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Best Debt Mutual Funds in India – 2017

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Best Debt Mutual Funds in India – Details & Comparison 

Debt Mutual Funds offer several benefits. But most of the small and retail investors know little about them and prefer to invest in Fixed Deposits or Recurring Deposits.
Debt Funds can give better returns than your Savings Bank Account & Bank deposits. Safety of capital is almost the same with both the options (Debt MFs & FDs). FDs may offer you assured returns but Debt funds can offer you higher post-tax returns.

If you have any financial goal(s) which is less than 5 years away, which can be met with 8% to 10%, rate of return (or) when you are not comfortable with high volatility (risk) then you can surely consider investing in Debt Mutual Funds.
The returns from Debt funds are mainly dependent on the ‘interest rate’ scenario that is prevailing in the economy. If interest rates are in downward trend, most of the long-term or dynamic debt mutual funds can give better returns than bank fixed deposits. RBI may not be done with ‘Interest Rate Cuts‘. We may see further rate cuts in the future based on the Inflation and Macro-economic data.
Some of the debt mutual funds especially Dynamic bond funds, Gilt funds and Long-term debt funds have given better returns than bank Fixed Deposits over the last 1 to 2 year period.
In this post, let us look at some of the top performing and best Debt Mutual Funds that you can consider for your short or medium term goals.

Methodology to shortlist Top rated Debt Mutual Funds
I have judiciously followed the below points to select the best Debt mutual funds;
  • Funds are shortlisted based on the past performances (Returns).
  • Selection among the top rated 5 to 6 AMCs with a proven track record in Debt Funds segment.
  • Age of the funds.
  • Quantum of AUM (Assets Under Management)
  • Expense Ratio (What is Expense ratio? Expense ratio shows the amount that mutual funds charge for managing the investors’ money)
  • Exit Load.
  • Risk – Reward profile.
  • Various Risk / volatility related Ratios.
  • Based on the data available on CRISIL, Morningstar, Moneycontrol & Valueresearchonline portals.
  • The current investment portfolios of the funds.
  • The credit quality, interest rate sensitivity, modified duration & average maturity of the Funds’ portfolios have been given due importance. (If you are investing for short-term, ideally you have to pick funds which have limited/low sensitivity to interest rates. At the same time, if you are investing for medium to long-term duration, you may pick funds which have moderate to extensive sensitivity to interest rates. Funds which have high credit quality w.r.t their portfolios should be given high importance.)
  • I have tried to identify top performing Debt mutual funds based on the Fund Categories like Liquid Debt Funds, Short-Term Debt Funds, Dynamic Bond Funds, Gilt Funds, Monthly Income Plans etc.,

Top & Best Debt Mutual Funds in India for 2017

Below are some of the top performing and highly rated category-wise debt mutual funds;

Best Liquid Debt Funds 

Liquid funds invest in highly liquid money market instruments that provide easy liquidity. The period of investment in these funds could be as short as a dayAxis Liquid fund, HDFC Liquid Fund and Birla Sunlife Cash Plus funds are some of the top performing Liquid funds. The average liquid fund category returns in the last 3 months & 1 year are, 1.5% and 6.8% respectively. Franklin India’s Treasury Management Fund & ICICI Pru Liquid plan can also be considered for very short-term goals. Liquid funds are also best suited for saving a portion of your Emergency Fund.
If you want to park your surplus cash for very short-periods say 1 to 3 months, opt for these funds. Do not invest in Liquid Funds for a longer period as these offer low single-digit returns at best. Do note that these funds may or may not outperform your savings bank Account interest rate. (I had shortlisted same funds last year too.)

