SIP is power investments, check out why

Mutual funds give you different investment choices. You can choose from a range of mutual fund schemes each of which has a different asset allocation and risk profile. Similarly, when it comes to the modes of investing in mutual funds, there are two options – 

The lump-sum mode of investment is when you invest a lump sum amount one time into a mutual fund scheme at a given NAV.

SIP (Systematic Investment Plan) mode of investment, on the other hand, is when you invest small amounts at regular intervals (usually monthly) into a mutual fund at different NAVs.

The SIP mode of investment is the best mode of investing in mutual funds. Do you know why? Let’s find out –

What makes SIPs powerful?

When you invest in SIP online, here are the benefits which you can avail –

  1. Affordable and easy investments

SIPs are an affordable way to invest in mutual funds. You can invest as low as Rs.500 per month by choosing to invest through SIPs. This amount is low and easily affordable for small investors too. Thus, investors who have a limited capital to invest can choose the best SIP plans for investing in mutual funds with their limited incomes. Since investment is done monthly, it is affordable and does not pinch your pockets.

Moreover, investing in SIPs has become easy as you can do so online. You can choose to invest in SIP online through the mutual fund house itself. Alternatively, you can choose to invest through ETMONEY, the best investment website, which gives you the benefit of choosing the best SIP plans through comparing. You can simply complete your KYC formality online and start investing in SIP online within minutes through ETMONEY’s best investment website. Thus, besides being affordable, SIPs are easy to invest into too.

  1. A disciplined approach to saving

When you choose to invest through SIPs, you create a disciplined investment habit. SIP investments are usually done in monthly instalments through direct debit from your bank account. Thus, once you start a SIP, you can invest every month in a disciplined manner. These disciplined investments help you create wealth with small investments. Moreover, when you invest regularly, you can build up a sizeable corpus even with the little amount you save.

  1. Compounding of returns

Mutual funds give compounded returns wherein the earned returns get added to your investments to earn future returns. As you keep on investing through SIPs, your investments attract compounded returns and through long term investment, you can generate exponential returns through the power of compounding. For instance, if you invest Rs.5000 every month for 20 years at an average interest rate of 12%, you can accumulate a corpus of Rs.49.46 lakhs through the power of compounding. Amazing, isn’t it?

  1. Rupee cost averaging

When you invest in a lump sum, you should time the market to invest at the right time when the markets are expected to increase. If you invest and the markets fall, you would make losses. In the case of SIP investments, however, timing the market is not needed. Your investments are done at a pre-determined date every month. As such, the NAV on the date of investment is considered to buy the units. Even if the market fluctuates during the year, the effective NAV for your investment would be averaged out over different months. This rupee cost averaging factor helps beginners to invest in mutual funds through SIPs as they don’t have to monitor, track and time the market for the right time to invest.

These features and benefits make SIPs a powerful investment tool. You can, therefore, start your mutual fund journey through SIPs. Alternatively, if you are an existing investor you can start a new SIP or top-up an existing one to save more. Always compare and choose the best SIP plans for maximum wealth creation. The best SIP plans would give you the best and consistent returns and help build up your investment portfolio. To compare between SIPs, choose ETMONEY’s best investment website and invest in SIPs without any additional cost.

Tips to safely buy insurance policies through App

Technology has advanced to such a degree that it has made the world a smaller place. Any information that you need is now available on your computer wherever you are. Even mobile phones have evolved and have become Smart. They are not only used for making calls or sending messages. Nowadays, mobile phones have become an all-purpose tool to help you do multiple things.

Special applications have been developed for mobile phones for every use that you can put your phone too. Buying insurance has also become simpler as there are financial apps especially for your phone. These apps help you buy insurance easily in simple steps.

