RGESS - NEW TAX SAVING BABY

There is a New Baby on the Tax Saving Front.

It is called Rajiv Gandhi Equity Savings Scheme (RGESS).

RGESS was introduced in the last year budget for those who earn Rs.10 lakhs or less and are First Time investors into Equity.

FEATURES :

1.       RGESS gives this First Time Investor a deduction of 50% of his investment into the scheme subject to a ceiling of Rs.50000/- (Maximum deduction hence cannot exceed Rs.25000/-). 

2.       To avail Tax Deduction, annual income should NOT exceed Rs.10 Lakhs.

3.       Should be First Time Investors to Equity. (Surprisingly, the rules says, the investor can own shares but should NOT have them in Demat on or before 23 November 2012).

4.       Can invest only in Stocks listed under BSE100/CNX100, PSUs and ETFs/Mutual Funds which have RGESS eligible securities.

5.       Lock in is for 3 years.

6.       Tax Benefit can be claimed only once (1st time only)

I AM ELIGIBLE FOR RGESS., SHOULD I INVEST?

For investors who are eligible for RGESS, the question is should they invest.

To begin with, the Tax Benefit is not so huge. On a investment of Rs.50000/- you get a deduction of Rs.25000/- enabling you to claim a Tax Benefit of Rs.5150/- if you come under the Top Bracket.

Equties are a MUST for an investor since it is the only proven asset class which has the capacity to beat inflation on a consistent basis. RGESS is the opening that is given to you by the Govt and you should make use of the same.

For a brand new investor, Equities are best invested under the guidance of a expert and hence go through the Mutual Fund route.

RGESS is locked in for 3 years but an investor can switch from one RGESS fund to another RGESS fund after 1 year. But, since Equities work in the Long Term, you are advised to treat RGESS like ELSS and forget your investment for 3 years. No need to churn your funds. Allow the fund to give you the Compounding effect.

Investors could invest either in lump sum or by installments.

CAVEAT : Since most salaried class would have already had their Tax Deduction done with their employers, these investors would have to ask for Tax Refut under Sec 80CCG when they file their returns with the IT. Better check with your employers.

Also, please note, you CAN invest in RGESS scheme even if you do not meet the Eligibility Criteria. But, still the money will be locked in for 3 years. Yes, RGESS is actually open to all investors. But, these investors will NOT get any Tax Benefit.  And it is important to note that whether you claim tax benefit or not, your amount is locked for 3 years.

NEW FEATURES IN LATEST BUDGET :

Effective 1 April 2013, investors with a gross total income of up to Rs.12 lakh can invest in RGESS and also now an RGESS investor can invest for 3 successive years.

So, with the new provisions, an investor can now save upto Rs.7500 and also spread out over 3 years.

Under the tweaked RGESS structure, investors can invest R50,000 for three years, effectively availing of a tax deduction of R75,000 from their taxable income at the end of three years. -

So, should you invest?

I believe in the saying “SOMETHING IS BETTER THAN NOTHING” and if you are eligible for RGESS, go for it!

Best of luck.

Srikanth Shankar Matrubai

Also visit http://equityadvise.blogspot.com

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RELIGARE TAX PLAN - RETURN KICKER

The Tax Saving Action is in Full Force.

Choose your investments wisely. And move away  from "Tax Saving" mindset to the more efficient "Tax Planning"!!!!

While the options for you are plenty...PPF, Insurance, NPS, etc. it is undoubtedly the Equity Linked Saving Schemes that win hands down.  

Avoid Insurance, expect Term Insurance.....but do consider PPF as they will take care of your Debt exposure.

NPS has a cap of 50% for equity exposure and hence is not recommended by me.

Yes, ELSS continues to the BEST option for your Tax Saving under Section 80C.

Before reading further I strongly recommend you to read....

http://goodfundsadvisor.blogspot.com/2010/03/best-tax-saving-funds.html

Among the Equity Linked Savings Schemes, I have been a favourite of Religare Tax Plan since its inception in December 2006. Not without reason too as  the Fund has truly been impressive both in bull and bear phases.

Religare Tax Plan is among the more 'aggressive' of the ELSS umbrella. However this mid cap exposure has not done any harm to the Fund's performance even in Bear Markets, which is truly remarkable.

The Fund tends to stay fully invested and avoid Cash calls....the 3 year mandatory lock-in period obviously helps.