Best Ultra-Short Term Debt Mutual Funds

The Ultra Short-term debt funds are also known as Liquid plus funds or Cash / Treasury Management Funds. They generally invest in very short term debt securities with a small portion in longer term debt securities.
I had picked DWS Ultra Short Term Fund, Franklin Ultra Short Bond Fund & Axis Banking Debt Fund last year. This year, I am replacing the DWS & Franklin funds with L&T Ultra Short Term Fund & IDFC Banking Fund. The above funds’ portfolios are of very high credit quality and have low sensitivity to interest rates.
The average category returns generated in the last 3 months and 1 year are; 2% & 7.9% respectively. If you have surplus money which needs to be invested for say 3 to 12 months, you can consider investing in these funds.

Best Short-Term Debt MFs

Funds investing in slightly longer duration debt securities than Ultra short term funds are referred to as Short term funds. These funds are also referred to as Short-Term Credit Opportunities funds.
I had short-listed Birla Sunlife Short-term fund and HDFC Short Term fund last year. This year, I am replacing the HDFC Short Term Fund with Axis Short term fund and also including Franklin Low Duration Fund & L&T Short Term opportunities Fund. The above funds’ portfolios are of very high credit quality and have low sensitivity to interest rates. (HDFC Short Term Fund’s portfolio has been rated as ‘medium’ in terms of credit quality.)
The average fund category returns over the last 1 and 3 years are; 8.8% & 7.9% respectively. If you have surplus money which needs to be invested for say 6 to 18 months, you can consider investing in these funds.

Top & Best Dynamic Debt Funds

They invest a major portion in various debt instruments such as bonds, corporate debentures, government securities and money market instruments of various maturities and issuers. Dynamic Bond Funds invest in debt securities of different maturity profiles. These funds are actively managed and the portfolio varies dynamically according to the interest rate view of the fund managers.
During last year’s review on Debt Funds, I had selected TATA Dynamic bond & HDFC High Interest Fund under Dynamic Bond Funds category. I am continuing with the same funds and have also included Birla Sun life Dynamic Bond Fund & ICICI Pru Dynamic Bond Fund to the tracking list.
The average returns generated by the funds which are in Dynamic & Long-term income bond funds category during last 1 and 3 years are; 9.2% & 8.8% respectively.
These funds are suitable for investors who are willing to take a relatively higher risk and have longer investment horizon (say 1 to 5 years). Invest in a Dynamic Income fund if you want to gain from both rising and falling interest rate scenarios. But, dynamic funds can have high interest rate risk associated with it.

Best Gilt Funds

Gilt Funds invest in government securities of medium and long term maturities issued by central and state governments.
During last year’s review on Debt Funds, I had selected SBI Magnum Gilt Fund, IDFC’s G-Sec Fund and & L&T Gilt funds under Gilt Funds-Intermediate to Long-Term category. I am continuing with SBI and L&T Funds, but replacing IDFC fund with HDFC Gilt Fund – Long Term plan.
The average category returns for the last 1, 3 and 5 year are; 10.08%, 9.4% and 7.8% respectively. You can consider Gilt funds in a falling interest rate scenario.

Best Monthly Income Plans / Hybrid – Debt Oriented Plans

These funds invest in a mix of Debt and Equity in the proportions of say 80:20 or 70:30 or other proportions of similar kind. The objective of these funds is to provide enhanced regular returns to risk-averse investors by taking small positions in equity assets.

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Mutual Fund Facts & Myths

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Mutual Fund Facts & Myths 

Are you one of those investors who are still away from mutual funds investments because you do not have enough understanding about it or have lot so myths about them?
Every day we get constant enquiries from several of our readers who want to invest in mutual funds and often they have myths, which make us wonder about those myths.
So in this post I have listed down 33 various myths related to mutual funds and SIP in general. So if you are totally new to mutual funds, reading this article start to end will make you fully knowledgeable about mutual funds.
So let’s start…

Myth #1 – SIP is name of an investment product

A lot of people think that “SIP” is name of some investment product other than mutual fund. So they say – “I want to invest in SIP”. However SIP means systematic investment plan, which just means way to regularly invest only into mutual funds. In this a pre-fixed amount is automatically deducted from your account and gets invest in mutual funds on a pre-defined date.
For example, if you are doing a SIP of Rs 5,000 in ICICI pru Discovery mutual fund on 10th of every month, then on 10th of each month, Rs 5,000 will get deducted from your bank account and will get invested automatically.

