Post Office Tax Saving Investment Schemes

Post Office Savings Schemes offers

  • Savings Account
  • Recurring Deposit (RD) Account
  • Time Deposit (TD) Account
  • Monthly Income Scheme (MIS) Account
  • Public Provident Fund (PPF) Account
  • National Savings Certificates (NSC)
  • Senior Citizen Savings Scheme (SCSS) Account
  • Kisan Vikas Patra (KVP) and
  • Sukanya Samriddhi Accounts.

Post Office Tax Saving Schemes

Deposits in some post office schemes are eligible for deduction from income under section 80C of Income Tax Act.

5 Years Time Deposits

Investment in post office time deposit for 5 years is eligible for deduction from income under section 80C of IT Act. Minimum amount for open time deposit is ₹200 and in multiple thereof. No maximum limit.

Interest rate for 5 years time deposit is 7.8% from 1.10.2016

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a tax saving investment. PPF was introduced by the Ministry of Finance of India in 1968. Deposits made towards PPF accounts can be claimed as tax deductions and interest earned on those deposits are also tax-free. Withdrawals are exempt from tax. The PPF interest rate is 8% per annum from 01.10.2016.

Minimum annual deposit is ₹500 and maximum annual deposit allowed is ₹1.5 lakhs. Investment up to ₹1 lakh is eligible for deduction under section 80C of IT Act.

Tenure of PPF account is 15 years, account continuance is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.

Loans can be availed against funds held in the PPF account from year 3 to year 6.

National Saving Certificates (NSC)

NSC specially designed for government employees, businessmen and other salaried classes who are income tax assesses. There is no maximum limit for investment in NSC. Investment up to ₹100,000.00 is eligible for deduction under section 80C of Income Tax Act.

The interest rate for NSC VIII Issue is 8%.

Maturity value of a certificate of ₹100.00 purchased on or after 01.10.2016 shall be ₹146.93 after 5 years.

Maturity value of a certificate of ₹100.00 purchased on or after 01.04.2012 shall be ₹147.61 after 5 years.

Certificates can be kept as collateral security to get the loan from banks.

Kisan Vikas Patra (KVP)

Investment under this scheme is eligible for deduction under section 80C of IT Act. Minimum deposit is ₹1000 and no maximum limit. This certificate is available in denomenation of 1000, 5000, 10,000 and 50,000.

Interest rate is 7.7%

Senior Citizen Savings Scheme (SCSS) Account

An individual of the age 60 or more can open this account with post office. Maturity period of this account is 5 years and interest rate is 8.5% from 01.10.2016.

Deposit under this scheme is eligible for deduction under section 80C of the Income Tax Act.

Best Balanced Mutual Funds to Invest in 2017

Balanced mutual funds can be equity oriented or debt oriented hybrid funds.

If the average equity exposure of balanced fund is more than 60% and the remaining 40% is debt products then it is treated as Equity Oriented Balanced Fund. This means major portion of the funds are invested in equity.

If the average debt exposure is around 60% and equity is 40% then these funds are treated as Debt Oriented Balanced Funds.

If you do not wish to take too much risk, but wish to have exposure into equities, balanced funds are a good way forward. These funds are less volatile, and when the markets fall, they are hurt less than others.

Tax Efficiency

Balanced funds are a tax efficient way of having a debt exposure. These funds are treated like equity funds for taxation. Dividends from these funds are tax-free and there is no tax on long-term equity gains.

Best Mutual Funds to invest in 2017

Best ELSS Tax Saving Mutual Funds for 2017 

Balanced funds are suitable for investors with a moderate risk profile and investment horizon of over three years. On the equity side the fund is managed actively based on valuations in the market, as the portfolio is constructed keeping in mind the conservative risk profile of investors. This could also be a product for maiden investors to start off with, owing to lower volatility and tax benefits. Being a product that works across market cycles, and aims to offer the benefits of asset allocation, this product could form part of investors’ core portfolio.

Best Balanced Mutual Funds

Here is the list best balanced mutual funds you can invest in 2017

HDFC Balanced Fund

ICICI Prudential Balanced Fund

DSP BlackRock Balanced Fund

Birla Sun Life Balanced 95 Fund

Franklin India Balanced Fund

L & T India Prudence Fund

Canara Robeco Balance

SBI Magnum Balanced Fund

Tata Balanced Fund

Reliance Regular Savings Fund – Balanced

Best ELSS Tax Saving Mutual Funds to Invest in 2017

Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund, which is qualified for deduction of ₹ 1, 50,000 under section 80C of the Income Tax Act. ELSS tax saving fund has the shortest lock-in period to compare with other investment products like Public Provident Fund (PPF), National Savings Certificate (NSC). Dividend declared in ELSS funds is tax-free and no tax levied on the long-term capital gains.

