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Author Archives: Teena Bhatia

Completely Legal Ways of How to Save Tax

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Are you looking forward to some of the best ways to save taxes? If yes, here are legal ways to help achieve your tax saving goal in the easiest and fastest manner.

UTILIZE RS 1.5-LAKH LIMIT

Indian citizens are allowed tax exemptions of up to Rs 1 lac under Sections 80CCD, 80CCC, and 80C. The people falling in the 30% tax slab can save up to Rs 4630,350900 by putting their money in the following tax-saving instruments:

Employee Provident Fund

Indian residents can contribute at least 12% of their basic salary, dearness allowance and retention allowance towards EPF. The exemption comes under Section 80C. As per the guidelines, premature withdrawal is permitted only under terms listed by the government. If the EPF amount is pulled out before 5-years of scheme subscription, the tax advantages hat have been gained are taken back.

Public Provident Fund:

Indian residents can invest in Public Provident Fund and get income tax deduction. They can also contribute on behalf of an HUF. PPF offers interest of over 8% annually, and this interest is tax-exempted.

National Savings Certificate:

You can invest in five- and 10-year NSCs. Five-year NSCs are offering 8.5% a year while 10-year NSCs are paying 8.8%. The interest earned is taxed. There is no restriction on the investment amount, though tax deduction can be claimed only up to Rs 1.5 lakh.

Senior Citizen Savings Scheme:

People above 55 years who have opted for voluntary retirement or people above 60 years can invest in Senior Citizen Savings Scheme. The maturity period is 5-years, which can be extended by another 3-years. The cap on Investment limit is Rs 15 lakh, and the interest offered by this scheme is over 9% annually. However, the interest received is taxable.

Post office/Bank deposits:

Investment in the 5-year bank, as well as post-office FDs, is eligible for tax exemption. The interest on these safe deposits is taxable.

Life insurance schemes:

Investment in life insurance plans unit-linked, term plan or traditional endowment with sum assured minimum ten times the yearly premium is eligible for tax exemption within the Rs. 1 lakh limit. Additionally, returns from these insurance plans are not taxed.

Home loan principal repayment:

The principal component of a home loan repayment is tax deductible up to Rs 1 lakh. However, if the property is sold before five years of the purchase, the amount claimed as a deduction is taxed in the year the house is sold.
savetax

Children's tuition fee:

Indian residents can avail tuition fee exemption for educational institutes in India only for the full-time education of 2 children.

Tax-saving mutual funds:

Tax-saving mutual funds are equity mutual fund plans having a lock-in of 3 years. Investment in them is tax deductible up to a limit of Rs 1.5 lakh. Dividends and capital gains are not taxed, and investors can continue with the schemes after the lock-in period.

BEYOND RS 1.5-LAKH LIMIT

The tax deductible limit of Rs 1 lakh seems inadequate, and that is why it is essential to consider other tax-saving alternatives under Sections 80CCD, 80CCC and 80C as well.

Employer's NPS contribution:

If employees have opted for corporate NPS, following which both employer and employee pay 10% of basic salary and DA towards NPS account, the employer's payment against NPS is exempted under Section 80CCE.

Rajiv Gandhi Equity Savings Scheme:

This scheme is meant for first-time equity investors as they can put in up to Rs 50,000 in selected mutual funds and stocks and get a tax exemption of Rs 25,000 or 50% of the amount, under Section 80CCG. However, to claim this deduction, the income should not exceed Rs 12 lakh annually. Investors can get the tax benefit under this plan for three years.

Costs incurred for cure of handicapped dependent:

In case, a person’s dependent relative, siblings, spouse, children, or parents is handicapped, costs incurred towards maintenance and treatment are exempted up to Rs 1 lakh only if the disability is severe. In another case, the tax deduction limit is Rs 50,000.

Health insurance premium:

One can avail exemption for health insurance premium compensated for self, parents, spouse and children under Section 80D. The exemption limit is capped at Rs 320,000 for senior citizens while for others it is Rs 215,000. In the event of health insurance premium payment for parents, a person can additionally avail up to Rs 320,000 deduction for senior citizens. Expenses of up to Rs 5,000 incurred on preventive health checks are deductible under this limit.

Medical expenditure on dependent relative or self:

Up to Rs 40,000 (Rs 60,00 for senior citizens) incurred on the cure of specified diseases suffered by a dependent relative or self is tax deductible. These specified diseases lists include but not limited to, malignant cancer, chronic renal failure, Thalassaemia, and AIDS. There is a requirement to present a certificate issued by a registered doctor to get these deductions.

Deduction for physically challenged persons us 80DD:

A physically challenged person can get up to Rs 1 lakh tax deduction in the event of severe disability and Rs 75 thousand for disability.

