Tax Saving Mutual Funds: Investor can invest in Tax saving mutual fund scheme known as ELSS – Equity Linked Saving Scheme and avail tax benefit u/s 80C. Typically these are equity oriented mutual funds which invests at least 80% of corpus in equities.
Key benefits of Tax Saving Mutual Funds:
- 03 yr lock in period which is least among 80C tax saving instrument.
- No long time / periodic commitments as it can be one time investment.
- Generally any tax saving mutual fund scheme declares dividend once in a year (its not guaranteed) if dividend option is opted.So some liquidity is possible.
- Tax free capital gains and dividends.
- Long term Growth potential with commensurate risk.
All mutual fund houses have at least one mutual fund scheme.We have selected 03 mutual fund schemes with consistent track record.
- Axis Long Term Equity Fund: This fund was launched in Dec, 2009.Earlier it was known as Axis Tax Saver which was renamed as Axis Long Term Equity Fund in 2011.This fund has excellent blend of different sectors like Banking,Automotive,Pharma,IT,Engineering,Chemicals,Food & beverages.This fund has consistent performance record with lower than average volatility and NAV deviation.
- Franklin India Tax Shield:This is one of the oldest fund which was launched in April 1999.This fund has diversified sector allocation like Banking,Automotive,Technology,Pharma,Engineering,Telecom.
- ICICI Prudential Long Term Equity Fund (Tax Saving):This fund was launched in August , 1999 as ICICI Prudential Tax Saver Fund which was renamed as ICICI Prudential Long Term Equity fund (Tax Saving) in Sept 2015.This is large cap oriented multicap fund having exposure in Banking,Technology,Pharma,Automotive,Metal & Mining sector.
Risk Profile is very important Factor:
Investors risk profile is very important consideration.As returns of any mutual fund scheme are market dependent, we can not run away from market risk.Its possible that your mutual fund won’t give any returns within lock in period.so before investing, keep appropriate investment horizon like 5 to 10 years.
Summarizing, tax saving mutual funds can offer growth potential over other fixed income tax saving instruments like PPF, but risk profile of investor is also important.Invest if you can digest volatility of equity market.
HUDCO – wholly owned by Govt of India, is mandated to build affordable housing & to carry out urban development.It provides long term finance for construction of residential houses & urban development programmes in the country.
HUDCO will come up with public issue of tax free bonds in January 2016 & it will issue tax free bonds of worth Rs.1711.50 crores.
Details of HUDCO Tax Free Bonds January 2016:
- Issue open date:January 27, 2016.
- Issue close date:Feb 10, 2016.
- Credit rating : “AAA” from IND & CARE which indicates highest safety of issue.Last yr rating was AA+.so there is credit rating improvement for HUDCO tax free bonds.
- NRIs are not eligible to apply.
- Listing will be at BSE only.
- Interest received will be annually and it will be tax free.As interest is tax free there is no question of tax deduction at source.
- Can invest in demat as well physical mode.If investor have demat account then better to invest in demat mode.
Tax free bonds is good option for safe,periodic,long term interest income.Its not great investment option for young earning individuals as there is no cumulative option.Such investors can prefer to choose PPF rather than tax free bonds.Tax free bonds also superior to immediate annuities offered by insurance companies as annuities are taxable in nature.
So if you have good cash to invest and want safe,long term periodic income then invest in HUDCO tax free bonds which will open on January 27, 2016.
HDFC mutual fund is in process to launch Retirement savings fund.As name indicates,this fund will offer investors to accumulate corpus meant to be used after retirement.This fund is similar to any other mutual fund scheme with some modifications which will encourage to invest for long term.
Details of HDFC Retirement Savings fund are as follows:
- NFO open date:Feb 05, 2016.
- NFO close date:Feb 19, 2016.
Following fund options are available for investors:
- HDFC Retirement Savings Fund – Equity Oriented:Investment predominantly in equity instruments.
- HDFC Retirement savings Fund -Hybrid Equity: Investment predominantly in equity instruments & rest in debt instruments.
- HDFC Retirement Savings Fund -Hybrid Debt Fund :Investment predominantly in debt & money market securities & rest in equity instruments.
- This plan will be managed by experienced fund managers who have managed funds like HDFC mid cap opportunities.
- Provisions to discourage investors from early redemption.
- 80C Tax benefit:This is open ended notified tax savings scheme.Tax benefit u/s 80C is available for investment under any of above plan.
- Lock in period:There is mandatory lock in period of 05 yrs.Switch / redemption possible only after completion of 05 yrs.
- Investment possible through lump-sum,SIP,STP way.
- Exit load: Exit load of 1% if units are redeemed before attaining age of 60 yrs.
- For now there will be only Growth option and dividend option will be introduced in future.
- No long term capital gain tax payable (as par current taxation laws) for equity oriented fund.
- Who can invest:Any adult investor without any upper age limit can invest in this fund.Investors whose age is above 60 yrs can also invest but units will be locked in for minimum 05 yrs.Minors through natural / legal guardians are not eligible to invest.
- Its not mandatory to purchase annuity through redemption value: Unlike to retirement funds of insurance plans or NPS, its not mandatory to buy annuity through redemption value.Investor can opt for its own choices for regular income.
How HDFC Retirement Savings fund will work :
Scheme will assist investors to raise corpus up to extent of redemption value.After attaining age of 60 yrs investors can have different options:
- Redeem units completely & opt for other instrument : Redeem units completely and invest in other options like senior citizen savings scheme , non-cumulative fixed deposits which can offer investor periodic income.
- Switch to other scheme of HDFC Mutual fund : Switch to other appropriate scheme of HDFC mutual fund like Monthly Income Plan or dividend options of any other scheme and get dividend income.
- Option of SWP – Systematic Withdrawal plan:Investor can opt for SWP and get regular fixed, periodic redemption amount.
Should you invest in HDFC Retirement savings fund:
- Investor have choice to invest in ELSS schemes to avail 80C benefit.So better to invest in any good performing ELSS scheme if aim is to save tax.
- With correct approach, retirement corpus can also be raised through other on going mutual fund schemes.
Other fund houses like Reliance already have such fund and others like ICICI pru,SBI,DHFL-Pramerica are in process to launch similar funds.Invest only if you have long term investment approach.