You can make a lump-sum or one-time investment in an ELSS fund or using the SIP route.

Best Mutual Funds to Invest in 2017

Best Balanced Mutual Funds for 2017

Start a SIP

A Systematic Investment Plan (SIP) can create wealth by investing small sums of money every month over a period of time. The biggest advantage of a SIP is that the investor doesn’t have to time the market. When an investor times the market, he usually misses out on the rally or enters the market at the wrong time, either the valuations have peaked or the markets are on the verge of declining. Investing every month ensures that one is invested during the highs and the lows.

Moreover, SIPs also have the advantage of compounding, one must start investing at an early age as the longer the investment horizon, bigger the benefits. If you start early, equity funds should constitute 80% of your portfolio as this asset class has been found to be the best bet for growing money over the long term. SIPs can be an ideal way to accumulate money for retirement. After retirement, one can withdraw the money through a systematic withdrawal plan.

Equity investment is a higher risk over the short term. However, for investment periods of three to five years or longer, the risk on equity investments is considerably lower. In fact, when you take inflation into account, it is bank FDs and similar deposits that are suboptimal for the retiree because of inflation.

Like all equity investments, the best way of investing in ELSS funds is through monthly SIPs throughout the year. That’s also the way to avoid any last minute rush. At the beginning of every year, estimate the amount you have left over from the R1.5 lakh limit after statutory deductions, divide it by 12 and start an SIP.

Best ELSS Tax Saving Mutual Funds to Invest in 2017

Here is the list of best 10 ELSS tax saving mutual funds you can invest in 2017

Axis Long Term Equity Fund

Reliance Tax Saver

DSP-BlackRock Tax Saver Fund

Tata India Tax Savings Fund

Birla Sun Life Tax Plan

Birla Sun Life Tax Relief 96

Invesco India Tax Plan

IDBI Equity Advantage Fund

Franklin India Taxshield Fund

HDFC Long Term Advantage Fund

Best Mutual Funds to Invest in 2017

Thousands of mutual funds are currently available in the market. Choosing best mutual funds is a challenging task for any investor. A good mutual fund is the one that consistently manages to outperform its category return and its benchmark. Mutual funds are one of the best wealth creation tools for long-term financial goals like retirement planning, kids education, and marriage etc. For medium and small term financial goals, you can rely on balanced and short-term debt funds.

Equity Linked Savings Schemes (ELSS) offer tax benefits for Individual/HUF under Section 80C of Income Tax Act, 1961. An investor can claim up to 1 lakh as a deduction from his gross total income.

How to Pick a Mutual Fund

5 Things You Should Know Before Invest

BEST MUTUAL FUNDS TO INVEST IN 2017 (BY CATEGORY) ARE GIVEN BELOW.

Balanced Funds

  • HDFC Balanced Fund
  • ICICI Prudential Balanced Advantage
  • L&T India Prudence Fund
  • SBI Magnum Balanced Fund
  • Franklin India Balanced Fund

Diversified Equity Funds

  • ICICI Prudential Value Discovery Fund (G)
  • UTI MNC Fund
  • Franklin India Prima Plus Fund (G)
  • L & T India Value Fund (G)
  • Birla Sun Life Advantage Fund

Large Cap Funds

  • SBI Bluechip Fund
  • DSP BlackRock Focus 25 Fund
  • Kotak Select Focus Fund
  • Franklin India Opportunities Fund
  • ICICI Prudential Focused Bluechip

Small & Mid Cap Funds

  • DSP Blackrock Micro Cap Fund
  • Mirae Asset Emerging Bluechip Fund
  • HDFC Mid Cap Opportunities
  • Franklin India Smaller Companies
  • Reliance Small Cap Fund

Equity Linked Savings Scheme (ELSS)

  • Axis Long Term Equity Fund (G)
  • DSP BlackRock Tax Saver Fund
  • Birla Sun Life Tax Plan
  • Reliance tax Saver
  • Tata India Tax Savings Fund

