5 Things You Must Know Before Investing In ELSS

ELSS stands for Equity Linked Savings Schemes. ELSS are diversified Equity Mutual Funds that invest mainly in equity and equity-related instruments. ELSS invests in companies with strong growth potential and a resilient business model.

Many new investors hesitate to invest in ELSS on learning about the high exposure to equities. However, studies show that equities give superior returns if you stay invested for the long term.

 5 Things You Must Know Before Investing In ELSS

ELSS is the most tax-efficient Mutual Fund scheme. ELSS Investors are eligible to avail a tax deduction up to Rs 1.5 Lakhs a year under Section 80C of the Income Tax Act, 1961.

Types of ELSS:

ELSS is of two types:

1. Dividend funds

2. Growth funds

1. Dividend funds:

Dividend funds are further classified as Dividend Payout and Dividend Reinvestment. If you opt for Dividend Payout, you will receive tax-free dividends. On the other hand, dividend by way of Dividend Reinvestment is reinvested as a fresh investment. With this money, more units are purchased.

2. Growth Funds:

Growth Funds are meant for long-term wealth creation. It is cumulative in nature. The full value of such investments are realized on redeeming the fund.

Methods of investment in ELSS:

Investors can invest in ELSS in two ways:

1. Lump sum

2. SIP (Systematic Investment Plan): SIP is a way of investing in Mutual Funds. It involves investing a fixed amount of money each month on a specified date. SIP gives the benefit of rupee cost averaging.

Important points to keep in mind before investing in ELSS:

1. Exposure to equity:

Investors are hesitant to invest in equity because of market volatility. You should have sound knowledge of stock markets to directly invest in equity. Newbie investors wishing to invest in equities may start with ELSS funds. This is an ideal way to get exposure to equities.

ELSS is managed by professional fund managers. You can start investing in ELSS with a nominal initial investment. You can choose to start with a systematic investment plan (SIP) by investing amounts as low as Rs 500 a month. As ELSS is professionally managed, you stay tension free and far from the hassle of timing the market.

2. Lock-in period:

Investment in ELSS comes with a lock-in period of three years. ELSS has the shortest lock-in period among all tax saving investments coming under Section 80C. Public Provident Fund (PPF) comes with a lock-in of 15 years and National Savings Certificate (NSC) with 5 years.

Once you invest in ELSS, you cannot redeem the investment for a period of 3 years. Parking your surplus funds in Equity Linked Savings Schemes (ELSS) for 3 years earns great returns.

Even though ELSS has a lock-in of 3 years, it is good to have a long-term investment goal. Investing in ELSS for the short-term will not give great returns. ELSS is an equity investment. It will give great returns if held for at least 7 to 10 years. Moreover, attaching financial goals to ELSS investments will make you a committed and dedicated investor.

SEE ALSO: How to Invest in ELSS

3. Returns:

Equity being a major component, ELSS has a potential to generate higher returns in the long-term. This doesn’t mean you expect unrealistic returns. Investments like equity which are exposed to high risks have a potential to earn high returns but such returns are not guaranteed.

Also, don’t expect returns to remain consistent each year. It is safe to expect a tax-free return of around 9-10% a year over the long term.

4. Risks:

The basic nature of equity funds is high risk. Therefore, Net Asset Value (NAV) is not free of fluctuations. With high risks come higher returns. Just stay invested for a long time. 

5. Tax exemptions:

Section 80C of the Income tax Act, 1961, offers tax benefits on various investment avenues like Employees Provident Fund (EPF), Public Provident Fund (PPF), life insurance policy premiums, Home Loan Principal and so on. These investments are eligible for tax deductions. Under this section, taxpayers can claim a maximum collective tax deduction of Rs 1.5 Lakhs a year.

Therefore, if you have claimed exemptions relating to other investments, the entire investment in ELSS may not qualify for a deduction. Example: You have the following investments for the Financial Year 2017-2018.