The ETMONEY app is one such mobile application which allows you to insure yourself. Here are the various uses of the app – 

  • You can buy life insurance through ETMONEY app 
  • You can buy health insurance through ETMONEY app
  • You can even invest in mutual funds and NPS scheme online using ETMONEY

ETMONEY is, therefore, a one-stop solution for your investment and insurance needs and can be easily downloaded on your Smartphone. However, online transactions are prone to cyber-attacks and when you do a transaction through the ETMONEY app, the whole process is online. You should, therefore, follow some safety tips when using the app online. Here are some safety tips which should be practised –

  1. Secured connection

Ensure that you use secured connections when using the ETMONEY app. Use your mobile internet or a trusted Wi-Fi to connect to the application. Your home Wi-Fi or office Wi-Fi would be ideal connection points as they would be secured against possible hacking. Do not use unsecured Wi-Fi connections or connections in public places as they are unsecure and pose a threat to your financial transactions.

  1. Use of firewall or anti-virus 

The importance of anti-virus software and firewalls cannot be stressed enough. These measures protect your devices against cyberattacks. So, if you use a computer, make sure you have installed an anti-malware or anti-virus software on your device. Nowadays even mobile phones carry anti-virus software as mobiles have become multi-functional. Check your mobile device for the inbuilt firewalls. If there are none, buy and install an anti-virus on your Smartphone so that it can smartly thwart possible cyberattacks and allow you to do secured financial transactions.

  1. Use of reputed applications

Ever since Smartphones became popular, the market has been flooded with apps for them. You should, however, download and use reputed apps as they are secured, safe and guard your privacy. ETMONEY is one such reputed application which respects your privacy and guards your data through encryption. You can, therefore buy insurance through ETMONEY app without fear.

  1. Locking the app with a password

Make your app secured with a passkey which would be needed to unlock and use the application. If the app is password protected you can prevent misuse of the app of the leakage of sensitive information. So, opt for passwords when using the app and also change your passwords regularly for enhanced safety.

  1. Create a registered account

When you download the app and open it, it asks you to register yourself using your mobile number. This registration ensures that you become a registered user and can lock the app with a password. So, always create a registered account on the app and use the account to buy insurance policies online.

These safety measures ensure that you can buy insurance using apps without any worry about cyber thefts, frauds or phishing. The ETMONEY is a renowned and secured app which you can use freely for buying insurance. However, the knowledge and practice of the above-mentioned tips would go that extra mile to ensure your safety when conducting financial transactions. So, better safe than sorry, right?

How to select the best liquid funds to invest in India?

Where do you park surplus funds for a short period of time?

The probable answer to this question would be a bank account wherein you can easily save your money on a short term basis before you allocate your savings to other fruitful avenues.  However, bank accounts might not always be a smart choice because of the returns that they give. If you have a current account, the interest rate is zero and your money does not earn any return for the time it is saved in the account. Saving accounts, however, do yield interest which usually ranges from 3% to 6%. But what if you can get higher returns?

Liquid mutual funds are an ideal solution for parking your money for a short time. Liquid fund investments are debt mutual funds which have a low-risk profile and a short-term investment horizon. Liquid mutual funds invest in securities which have a maturity period of up to 91 days thereby giving you an avenue for short-term investments. They have high liquidity, very low volatility, low credit risk and no exit load. You can redeem your investments any time from the online liquid fund and get access to funds whenever you want.

Liquid fund investments are ideal for investing your emergency funds and when choosing an online liquid fund, you should be careful. The following factors should be taken into consideration when picking the best liquid mutual fund for your personal finance needs –

  1. The AUM of the fund

The AUM (Assets under Management) of the fund plays a very crucial role in determining which liquid fund investment you should choose. The larger the AUM of the fund the better diversification the fund would offer. This would diversify the risks and offer better returns. Moreover, if the AUM is large, the returns would not be impacted considerably if a large number of investors redeem their investments at the same time. It is because if there is a redemption pressure, the scheme would have to liquidate its holdings prematurely and suffer a penalty. This penalty would impact the returns generated. When the AUM is large, the impact of the penalty would be spread over a larger fund and the returns would not be impacted greatly. So, choose a scheme with a large AUM.

  1. The expense ratio

Another important consideration is the expense ratio. The lower the expense ratio of the fund the better would be the returns. So, compare the available online liquid funds and choose one which has a lower expense ratio for better returns.