Interest repayment on house loan:

The interest given on a loan availed to buy a home for living purpose is tax deductible up to Rs 1.5 lakh annually for self occupied properties. No tax deduction can be availed on under- construction properties. Deductions can be availed for five years after the project completion.

Deduction on house rent:

A salaried person can see a component named Housing Rent Allowance in salary. It is tax exempted when the person lives in a rented property. The deduction is least of the following:

  • Actual house rent allowance allowed by employer,
  • Actual house rent minus 10% of basic salary,
  • 50% of basic salary if the employee resides in a metro city or 40% of basic pay in case of In the event of the HRA component not present in salary, the employee can still avail deduction on the actual rent paid u/s 80GG. It is the minimum of the following:
  • Rent minus 10% of taxable income
  • 25% of the total taxable income
  • Rs 2,000 per month.

Interest remunerated on education loan:

The interest remunerated on the education loan to support higher education of spouse, self or kids is exempted under Section 80E. It covers certain vocational and regular courses. This deduction is permitted for 8-years or till the time interest is paid completely, whichever is lower.

How To Invest Money?

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Investing money rather than letting it sit in the bank is one of the many decisions that most people make with their excess finances. Setting up a savings account is not bad but investing the money instead offers a chance to increase the amount significantly allowing the investor to cope better with rising economic costs. Investing is however not an easy task. It is risky, but the rewards are equally great. There are numerous ways of investing one’s finances depending on the preferred type of investment. An investor must consider the investment options that are available, the risks that are involved in each investment option, the returns to be expected from each investment, the ideal time to invest and the duration that each investment will take before returns yield.

Shares

Most investors choose to invest their funds in shares of selected companies. Purchased shares grant the investor a proportion of ownership. This means that the investor receives a share of the company's profits in terms of dividends. The more the shares a person owns in a firm, the more the dividends. It is, therefore, wise to invest in a company that has a lot of growth potential. The best companies to invest in are those that can create value and at the same time generate attractive profits. Investments in shares require a lot of capital and patience in order to turn in good investment returns.

Property/Real Estate

Many investors have become millionaires by investing in the property markets. This involves the creation of buildings for residential and commercial purposes. A person looking to make money from such investment opportunities should have access to a large pool of funds. This is because construction requires a lot of money and the person must also purchase land on which the building will be set up. Such investments also take a large amount of time, and it is important to evaluate the potential of the business to bring returns in the shortest amount of time possible. The property must, therefore, be situated in an area where there is ample clientele.

Real estate investment can also involve purchasing land for the purpose of selling at higher prices based on speculation. This is because property such as land has a tendency of appreciating in value. Real estate investors have come up with a new form of investment where they offer debt equity to developers instead of owning the houses for themselves. This is less risky as many investors learned during the 2008 financial crisis.

Fixed interest securities

Bonds are the most common forms of this type of investment. They are loans that people give to the government or companies. Bonds are issued based on a maturity duration period where the amount loaned to the government or particular company is returned with interest. Investors can loan their money depending on the amount of funds they wish to invest. The higher the investment, the higher the returns an investor gets.

Cash

how to invest

Banks and societies offer savings services where people can securely save their money. These savings accounts often accrue interest on the money deposited based on a monthly or annual percentage of their deposits. This is also a good form of investment, but it best applies in cases where deposits are large so that they can facilitate constant and ample returns. Banks and other financial services offer these interests to account holders and in turn, they collect a pool of funds that is used to offer loans to individuals and other institutions at higher interest rates.

Foreign Currencies

This is an alternative form of investment that involves making gains from forex movements. One of the characteristics of currency is that it is volatile, meaning its value regularly goes up and down. Investors are therefore able to make gains from a currency pair because at any one point, on currency will be strong or weak when compared to another. In layman’s language, an investor can purchase a currency when its value is low and sell when its value goes up. Investors who use this investment path rely on economic information and at times political and social influences to determine which direction a currency will take.

Option Contracts

Option contracts by definition are contracts that allow the buyer to take up rights to a particular object or asset though it does not grant obligation to purchase and sell the asset or object. Options are thus contracts that have clearly defined terms. One of the most popular forms of options in the modern world is Binary Options. This is a form of trading which is done online. The investor bets on whether a currency pair, commodities or indices will rise or fall in value after a specified duration of time. This is a very risky investment path, but returns can be quick depending on time chosen and the investment strategy used. Binary options also require proper understanding of the markets and technical analysis. It has been argued for a long time that binary options are a form of gambling because investors make or lose their money depending on whether a trend moves up or down.