Index Funds

  • Kotak Nifty ETF
  • G S Nifty BeES
  • ICICI Prudential Nifty iWIN ETF
  • IDBI Nifty Index Fund
  • UTI Nifty Index Fund

Long Tern Income Funds

  • ICICI Prudential Long Term Plan
  • HDFC High Interest – Dynamic
  • Birla Sun Life Dynamic Bond Fund
  • IDFC Dynamic Bond – Regular Plan
  • TATA Dynamic Bond – Regular Plan

Short Term Debt Funds

  • Birla Sun Life Short Term Fun
  • ICICI Prudential Banking & PSU Debt Fund
  • UTI Banking and PSU Debt Fund
  • IDFC Super Saver Income Fund – Medium Term
  • L&T Short Term Opportunities Fund

Ultra Short Term Funds

  • DSP BlackRock Ultra-Short Term Fund
  • ICICI Prudential Ultra Short Term Plan
  • SBI Ultra Short Term Bond
  • Religare  Invesco Credit Opportunities Fund
  • Birla Sun Life Savings Fund

Credit Opportunities Funds

  • Kotak Medium Term Fund
  • Reliance Corporate Bond Fund
  • Birla Sun Life Corporate Bond Fund
  • UTI Income Opportunities Fund
  • DSP BlackRock Income Opportunities Fund

Start Your Tax Planning Early

Tax Planning

We often make the mistake of investing at the last hour when our company asks for proof. Don’t delay it, start tax planning now. Early tax planning will also ensure that you fully acknowledge and understand your financial situation, which can help you plan for the future in more ways than just tax preparation.

Start in April

Why should you wait for the end of the year to invest in tax saving investments? April is the best time to start investments. Delayed tax planning could make you invest a large sum in March. You might end up not investing in financial instruments as per your goals. So don’t leave your tax planning for the last minute.

Understand Tax Changes & Deductions

By April, the Union Budget would have been announced. This means you have a good idea about any tax changes, exceptions and deductions etc in the new financial year.

Estimate Your Taxes

You also know about your salary hikes and tentative incomes by the start of your financial year. This is enough to calculate your tax payments too.

Tax Planning

Spread Out Investments

Section 80C offers taxpayers a ceiling of ₹1.5 lakh for claiming tax benefits. This number – ₹1.5 lakh is important and tells you how much money you can save depending on your tax bracket. It is your starting point and you must work backwards by selecting from the options 80C offers you like tax-saving mutual funds (ELSS), EPF, PPF, among others.

If you invest at the end of the year, you will have to shell out ₹1.5 lakh or more in a single lump sum payment. By planning earlier, you can avoid this

Systematic Investment Plan (SIP)

Equity Linked Savings Schemes (ELSS) are special Mutual Funds for saving tax. You can start SIP in ELSS right in April. This spreads out your investments. By investing every month, you can also benefit from the volatility in the stock markets. You can lower your average cost of investment by investing every month.

Higher Returns

By lowering your average cost of investment, you can increase your overall returns in the long run. This way, your tax-related investments can help create more wealth.

Best 5 Tax Saving Investments

Tax Saving Investments

Investments in tax saving investments can claim deductions under section 80C of income Tax Act 1961. The maximum deduction is allowable under this section is ₹150,000.00. If you are investing in following investments, you can claim deductions from your gross total income.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a tax saving investment. PPF was introduced by the Ministry of Finance of India in 1968. Deposits made towards PPF accounts can be claimed as tax deductions and interest earned on those deposits are also tax-free. Withdrawals are exempt from tax. The PPF interest rate for the financial year 2016-17 is 8.1%.

PPF accounts can be opened at any nationalised banks, or post offices. PPF accounts can be opened at the specific private bank as well. The minimum amount required to open a PPF account is ₹100.00. Minimum annual deposit is ₹500.00 and maximum annual deposit allowed is ₹150,000.00. Investment up to ₹100,000.00 qualifies for deduction under section 80C of IT Act.

Tenure of PPF account is 15 years, account continuance is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.

Loans can be availed against funds held in the PPF account from year 3 to year 6.

Equity Linked Savings Scheme (ELSS)

ELSS– Equity Linked Savings Scheme is one of the best tax saving investments available in the market. ELSS is a diversified equity mutual fund which has the majority of the corpus invested in equities. This type of mutual fund has a lock-in period of 3 years. This means if you start a Systematic Investment Plan (SIP) in an ELSS, then each of your investments will be locked in for three years from the respective investment date.