  1. Check the asset allocation

Even though liquid funds invest in debt instruments, the asset allocation of the fund should be checked. You should opt for a fund which has a diversified portfolio. The portfolio holding of the scheme should not be concentrated in a few securities. It should be diversified across a range of securities whether they are treasury bills, commercial papers or certificates of deposits. Moreover, the portfolio should invest majorly in high-rated credit securities. Look for ratings of AAA or A1+ as they denote credit quality of underlying assets.

  1. The fund house

When selecting liquid fund investments, always choose reputed and large fund houses. This is because such fund houses have their reputation to take care of and they take on the responsibility of offering the best returns from their liquid funds. Large fund houses are also expected to have a larger AUM which is important when selecting online liquid funds.

All in all, the AUM, the fund house, the expense ratio and the asset allocation of the fund should be given careful consideration when choosing liquid funds for personal finance. Returns, though a factor, are not the only qualifying criterion. There is not much of a difference in returns among different liquid funds. So, returns should be checked but other factors should also be given priority. 

To make things easier, here are some of the best liquid funds which you can choose for your personal finance needs –

Name of the fundAUM as on 30th June 2020Expense Ratio as on 30th June 2020Portfolio Allocation (credit quality) as on 30th June 20203-year returns as on 5th August 20205-year returns as on 5th August 2020
HDFC Liquid FundRs.99,867 crores0.2%A1+ – 46.09%SOV – 35.94%AAA – 4.7%6.49%6.88%
SBI Liquid FundRs.50,762 crores0.18%SOV – 65.55%A1+ – 48%6.52%6.88%
Aditya Birla Sun Life Liquid FundRs.36,679 crores0.21%A1+ – 58.48%SOV – 28.59%AAA – 13.07%6.68%7.02%
Kotak Liquid FundRs.36,040 crores0.2%A1+ – 47.65%SOV – 31.09%AAA – 12.58%6.49%6.87%
Nippon India Liquid FundRs.30,604 crores0.19%A1+ – 55.81%SOV – 45.17%AAA – 1.72%6.68%7.01%

(Source: https://www.etmoney.com/mutual-funds/debt/liquid/57)

Choose any of these funds and invest your money in the best avenue for a short term period.

Most Common Misconceptions About Tax Saving Mutual Funds (ELSS Mutual Funds)

Equity Linked Savings Schemes (ELSS) are widely known as a great tax-saving option. But there are some common misconceptions about this mutual fund category. Read on to know if you have fallen for any of these traps.

  1. ELSS Funds only save taxes

ELSS Funds help bring down your tax liabilities. True. ELSS Funds do only that. FALSE. 

This mutual fund category can be a great vehicle to achieve your wealth creation goals as well. These funds invest in equities which have the potential to generate growing returns in the long run.

  1. ELSS Funds have a shelf life of three years

A common misunderstanding about ELSS Funds is that you need to withdraw your investments from these funds after completion of three years. The lock-in period for these tax-saving mutual funds is definitely defined as three years. However, that refers to the minimum time frame for which you need to remain invested. After the completion of the lock-in period, you are free to remain invested for as long as you want. In fact, equity investments yield the optimum results in the long run. Hence, it is advisable to hold onto your ELSS Funds for a minimum period of five to seven years.

  1. All ELSS Funds have the same structure or composition

This is one bubble that we need to break. Other mutual fund categories have defined guidelines regarding allocation across market capitalization. However, ELSS Funds enjoy complete flexibility in this regard. Hence, some schemes in this category invest predominantly in large-caps, some have higher exposure towards mid and small caps while others adopt a balanced approach. Hence, it is important to understand the portfolio allocation of each scheme to check its alignment with your own risk appetite and financial goals.

  1. You have to continue with the same ELSS

ELSS Funds are not like an insurance policy wherein you need to continue paying your premium every year for the same policy to qualify for the tax deductions and policy coverage. You need not continue to invest in the same ELSS Fund every year. You can even invest in multiple ELSS Funds.

Way to invest in ELSS Funds?

There are two ways to invest in ELSS Fund Online and Offline. 

Investing in ELSS Fund online can be a highly rewarding process. Not only is it simple, quick and hassle-free, but when you invest in ELSS Fund online you get all the relevant information about various schemes under one roof. You can easily complete the e-KYC formalities with the help of an online portal and start your mutual fund journey with just a couple of clicks. 