Commodities

Investors can also predict price movements in commodities such as energy, metals, food and other items that fall into this category. They provide diverse options for investors beyond traditional investment in bonds and stocks. Investments in commodities are not popular among investors because they require a lot of knowledge, time, and money. Stocks and future contracts are some of the ways in which investors can make money out of commodities. An investor can decide to purchase stocks from mining and drilling companies and in futures, they purchase options to buy or sell particular commodities at specific prices.

Collectibles

Collectibles can be in the form of art or priced artifacts. Most investors, especially in the western world, purchase priced works of art or expensive and limited edition vehicles especially of exotic nature so that they can later sell them off at higher prices. This has for a long time been a preserve of the wealthy, but it is increasingly becoming an accepted form of investment in many countries.

Algorithmic Robo Advisors

Robo advisors make the whole how to invest money process much simpler. Wixifi is the only robo advisor in India to offer algorithmic investment services with superior back tested performance that is transparently published on their website.

Every form of investment out there requires great wisdom, patience, and a substantial amount to sustain attractive returns. Typically robo advisors make this process much simpler for you.

Where To Invest – Part-2

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Indian stock market indices have managed to post decent gains in the last couple of months. If you have missed this rally, and still wondering where to put in the money for getting decent returns, here are some of the investment options:

Debt funds

Debt funds make a better investment alternative over the fixed deposits. They are not only more tax-efficient but also offer higher post-tax gains. Though the returns from debt funds do not differ significantly from the interest earned on Fixed Deposits, the tax benefit implies that the actual gain from debt funds is more if investors hold them for over three years. In a debt fund, the short-term capital gains gets added to income and thus taxed at the normal rate. However, long-term capital returns are taxable 20% after indexation. It makes a big difference for investors who fall in the 30% tax bracket. Instead of giving 30% tax on the FD interest, the tax rate is 20%, and can see a further decline following the indexation benefit. Additionally, there are numerous ways using which the capital returns can be set off if investors put money in a debt fund. Such alternatives are not there for interest earned from FDs. Debt funds facilitate in deferring the tax.

NPS account

The opening of an NPS account is a must investment for people who are looking to save increased tax this year. As per the Section 80CCD (1b), up to Rs 50,000 invested in this plan gets increased tax deduction, above the investment limit of Rs 1.5 lakh allowed under Section 80C. For investors in the 30% tax bracket, they can remove Rs 15,000 from tax liability, which means the effective investment would come down to just Rs 35,000. If the NPS account earns 8% compounded gains for more than fifteen years, the effective gains will come to 10%. Some experts are of the view that NPS investment is not a good option as equity SIPs can provide better returns over NPS, especially when there is a 50% limit on equity exposure. Even though equity funds investment does not make for the tax deduction, the potential to deliver superior returns compensates for it.

The major issue with NPS investment is the rigid guideline for investing the amount on maturity. As per the laid guidelines, after 60, the investor has to put minimum 40% of the total corpus in an annuity for the pension. This monthly pension from the annuity, which is a mix of interest and principal, is taxable.

Direct mutual funds

Investors stand to benefit from direct mutual funds as lower charges lead to higher returns. This difference in returns becomes prominent in the case of equity funds. However, in debt funds, the difference is lower due to low expense ratio of normal plans. In the case of liquid funds, investors will find the expense ratio very low, and therefore the difference is very thin. The average direct plan has delivered annual returns of more than 16% in last three years, whereas the average large-cap diversified mutual fund has offered 15.39% annualized returns. Even a difference of 60 basis points can result in a big variation in returns. In balanced and equity funds, investors can shift after a year or the tax on returns will erode the gain. In the case of debt funds, gold funds and debt-oriented hybrid funds, investors should wait for minimum three years or the returns will be added back to income and though marginally, will be applicable for taxation.safeinvestpart2.1

Gold investments

The government has provided investors with a solid reason to not purchase gold this year. Introduced in last November, gold bonds are related to the gold price and give 2.75% interest. In the case, gold prices jump 5%, the bonds will give an annualized return of over 7, which is more than that return earned in a gold deposit scheme. Gold bonds provide several benefits. Firstly, investors don't have to bother about the purity of the yellow metal. Secondly, the return is 2.75% more than the gold price at the time of investment resulting in compounding gains. Lastly, investors can stay assured about its safety. Having said that, in the case of gold ETFs, investors can convert gold ETFs on which they earn 1% and get over 2% return on gold bonds. However, they should consider the tax implications and remember that ETFs are more liquid than gold bonds. Gold ETFs are a better alternative to god bonds if they want to stagger investments.

Low-cost ULIP

More than 75% of the financial planners surveyed some time ago stated that investing in ULIP was not a wise plan. However, it's a time when investors should shed the past baggage and look at ULIPs investment from a fresh outlook. IRDAI had restricted ULIP costs in 2010 by limiting the annualized costs at 2.25% for the first ten years of holding. And now the latest online ULIPs have sugared this deal and reduced costs to such an extent that a few ULIP plans have become cheaper than the direct mutual fund plans.