Myth #2 – I can’t stop SIP in between once I start it

Another myth which stops investors from entering mutual funds is that they think starting SIP for X yrs, is a commitment they can’t break in between and they will face some penalty if they stop their investments.
A lot of people do not want to give any PROMISE of regular payment. However the truth is that once you start the SIP, you can anytime stop the SIP in between. So don’t worry while starting the SIP for next 5, 10 or 30 yrs. The day you want to stop it, it can be stopped with just one notification!

Myth #3 – All the money from ELSS can be withdrawn after 3 yrs if one is doing SIP

One of the biggest myths of investors is that if they are doing SIP in ELSS (tax saving mutual funds), then after 3 yrs, they can withdraw all their money. However that is not true. Each investment in ELSS is locked for 36 months from the date of investments. Which means that the first SIP which goes in March 2017, will be free of lock in only in Apr, 2020.
SIP in ELSS mutual funds are locked in for 3 yrs
The same is the case with the installment which goes in Apr 2017 (will be free on May, 2020)

Myth #4 – Lower NAV is cheaper than higher NAV

Most of the mutual funds investors think that a smaller NAV mutual fund is a better deal compared to a higher NAV mutual fund. While this may be sometimes true in case of stocks because a Rs 10 stock has potential to grow faster than a stock with Rs 10000 stock value.
But in case of mutual funds NAV has no significance. It’s ZERO !
Because your mutual funds appreciation has everything to do with the appreciation in NAV value in percentage terms and not absolute value. I mean if you invest Rs 10 lacs in a fund with NAV of Rs 10, and if the mutual fund performs great and in next 5 yrs it doubles in value, then the NAV will rise to Rs 20 and your fund value will rise to Rs 20 lacs.
However if the NAV was Rs 10,000 per unit, still the effect would be same for you. The NAV would have increased to Rs 20,000 and your value would have increased to Rs 20 lacs. No difference as such.
So stop thinking that a fund is better (especially NFO’s) just because its NAV is lower.

Myth #5 – Dividend in mutual funds is better than Growth option

When you choose a mutual fund to invest, you have to choose between Dividend and Growth option. Now a lot of investors think that dividend option is better because they are getting “extra dividend” . However it’s not true.
Dividends are not extra ! , The NAV comes down by that margin after the dividend is paid, on top of it , if the fund is not an equity fund, a dividend distribution tax is first paid by AMC, which lowers the return of investor. However in case of growth option, the money remains in the fund itself.
Difference between growth and dividend mutual funds
For example, imagine a fund XYZ with NAV of Rs 100 and a dividend declaration of Rs 10
  • Now in case of dividend option , Rs 10 will be paid to investor and NAV will come down to Rs 90.
  • However in case of Growth option, nothing is paid to investor , but the NAV is Rs 100.

Myth #6 – Mutual funds means Stock Market

One of the most common myths is that mutual funds are highly risky because they invest in stocks. However this is half true. Only equity mutual funds invest in stocks and are risky (infact volatile is the right word, not risky)
Various types of mutual funds
There are other categories of mutual funds called as debt mutual funds, which do not invest in equities. They invest in bonds, govt securities and other secured investments. While debt funds have their own risks and even their returns are not 100% stable, still debt funds are highly stable when it comes to returns and often provide better tax adjusted returns then most of the bank fixed deposits.

Myth #7 – You have to invest big amounts in mutual funds

Many small investors stay away from mutual funds and stick to recurring deposits and other products because they think that mutual funds are for big investors and one has to invest big money in it. However you can start monthly investment of even Rs 1,000 per month in most of the funds. If you want to invest on onetime basis, the limit is Rs 5,000 .
So someone who is just earning Rs 10,000 per month and wanted to invest 10% of his income, can also start mutual funds SIP.