For offline investments, you need to visit the branch of a fund house or R&T Agent to complete the formalities. 

Best Tax Saving ELSS Funds in India

Here are the ten best tax saving ELSS Funds that will give you savings along with good returns.

  • Canara Robeco Equity Tax Saver Fund
  • Quant Tax Plan
  • Axis Long Term Equity Fund
  • Invesco India Tax Plan
  • Kotak Tax Saver Fund
  • DSP Tax Saver Fund
  • BNP Paribus Long Term Equity Fund
  • Aditya Birla Sun Life Tax Relief 96 Fund
  • Tata India Tax Savings Fund
  • Motilal Oswal Long Term Equity Fund

To sum it up

ELSS Funds are one of the best tax-saving options available in the market. They have the shortest lock-in period, are flexible and have a history of generating superior returns. However, if you are thinking of these mutual funds as only a tax-saving option, you are not realizing the full worth of these gems. They offer a much wider range of benefits. Invest in any of the best tax saving ELSS Funds and your financial life is well-taken care of.

How Floating Rate Debt Mutual Funds Reduce Interest Rate Risk?

Debt Funds are the preferred investment route for conservative investors. But every smart investor knows that even this category comes with its own risks. One of them being interest rate risks. But what if we were to tell you that there are options within the debt fund category that can reduce this risk to a significant extent? Yes, we are talking about Floating Rate Funds. If you want to optimize your debt fund investments and minimize the risks involved, continue reading.

Meaning of Floating Rate Funds

Floating Rate (or Floater) Funds are a type of debt fund. These open-ended debt schemes predominantly invest in floating rate instruments. As per the SEBI guidelines, they need to maintain a minimum investment of 65% (of their total assets) in floating rate instruments.

These funds seek to offer investors a source of flexible income and capitalize on rising interest rates scenarios. Floater Funds returns depend heavily on the overall market conditions and policy changes such as changes made in Repo Rate by RBI.

Floating Rate Fund Advantages

  • Minimised Interest Rate Risk

One of the most important floating rate fund advantages is its ability to bring down interest rate risk associated with debt investments. Interest Rate Risk refers to the potential loss or a depreciation in investment value, as a result of interest rate changes. Bond prices and interest rate movements share an inverse relationship. One goes up, the other goes down. This factor increases the risk in debt fund investments.

However, in case of floating rate funds, the coupon or interest rate is fluctuating and gets reset on a periodic basis. They move in tandem with the prevalent interest rates. As a result, you can hedge effectively against interest rate risk by investing in these funds. These funds give a block-buster performance when the interest rates are on a rise.

  • Relatively less credit risk

Another category of risks that plagues debt funds is credit risk. It is the risk of default on the part of the borrower (bond issuer) to repay principal amount or pay the interest thereon. Floater Funds carry lesser credit risk as compared to some other debt fund variants such as dynamic bond or credit risk funds. The credit risk in floater funds can be circumvented by choosing a scheme that invest in instruments with high credit rating.

  • Yield Potential

Floater Funds have the potential to generate superior returns than investment avenues such as Fixed Deposits and other debt fund variants.

This category generated 8.66% in the one-year timeframe, while the three-year returns are 7.35%.

Year-wise performance

YearReturns
20176.52%
20186.74%
20198.39%

One of the top floating rate funds (Nippon India Floating Rate Fund) generated double-digit returns (10.13%) in the last year.

  • Tax benefits

Floater Funds get the benefit of indexation when they are held for a minimum period of three years. Indexation helps bring down your tax liabilities as it accounts for inflation. The long-term capital gains tax for floater funds is 20% with the benefit of indexation.

Top Floating Rate Funds in India

If you are looking for the best performing funds from this category, look no further. Here are the top floating rate funds in India:

  • Nippon India Floating Rate Fund
  • ICICI Prudential Floating Interest Fund
  • Aditya Birla Sun Life Floating Rate Fund
  • HDFC Floating Rate Debt Fund
  • Franklin India Floating Rate Fund
  • Kotak Floating Rate Fund

Final Words

The numerous floating rate fund advantages make them apt for conservative investors as well as those who want to dilute their portfolio’s risk. For risk-loving investors floater funds are the perfect vehicle to balance out their aggressive investment strategies, especially during times of fluctuations. 