Also, some e-ULIPs do not charge policy administration fees or premium allocation costs. The best example is of Click2Invest plan of HDFC Life. It only charges a yearly fund management cost of 1.35% of the total corpus value. The mortality cost is charged for the life cover given to the policyholder. This low cost turns the Click2Invest scheme cheaper compared to the direct diversified equity fund plan, which has an expense ratio of 1.5% annually. ULIP is the tax-free switching alternative between equity and debt. One can easily switch funds from equity to debt and, vice versa, without attracting any tax liability. If investors follow the same approach with mutual funds, they need to pay tax on the long-term and short-term capital gains. As ULIP is an insurance scheme, the maturity proceeds and returns are tax-free as per Section 10(10d). This advantage of switching is overshadowed by the peril of being stuck with a single fund for a long period.

Where To Invest safely?

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While investors are particular in their search for safe investment alternatives, it’s vital to know that safe investment alternatives don’t really exist in any part of the world. The safest investment should typically be government bonds. Another safe alternative is a savings bank account, but it won’t earn a decent return. The money in savings bank account won’t even survive the deteriorating effects of inflation. In fact, investors may actually lose funds in a savings account when measured in terms of purchasing power. This poses a really big question to investors as to where they should invest. Here are few low-risk investment options that provide a reasonable return:

Fixed deposits

Fixed Deposit is a low-risk investment alternative that can help earn profits over time. There is always a choice with investors to either choose from company’s fixed deposits or bank FDs. Certain fixed deposits also provide tax advantages. While investing in fixed deposits may seem seamless, investors must note a few points while choosing the Fixed Deposit most suited to their personal needs. These points are:

Credit profile: It helps in determining whether the firm will honor all capital as well as interest payments. Investors should opt for higher rated FDs.

Interest rate: It is the rate of return fetched on the fixed deposit. Therefore, a higher interest rate is preferable. In a quest of getting higher interest rate, investors should not ignore the importance of credit rating.

Interest payout frequency: Fixed Deposits are identified as one of the best low-risk investment alternatives that provide interest payment at varying frequencies. The payouts can be yearly, quarterly, monthly or a one-time payout on maturity. In any case, investors must select the option that meets their needs. ‘On maturity’ or one-time payment alternative fetches the highest return, and the credit goes to the power of compounding.

National Savings Certificate (NSC)

National Savings Certificate is a popular investment alternative among rural Indians. In NSC, the minimum investment amount is Rs.100 and investors have the option to select period extending to 5-10 years. The current interest rate is 8.8% for ten years and 8.5% for five years. Just like Public Provident Fund, the Indian government decides the interest rate for National Savings Certificate annually. The latest NSC issues are NSC VIII and NSC IX. Investors have to pay interest on earned NSC interest. Section’ 80TTA’ eradicated the tax advantages of interest from NSC. It is, therefore, better to invest in PPF instead of NSC.

Investors should re-invest the interest earned from NSC investment to get ‘80C’ tax benefit. For example, an investor has been awarded Rs 8,500 as interest from Rs 1 lac investment in NSC. Rather than withdrawing and compensating tax, investors should permit it to accumulate and mark this 8,500 as re-investment in coming year.

Public Provident Fund

Well, this option is a no-brainer. If the investors are small business owners or belong to the salaried class, they should select investment in PPF as their first option. They do not even need to look at other alternatives before they consider PPF. The scheme provides nearly 99% security as it is run by the government. Some of the benefits of PPF are:

  •  Minimum investment in PPF account is Rs.500 while the maximum investment is capped
  •  at Rs.1,00,000.
  •  The maturity amount, as well as interest, is tax-free.
  •  Attractive interest rate among fixed income offerings
  •  Free from court attachments, creditors and loan sharks

There is ideally no disadvantage in investing in PPF. If investors have any remaining tax benefit under 80c Section after paying children tuition fee and term insurance, they should certainly invest remaining funds in PPF. They can utilize EPF or PPF to add fixed income to the portfolio and keep stability.

This is the best investment alternative for the investors who are in the high tax bracket. It offers a total savings of 11%, the best savings for an investor in 30% tax bracket. Investors should not even look at other investment options stocks until they have maxed out 80C benefits with PPF and term insurance.

Post Office Monthly Income Scheme

POMIS comes in the list of best post office schemes. This plan offers guaranteed to return to investors on their investment. Any investor who intends to earn a monthly income can open POMIS account and avail an assured income per month. Investors earn 8% interest annually, payable on monthly basis. They will earn the interest amount each month from the investment date, and not from the beginning of the month.