PPF: Rs 70,000

NSC: Rs 50,000

ELSS: Rs 50,000

If you have already claimed investments made in PPF and NSC (70,000 +50,000= 1,20,000), you cannot claim the entire Rs 1,50,000 in ELSS. You can claim only Rs 30,000.

Investment planning is of utmost importance to enjoy growth and tax benefits.

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Financial Planning For Ex-Servicemen

The Nation runs on the sweat of farmers and the sacrifice of the armed forces. Serving in the Army, Navy or the Air force is the dream of many young men and women in our country. The respect this job commands is just too much to count. As you a man who serves in the defence forces guard our Nation’s boundaries, you just cannot forget financial planning. Defence personnel retire early. Officers may retire in their late 40s or early 50s.

Yes, the defence personnel enjoy a lot of perks, benefits and even a pension for serving in the armed forces, But, this doesn’t exclude them from sound financial planning.

Financial Planning For Ex-Servicemen

1. Put some money in FDs

After demonetization, banks were flush with cash and cut fixed deposit and savings bank rates. Citizens who used to invest in FDs and other traditional investments, pumped money in mutual funds. The year 2017 saw record inflows in mutual funds via SIPs.

Now things are different. Inflation is back. Inflows into equity mutual fund schemes including ELSS have declined for 3 months in a row. RBI has gone for back to back repo hikes in its bi-monthly policy review. The repo rate has been hiked from 6% to 6.5%. Banks have started increasing FD rates, bringing a smile on the faces of conservative investors, senior citizens and ex-defence personnel.

HDFC Bank has increased FD rates on various maturities by up to 0.6 percentage points. SBI will offer an interest rate of 6.7% for term deposits of 1-2 years, up from the existing 6.65%. Chances are more banks will raise FD rates and it’s a good idea for defence personnel to invest some money in FDs.

SEE  ALSO: Financial Plans For Retirement Benefits

2. SCSS for ex-servicemen

You can invest in the SCSS if you are 60 years or more. Ex-servicemen are eligible to invest in the senior citizen savings scheme (SCSS), regardless of the above age limit. A joint account can be opened in SCSS with spouse.

An investment in SCSS is extremely safe and comes with a Sovereign Guarantee. SCSS offers 8.3% a year (January-March quarter), payable quarterly and interest is taxed. Rates are revised each quarter and once you invest in SCSS, the rates remain fixed across the tenure. The minimum balance in SCSS must not exceed Rs 15 Lakhs.

The investment in SCSS enjoys tax benefits up to Rs 1.5 Lakhs a year under Section 80C of the income tax act and premature withdrawals are allowed. SCSS has 5 year tenure and can be extended by a further 3 years on maturity of the scheme. TDS is deducted at source on interest if the amount of interest exceeds Rs 10,000 a year.

3. Tips for ex-servicemen to manage money better

   The rules of financial planning for ex-servicemen are the same as for you and me.

• Make a budget which not only accounts for every rupee earned, but also every rupee spent.
• Identify financial goals and make a plan on how to attain them.
• Understand inflation, (the rise in prices of goods and services with time), and make sure investments earn more than inflation.
• A soldier knows all about emergencies and plans for them. Make sure you have money set aside in an emergency fund for at least 6 months worth of living expenses. Yes, the perks are handy, but there’s no alternative to an emergency fund.
• Insurance is an essential part of financial planning. You know the importance of life insurance and health insurance. Defence personnel do not need health insurance. Service personnel and spouse are covered for life under the Ex-servicemen health scheme. But, defence personnel can avail a health insurance plan for his kids.
• The Government takes good care of the widows of defence personnel.

 

4. Ex-servicemen can pick up a job

A soldier is all about discipline. He knows how to hold a job. In the US, retired personnel of the armed forces get jobs in the defence industry. They work in Lockheed Martin or Heckler and Koch. Sadly, not many ex-servicemen work in the defence industry or take up jobs in Private Companies. But, all this is changing. Cab aggregator Ola had come up with a programme to help ex-servicemen called the “Ola Sainik” in 2015. More than 1 Lakh ex-servicemen will be absorbed as entrepreneurs on the Ola Platform by 2020. A few thousand ex-servicemen are already on board the Ola Platform.