The stock selection is very active and the top ten holdings have seen regular changes.

But the churning has not affected the Funds performance. The Focus on Bottom up stock picking and the avoidance of Cyclical plays have been the reason for its consistency.

Fund Manager Vetri Subramaniam and Vinay Paharia have largely restricted exposure to Large Cap ...in fact at one point of time, the Large Cap exposure of Religare Tax Plan was below 25%...

The Fund has reasonable diversification and does not shy away from booking profits.

The fund has also given 4 Dividends in the last 4 years.

The Fund has consistently beaten its Benchmark throughout its tenure and by a fair margin.

The Fund corpus is 109 crores which is a cause of concern but the consistently strong performance has managed to soothe the concerns.

Once the Direct Tax Code kicks in, the ELSS may become defunct as an investment alternative...make the maximum use of it till then.

If you are aggressive investor and would not mind volatility then Religare Tax Plan is the one for you.

You can also have a look at Taurus Tax Shield, though the Asset Size of only 65 crores is a cause of concern.

Other investors should seriously look at Canara Robecco Equity Tax Saver, HDFC Tax Saver, Kotak Tax Saver, Fidelity Tax Advantage among others.

Best of luck,

Srikanth Matrubai

Also visit
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Infrastructure Bonds ARE Back in Action!!

 The additional tax benefit provider (sec 80CCF) in form of Infrastructure bonds…let us see how they fare and which company bond to invest.

A spate of Infra Bonds have hit the markets in the recent weeks and much more are expected.
After IDFC and L&T, IFCI has now come out with a Infrastructure Bond which allows deduction under section 80ccf.

Compared to other two bond issues, IFCI definitely scores better because of its higher interest yield.

IFCI which had already come with 1st Tranche has come out again, albeit with a much higher interest rate now.

Compared to other two bond issues, IFCI definitely scores better because of its higher interest yield.


With this Bonds, you get an additional 20000 Tax Benefit over and above the 1 lakh under Sec80c.

The Bonds will be listed on BSE after the mandatory lock in of 5 years, thus giving you the required liquidity.

And, thankfully, no TDS will be deducted.

These Infra bonds typically have a lock in of 5 years and later on are listed on Stock markets wherein you can sell.

Moreover, all the Bond issuers also give the option of buyback facility.

You can make use of the same depending on the Interest rate scenarios at that time.

I strongly urge to make maximum use of this facility and take advantage of this benefit.

On an investment of Rs.20k, an individual in the Top Tax Bracket of 30% can make a saving of Rs.6000 and also earn an interest of 9% to 9.09% which, however, for the Highest Bracket Tax Payer, the effective yield works out to more than 13%…..

If you have observed last year, interest rate on the bonds kept on increasing for every issue, but this is unlikely to happen this year as the Interest rates are at their peak and the RBI has already indicated that the interest rates could be moderated.

This will ensure that the coming issues will be priced at similar rate of interest rates or in fact, even lower.

Better to lock in the higher interest rates with the IFCI Infastructure Bond.


Those Tax payers who have exhausted their Exemption for Investments of Rs.1 lakhs in Sec 80c, 80ccc, 80ccd can look at these Infra Bonds.

With interest rates at the peak, this is the right time to invest in these bonds rather than waiting for further issues wherein the interest could be lesser.

Invest now. The earlier the better.

Regards,
Srikanth Matrubai

P.S.
For form downloads, visit the following link and put my code as 82593
http://www.rrfinance.com/Bond_Pdf/Infrastructureissues1.aspx

 

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IFCI INFRA BONDS.... SHOULD YOU INVEST??

Infrastructure Bonds are back as they allow you to claim extra 20000 as Deductible from your Income. But, are they worth it??

Hi,
As you are aware, the Finance Minister in the recent budget has announced a special Income Tax rebate, wherein investment made upto Rs.20,000/- in Bonds issued by Infrastructure Companies will be eligible for Income Tax benefit u/s 80-CCF.


Following this, IDFC, L&T had earlier come out with Infrastructure Bonds and now IFCI too has come with a public issue of such Tax Saving Bonds.

