ELSS – The Smart Way to Save Tax
What if someone told you that you can save tax, create long-term wealth, save tax again on the wealth so generated and all this with much lesser lock-in period than ALL other tax saving options in one single investment avenue? Strange but true…
Yes, you guessed it right – it is the ubiquitous ELSS, Equity Linked Savings Scheme.
Tax Planning forms an indispensable part of one’s financial planning. January has arrived with the rush to invest in tax saving plans before the financial year ends. Give ELSS a hard look this time.
Why is ELSS such a great tax saving option?
a) It is an equity-diversified fund which invests majority of its assets in equity shares of companies, thus getting you long-term wealth creation.
b) It gets counted as an 80C investment along with provident fund, insurance policies etc.
c) There is no tax on the profits as long as you remain invested. When you withdraw, there is a very small 10% tax on profits with the first Rs 1 Lakh of profit exempted from tax.
d) It has the shortest lock-in of only 3 years out of all the tax saving options available to you under 80C section.
e) You can invest a lump-sum amount, in small lots through SIPs or a combination of the two as you feel like.
f) There is no compulsory maturity after 3 years – you can continue your wealth generation process for as long as you want and take it out when you want.
ELSS funds are a smart way to save a lot on your tax outgo along with being a far better option of wealth building compared to all other tax saving options under Income Tax Section 80C.
(Contributed by Kritika Saini, Assistant Manager, Team Sukhoi, Hum Fauji Initiatives)
Why Should One Resist Redeeming Investments Midway?
Many-a times when the market does well and investors see good profits in their portfolio, they get tempted to take out money. There’s a fear element also there, that if the market goes down, the profits will be lost.On the contrary, when the markets go down, similar emotions play and with a fear that markets may keep going down forever (🙄), people take out their investments, thus converting their notional losses to real ones.
This is how a typical ‘Greed and Fear’ cycle plays out. And the same investors forever get a feeling that stock markets are only risk and never do the long-term wealth creation for them which other people only talk about.
Undoubtedly, all these are wrong reasons to sell.
People also usually assume that the stock market necessarily goes up to come down. It does happen once in a while in the short run but typically, the equity market only goes up in the long run as you can see stock market charts over the past 60 years and more in India itself. So if you take your money out in anticipation of the market fall and plan to reinvest when the markets have ‘bottomed out’, it may never happen unless you have the crystal ball to peep into the future. You will never be able to perfectly time your entry (in lows) and exits (at highs), as nobody ever in the world has been able to do.
Rebalance Your Portfolio to Stay on Track
Instead of weaving in-and-out of the markets, Rebalancing your portfolio is a much better strategy because, over time, based on the returns of your investments, each asset class’s weighting will change, changing the risk profile of your portfolio. Rebalancing is a crucial procedure to make sure that the composition of your portfolio follows your investment plan and risk tolerance. It also helps in achieving your investment goals on time.
Hence, be methodical, resist the temptation to take your money out and stay focused on your goals while rebalancing your portfolio on a six monthly basis to follow market gyrations.
(Contributed by Shaheen Akhtar, Relationship Manager, HNI Desk, Hum Fauji Initiatives)
Did You Overreact When the Market Reacted?
Are you wanting to exit from the financial market nowadays because they seem too high, too low, likely to go low or too volatile?Please remember that Volatility is the only constant in the stock markets. Inexperienced investors misunderstand this volatility as risk and hence are forever on the edge due to market movements, forgetting that markets give great returns in the long run only because of this inherent characteristic of volatility. The only way to get the advantage of long term wealth creation characteristics of the stock markets is to have long ‘time in the markets’ rather than ‘timing the markets’.
As an investor, you should recount the following points before reacting and making an exit from the markets:-
1) Don’t Sell in a Panic – The faster the rise, the sharper the fall. That is one of the permanent rules of the market. Investors make exit from their investments after watching market touching lower circuits. Market can seem a bit of threatening at times but it gives you an opportunity to buy low and sell high, the only path to successful wealth creation.
2) Refrain From Making Panic Purchases – Making panic purchases during a market high jump is to be avoided at all costs, much like panic sales during fall. A panic buying or selling state of mind can create a barrier in achieving your present investment objectives by encouraging you to make impulsive decisions which will never work eventually.
3) Continue your SIPs – A Systematic Investment Plan enables periodic, recurring investments, allowing an investor to average out the cost of his holdings. This helps investors in down markets since they may purchase units for less money.
Never abandon the markets if you don’t need the money for an upcoming financial goal. You will be on the road to becoming a wise investor if you have experienced both a bull and down market.
(Contributed by Gautam Arora, Associate Financial Planner, Team Sukhoi, Hum Fauji Initiatives)