Rival cab aggregator Uber, is not far behind and had launched the “UberFauji” programme. Ola and Uber have been facing problems with a few unscrupulous drivers and problems associated with background verification. Hiring ex-servicemen can solve these problems. Soldiers are all about discipline and Ola and Uber are reaping the benefits. It’s a win-win for both parties. Ex-servicemen get the benefits of high income and flexible timings.

An ex-serviceman who drives a car for a famous cab aggregator said that as a Punjabi and ex-serviceman, I can drive anything. He won the best-rated driver award in a particular region and also a cash reward and a gift.

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What Does Accident Insurance Cover?

An accident is an unexpected event. It may get you partially or totally disabled. This might impact your earning ability.  It would mean a loss of pay and hefty medical bills. However, Accidental Insurance does not cover suicide, self-injury, war, and so on.

Want to know more on Accident Insurance? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

 

What Does Accident Insurance Cover?

An Accidental Insurance plan covers the insured, if he/she meets with an accident.

 

Features of accidental insurance plans:

• Accidental Insurance plans must be renewed each year.
• The sum assured of an accidental insurance plan depends on income. You may be offered a sum assured amounting to 60-100 times your monthly income or 8 to 10 times the annual income.
• Some insurers may offer accidental insurance to dependents subject to limitations relating to the sum assured.
• The premium paid towards accidental insurance has no tax benefits. However, the claim amount is not taxable.

Advantages of Accidental Insurance Plans:

1. A personal accident policy covers the insured for all losses arising due to and including temporary disablement, income loss and hospitalization.

2. If an insured dies in an accident, an accident insurance policy pays the nominee 100% of the sum assured.

3. In case of permanent partial disability, the insured receives either a percentage of sum assured for a specific time period or a lump sum. A permanent partial disability may result in loss of speech, eyesight or a toe.

4. In case of a permanent total disability of the insured, the nominee can make a claim on the total sum assured.

5. If an insured suffers a temporary total disability like a fracture, they are provided a daily or weekly benefit.

Eligibility criteria for Accidental Insurance Plan:

1. An individual must be in the age group of 18 to 65 years.

2. An accidental insurance plan can be renewed until the age of 75 years.

Types of accidental insurance plans:

Accidental insurance can be of four types:

1. Basic Accidental Insurance plan

2. Comprehensive Accident Insurance Plan

3. Individual Accidental Policies

4. Group Accident Policies

1. Basic Accidental Insurance plan:

A Basic Accidental Insurance plan pays the sum assured to an insured’s nominee or family if the insured dies in an accident. No coverage is provided for the treatment of injuries related to an accident. Therefore, the premiums of a basic accidental plan are very cheap.

2. Comprehensive Accident Insurance Plan:

Unlike a Basic Accidental Insurance Plan, a Comprehensive Accident plan covers expenses of treatment and/or hospitalization arising due to accidents.

3. Individual Accidental Policy:

Individual Accidental policies cover only an individual in case of any accident.

4. Group Accident Policies:

 

A Group Accident policy is taken by employers for their employees. A group accident plan is available at a low cost. However, this is a basic cover which may not offer benefits of an individual accidental insurance plan.

Types of disabilities:

A person can suffer from three types of disabilities due to an accident:

1. Permanent total disability

2. Temporary total disability

3. Permanent partial disability

Based on the type of disability an insured suffers, a Comprehensive Accident Plan pays the entire sum assured or a percentage of the sum assured.

SEE ALSO: How Mutual Funds Work?

What does a Personal Accident Insurance cover?

Personal Accident insurance covers:

• Accidental death: The insurer pays the sum assured to the insured’s nominee or family if the insured dies in an accident.
• Accidental disability: The insured may lose income due to disability caused by an accident. A personal accident policy or an individual accident policy covers such loss of income due to partial or complete disability.
• Accidental dismemberment: If the insured loses income due to mutilation, this will be covered by the policy.
• Medical expenses: An accidental insurance plan covers medical expenses incurred due to accidental injuries.