On an investment of Rs.20k, an individual in the Top Tax Bracket of 30% can make a saving of Rs.6000 and also earn an interest of 85 to 8.25%. However, for the Highest Bracket Tax Payer, the effective yield works out to 14.25%…..
These Bonds typically have a minimum tenure of 10 years and will be locked for 5 years. Since, the Bonds are expected to be listed on the Stock Markets, liquidity concerns are negated to some extent.


Those Tax payers who have exhausted their Exemption for Investments of Rs.1 lakhs in Sec 80c, 80ccc, 80ccd can look at these Infra Bonds.


HOW MUCH TO INVEST?


Even though there is no upper limit for investing in these bonds, since a maximum of Rs.20000 is deductible from your Taxable income, do NOT invest more than Rs.20000 in these Bonds.

Features of the present IFCI Bond open for subscription :

Face Value Rs. 5,000/- per bond
Issue Price At par (Rs. 5,000/- per bond)
Minimum Subscription 1 Bond and in multiples of 1 Bond thereafter,
Tenure 10 years, with or without buyback option after five years
Options for Subscription The Bonds are offered under the following 4 options-
• Option I – Non-cumulative and Buyback after 5 years
• Option II – Cumulative and Buyback after 5 years
• Option III – Non-cumulative and no Buyback
• Option IV – Cumulative and no Buyback
Redemption / Maturity At par at the end of 10 years from the deemed date of allotment. For Cumulative Option, at par with cumulated interest thereon.
Coupon rate • Option I & II – 8% p.a.
• Option III & IV – 8.25% p.a.
Option II and Option IV will have cumulative payment at the end of the Buyback period or 10 years, as per the option opted by the Investor.
Rating : BWR AA- by BRICKWORK RATINGS INDIA PVT LIMITED implying these Bonds carry high credit quality
Listing Proposed to be listed on BSE

Interest from IFCI BONDS are not subjected to TDS , but it is TAXABLE at the hands of investors.


The IFCI bonds are issued with section 80CCF benefits which means that they will get you a tax benefit of reducing your taxable income over and above the Rs. 100,000 under Section 80C with a cap of Rs.20,000.

These IFCI 80CCF bonds will not attract TDS, however the interest itself is taxable at your hands. So, the bonds don’t attract TDS, but it doesn’t mean they are tax free.

LET ME ALSO CLARIFY....
If you have already bought another infrastructure bond, and exhausted the limit of Rs. 20,000 then you won’t get any further tax benefit by buying this bond. There are also several banks that offer 8% interest for terms less than 5 years, so you won’t get much value out of locking your money in this instrument for 5 years.

ONE MORE IMPORTANT NOTE.....
LIC is also expected to come out with its Infra Bonds...
This bonds from LIC is expected to not only give MORE interest but also OFFER FREE TERM INSURANCE.
So, you can wait for some more time...

Regards,

Srikanth Matrubai
Also visit
http://equityadvise.blogspot.com

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BEST TAX SAVING FUNDS

Investing in Equity Linked Savings Scheme is the best way of saving tax, as it achieves the twin benefit of Tax Savings and providing benefits of Long Term Equity Investment. http://goodfundsadvisor.blogspot.com/2009/12/saving-taxes-elss-is-best-option.html

I keep getting hundreds of emails requesting me to recommend me the BEST ELSS fund. It is practically impossible to answer and satisfy each of them. http://goodfundsadvisor.blogspot.com/2009/12/saving-taxes-elss-is-best-option.html

So, I decided to write my best picks and post them on my blog here. I hope this will help you.

RECOMMENDED ELSS FUNDS :

Religare Tax Plan

An open-ended Equity Linked Savings Scheme (ELSS) with a lock-in period of 3 years, seeks to generate long term capital growth from a diversified portfolio of predominantly equity and equity related securities. Its performance has been in the top quartile in the recent past. The scheme has generated a 1 year CAGR of 114.85% while the benchmark indices ‘BSE 100’ rose by 109% during the same period. The fund has outperformed its benchmark in 3 years, 2 years and 1 year period. Even in its short history, the fund has developed the good habit of liberal Dividend payout.

Birla Sunlife Tax Relief 96 Fund :

Has been a STAR performer since its launch. The Fund has been ranked THE WORLD'S BEST FUND by Lipper!!!!

The Fund has had a great Dividend History. Your Rs.1 Lakh investment in this Fund in 1996 would have yielded Rs.21 Lakhs by way of Dividend alone!!! (Add another 70% being paid out on 12th March). Has given an astonishing return of 32.69% CAGR since launch in March 1996.