Enjoy the benefit of a term insurance policy even after you emigrate

A term insurance policy provides you an unmatched coverage for financial security for yourself and your family. The policy is a protection oriented life insurance plan which covers the risk of premature death and compensates your family for the financial loss suffered. Moreover, given the fact that the plan has a low premium, it allows you to opt for a high sum assured so that you can create the desired financial corpus for your family’s safety. But does the plan work if you emigrate?

Foreign shores lure many individuals who go abroad for work or business. Such individuals might go and live abroad either for a specified time period or permanently. In such situations, the term insurance policy does not get affected. Let’s understand how –

A term insurance plan covers you against the risk of premature death. This death can occur on Indian soil or in another country. The term plan is not affected by the place of death. You can still enjoy the coverage under your existing policy if you emigrate during the term of the policy. Here are some points which you should keep in mind if you have a term plan and you emigrate –

  • Continue the premium payment

In your existing policy you need to continue paying the premium in Indian currency. Even if you settle abroad you should have an Indian bank account from where the premiums can be paid towards the term plan online. If the premiums are discontinued, the policy would lapse and you would lose the coverage. Moreover, term plans also do not have any surrender value or paid-up value. So, premium continuation is quite important if you want to enjoy the coverage offered by the policy.

  • Payment of claim

In case of death during the tenure of the policy, the insurance company would pay a claim even if you settle abroad. However, the claim would be paid in Indian currency. You should, therefore, ensure that your nominee can contact the insurance company in case of your demise. Claim related documents should be submitted to the company to get the claim.

  • Limited pay term plans

If you are likely to emigrate and you want to buy a term plan online, you can opt for limited pay term plans. Under limited pay term plans, premiums are payable for a limited period while you can enjoy coverage for a longer tenure. These plans, therefore, ensure that the coverage continues even when you emigrate without you having to ensure premium payments throughout the policy tenure.

  • Tax implication

You can still claim the deduction on the term insurance premium under Section 80C if you emigrate. If you have income in India, your investment in a term plan online would be eligible as a tax-free deduction from that income. This would reduce your tax liability. Furthermore, in case of death, the death benefit would be completely tax-free even if you have emigrated.

Remember these points when you emigrate and you can enjoy the benefits of a term insurance plan. Moreover, term insurance plans allow NRIs to buy the policy. So, if you are emigrating and you wish to invest in a term plan online, you can do so even after you emigrate. You can buy a policy as a NRI and enjoy the benefits which the policy has to offer.

Claims under term insurance plans are unaffected by your residency status as long as you are an Indian citizen at the time of buying the policy. Moreover, buying a term plan in India is much more cost-effective than buying the policy in a foreign country where you emigrate to. So, buy a term insurance plan in India at lower premiums and enjoy the benefits of the policy even when you emigrate.

Why debt fund returns are volatile these days?

Debt funds have always been known as the conservative investor’s best friend. They are safer (when compared to equity funds) and usually offer stability to investors. So, when the returns from this category (including the best debt funds) started witnessing volatility, it was sure to cause some arched eyebrows and palpitating hearts. But before you start making panic-struck rash decisions, it is important to understand why are the debt fund returns volatile these days.

Risks in Debt Funds

It is true that debt funds are relatively safer. However, they are not completely risk-free (in fact, no financial instrument is!). Debt Funds have two major risks:

  1. Credit Risk

Credit risk is the risk of default on the part of the borrower to repay the principal loan amount or interest thereon. Credit risk has been on the rise in the country since some time now. Factors such as a slowdown in the real estate sector, the IL&FS fiasco in the year 2018 as well as defaults by big business houses such as DHFL, Zee Group, etc. have contributed to credit risks for the Indian debt funds in the past.

  1. Interest Rate Risk

Bond prices fluctuate as a reaction to changes announced in interest rates. They have the same relationship as the opposite ends of a magnet. One goes up, the other goes down. Whenever there is an increase in the interest rates, the debt fund’s NAV (Net Asset Value) is impacted adversely. 