Compared to other tax saving instruments like bank fixed deposits, Public Provident Fund (PPF) and National Savings Certificate (NSC); the lock-in period of Equity Savings Scheme is much lower. While ELSS investment is locked for 3 years, PPF is locked for 15 years, NSC is locked in 5 years and bank fixed deposits eligible for tax deduction are locked in for 5 years. As ELSS is an investment in equity markets and investing in this for a long-term can give better returns compared to other asset classes over the long term.

National Saving Certificates (NSC)

NSC specially designed for government employees, businessmen and other salaried classes who are income tax assesses. NSC are issued by the post office and can be taken from any branch of the Indian postal service. There is no maximum limit for investment in NSC. Investment up to ₹100,000.00 qualifies for deduction under section 80C of IT Act.

The interest rate for NSC VIII Issue is 8%.

Maturity value of a certificate of ₹100.00 purchased on or after 01.10.2016 shall be ₹146.93 after 5 years.

Maturity value of a certificate of ₹100.00 purchased on or after 01.04.2012 shall be ₹147.61 after 5 years.

Certificates can be kept as collateral security to get the loan from banks.

5 Years Fixed Deposits 

You can claim deductions under section 80C of IT Act 1961 by investing in fixed deposits up to ₹150,000.00. Lock-in period for such deposits is 5 years. The interest earned from such deposits are taxable. Premature withdrawal is not available.  Deposits can be opened both singly and jointly. In the case of a joint account, the tax benefit will be availed by the first holder of the deposit as per the section 80C of the Income Tax Act, 1961. The interest rate for fixed deposits is very from bank to bank.

Nation Pension Scheme (NPS)

The National Pension Scheme (NPS) was introduced by Government of India on 1st January 2004 with the objective of providing retirement income to all the citizens.

Finance Minister Arun Jaitley in Budget 2015-16 introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. NPS is a voluntary pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority.

5 Things You Should Know About Investment

In this article, I have listed 5 things you should know about investment. This will help you to evaluate and compare various investment instruments are available in the market.

Return on Investment

A good rate of return on an investment is the first and foremost condition for effective investment. The rate of return is the ratio of a sum of annual income and price appreciation to purchase price of the asset or investment.

The rate of Return = Annual income + (Ending price – Beginning price)/ Beginning price.

Illustration

Suppose a person has invested in equity share of a company X at the price of ₹ 100.00. During the year, company X pays a dividend to its shareholders of ₹ 10.00 and price of the share at the end of the year is ₹ 115.00.

Rate of Return = 10+ (115-100)/100 =0.25 or 25%

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Risk

The degree of risk varies across investment types, all investments bear the risk. So it is important to determine how much risk is involved in an investment. The average performance of an investment normally provides a good indicator. Past performance is merely a guide to future performance, not a guarantee. Investors should consider whether they could manage the safety risk associated with investments financially and psychologically.

Liquidity

Liquidity means marketability of an investment. An investment instrument is considered to be highly marketable when:

  • It can transact quickly.
  • The transaction cost is low.
  • The price change between 2 transactions is negligible.

Equity shares of large, well-established companies can be easily liquidated in the stock market. While shares of small and unknown companies have low liquidity.

To determine the liquidity of other financial instruments like provident fund (a noun – marketable instrument). We would consider other factors like, can we make a substantial withdrawal without much penalty, or can we take a loan against the accumulated balance at an interest rate not much higher than our earning rate of interest on the provident fund account.

Tax Benefits

Some of our investments would provide us with tax benefits while other would not. This would also be kept in mind when choosing the asset. Tax benefit is mainly of 3 types

Initial Tax Benefits – This is the tax gain at the time of making the investments, like Equity Linked Savings Scheme.

Continuing Tax Benefit – This is the tax benefit gained in the period return from the asset, such as dividends.

Terminal Tax Benefit – This is the tax relief the investor gains when he liquidates the investments. For example, a withdrawal from provident fund account is not taxable.

Convenience 

Convenience means ease of investment. The degree of convenience would vary from one asset to other. For example, it is easy to invest in equity shares compared to real estate because real estate involves a lot of documentation and legal requirements.