Myth #8 – Mutual funds are always for long term

Mutual funds are marketing as long term investments most of the time. However it’s not always the case. There are mutual funds called as liquid mutual funds and even short term debt funds which can be used for short term investment horizon like 6 months or 2 yrs.
This article from Economic times talks about some of these funds
short term mutual funds
Only in case of equity mutual funds, it’s suggested that one should invest from a long term perspective to reap the maximum benefits.

Myth #9 – Mutual funds offer guaranteed returns

No, Not always.
Actually never !
Mutual funds never offer a guaranteed return like a fixed deposit. This is one reason why many investors who are totally in love with “assurity” shy away from investing in mutual funds.
Various categories of mutual funds offer various return range. An equity mutual funds can offer return anywhere from -50% to 100% return in a year (just a high level estimate). Whereas a debt fund can also deliver a return ranging from 5% to 15%. And a liquid fund will mostly give a return in range of 6-8%
So the returns are not guaranteed, but highly probably within a range depending on its category.
Also note that as the investment horizon shifts from 1 yr to 10-20 yrs, the probability of getting a stable return within a range increases.

Myth #10 – I will lose my money if mutual funds company goes bankrupt

This is common thinking, but not true
Mutual funds are highly secured in terms of structure. The way it’s designed and regulated by SEBI, it’s almost impossible for investors to lose money due to a scam or AMC going bankrupt. Your mutual funds units does not lie with AMC (it just takes decision of buying and selling). Units and all the money lies with custodian and highly secure.
Structure of mutual funds in India
ELSS fund some years back, but is now replaced by many others.
Here is a study by Yahoo Finance on this topic with respect to funds in US, which tells that around 92% top performers do not remain top performers after two years.

Myth #12 – More mutual funds means Diversification

Diversification is an abused word, at least in mutual funds.
Just because you invest in more mutual funds does not always mean that you have achieved diversification. The reason is simple. A mutual fund invests in close to 50-100 stocks. So when you invest in an equity mutual fund, your money is already well diversified across sectors, types of companies etc.
When you add another mutual funds, most of the stocks might be same and also in same proportion, giving you very little extra diversification. When you add 3rd fund and 4th fund, almost no diversification happens. Below is the portfolio of one mutual fund and you can see how much they have diversified already.
This is one reason why it’s of no use to invest in 10-20 mutual funds of same category. 2-4 funds of a similar category are the maximum one should invest into. You should add more SIP amount or lump sum in the same fund once you have chosen 2-4 funds.

Myth #13 – I need demat account to invest in mutual funds

No , it was never the case.
A lot of people think that unless they have demat account, they can’t invest in mutual funds. You can invest in mutual funds from your demat provider also , but it’s not mandatory.
So when you invest from ICICIDirect or HDFC Securities, you are actually investing via a demat account and the units you get sits in your demat account.
So if you want to invest in mutual funds, you can invest directly from the fund house or through an advisor.

Myth #14 – I can start SIP and forget it for long term

A lot of investors think that once they have started a SIP investment or even lump sum investment they can just sit back and relax for next 10-20 yrs. This is not suggested.
Mutual funds need constant review every year. So you should at least keep an eye on your fund performance. Do not over do it and start looking at weekly and monthly returns, but do that in 1-2 yrs.

Myth #15 – You can’t save tax under 80C in mutual funds

Many people who regularly save income tax through PPF or life insurance policies, do not know that even mutual funds have 80C benefits. ELSS or Equity linked saving scheme is the category of mutual funds which gives you 80C benefits up to Rs 1.5 lacs.