Reasons for volatility in debt fund returns these days

It is important to understand that debt mutual funds are a part of the overall debt market. Hence, a large-scale credit event or a liquidity crisis is bound to impact the returns of these schemes, even for the best debt funds. 

The month of March (when coronavirus hit our country) witnessed a spike in yields (in the short-term segment) which led to a temporary dip in many debt fund NAVs. This was mainly because of:

  1. Dwindling trade volume and sluggishness in the Indian economy created a sense of panic amongst foreign investors. This led to massive outflows.
  2. Simultaneously, there was an exponential increase in redemptions from the Domestic Institutional Investors as well. 

Lockdown, extreme slowdown of businesses and bank moratorium (wherein borrowers can opt to defer their instalment payments) and tremendous rise in redemptions have increased the chances of default and rendered many papers illiquid.

Is it time to bid adieu to debt funds?

NO. The overall economic situation is in a turmoil. The current volatility in the debt market is a temporary phenomenon and will subdue with resurgence in global and domestic conditions. This category still continues to be one of the preferred investment options. However, what this pandemic and recent volatility in debt markets has taught (or revised our knowledge) is the importance of choosing the right debt fund. Debt funds invest across durations (ranging between one day to more than five years), sectors (corporate bonds, Banking and PSU) and objectives (floater, FMPs credit risk, Gilt, etc). You need to choose the best debt fund as per your risk profile, investment horizon and financial goals, rather than blindly follow recommendations of friends, etc. 

Debt fund investment online and offline

Debt fund investment online is easy, quick and hassle-free. Compared to the offline process, it involves minimal documentation and gets done with a couple of clicks. You can take the help of debt fund investment online portals that are aggregators. They provide relevant information to compare the performance and features of various debt schemes and choose the one which meets your requirements. 

Final Words

RBI has taken numerous initiatives to stimulate demand and revive the bond and money market. Cuts in repo-rates, money infusion into banks through LTRO and supply of forex (USD) to reduce the impact of rupee downfall, will slowly and steadily bring back the debt funds to their former glory. However, all good things take time and hence, patience is of utmost importance. 

Tough times do not last. Tough people (and funds) do. And debt funds are definitely meant to weather these temporary storms and emerge stronger and better in the long run.

What does Health Insurance not cover?

A health insurance policy proves to be a blessing in a medical emergency when you or your family members are hospitalised and you incur a huge medical bill. The policy covers the medical costs and provides financial relief to you and your savings. It is, therefore, advised to invest in the best health insurance for your family. 

Though the scope of a health insurance plan is quite inclusive, there are instances when claims are not paid under the policy. These instances are called policy exclusions which are the medical expenses not covered by a health insurance plan. When you buy health insurance online, you should know about these exclusions so that you know what to expect from the policy. So, here are some of the common exclusions which are not covered even when you buy the best health insurance for your family –

  • Claims during the waiting period

Under every health insurance plan, there are different types of waiting period during which specific claims are inadmissible. These waiting periods include the following –

  • Initial waiting period – claims due to illnesses which occur within the first 30-90 days of buying the policy are not covered. This is the initial waiting period during which claims for any type of illnesses are not paid. However, claims for accidental injuries are admissible from the first day of the policy.
  • Specific diseases waiting periods – specific illnesses and/or treatments are not covered during one or two years from the date of commencement of the policy. Common illnesses and treatments which have this waiting period include treatments for piles, hernia, tonsillectomy, joint replacement surgeries, fibroids, etc.
  • Pre-existing waiting period – if you or your family member suffers from an illness when buying health insurance online, such an illness is called a pre-existing illness. Such illnesses are not covered during an initial waiting period ranging from 1 year to 4 years under different plans.
  • Maternity waiting period – if your health insurance plan has an inbuilt coverage for maternity, such coverage is allowed only after a specified waiting period which can range from 9 months to up to 6 years.

Claims during the above-mentioned waiting periods are not admissible but once the waiting period is over, the health insurance plan pays the claims.