ELSS – Save Tax & Earn Higher Return

ELSS – Equity Linked Savings Scheme is a diversified equity mutual fund which has a majority of the corpus invested in equities. This type of mutual fund has a lock-in period of 3 years. This means if you start a Systematic Investment Plan (SIP) in an ELSS, then each of your investments will be locked in for three years from the respective investment date.

Like other mutual funds, Equity Linked Savings Scheme has both growth and dividend options. In growth option, investors get a lump sum on the expiry. On the other hand, investors get a regular dividend income in dividend option.

The investor can claim up to ₹1 lakh as a deduction from his gross taxable income under section 80C of the Income Tax Act. ELSS fall under the exempt – exempt – exempt (EEE) category. That means investments get tax deduction under section 80C. The capital gains generated by the fund are exempt from tax. Finally, withdrawals are also tax-free.

ELSS

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The primary purpose of Equity Linked Saving Scheme investment should be to achieve a future financial goal or to create long-term wealth for distant goals like retirement planning etc. and tax saving in the year of investment should be an incidental benefit or a secondary objective. This mutual fund is preferred to open-ended Equity Schemes because of two reasons, namely tax saving and discipline of holding for a longer period.

Advantages of ELSS over other tax Saving Instruments

Compared to other tax saving instruments like bank fixed deposits, Public Provident Fund (PPF) and National Savings Certificate (NSC); the lock-in period of Equity Savings Scheme is much lower. While ELSS investment is locked for 3 years, PPF is locked for 15 years, NSC is locked in 5 years and bank fixed deposits eligible for tax deduction are locked in for 5 years. As ELSS is an investment in equity markets and investing in this for a long-term can give better returns compared to other asset classes over a long-term.

Best ELSS Funds

Following are the best ELSS funds:-

  • Axis Long Term Equity Funds.
  • Birla Sun Life Tax Relief 96.
  • Birla Sun Life Tax Plan.
  • Reliance Tax Saver.
  • Religare Invesco Tax Plan.
  • BNP Paribas Long Term Equity Fund.
  • Franklin India Taxshield Fund.
  • ICICI Prudential Long Term Equity (Tax Saving).
  • DSP BlackRock Tax Saver Fund.
  • IDFC Tax Advantage (ELSS) Fund.

Best Mutual Funds for 2016

Thousands of mutual funds are currently available in the market. Choosing best mutual funds is a challenging task for any investor. A good mutual fund is the one that consistently manages to outperform its category return and its benchmark. Mutual funds are one of the best wealth creation tools for long-term financial goals like retirement planning, kids education, and marriage etc. For medium and small term financial goals, you can rely on balanced and short-term debt funds.

Equity Linked Savings Schemes (ELSS) offer tax benefits for Individual/HUF under Section 80C of Income Tax Act, 1961. An investor can claim up to 1 lakh as a deduction from his gross total income.

How to Pick a Mutual Fund

5 Things You Should Know About Investment

Best Mutual Funds

Best Mutual Funds for 2016 (by category) are given below.

Diversified Equity Funds

  • ICICI Prudential Value Discovery Fund (G)
  • UTI MNC Fund
  • Franklin India Prima Plus Fund (G)

Large Cap Funds

  • SBI Bluechip Fund
  • ICICI Prudential Focused Bluechip
  • Franklin India Opportunities Fund

Mid Cap Funds

Small Cap Funds

  • Franklin India Smaller Companies
  • DSP Blackrock Micro Cap Fund
  • Reliance Small Cap

Equity Linked Savings Scheme (ELSS) Funds

  • Axis Long Term Equity Fund (G)
  • Birla Sun Life Tax Plan
  • Reliance tax Saver

Balanced Funds

  • ICICI Prudential Balanced Advantage
  • Tata Balanced Fund – Regular
  • L&T India Prudence Fund

Credit Opportunities Funds

  • Franklin India Dynamic Accrual
  • ICICI Prudential Corporate Bond
  • SBI Corporate Bond Fund

Ultra Short Term Funds

  • Religare  Invesco Credit Opportunities Fund
  • ICICI Prudential Ultra Short Term Plan
  • SBI Ultra Short Term Bond

Long Tern Debt Funds

  • IDFC Dynamic Bond – Regular Plan
  • TATA Dynamic Bond – Regular Plan
  • HDFC High Interest – Dynamic

Short Term Debt Funds

  • Birla SL Short Term Fund
  • L&T Short Term Opportunities Fund
  • DWS Banking & PSU Debt – Regular Plan