Myth #16 – SIP can be done only on monthly basis

No, An SIP can be done even on a weekly or quarterly basis. While monthly SIP is the most suitable for all (we all get monthly income), but at times if you want to invest on quarterly basis or weekly basis, even that can be done.
However note that it depends on a mutual fund if it gives you the facility of weekly/quarterly SIP or not. Most of them do, but at times, some mutual funds might choose to not have that option.

Myth #17 – Mutual funds investments are complicated

While investing in mutual funds is definitely as simple as creating a fixed deposit. But it’s not too complicated. You need to do one time documentation to start with and once it’s done, After that you can buy/redeem mutual funds online.
One place where you might feel complication is while choosing the funds out of the big pool, but with your own research or with guidance from someone else (like Jagoinvestor), you can get a set of mutual funds to invest in.
Here is a good mutual funds tutorial for beginners by Deepak Shenoy

Myth #18 – I can’t add more lump sum amount in my fund where I do SIP

A lot of investors feel that if they have started an SIP in a fund XYZ, then they can’t add additional money in the same fund under the same folio. It is not true.
When you invest in a fund (either SIP or one time), you get a folio number. This is like an account number. You can anytime add any amount of fund to the same folio. So if you are doing a SIP of Rs 10,000 in Birla Balanced Advantage fund, and now if you want to add another Rs 1,00,000 suddenly, you can do that.

Myth #19 – You need documentation every time you want to invest in mutual funds

Again a big myth.
Once you are done with the first time documentation, after that every time you want to invest and redeem or switch, you can do it online. The documentation comes into picture only when you want to do changes like your email id, phone or address etc.

Myth #20 – Mutual Funds are not for retired investors

This is entirely false.
There are various kind of mutual funds which are suitable for retirement needs. You can invest your hard earned money in debt funds and keep them secure while it’s growing at a decent return. Once can choose an option for monthly dividend and get an income.
One can also SWP from a fund, and withdraw a fixed amount each month. One can invest in a debt oriented mutual funds, which can have some equity component for some return kick!.
We have helped many clients to plan for their parents retirement money deployment.

Myth #21 – I can’t invest in mutual funds because I need high liquidity

Again a myth.
Mutual funds are highly liquid and you can get your money ranging from instant redemption to 3-4 days depending on the fund type. If you want very high liquidity, then you can invest money in liquid funds, from where you can redeem in 24 hours.

Myth #22 – Mutual funds are not that famous among investors

This may be a news to many, but Mutual funds industry will overtake Deposits in Banks very soon (may be a decade). Right now at the time of writing this article, the money in India mutual funds was around 18 lacs crore, It has doubled in last 4 yrs, and set to grow very fast in the next decade.
In US, mutual funds are already several times bigger than Fixed deposits and its going to happen in India too over long term. So if you still think that mutual funds are some alien concept, then you are wrong. It’s very popular now in India and one of the standard investments products.

Myth #23 – Mutual fund redemption needs permission of broker or advisor

Your broker or advisor has no control over your mutual funds. You can do redemption on your own by either installing the app of the fund house or through the portal where you have access to.
In worst case, you can anytime go to fund house office or CAMS/KARVY office and apply for redemption. This does not need any approval from anyone.

Myth #24 – I can’t skip an SIP payment once started

A lot of people are worried about what will happen if they skip the SIP in a particular month when they are low on funds?
If your bank account does not have sufficient money for a month, then on the SIP date the SIP will not get processed, but from next month it will go fine again. Mutual funds company does not charge any fine or penalty for this, but your bank can levy a small charge for this like Rs 200/300.
I think it’s good, because that way you will be disciplined enough to make sure that your SIP’s go on time, but also does not hurt you too badly in case of emergency

Myth #25 – I should stop my SIP when markets are down

Unless you are expert in understanding markets and how they will behave (which I think no one knows), it does not make a lot of sense to time your SIP’s . Just let them run in all kind of markets and focus on your long term goals.
Most of the investors make this mistake that they stop their SIP’s when markets tank. Infact, this is the best time when you should accumulate more Mutual funds units in your portfolio, so that when markets are up, you will reap the benefits.