Sundaram Tax Saver:

Has a portfolio with a mix of Large Cap and Mid cap and is this a bit more volatile than the rest. The Fund is actively managed and is very nimble and thus performed well in the Bear Market of 2008. Its High Sharpe Ratio shows that the Fund's active asset allocation has paid dividends.

HDFC Tax Saver :

The BEST ELSS Fund. Not only does the fund do well in a Bull Market but amazingly even protects your money better in a Down market. Steady and Convincing Long Term Track Record makes this a Must Have even for Non-Taxing Purposes. The First Choice for any Tax Saver wanting an ELSS exposure. Even though the Fund has a large cap bias, it has managed to consistently beat its Benchmark, year after year. In Valueresearch rankings, The Fund has never had a rating of less than 4 Stars since more than 7 years now!!!!!

CanRobecco Equity Tax Saver :

Has had a remarkable turnaround in its forutnes since Robecco's entry. Earlier it showed flashes of brilliance, but that's it. Since 2006 has the fund consistently started outperforming its category and its benchmark. The Fund has a amazing knack of quickly moving into cash in times of market crash and being fully invested during bull runs which makes the Fund very volatile but has good performance to show for the volatility. Aggressive ELSS investors could consider this Fund.

Fidelity Tax Advantage :

The Fidelity Tax Advantage Fund has been a consistent performer since it was launched in 2006. It recently won the ICRA 7-Star Gold Award 2009 in the ELSS category for its 3 year performance till December 31, 2009. Its "value" approach makes it a good fund for all types of investors.

Also read http://goodfundsadvisor.blogspot.com/2009/03/suggest-me-good-tax-saving-funds.html

THOSE WHO DID NOT MAKE IT TO LIST :

There are some funds which have given good returns and you could see them recommended by some experts, but I refrained from recommending them. I have given the names and reason for NOT recommending them.

SBI Magnum Tax Gain :

Has had a power packed past, but has been struggling for the past two years. Frequent change in the Fund Manager has had its impact. The Fund has lately increased its exposure to Large Caps and is thus suited for low-risk investors. Its huge bloated Fund corpus could be a big drag on the performance.

Franklin India Tax Shield :

Has been a steady performer since its launch. The Fund's 'safety first' makes it suitable for conservative investors. Definitely not the most exciting ELSS Fund, but it protects your money well.

Taurus Tax Shield :

The Fund has had two very good years and should have straightaway made it to the list of recommended funds, but .....BUT its volatile past and relatively high exposure to mid-caps make this fund a High Risk High Return Fund and could be avoided.

Sahara Tax Gain :

Has been very impressive both in the short term as well as the long term. But its tiny AUM should be a cause for concern and you can avoid at this point till there is some semblence of inflows into the fund to give comfort in terms of AUM.

OPT FOR DIVIDEND PAYOUT :

Never go for Dividend Reinvestment Plan in ELSS because by this The Fund assumes you are making a Fresh investment whenver your Dividend is reinvested and thus is locked for a further period of 3 years. Either opt for Growth or Dividend Payout.

For HNIs and those having liquidity constraints, it is wise to opt for Dividend payout option. Even though, Mutual Funds dividends (unlike Equity Share dividends) give back your own money to you, here, since your money is locked for 3 years, it would be prudent to get back some part of your capital. It would also ensure that you get Full Tax benefits without investing the full amount of Rs.1Lakh.

Ex:- Suppose you invest Rs.1 Lakh in Birla Sunlife tax Relief96 whose NAV is 80, you get 1250 units. Now since dividend is announced at 70% (7 per unit), you get back, Rs.8750/-. So, in effect, on a investment of Rs.91250, you still manage to claim Tax Rebate of Rs.33990. This is just an example, some funds even have a dividend yield of above 10% and some Tax Funds (Religare, Sundaram) even declare dividends more than once in a Financial Year.

ELSS & SIP - A FANTASTIC COMBINATION

Best way to invest in ELSS is through Systematic Investment Plan(SIP). With SIP you can invest a small amount every month for a specific time period. With SIP investor can take advantage of fluctuations in the stock market. So investor will get more units when the market is down and get less units when the market is up.