  • Specific treatments

There are specific treatments which are completely excluded from the coverage of health insurance plans. These include cosmetic treatments, dental treatments, LASIK treatments for eyesight correction, fertility treatments, weight management treatments, etc. 

  • Other exclusions

Other instances which are commonly excluded from health insurance plans include medical expenses incurred due to the following instances –

  • Self-inflicted injuries or attempted suicide
  • War, nuclear contamination or allied perils
  • Maternity related expenses unless they are specifically covered under the plan
  • Outpatient expenses unless they are specifically covered under the plan
  • HIV, AIDS or other types of venereal diseases
  • Congenital diseases or birth defects
  • Unproven, unscientific or experimental treatments
  • Injuries or accidents suffered due to alcohol and/drug abuse
  • Injuries or accidents suffered when committing an act of criminal nature
  • Injuries or accidents suffered when participating in hazardous activities
  • Debilitating illnesses
  • Cost of lenses, spectacles or hearing aids, etc.

These are some of the common exclusions which you would find in most health insurance plans. However, under some plans, a few of these exclusions can be a part of the coverage benefit. So, when you buy health insurance online, you should read the coverage and exclusion list of your policy to know exactly what is covered and what is not. Then you should compare and select the best health insurance for your family which has a limited exclusion list and a comprehensive range of coverage benefits. Such a plan would provide the most inclusive coverage to your family ensuring that most of your medical costs get covered and your out-of-pocket expenses are minimized.

How do you differentiate Equity funds and ELSS?

When it comes to mutual funds, the choices are many. There are different types of mutual fund schemes based on their investment portfolio, risk profile, return potential, and investment objective. Equity mutual funds are quite popular among investors who have a healthy risk appetite. They allow you to invest and get attractive returns through investment in equity-oriented securities. Moreover, if you choose ELSS funds, you can also get tax benefits. 

Equity Linked Saving Schemes, also called ELSS in short, are equity-oriented mutual fund schemes which have an added advantage of tax benefit. ELSS funds are, in fact, a type of equity mutual funds but many investors confuse them to be synonyms of each other. So, let’s understand and state the similarities and differences between these types of mutual fund schemes –

What are equity mutual funds?

Equity mutual fund is a broad category of mutual fund schemes under which different types of schemes fall. Equity mutual fund is a generic name given to those mutual fund schemes whose portfolio invests at least 65% in equity stocks and securities. 

What are ELSS schemes?

ELSS schemes are a type of equity mutual fund which allow you to avail tax benefit on the amount that you invest into the scheme. This ELSS tax benefits is not available under any other mutual fund scheme making ELSS schemes popular.

Similarities between ELSS and equity mutual funds

  • Under both these funds, the portfolio consists of at least 65% of equity investment
  • Both these types of mutual fund schemes have a high-risk profile and are suitable for investors who have tolerance of taking investment risks

Differences between ELSS and equity mutual funds

Points of differenceEquity mutual fundsELSS funds
Scope Equity mutual fund is a category of mutual fund schemes under which you can find different types of schemes like large-cap fund, mid-cap fund, small-cap fund, etc.ELSS funds are a type of equity mutual fund. They are, therefore, a subset of the equity mutual fund family
Investment tenureThere is no specific investment tenure for equity mutual funds. You can invest for as long as you want and redeem the funds as per your needELSS funds have a lock-in period of 3 years. Investments into the fund are locked in for 3 years and only after the lock-in period is over are you allowed to redeem your investment
Tax benefit on investmentNo tax benefit is available on the money that you invest in an equity mutual fund schemeOne of the ELSS tax benefits is the benefit available on investment. The money that is invested in the ELSS scheme qualifies for deduction under Section 80C. You can claim a deduction of up to INR 1.5 lakhs by investing in the ELSS fund online
Tax benefit on redemptionIf you redeem the equity mutual fund within 12 months of investment, the returns earned are treated as a short term capital gain. This gain is taxed @15%. However, if you redeem the fund after 12 months, the returns earned are called long term capital gains. Such gains are tax-free up to INR 1 lakh. If the returns exceed INR 1 lakh, 10% tax is charged on the excessAnother ELSS tax benefit is the benefit of redemption of the fund. Since ELSS schemes have a lock-in period of 3 years, there is no short term capital gain. Thus, on redemption, the returns earned are long term capital gains which are tax-free up to a limit of INR 1 lakh. If the return is more than a lakh, the excess is taxed @10%

Thus, ELSS funds are nothing different but equity mutual funds with a lock-in period and added tax benefits. So, if you are looking to save taxes and earn attractive returns, invest in an ELSS fund online and build your portfolio. Compare the different ELSS fund online and then choose a scheme which has given consistent returns over a long term period. This would ensure that you get maximum returns from your investments. 