Myth #26 – TDS is applicable when mutual funds are sold and redeemed

Mutual funds are not like Fixed Deposits or Recurring deposits.
When you sell your mutual funds, there is no TDS which is deducted. You get the full amount in your bank account and then you need to figure out the tax amount and pay it later.
However there is no exception to this. In case of NRI’s, if they redeem their debt funds, then TDS is applicable.

Myth #27 – My money will be locked in mutual funds like other products

Many investors think that in mutual funds their money is locked for a specific period. in case of mutual funds, most of the funds are open ended funds, which means that you can invest anytime and redeem anytime.
There is no lock in except in ELSS funds (which comes under 80C) and close ended funds (which specifically tell you the duration for lock in)

Myth #28 – SIP should not be started when stock markets are very high

Yes, this is actually not a myth, but truth.
But only if you know that stock markets are high ! . If you are very sure you can figure that out then Yes, it’s better to wait for markets to tank down, and then start SIP. But 95% of the people don’t have time and energy and even expertise to read these signals.
So that’s the reason, why you should not think much when you are starting the SIP. Start your SIP’s irrespective of market conditions. And when markets do down, it’s time to increase your SIP amount

Myth #29 – SIP is always better than Lump sum investments

None of them are better than the other.
SIP’s will outperform the onetime investments in certain conditions and vice versa. SIP’s however are more suitable for a common man as it’s a monthly commitment and averages the risk of market’s volatility.
Here is a good discussion on SIP vs Lump sum Investments by Monika Halan and Vivek Law in a show called Smart Money

Myth #30 – I can’t switch from one mutual fund to another fund

Many people do not know that it’s possible to move from one fund to another fund across the same fund house. You don’t need to sell the fund, get the money in your account and then again invest in another fund of the same fund house.
So if you have a mutual fund from Birla AMC, you can switch it to another Birla fund without redemption.

Myth #31 – Mutual funds of bigger and trusted brands are always better

Do you know that LIC also has mutual funds business?
However LIC mutual funds are one of the worst performing funds across the whole MF industry. LIC mutual funds is not same as LIC insurance.
In the same way, SBI mutual funds should not be confused with SBI bank. A lot of first time investors in mutual funds investors want to go with trusted brands like LIC, SBI, or HDFC.
Not that mutual funds is a different business, and you need asset management expertise. A small fund house like Motilal Oswal or even Quantum or PPFAS have high quality funds and should be explored.

Myth #32 – I can’t partially withdraw from mutual funds

Yes you can. Mutual funds can be redeemed in parts. You just have to choose the number of units you want to redeem or the amount you want to redeem (it will calculate the units required). So that way, it’s a great product. Because in case of deposits it’s either the full amount or none (which is one positive thing also)

Myth #33 – Only humans can invest in mutual funds

Even companies and partnership’s can invest in mutual funds. It’s not limited to just humans. So if you are business owner, you can also go for your business KYC, and then start invest in mutual funds. If you have money lying in current accounts, you can park your excess money in liquid or debt funds and redeem them anytime you want with a single click.
Let us know if you have any more myths or queries related to mutual funds or SIP.

Source: Jagoinvestor

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Save Tax With Tax Free Income

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Save Tax With Tax Free Income 

