After having burnt fingers in the current financial crisis and market crash, it has become a little difficult for regular ELSS investors. Though the optimistic ones will continue to SIP in ELSS Tax Saving Funds, many of us would want to invest atleast some portion in safe tax saving investment options this year.
At this point of time there are two types of risks - risk of market falling further and doubts on sustainability of the AMC or the company you invest through. Therefore all the options have been listed keeping both the risks in mind.
SBI TAX Savings Scheme
5 years + FD with the safest bank in India. Rate of Interest might vary. Currently it is 9% p.a. for general public and 9.5% for senior citizens. 1% extra for SBI Staff and SBI Pensioners. Check current rates here
Deposits can be made in multiples of Rs. 1000. Minimum Lock in Period is 5 years.
NABARD Rural Bonds
NABARD is one of the apex financial institutions of India, fully owned by the RBI and Government of India. It is one of the strongest and safest financial institution to invest in.
NABARD Rural Bonds are 5 year lock in bonds with tax saving under section 80(c) of IT Act. It offers an interest rate of 8.5% p.a. for general public and 9.00% for senior citizens. For latest rates log on to Nabard.org
There are other options like National Savings Certificate (NSC) and PPF too. However they have a higher lock in and less returns. The only benefit offered by 15 year PPF is that the returns are also tax-free which is not the case with rest of the investment options mentioned above.
If you have an apetite for risk, you can put some money in ELSS (Tax Saving Mutual Funds).
Safe Tax Saving Investment Options
Mutual Funds and Airlines Company
If you have to travel from one country to another, what will you do? Will you pick up a Boeing and take off with entire flight empty? No. For two reasons:
- You drive a lot round the city but still you are not exactly an expert pilot
- If you go alone, it will cost a bomb for you to hire a plane and a pilot
This is exactly how mutual funds work. A mutual fund house (the airline company) appoints a professional fund manager (pilot) to pool and invest money from various investors (passengers) with similar investment objective (destination).
Investors get the benefit of MBAs from Harvards and IIMs of the world working for them at a negligible cost.
Real Estate Mutual Funds in India
Finally, after the long wait, SEBI lays the foundation stone for Real Estate Mutual Funds in India. Though real estate funds were available to HNIs through private equity funds, now even small retail investors can invest in property through Real Estate Mutual Funds.
These funds shall be close-ended with units listed on stock exchanges, the Securities and Exchange Board of India (SEBI) said and the net asset values of the funds must be made public every day.
Such schemes shall invest at least 35 percent of their funds directly in real estate assets and the rest in mortgage-backed securities and instruments of firms engaged in the sector, it added.
They can invest up to 25 percent of their corpus in other securities, according to the statement.
"Taken together, investments in real estate assets, real estate-related securities... shall not be less than 75 percent of the net assets of the scheme," SEBI said. The asset managers should get the assets valued every 90 days.
- Opportunity to benefit from Real Estate Boom without investing huge sums
- Good diversification opportunity in such a volatile market
- If you invest in real estate just for investment, then this is going to be real hassle-free. No huge paper work, registration, broker charges, chances if fraud or your house being declared on illegal land or forest land ;)
Something to worry about...
- Return might not be as good as real estate due to percentages of investments
- Closed ended!
- No experience or past performance to refer to
Kindly post your views on the same as comments...
Should you buy ICICI Prudential Focused Equity Fund?
NFO Closes: 7th May
ICICI Prudential Focused Equity Fund in simple terms is a fund that aims to invest in 20 of the Top 200 large-cap stocks in terms of market capitalization. What that means is that investors money would be revolving amongst Top 200 companies on NSE thereby giving some stability to the portfolio, however reducing the growth chance as well.
It can be argued that one can go for Index Funds and pay less management fees, however, there is a difference between this fund and index funds. ICICI Prudential Focused Equity Fund will NOT invest in just Top 20 equities but 20 of the Top 200 companies on NSE. So there is going to be a difference in return and holdings.
ICICI Prudential AMC Chief investment officer Sankaran Naren, during launch said that the fund invest in stocks of companies which are profitable and leaders in the industry and have experienced rapid growth and have superior management skills.
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For details and to invest online visit: http://www.icicipruamc.com/pruicicin/htdocs/FocusedFund/landing.asp
Fixed Deposit or Debt Fund?
So you have some extra cash which you don't want to use, atleast for now. So , what to do with it? Forget high-risk investments aka equities, equity funds etc as of now. Here we are talking about good old bank FDs or new age Debt Funds.. Well, both have their pros and cons, and hence you have to understand and decide what you are comfortable with.. Here are some pointers to help you..
Always calculate post-tax return while comparing...
Yes, in case of FD you need to pay tax on earnings according to the tax-bracket you fall in. So your actual return could be much lower than those beautifully advertised figure. In case of debt fund there is only one simple Dividend Distribution Tax (DDT), which is deducted at source. hence what you get in hand from debt funds is purely tax-free.
Liquidity?
This is where debt funds score largely over FDs. Debt funds are virtually like savings account. Deposit, withdraw, whenever. (though it's not as instant as a savings account)
Penalty and Loads..
Most of the banks charge a penalty on closing an FD before schedule. Be aware of the charge. And add to that some banks don't even allow premature withdrawal in case of special rates. However, on the other hand most debt funds don't have any entry/exit loads, barring few. So check that too..
Guaranteed Returns
Here is where FDs smile. Mutual Funds, by law, cannot guarantee returns. And in fact for very short term like 1-3 months, they might be volatile.
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