National Pension System (NPS) investment right instrument for tax saving and building a retirement corpus

Planning a retirement corpus is essential if you want to live comfortably even after your regular income stops. That is why, during your active working life, you should put away money for your retirement. Retirement planning requires regular savings over a long term period so that you can accumulate a substantial corpus. Building a retirement corpus requires you to invest your savings in a suitable investment avenue which would create the desired funds. One such avenue for retirement is the National Pension System (NPS).

The NPS scheme was launched by the Government of India to allow the public with a market-linked investment avenue for retirement planning. The online NPS scheme allows you to invest for a long term period so that you can accumulate a substantial corpus for when you retire. Here are some salient features of NPS investment –

  • You can choose an online NPS scheme or invest through your bank’s branch. Online NPS investment is more convenient as it allows you to invest right from your home or office 
  • The age limit for NPS investment is between 18 years and 60 years. The scheme runs till you attain 60 years of age and you can even postpone the vesting age by 10 years to get the corpus at 70 years of age.
  • There are two investment accounts – Tier I and Tier II. Tier I account is mandatory and you have to open it to invest in the NPS scheme. Tier II Account is optional and can be opened if you have an existing Tier I Account
  • When you invest in online NPS scheme, you get a PRAN number which helps you track and monitor your investments
  • NPS investments are market-linked allowing you to grow your money with attractive returns and create an inflation adjusted corpus
  • Though NPS is a long term investment, you can withdraw from your corpus partially during the investment tenure. Partial withdrawals are allowed only for specific instances like meeting the cost of a marriage, medical emergency, higher studies, etc. You would be allowed to withdraw up to 25% of your accumulated corpus from the third year of investing into the scheme.
  • NPS investments are tax saving in nature and give you tax benefits both on the invested amount as well as the redemption proceeds.

Tax saving benefits of NPS investment

As mentioned earlier, NPS is tax saving in nature. Let’s understand how –

  • Tax benefits on investments

The money that you put into your NPS account is eligible to be claimed as a deduction from your taxable income. You can claim a deduction of up to INR 1.5 lakhs under Section 80CCD (1) of the Income Tax Act, 1961. Furthermore, if you are looking to save additional taxes, you can do so by investing an additional INR 50,000 in the NPS scheme. This additional investment would be allowed as a tax-free deduction from your taxable income under the provisions of Section 80 CCD (1B). Thus, by investing in the NPS scheme, you can claim a maximum deduction of INR 2 lakhs.

  • Tax benefits on redemption

When the NPS scheme matures, you are allowed to withdraw 60% of the accumulated corpus in lump sum. This lump sum withdrawal is allowed as a tax-free income in your hands.

Why NPS is the best retirement planning tool?

Besides the tax benefit, which is an obvious advantage, NPS proves to be a best retirement planning tool for the following reasons –

  • It helps you create an inflation-proof retirement corpus through market-linked investments. Since the retirement corpus grows according to the trend of the economy, it ensures that your retirement is sufficiently funded
  • The long term nature of the scheme allows your investment to get the benefit of compounding thereby yielding attractive returns
  • After maturity, 40% of the corpus is promised to be paid as lifelong annuities. Moreover, there are different annuity options to choose from. So, the NPS scheme creates a regular source of income even after you are retired.

Given these benefits, you should invest in an online NPS scheme. Start investing at the earliest so that you have the maximum possible tenure to create a retirement corpus. The tax benefit would also help in saving tax allowing a higher disposable income in your hands. So, choose NPS for retirement planning and enjoy the benefits which the scheme has to provide.

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