potential. Every political party's manifesto speaks about their concern for infrastructure development.
Only thing needed is a consensus and sorting out the concerns.

Many investors who are stuck with Infrastructure funds are in a dilemma whether to book losses or average out.

My personal feeling is that everything which could go wrong in the infrastructure space has gone wrong.
There is a saying "it is darkest just before it is dawn".......and I stick with the same kind of feeling towards the Infrastructure sector and in turn infra funds.
it is an interesting space, it is an exciting space, it is a volatile space. So, you will have to manage your risk within the portfolio quite well. If you have 2%-3% investment in an infra fund you can take that risk.
And, once you have decided to take the risk and invest in Infrastructure funds, then, please go for Dividend payout option.
But recently, the sector has witnessed some momentum. There are a number of reasons behind this turnaround in performance. The infrastructure companies are receiving good news from all around; the drop in interest rates is expected to benefit these companies as well. 

Investment in a sector fund is BAD....even a Sector as broad as Infrastructure.

These sector funds are meant for investors who are interested in the core sector  and hence suitable for those willing to take a higher amount of risk as well as have a 3 year holding time horizon.
Sector funds are risky, require active monitoring and even possibly market timing.
I would suggest you to stay away from infrastructure mutual funds. I strongly believe that investors are better off when they diversify their portfolios.
Invest in diversified equity funds, which will anyway have exposure to infrastructure companies if they are doing well.

Best of luck,
Srikanth Shankar Matrubai

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