While investing in a tax-saving instrument or for that matter any investment, it's important to keep an eye on the taxability of its income. If the income earned is taxable, the scope to build wealth over long term gets constrained as taxes will eat into the returns.
In the tax saving instruments such as National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS), 5-year time deposits in bank and post office, the interest amount gets added to one's income and hence is liable to be entirely taxable. so, even though they help you save tax for the current year, the interest income becomes a tax liability in each year till the tenure ends. Anil Rego, CEO & Founder of Right Horizons, says, "One must note that (taxable tax savers) instruments will help in saving the tax to an eligible limit both on investments and on maturity. Since they provide the tax benefits, the returns on them are likely to be below the market returns."
The post-tax return in them, therefore, comes down after factoring in the tax. For example, for someone who pays 30.9 percent tax, the post-tax return on a 5-year bank FD of 7 per cent is 4.8 per cent per annum!
They can still be tax-exempt income if even after adding the interest income, the individual's total income remains within the exemption limit as provided by income tax rules. Illustratively, a taxpayer between ages 60-80 earns only interest income from such taxable investments of about Rs 3 lakh a year. Since the income for such individuals is exempted till Rs 3 lakh, even the interest earned from investment in taxable products does not translate into tax liability for them.
But, for most others especially those earning a salary or having income from business or profession, choosing tax savers that come with E-E-E status helps. The investment in these get EEE benefit i.e. exempt- exempt- exempt status on the income earned. The principal invested qualifies for deduction under Section 80C of the Income Tax Act, 1961 and the income in all of them is tax exempt under Section 10.
Here are few such tax savers that not only help you save tax but also help you earn tax-free income. But, not all are the same in terms of features and asset-class, so making the right choice is essential.

Equity-linked savings schemes (ELSS) are diversified equity mutual funds with two differentiating features - one, investment amount in them qualifies for tax benefit under Section 80C of the Income Tax Act, 1961, up to a limit of Rs 1.5 lakh a year and secondly, the amount invested has a lock-in period of 3 years. Every mutual fund (MF) house offers them and generally uses the word tax-saving in its name to distinguish them from their other mutual fund schemes. The returns in ELSS are not fixed and neither assured but is dependent on the performance of equity markets.
One may opt for dividend or growth option in them. While the former suits someone looking for a regular income, although not assured, the latter suits someone looking to save for a long-term need.
However, dividend in an equity MF scheme (including ELSS) should not be construed as similar to the dividend received from an equity share. In the latter, the dividend is declared out of profits generated by a company while in a MF, it is out of the NAV. For a MF unit holder, receiving the dividend is merely equal to the redemption of units.

What makes ELSS income tax-free: As ELSS is an equity oriented scheme with more than 65 percent of allocation into equities, ( in practice, it is 80 percent or more) the long-term capital gains in them is nil. Further, the dividends in an equity scheme are tax-free. Hence, investing in ELSS yields tax-free income both for the dividend and the growth unit holders.
To mitigate risks, one may diversify across more than one ELSS scheme (based on market capitalisation and industry exposure) after considering their long-term consistent performance. After the lock-in ends, one may continue with the ELSS investments similar to any open-ended MF scheme. However, review its performance against its benchmark before doing so. Investing in ELSS not only helps you save for a long term goal but also helps you save tax and generate tax-exempt income.

For decades, Public Provident Fund (PPF) Scheme, 1968 has been a favourite savings avenue for several investors and is still standing tall. After all, the principal and the interest earned have a sovereign guarantee and the returns are tax-free.
PPF currently (subject to change every three months) offers 7.9 percent per annum. For someone paying 30.9 percent tax (highest income slab), it translates to nearly 11.43 percent taxable return. Now, how many taxable investments including bank FD's are providing such high pre-tax return!
One can open a PPF account in one's own name or on behalf of a minor of whom he is the guardian. While the minimum annual amount required to keep the account active is Rs 500, the maximum amount that can be deposited in a financial year is Rs 1.5 lakh. This is the combined limit of self and minor account.
PPF is a 15-year scheme, which can be extended indefinitely in a block of 5 years. It can be opened in a designated post office or a bank branch. It can also be opened online with few banks. One is allowed to transfer a PPF account from a post office to a bank or vice versa. A person of any age can open a PPF account. Even those with an EPF account can open a PPF account.

Whom it suits: PPF suits those investors who do not want volatility in returns akin to equity asset class. However, for long-term goals and especially when the inflation-adjusted target amount is high, it is better to take equity exposure, preferably through equity mutual funds, including ELSS tax saving funds and not solely depend on PPF.