Exclusions of a Personal Accident Insurance Plan:

• Pre-existing disability
• Pregnancy and child-birth
• Self-inflicted injuries like suicide, drug abuse, alcohol abuse and so on.
• Alternative treatment methods
• Accidents caused due to illegal activities
• Accidents caused in a war
• Accidents due to mental disorders
• Accidents due to involvement in adventure sports and serving in the navy, army, air force and so on.

Who should avail Personal Accidental Insurance?

You should avail an accidental insurance policy if:

• You have availed loans like Home Loan, Car loan. In this case, the accident insurance policy covers the repayment of EMIs if you happen to meet with an accident.
• If the nature of your work is risky. The occupational risks are categorized into three classes:

Class 1: Low Risk (Accountants, lawyers, bankers)

Class 2: Moderate Risk (Drivers of heavy vehicles, contract laborers, professional athletes)

Class 3: High Risk (High risk construction laborers, workers in underground mines, people working with explosives)

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Types of Preference Shares

Preference shares are shares having preferential rights with respect to dividend payments. However, these shares do not confer upon the shareholder any ownership rights. Dividends to preference shareholders are paid, before equity shareholders get paid. Usually, preference shares have a fixed rate of dividend.

Types of Preference Shares 

Preference shares are issued to raise funds without diluting voting rights. These shares are considered to be a hybrid instrument because they carry certain characteristics of debentures like assured returns.

Preference shares are usually issued to:

• Promoters of company
• Management
• Institutional lenders

The prices of ordinary or equity shares fluctuate, depending on supply and demand. Unlike equity shares, preference shares are not traded on the stock exchange. These are illiquid assets and their prices do not fluctuate like those of equity shares. Preference shares appear in the company's balance sheet under the head 'capital'.

Memorandum of Association and Articles of Association:

The rights of preference shares must be mentioned in the Memorandum of Association and Articles of Association.

• Preference shareholders cannot claim any other rights apart from those expressly mentioned in the MOA or AOA.
• Companies cannot allot preference shares if they are not mentioned in the MOA or AOA of the company.

Why do companies issue preference shares?

• Issuing equity shares would mean diluting ownership rights. Therefore, to safeguard ownership rights, companies issues preference shares.
• Companies issue preference shares because they wouldn’t want to avail loans.
• Companies issue preference shares because they give maximum flexibility, without the fear of missing interest payments. In case companies issue bonds, a missed interest payment puts the company at risk of defaulting on an issue. This results in forced bankruptcy.

Why do investors like preference shares?

• Investors like to invest in preference shares because these shares enjoy preference over equity shares, vis-a-vis dividends.
• Investors like banks and institutional investors like to invest in preference shares because they want to avoid the risk of fluctuating equity share prices.
• Preference shares are a combination of equity shares and bonds. Therefore, these are relatively stable.
• Shareholders prefer to invest in preference shares because it offers consistent dividend payments minus lengthy maturity dates like bonds.
• Preference shares are less risky when compared to equity shares.

Read here for more Information | https://indianmoney.com/articles/types-of-preference-shares

Types Of Investment Plans

Wealth creation is a time-consuming process. It requires effort, knowledge and discipline. You cannot build wealth without saving and investing. Investment needs sound planning and implementation. The first step in investment planning is to set financial goals. These can be of three types: short-term, medium-term and long-term. You then tap the available financial resources like salary or business income, savings and so on. After you are clear on your goals and know the resources at your disposal, go ahead and plan your investments.

Types of Investment Plans

Investment planning not only involves setting investment strategies according to risk profile, financial goals and financial resources at your disposal, but also implementing and monitoring them. Today, you have a plethora of investment plans like shares, bonds, mutual funds, bank deposits, real estate, derivatives and so on.

Following are the investment options you can invest:

1. Unit Linked Insurance Plans (ULIPs):

ULIP is a life insurance product that provides risk coverage along with the investment benefit. In a ULIP, you can choose to allocate your investment in different asset classes like equity, debt, and so on. You can invest based on your choice of asset class and risk tolerance in stocks, bonds or mutual funds. The payouts from these plans can be used for education, retirement and so on.