For instance, Sanjay invests Rs 4 lacs in the POMIS. He earns interest of 8% every year, and thus gets a fixed amount as income per month. If they do not withdraw the funds for some month, the amount will not fetch any interest.

This POMIS does not fall under Section 80C, and so there are no tax-benefits for the funds investor put invest in this. Interest income is taxable; however there is no TDS deduction in this scheme.

Investors can deposit the funds in the POMIS with a local cheque, demand draft or cash. Once you start an income scheme account, investors will be given a planning certificate and also a passbook to note the transactions against the POMIS plan. The maturity period of POMIS is six years. Investors will be entitled to a 5% bonus if they retain scheme for six years. Therefore, eventually investors overall profits including bonus can be nearly 8.9%. There is a cap on the amount that investors can put in POMIS. The amount is confined to nine lacs for a joint account and Rs 4.5 lacs for a single POMIS account. Investors can open any number of accounts, only within the upper limit. Additionally, there is no obligation to take funds out after maturity. They can leave the funds in the account, and it would fetch the interest equal to the interest earned on saving bank account for coming two years only.

Endowment plans

Insurance firms introduced launch endowment schemes to provide life cover along with savings. Endowment schemes can assure a payment irrespective of whether the holder survives the term or not.

Bonds

Bonds functionality is very much like that of Fixed Deposits (but typically carry higher risk), with the exclusion that certain bonds trade in the secondary market, and thus are liquid. Bonds must be evaluated in the same way as Fixed Deposits. So if they want to invest in Bonds, it’s a wise idea to evaluate various consider parameters like the frequency of compounding, credit rating and rate of interest. Certain bonds also provide tax benefits.

Know About Sukanya Samriddhi Yojana

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The innovative Sukanya Samriddhi Yojana introduced by the Modi Government for the financial security of girl child has been listed in the most attractive small savings plan. So far, more than 76 lakh accounts have been recorded accounting for more than Rs 3,000 crores. Recently, the plan has faced a few tweaks, as the Government has addressed few ambiguities existing in the original plan.

Opening of Account

As per the guidelines, Sukanya Samriddhi Yojana can be enrolled for maximum two girl children in a single family. It can be done for three girl children in case there are twin girl children during the first birth or second birth. A legal guardian or a parent can only open an account for the girl child. The account can be open anytime in between from the birth time of girl child until the age of 10 years. This scheme, now, is also applicable for adopted girl children.

Eligibility

To be eligible for Sukanya Samridhi Yojana, the girl child should be an Indian resident, not only at the time of enrolling but for throughout the tenure of the plan. In case there is any change in the residency status, then no interest shall be owed from the date of residency change. After that, the account will be terminated prematurely.

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Mode of Investment

In addition to the cheque and cash, deposits can be made electronically when the post office or bank has access to the core banking solution.

Tenure

As per the guidelines of Sukanya Samriddhi Yojana, deposits can be opted for maximum 15 years from the account opening date. Earlier deposit count was restricted to 14 years.

Quantum

The minimum investment that can be made in the Sukanya Samriddhi Yojana is Rs 1,000 while maximum investment is capped at Rs 1.5 lakh per annum. Any excess funds deposited will not fetch any interest. Moreover, the excess funds can be withdrawn at anytime.

Interest Rate

Interest rates linked with Sukanya Samriddhi Yojana had to be reset every quarter, like the other small savings plans. Going by these guidelines, for June quarter 2016, the deposits will be fetching 8.6% interest compared to 9.2% interest paid during 2015-2016. Also, for the objective of interest computation monthly, the lowest balance between the tenth and last date of the month will be taken into account. The amount put into the account after the tenth will not fetch any interest for the applicable month.

Regularizing default account

By compensating a fine of Rs 50 per year for the default period combined with minimum specified amount for the defaulted years, an individual can regularize the default account.

Penalty in case of non-maintenance

According to the guidelines set by the Indian Government, if the minimum investment is not deposited annually, then the respective account will be stated to be in default. Also, if this 'in default' category continues for fifteen years, the funds deposited will be eligible for interest equivalent to the interest rate for Post Office Savings Account, which for now is at 4% per annum. However, if the default arises due to the death of the parent or guardian who opened the account, then such funds will be eligible to get the interest as specified by the government.

Tax

The funds invested in Sukanya Samriddhi Yojana is eligible for tax exemption under Section’ 80 C’ and comes under Exempt-Exempt- Exempt tax regime

Transfer of account

Sukanya Samriddhi Yojana account can now be toggled between the post office and banks and vice versa by making a fee payment of Rs 100. In case, this toggling happens due to residence change, then the parent or guardian needs to submit a proof of residence change. No fee is levied during this process.