Employees' Provident Fund (EPF) is another avenue that helps a salaried individual not only helps save tax through involuntary savings but also accumulate tax-free corpus. An employee contributes 12 percent of one's basic salary each month mandatorily towards his EPF account. An equal share is contributed by the employer but only a portion (3.67 percent) goes into EPF.
The employee's contributions qualify for tax benefit under Section 80C of the Income Tax Act, 1961, up to a limit of Rs 1.5 lakh a year but not the employer's share. Both, employee-employer share qualifies for interest as declared by the government each year which is tax-free in nature. The interest rate on EPF is currently at 8.65% for 2016-17 from the previous year's rate of 8.8%.
One may, however, increase one's own contribution up to 100 percent of basic and DA, to his VPF account and in doing so it becomes voluntary provident fund (VPF). The VPF is a part of the EPF and all the rules remain the same. The interest earned on the EPF/VPF account is tax-exempt so long as the employee continues in employment for five continuous years or more.
Although one may opt-out from VPF by intimating one's employer, the money contributed towards VPF, which represents additional savings towards retirement, get locked-in for a longer tenure, and hence use the VPF route judiciously.

Unit linked insurance plan (Ulip) is a hybrid product, a combo of protection and saving. It not only provides life insurance but also helps channel one's savings into various market-linked assets for meeting long-term goals.
In most Ulips, there are 5 to 9 fund options with varying asset allocation between equity and debt. A Ulip can have a duration of 15 or 20 years or more but the lock-in period is 5 years. The fund value on exiting the policy (allowed after 5 years) or on maturity is tax-free. Any switching between the fund's options irrespective of the holding period is exempt from tax.

Whom does Ulips suit : Ulips may not be suitable for all investors. Those investors who are comfortable in identifying and managing the ELSS schemes and simultaneously hold a pure term insurance plan, need not buy Ulips. Also, investors looking at investing in Ulips should make sure that the goal for which the Ulip savings is to be used is at least ten years away. for someone to exit Ulip after 5-7 years could be financially damaging.

5.Traditional insurance plans
Traditional insurance plans could be an endowment, money-back or a whole life plan. Unlike pure term insurance plans they have a savings element in them and come with a fixed term and a fixed sum assured. The premiums are based on the age at the time of entry, the life coverage and the period for which coverage is required. Premiums are to be paid each year till maturity. Few such plans have a limited premium payment option in which premiums are to be paid only for a specified term but the policy continues for long. For example, a policy of 25 years may require premiums to be paid only for the first 5 or ten years.
While the premium paid qualifies for tax benefit under section 80C, the maturity value and the death benefit is tax-free.

Where traditional plans fail: Traditional plans are inflexible in nature. The term once chosen can't be changed. For someone who has started saving for say 20 years might need funds in the 16th or 19th year. Most such plans also do not allow partial withdrawals. Even sum assured can't be changed. The traditional insurance plans including endowment, money back or of any design have a potential for lower returns and is largely in the range of 4-7 percent per annum.

Sukanya Samriddhi Yojana (SSY) is a small deposit scheme for the girl child launched as a part of the 'Beti Bachao Beti Padhao' campaign. It is currently fetching an interest rate of 8.5 percent and provides income-tax benefit.
A Sukanya Samriddhi Account can be opened any time after the birth of a girl till she turns 10, with a minimum deposit of Rs 1,000. A maximum of Rs 1.5 lakh can be deposited during the ongoing financial year. The account will remain operative for 21 years from the date of its opening or tuntil the marriage of the girl after she turns 18.
Currently, SSY offers the highest tax-free return with a overeign guarantee and comes with the exempt-exempt-exempt (EEE) status. The annual deposit (contributions) qualifies for Section 80C benefit and the maturity benefits are non-taxable.

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