Time for Tax planning

In the past few days, i have been thinking about my tax planning for this year. I generally invest my money in ELSS apart from PF (which is mandatory for everybody to invest money in). The other investment options like PPF, NSC, Govt Bonds don’t generate good returns although they are less risky. ELSS are basically mutual funds that invest money in Stock markets. The catch here is they have a minimum lock-in period of 3 years. On an average they have generated 30% profit, which is commendable compared to what other tax saving investments offer (max 8.5%). Few Funds have given 1-year close to 80% . ELSS are a must to invest in for any investor in his 20s since the long-term benefits outweigh the risks involved. So my next step was to analyse all ELSS funds available in the market and decide on 3-4. I spread my investments over 3-4 mutual funds as diversifying has its own advantage. Some of the websites that i surf include moneycontrol.com and valueresearchonline.com . Both the sites have different ways to grade MFs and hence present a problem of their own. MFs selects those MFs whose recent run in stock markets has been phenomenal whereas Valueresearchonline selects those MFs who have a long standing record (say for min 3 yrs) in investing in stock markets. So that boils down to betting on funds that are new kids on the block or Funds that are old horses. Any risk averse investor should prefer betting on track-proven funds and any investor capable of taking risks can bet on the risky ones. Given my risk profile i would choose 3 risky funds and 1 track proven fund. Moreover based on my experience, those funds who have given very good 1-yr return had fallen down as time passed. Hence it takes a lot of time to optimise the right mix of funds.

I went through the reports of both the sites and at last narrowed on 4 ELSS. I have chosen one proven fund in ELSS – SBI Magnum Tax gain. One other fund is of a risky nature – Principal Tax Savings. The rest two have been around for quite some time. They are Birla sun life and Sundaram PNB tax saver. SBI magnum Tax gain has been given 5 star rating and the rest of them have been given a 4-star rating (Source:Valueresearchonline.com ). The mix of their portfolios rightly suits my profile too. SBI Magnum invests primarily on Large cap stocks that provide both value and growth. Prinicipal Tax savings invests in midcap stocks that are growth oriented. hence risky in nature The rest two are safe bets – they invest primarily on large cap stocks that are growth oriented. While investing in ELSS, one can choose 3 options namely growth, dividen-payout and dividend-reinvest. i wouldnt suggest anyone to choose dividend-reinvest as the units bought at the time dividend was announced can be sold only after 3- years .Just check this blog site for more info. Now that i have decided which ELSS to inves, i need to decide the time frame when i ll buy these units. The Stock markets have been hitting new highs everyday. I m planning to invest when the markets undergo correction. Now when will the markets correct is a million dollar question ? Do you have the answer ? 😛

Let me know incase you do

Till then,

Happy tax saving,

Maverik