Maturity

A Sukanya Samriddhi Yojana account will mature after 21 years. Once it is matured, no interest will be accrued irrespective of the status of the account. Previously, the funds in SSY account accrued interest till account closure. In addition, in previous guidelines, the account was considered as closed at the time of girl's marriage. But as per the latest guideline, now the account can remain open until the age of 21 years, even if the girl gets married.

Withdrawal

Earlier, the parent or guardian had the permission to withdraw up to 50% of the accumulated funds for education purpose, given the girl has passed Standard 0 th or is 18 year of age. Now, the funds withdrawal is permitted on the basis of the fees payable. The funds can either be taken out in the course of five yearly installments or as a lump sum amount. In the case of girl’s marriage, the accumulated funds can be withdrawn three months after or one month before the marriage date. At that time, it is vital to submit age proof so as to verify that the child is above 18 years of age.

Documents for closure

The documents that are required for account closure are an application for the closing of the account, proof of residence, citizenship, and identity.

Premature closure

The premature closure is not permitted before the completion of 5 years. However, the redemption is permitted in exceptional cases on compassionate grounds, like medical assistance when the account holder is suffering from critical diseases or on the death of the parent/guardian. In such cases, interest compensated will be equivalent to interest paid in post office savings.

Despite these changes, the financial experts believe that Sukanya Samriddhi Yojana remains one of the most lucrative debt plans when it comes to funds saving for the future of a girl child. Though there are various other alternatives available in the market, Sukanya Samriddhi Yojana triumphs when compared on parameters of predictability and tax efficiency, making it a rewarding alternative for a conservative investor.

The interest rate paid is higher than fixed deposits, and the profit accumulated over the specified period is tax-free. As per the market experts, investing an amount of Rs 1.5 lac annually in Sukanya Samriddhi Yojana makes sense even for an individual from over 30% tax bracket.

ELSS vs PPF: The tax saving schemes dilemma

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During the tax-saving period, where to invest in, ELSS or PPF is a theme of debate. Conservative investors find investing in PPF as a better option while advocates of equity investments identify ELSS as the best investment platform. A number of people inexplicably get into this argument during the last quarter of fiscal year.

The highlights

Apart from the similarity that both ELSS and PPF provide tax exemptions under Section 80C,there is hardly any other element in common. PPF is a debt offering while ELSS is an equity investment platform With ELSS, there are no returns guaranteed while with PPF, individuals can remain assured of returns. PPF investment matures in 15 years whereas ELSS have a lock-in period of three years. People face this problem of selecting between PPF and ELSS just because both the investment options are covered under Section 80C. If the two options didn’t offer similar tax benefits, people wouldn’t even bother asking this question. It is amazing that despite said many times that the investment choices should not be driven merely by tax considerations, it is still followed. Ideally, people should have financial objectives, and they must choose investments options which are well suited to achieve those objectives. For long-term goals, it is better to build an equity portfolio, whereas, for short-term objectives, a debt portfolio is preferred. If doing investments in such a way provides tax advantages, there is nothing better than this. However, it is not the case with the majority of the investors. The tax considerations are leading investment choices. During the tax-saving period, reasoning loses the scope and tax-saving become vital. No one bothers about financial objectives. In these articles, let us perform a quick comparison between PPF and ELSS and discuss how

investors should find a solution to this debate. The final allocation or choice varies depending on the personal objectives.

Equity Linked Savings Scheme

ELSS is commonly classified as a tax saving equity funds (tax saving mutual funds). They have a lock-in period of three years, which implies that investors cannot withdraw the funds before three years. If the ELSS investment is done through a systematic installment plan, every installment of systematic installment plan has locked-in period for 3 years. For instance, units bought through installment on February 15, 2016, can be redeemed on February 16, 2019. Units bought on March 15, 2016, can be sold on March 16, 2019. Investment in ELSS funds is entitled to tax exemption up to Rs 1.5 lacs as per Section 80C of the Indian Income Tax Act. The cap of tax exemption of Rs 1.5 lacs under Section 80C is applicable for investments in all the products put together. However, there is no cap on the investment amount in ELSS. Investors can put in funds of Rs 10 lacs or even more in a financial year. The returns on ELSS investment are market-linked and therefore not assured. Under the existing laws, long-term capital gains that come from the sale of equity mutual funds which have a holding period of more than 1 year, they are tax exempted. ELSS investments come with a lock-in period of 3 years, and thus, any capital gains on ELSS are classified as long- term, eligible for tax exemption. Dividend earned from ELSS investment is tax exempted. Thus, if investors opt for the dividend, it will be tax-free. Non-residents can also invest in ELSS.

Public Provident Fund

PPF investment matures after fifteen years, and therefore, the lock-in for such investments reduces every year. But, with ELSS investment, there is a lock-in period of three years. Once the PPF investment matures, an investor can extend PPF investment in a block of five years. A loan against PPF amount is available from the third year. Investors can opt for partial withdrawals from the seventh year. Investors can put in up to Rs 1.5 lacs in PPF account in a financial fiscal.