2. National Pension Scheme (NPS):

It is a voluntary retirement savings scheme launched by the Government of India. NPS promotes systematic savings during your working life to help save for retirement. Contributions to NPS can be made from a young age of 18. NPS offers investors two choices: active choice and auto choice. In active choice, 50% of contributions are invested in equity, while the rest is in government and corporate bonds. In auto choice, investments are made in a mix of equity, corporate and government bonds, depending on your age.

3. Mutual Funds:

A mutual fund is a company that pools yours and other investor’s money and invests in various asset classes like debt, equity, and so on. There are different types of mutual funds like balanced funds, equity funds, debt funds and so on. The main advantage of investing in mutual funds is diversification which minimizes risk in investment.

Your returns from mutual funds are based on the type of mutual funds you invest and the risk involved. Equity mutual funds are highly risky but also give high returns in the long-term. Debt funds, on the other hand, are less risky and ensure the safety of your funds along with moderate returns. Balanced funds invest in both equity and debt. These funds give you moderate returns at moderate risk.

4. Public Provident Fund (PPF):

PPF is a popular long-term investment which offers capital preservation and attractive interest rates. PPF enjoys the EEE status. The money you invest enjoys Section 80C benefits up to Rs 1.5 Lakhs a year. The interest and amount withdrawn at maturity are tax free.

You can invest a minimum amount of Rs 500 a year in PPF up to a maximum of Rs 1.5 Lakhs a year. PPF currently offers interest rate of 7.6% from 1st April 2018.

SEE ALSO: What Does A Financial Advisor Do?

 

5. Sukanya Samriddhi Yojana (SSY):

Sukanya Samriddhi Yojana (SSY) is a small savings scheme launched by the Government. It aims to create awareness on the importance of the girl child and seeks her welfare. The SSY account has to be opened in the name of a girl child only. It can be opened anywhere in India, through post offices or authorized commercial banks in India. The rate of interest on SSY is revised on a yearly basis. Currently, it is 8.1% per year.

6. Liquid funds:

Liquid funds are also called money market instruments. Liquid funds invest in money market instruments like treasury bills, commercial paper and certificates of deposit with a maturity term under a year. They give good returns in times of high inflation and in an high interest rate regime.

7. Initial Public Offer (IPO):

When a Company sells its shares to the general public for the first time, it’s called an IPO. These are mainly launched by new companies having a sound business model and a track record of profits. An Initial Public Offer could also be launched by a company which has been in business for a while, but wants to raise additional capital by selling part of its stake to the public.

8. Gold ETFs:

Gold ETFs are commonly called paper gold or e-gold. These are basically open-ended mutual fund schemes, which invest in standard gold bullion of 99.5% purity. These units are listed on a stock exchange. These provide returns, in lieu of physical gold in the spot market. A minimum of 1 unit can be purchased by the investor.

9. Stocks:

Stocks are commonly known as shares and come under equities. These are units of ownership capital of companies and hence, give investors ownership rights and a share in profits. Shares are traded on the stock exchange. These are risky investments but give good returns in the long-run if carefully managed.

10. Bonds:

Bonds are debt instruments. These are issued by governments and companies. These are debt instruments through which issuers avail loans from investors. The issuer pays a fixed rate of interest over a period of time. Due to the fixed returns, these investment options offer fixed returns at low risk.

11. Certificate of deposits (CD):

Certificate of deposits are issued by banks. These are like promissory notes. Investors cannot redeem these certificates before the maturity date. Certificate of deposits earn higher interest when compared to savings accounts.

12. Commodity market:

Commodities are resources that affect the overall economy. The common commodities traded are wheat, gold, metals and so on. Commodities are listed on the commodity exchanges and can be traded like stocks.

13. Hedge funds:

 Hedge funds are professionally managed private investment companies or partnerships. These invest in underlying assets like financial derivatives and publicly traded securities. These are characterized by high returns, high fees and low liquidity. These are usually invested by people with high net worth.

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