In my last article I started with the advance planning stage for tax saving where one should to plan for tax saving starting from now so as to avoid eleventh hour preparation and most importantly Miss Selling. Since we often find that at the last moment preparation the few culprit Financial Agents or Advisors take the advantage of panic and does miss selling.
In this second series I will discuss on the one out of the two most hot picked tax saving investment tools.
Normally there is a thumb rule which one should follow for tax saving is that what ever is ones age, he should go for equity investment according to that age limit. It might sound confusing don’t worry I am removing the confusion. If my age is 25 years then according to the financial thumb rule I should have an investment portfolio of 25% in debt and remaining 75% in equity. This is calculated by simply deducting your age from a value of 100. If my age is 45 then I should have an equity portfolio of 65% in equity and 45% in debt.
ELSS is one of the most picked investment tool for tax saving among all other tax saving avenues. ELSS stands for Equity Linked Saving Scheme. It is a mutual fund where all the pool of funds is invested in equity market with a ratio varying from 0-80% and remaining 20% in Debt fund.
This year doing investment in ELSS will fetch more advantage. As SEBI have scrapped Entry Load on Mutual Funds, all these tax saving ELSS are now free of entry load. This makes your investment corpus to get invested without any deduction of charges as earlier their used to be a deduction of 2.25%. So if one does an investment of Rs.10000 his total investment will be Rs.10000.Where as in earlier case there is used to be a deduction of 2.25% which amounted to your investment of Rs.9775.This makes the ELSS more attractive this time for doing investment in tax saving.
Few Things one should look in to before doing investment in ELSS.
One more thing I would like to inform all my tax saving friends that this time you’re Financial Agent or Advisor might not suggest you to do investment in ELSS. Since as entry load have been scrapped by SEBI the agents will not get any commission out of the ELSS. So you might find some new marketing strategies by your advisor pushing you hard to do investment in insurance or some other product which carries some commission.
So in this situation all you need to do is to do an advance planning for tax saving. That’s the main reason why I have started asking you before 4 months to do your tax saving investment calculation.
Don’t do last moment preparation and don’t cry later on that I have been miss sold .Miss selling never happens in one way. Both the parties the client and the advisor is involved.
In my next article I will bring out the hard ugly pictures of Tax Saving mistakes and their solution to avoid.
Global Macro Economic Researcher and Business Strategist
Master of Economics, MBA in International Business Management, ICWAI (Final)/CWM Final/Journalist