PPF comes under the Exempt-Exempt- Exempt category. The maturity amount and interest earned is exempt from tax. Returns on PPF investments are not fixed. The interest rate is reported by Ministry of Finance, the Government of India. For FY2016, the interest rate is 8.7% per annum, which in all aspects is exceptional for a debt product. It should be noted that non-residents are not allowed for investment in PPF. However, an existing account before becoming NRI can be continued till maturity.

PPF Versus ELSS

table

Ideally, investors should specify crisp financial objectives (marriage and children education, vacation, purchase of a house, etc.). Even investors should have assets allotted to fulfill those financial objectives. Set the asset distribution right. The choice of an investment offering for a financial objective relies on numerous factors including financial position, risk appetite, and investment horizon. For instance, if an investor is saving for self-education in two years, neither ELSS nor PPF will fit the block. But, if an investor age is 30 years, and is saving for child college education, they can consider ELSS and PPF. Greater allocation should be in ELSS. If an investor is 55 years old, and the objective is retirement savings, the greater allocation should be done in PPF. Allocation has to be changed depending on the personal objectives and financial position. ELSS is considered to have a lock-in of three years, but don't be misguided by this concept. Invest in ELSS only if the time horizon is 7-8 years. PPF is far superior to ELSS as it gives you completely tax free returns with near zero risk. This is a product that is unparalleled in the investment universe and that is why investment in PPF is limited. If you are not claiming your 80C benefit you should try to put as much as possible in PPF as long as you can wait for the maturity of the PPF account. In addition even if you are claiming your 80C tax benefit from other sources investing as much as possible in PPF is good as it creates a long run nest egg which can be used for retirement or for emergency funds. Over and above the PPF investment amount if you do have capital to invest it is probably better to invest create a risk profile with a professional financial advisor and invest according to your investment plan – you can try the automated approach at Wixifi as well.

What Is Your Pick: ELSS Or ULIP?

elss or ulip

Today investors have numerous instruments for investment available in the market. However, the major question is that amongst these many options, which investment instrument best fits as per individual needs. Take the case of 30-year- old Mahesh Arora, who is in a dilemma whether to put his funds in an Equity Linked Saving Scheme or a Unit Linked Insurance Plan. As per the market experts, there is technically no comparison between the two investment assets, as a ULIP plan intrinsically is about the insurance cover and the additional gain in the form of returns, whereas an ELSS is more of a diversified equity mutual fund plan, with the benefit of tax rebates. Investors often go wrong between the two options mainly because of the agents, who boast increased returns in the ULIP plan. The investor is convinced that ULIP's primary objective is to offer returns, and the second goal is insurance cover. Here is a mismatch on the advantages that are attached to an ELSS and ULIP structure and how investors can select between the two options as per their requirement and the time-horizon.

Unit Linked Insurance Plan

The prime benefit of putting funds in a ULIP plan is the life cover. Unlike the traditional endowment schemes, in a ULIP investors have the option to invest their money either in debts or equity. This investment-insurance arrangement makes it the most preferred alternative after investment option. Also, ULIP acts as a saving plan. It not only generates gains but also cover investors’ health and life. Another added benefit that a ULIP structure boasts is the flexibility of the product. It implies that as an investor an individual can change or switch his plan as per risk appetite. In the market, investors can find different variants of ULIPs like the ones which invest over 80% in equities, some plans which invest around 60% and those schemes which prefer to keep investment in equity as low as possible. An investor can change plan according to personal needs and capitalize on the plans available both in debt and equity markets. The third benefit that a ULIP plan provides is the tax rebate. Under Income-Tax Section 80C law, investments in ULIPs earn tax benefits. Also, it is an open-ended plan, where maturity benefits, as well as partial withdrawal, are tax-free. Various insurance firms have also introduced offerings with a capital guarantee. It implies that whatever premium that investors have compensated will be returned to them even if there is a market crash.

Equity Linked Saving Scheme

Analysts believe that if investors are looking for just returns, then Equity Linked Saving Scheme comes in the list of the best investment options. All investments should be planned based on an individual's investment goal, time horizon, and risk profile. If individuals are not prepared to deal with the volatility in equities, they should avoid taking exposure in it. Investors need to note that over the longer horizon, equities as an asset has surpassed the market returns, particularly accounting for inflation impact. Focus on equities is a notable benefit of an ELSS plan. For any investor seeking short-term benefits, an ELSS plan is the best option as one can benefit the most of the markets in a three-year period. In addition, another benefit that ELSS has over ULIP plan is the charges computed on investments done. Agent’s commission, as well as mortality charges, is factored into the ULIP costs, while in an ELSS investors have just two charges, the load or entry cost, which is nearly 2.25 % of the total funds invested and the recurring costs. An ELSS investor also benefits from the fact that investors can stay invested after the maturity. There is a lock-in period of three-year. Popularly known as an instrument for tax saving, an ELSS plan also helps investors get a tax rebate.