Instead of simply putting in a chunk of Rs 1 lakh at the end of each fiscal year, if you develop a healthy saving habit,you could invest a fixed amount every month and benefit from the advantages of both SIPs and the tax rebate.

When you invest in ELSS, through the SIP route, you enjoy the multiple benefits of better market-linked returns in the long run, rupee cost averaging and a tax break. So, happy investing!

For the other articles on ELSS funds, click here http://goodfundsadvisor.blogspot.com/search/label/ELSS and get all the details.

Regards,

Srikanth Matrubai

Also visit

http://equityadvise.blogspot.com

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SAVING TAXES??? - ELSS IS THE BEST OPTION

KILLING TWO BIRDS WITH ONE STONE!

You are sure to be bombarded with ads of Tax Schemes in the coming days as the 'Tax Season' draws near. ULIPs & ELSS will be the prominent ones who will be eyeing your wallet.
My advise, Go for Mutual Funds ELSS. Among all Tax Saving instruments, ELSS stands out. Not only your Investments into the ELSS is tax free, but also the dividends you earn and also the returns at maturity are also tax free.


It is proven beyond doubt that among all the Tax Saving Instruments, Equity Linked Savings Scheme, popularly known as ELSS, the returns from ELSS have been the highest.

What is ELSS?
ELSS is the acronym for Equity Linked Savings Scheme. It is basically a diversified equity scheme, which has a 3-year lock-in period. They are linked to Stock Market Returns, hence though volatile, the returns tend to be higher than traditional Tax Savings Scheme.



Why ELSS :
1. Investors in ELSS under Dividend Payout Option have the advantage of getting Tax Free gains even during the lock-in period of 3 years.
2. Lowest Lock-in period of just 3 years, comparing favourably with maturity period of NSC (6yrs) and PPF (15 years).
3. Minimum investment is only Rs.500., very low entry barrier.
4. Investors in ELSS have the advantage of investing through Systematic Investment Plan.
5. Some ELSS schemes offer Free Life Insurance Cover and also Personal Accident Death Cover and even Critical Illness cover!!!
6. Historically, provided better returns than both NSC, PPF and ULIPs.
7. Profits earned after the Lock-in Period is Competely Tax-Free.
8. Upto Rs.1Lakh is eligible for deductions under Section 80c compared to Rs.70000 in PPF.
9. Due to its 3 year lock-in period, the Fund Manager has the freedom to invest in Fundamentally Strong Shares with huge future potential and can afford to 'wait' to unlock the value. Thus, it has been observed that ELSS schemes do beat (in terms of returns) even Diversified Mutual Funds more often than not.



Why NOT other Tax Saving Instruments :
1. ULIPs or LIC Premium :
These Instruments are designed to provide you Cover, which invest only a PART of your invested amount. Moreover the Entry load in some of these can be as high as 40%., where as in ELSS , it is NIL!!!!!
2. PPF and NSC :
Not only the Lock-in period is high, but also the returns are very less, hitting you hard and sometimes not even covering Inflation.
3. Five Year Bank Fixed Deposits :
Very Low Returns, Low Liquidity and Interest IS Taxed on Maturity.

FREE INSURANCE COVER TOO :
Birla Sun Life Tax Relief and HSBC Tax Saver Equity are offering free critical illness cover, while DWS Tax Saving is giving free life insurance.
The Reliance Tax Saver and Kotak Tax Saver scheme comes with a free life insurance cover.
Taurus Tax Shield and Principal Personal Tax Saver and Prinicipal Tax Saving Fund offer Personal Accident Death Cover.

Apart from the ELSS Funds, there are Pension Funds namely, Templeton India Pension Plan and UTI Retirement Benefit Unit Plan, which invest a minimum of 60 per cent of their assets in fixed income instruments.

Systematic Investment Plan

Best way to invest in ELSS is through Systematic Investment Plan(SIP). With SIP you can invest a small amount every month for a specific time period. With SIP investor can take advantage of fluctuations in the stock market. So investor will get more units when the market is down and get less units when the market is up. For eg if you are investing Rs 1000 every month and you will get 100 units for when Net Asset Value (NAV) is 10 and will get 50 units when NAV is 20. So investing a fixed sum regularly helps to cover the market fluctuations by rupee costs averaging.
SIPs are a tried and tested method of minimizing risk and yet enjoying good returns,by regular,periodic investment,over a long horizon.


A FANTASTIC COMBINATION
SIPs along with the tax benefit that can be availed of by investing in ELSS,makes this investment option very attractive.Instead of simply putting in a chunk of Rs 1 lakh at the end of each fiscal year, if you develop a healthy saving habit,you could invest a fixed amount every month and benefit from the advantages of both SIPs and the tax rebate.
When you invest in ELSS, through the SIP route, you enjoy the multiple benefits of better market-linked returns in the long run, rupee cost averaging and a tax break. So, happy investing!



So........

ELSS give you the two-in-one advantage of saving tax and wealth-building. So, do not wait for the "March" last minute rush to save taxes and make a hasty decision.

Tax Exemption twice in 6 years!!!
You can withdraw your Tax Saver Funds at the end of the 3 years and when you reinvest the same, you get Tax Exemption TWICE in six years compared to just once in the case of NSC.



GO FOR DIVIDEND PLAN :
Almost all equity-linked saving schemes have two fund options — growth and dividend. Unlike a growth plan, an investor gets annual payouts from the dividend schemes before the final redemption of units.

The trick here is to invest in the dividend plan of an ELSS. For instance, if one invests Rs 1 lakh in an ELSS, one saves a tax outgo of Rs 33,990 (at the highest tax rate of 33.99 per cent) under section 80C.
Now consider this. An ELSS has announced a dividend of 50 per cent. The net asset value (NAV) per unit of the scheme is Rs 50. Suppose one invests Rs 1 lakh in the fund before the record date for the dividend. After the record date, the investor will get a dividend of Rs 10,000 at the rate of Rs 5 per unit for 2,000 units that have been bought. Therefore, effectively the individual invests Rs 90,000 (Rs 1,00,000 minus Rs 10,000) and saves Rs 33,990 in tax outgo.

In other words, on an investment of Rs 1,00,000 in the dividend plan of the ELSS, one gets a post-tax return of Rs 43,990 (Rs 33,990 plus Rs 10,000), or 43.99 per cent.



RECOMMENDED ELSS FUNDS :
Religare Tax Plan
Birla Sunlife Tax Relief 96 Fund
Sundaram Tax Saver
HDFC Tax Saver
Franklin India Tax Shield
CanRobecco Equity Tax Saver
Fidelity Tax Advantage
SBI Magnum Tax Gain

For more details on My Pick of the Best ELSS Funds, look out for my next article.

Best of luck,
Srikanth Matrubai




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FD MATURING - WHERE TO INVEST NOW????

IDEAS FOR INVESTING LUMPSUM AMOUNT

I had given an advise to an NRI in the month of April. I thought there is something for you to learn from that advise. Here goes......






Mr.S Parekh asked :

Dear Sir,

I am a retired Gulf NRI aged 59 years.
A NRO deposit of 6L is maturing in the next month. Can any of you guide me as to where and how i should invest this as I am not interested in renewing this FD further due to TDS of 31%
I have following investments other than this.
NRO fix deposit 11L
Equity diversified funds 10L
Income, gilt, debt and arbitrage funds 32L
A flat in Mumbai worth 60L for personal use.
Monthly income is not required for another 2 years.
Thanks,
S Parekh


SRIKANTH SHANKAR MATRUBAI wrote :
Dear S Parekh,
as the money `ll come to u in the month of may, By that time, the NCD of recently closed TATA NCD issue `ll be listed on BSE. Thru ur Demat acct. u can purchase these NCDs from BSE. As ur time frame is limited to next 2 years, plz. purchase only cumulative option NCD. U can liquidate ur money from these NCDs any time by selling back on BSE. Even after 2 years, if u don`t need money, for taxation purpose, my advise is to liquidate these NCDs just 15 days before the completion of 3 years. the gains `ll be treated as LTCG & same `ll be taxed @ 10.3% without indexation or 20.6% with indexation. The coupon rate for these cumulative option NCDs is 12%, hence post tax ur returns `ll be around 10% (while selling ur NCDs on market, some discount `ll be there, that`s why the effective rate of return to u `ll be 10% post discount & post taxation).

Another option is to invest in Nabard Bhavishya Nirmaan Bonds (BNB) again these r also listed on BSE but here post tax yield `ll be around 7.5%.

However, the caveat is, that by May, it is expected that Interest Rates in the market would drop a lot. That means the market value of Bonds would have risen to effectively reduce the yield. In 2 years, if the interest Rates are back up, your Bonds will be worth much less. If so, you actually won`t get the 10% return calculated at coupon rates if you buy the Bonds from the market after further Interest Rate reductions.
At the same time, the Equity markets would also probably be at lower levels by then, and will hold a good prospect of giving good returns over the next 2 years as the global economy recovers (or at least as the panic gripping it now recedes).
Besides, your percentage investment in the Equities is quite low compared to Debt, even for your lifestage, under these market conditions and prospects.
So, you would be better off investing the lumpsum money arriving in May 09, into select equities or equity funds. Shares of essential goods/services suppliers, and infrastructure support companies should be pretty safe bets at those levels.

One more suggestion
ICICI bank has a new FD which takes into account the Double Taxation Avoidance Agreement and under this new NRO FD you pay 12.5% tax and not 31%. If you have ICICI NRE account, then simply go for this.
But the best option would be to invest at least 50% of your Deposit in a Debt Fund and go for a Systematic Transfer Plan into Good Large Cap Funds like HDFC Top 200 fund, DSPBR Top 100 Fund, etc.
Best of luck,
Srikanth Shankar Matrubai


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ADVISE FOR A BACHELOR

Planning to get married in 3 years



Mr.Kumar Babu wrote :

hi Srikanth,

i am kumar,

You are doing a great job with your blog.
i have planned to get marriage after three years & need to do my higher studies, so i need to start savings for my happier days.... by investing in one of the them like mutual funds, ulip's, or through gold.... and need to save tax also as iam working currently


but bit confused on which i should invest ... can you help me ... please

--
With Love,

KUMAR . S

SRIKANTH SHANKAR MATRUBAI advises :
Dear Kumar,
It is good to see that you are already thinking of Financial Planning at such an young age. As you plan to get married in 3 years, it would not be wise to invest in Direct Equities or Equity Funds as such, you can consider investing in Balanced Funds which have a high Debt allocation and a bit of Equity Portion as well, namely, DSPBR Savings Plus Fund - Aggressive which has a 70-30 ration in favour of Debt.
Avoid ULIPs. Never mix insurance with investments.
For Tax Savings, invest in Good ELSS like
Fidelity Tax Advantage Fund
HDFC Tax Saver Fund
Sundaram Tax Saver.
See my other posts in my blog for more details.

Regards,
Srikanth Shankar Matrubai


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Heavy loss In Tax Funds

Fig wrote :


I have made heavy investments in tax saving mutual funds as part of my tax planning
in last 2 years. They are as follows

2007 -
SBI Magnum Tax Gain Dividend - 35,000/-
HDFC TaxSaver Dividend - 30,000/-

2008 -
SBI Magnum Tax Gain Dividend - 42,500/-
SBI Tax Advantage Sr-1 Dividend - 15,000/-

2009 -
SBI Magnum Tax Gain Growth - 8000/-
Sundaram BNP TaxSaver Growth - 5000/-
5 year FD @ 8.5% under 80C - 37,500/-

Actually I have realized LATE that there was not much difference in NAVs of these MFs when sensex
was @ 7k and now when it is @ 9k. Thus I should have invested in MFs instead of 80C FD.

Now that I have Rs 4.5 Lakhs parked in fixed deposits, I am thinking of investing small part of
it in order to cover up losses.
Please advice how do I go about investing in order to COVER UP by 50% losses in MFs over last
2 years.

- debhalwa


SRIKANTH SHANKAR MATRUBAI replied :

Dear Debhalwa,
Better late than Never. There is no point in investing in FDs just to save taxes. Inflation will eat your returns.
You seem to taken a liking to SBI Funds and have invested more than 65% in them. Too much exposure to 1 Fund/ Fund House is always fraught with Risk. Invest your Fresh Investment in Funds other than SBI. Either way, SBI Funds have been underperforming the market and their peers.
For ELSS, you can consider Fidelity Tax Advantage Fund and Sundaram Tax Saver.
These may to some extent help you in covering up your past 2 years losses.
However, you have very little option than to wait.
By the way, always consider investing through SIPs rather than a One time investment.
Best of luck,
Srikanth Shankar Matrubai

Also visit http://equityadvise.blogspot.com for an indepth Equity Analysis

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