The personalized requirements

Given the varied nature of both the investment products, experts are of the view that for an investor the best alternative is to separate investment and insurance needs. These are the two different goals of investors. Insurance and investment both need to be handled separately. Insurance plans and mutual funds cater to entirely different needs of investors. Though in the short-term period, return from mutual funds is better, Unit Linked Insurance Plan is good investment alternative for a long-term period. However, investors looking to invest only to get tax rebates and a small fraction of gains, for them ULIP is not the best investment products. For investors who have a low-risk appetite, Unit Linked Insurance Plan may be the right investment option. In ULIP investors have the luxury to invest purely in debts. Therefore, even before investors finalize the product, a SWOT analysis of the asset perhaps may support investors take the right choice.

ELSS Vs ULIP

elss n ulip

There is an ongoing war between the ULIP and ELSS. Which would be an appropriate alternative for the tax saving as both of the investment classes are advanced for the tax saving, and also both plans invests in the equity market. However, ELSS and ULIP differ on many parameters. Both of these plans are advocated by a different group of people. A financial planner must be canvassing for the ELSS while an insurance agent would advise for the Unit Linked Insurance Plan. A lot of dilemmas exists as different things are talked about ULIP and ELSS.

Objective of Tax-saving

Often investors consider ELSS or ULIP in the hurry of tax saving investment options. However, there are many other tax-saving alternatives which are more suitable for investors. If they can’t see their investment value declining, they should refrain investing in both of them. They can invest in ‘fixed income’ investments such as the PPF, senior citizen saving scheme, endowment insurance policies, Tax saving FD and NSC.

ELSS or PPF

The risk of any investment largely depends on upon the asset where the funds are put. PPF and ELSS have entirely different investment goals, and thus risk differs between them. Equity Linked Saving Scheme invests in the shares, the value of which depends on shares price performance. ELSS is risky investment option, and it can even reduce investor’s capital. Conversely, PPF plan put investors’ funds in government bonds, which are well supported by the Government of India.

Best Sip Plans

SIP plans

Best Sip Plans: Are They Worth It?

A mutual fund scheme that consistently surpasses its category returns, and also the returns of its benchmarks, is termed as a good mutual fund plan. Equity SIPs are considered as one of the best SIP plans that can be used as wealth generating investment tools for meeting long-term financial objectives like children education, their marriage, retirement planning and many others. For medium term financial objectives, hybrid mutual funds are a better alternative over equity funds.

In Indian market, there are more than 4000 Mutual Funds with more than 30,000 Mutual fund Schemes (Mutual fund Plans) including equity and debt segments. It is a definitely a big number, which makes it all more challenging for investors to identify the best mutual fund. Let us have a look at 3 Large Cap and 3 Small & Mid-cap popular mutual funds available in the market:

sip worth

LARGE CAP

Funds which invest a big part of their corpus in firms with large market capitalization are termed “large cap funds.” The standards for deciding large cap firms may differ. However, these are the funds with significant market capitalization. They are known to provide sustainable and stable returns over a fixed period, but might be outpaced by small and mid-cap funds, with increased risk exposure. Large cap funds are generally classified as funds investing in firms in the top 50 to 100 by market cap. Some of the top-most popular large cap funds are:

Franklin India Opportunities Fund (G)

https://www.wixifi.com/mutualfunds/Franklin-India-Opportunities-Fund—Growth-1466

It is an open-end regular diversified growth plan, with an objective to register capital appreciation by benefiting from long – term growth opportunities in the domestic economy. Initially named as Franklin Internet Opportunities Fund, it changed its investment goal to turn into a diversified mutual fund w.e.f March 2004. The details:

  •  Fund Type: Open-Ended
  •  Benchmark: S&P BSE 200
  •  Launch date: Feb 19, 2000
  •  Investment Plan: Growth
  •  Asset Size: Rs 412.43 cr (Average AUM for quarter Jan-Mar '16)
  •  Last Dividend: N.A.
  •  Minimum Investment: Rs.5000
  •  Entry Load: N.A.
  •  Exit Load: 1.00% if units are switched-out/redeemed within 1 year from the allotment date.

Kotak Select Focus Fund (G)

https://www.wixifi.com/mutualfunds/Kotak-Select-Focus-Fund-4372

The investment objective of Kotak Select Focus Fund is to record long-term capital gains from a portfolio of equity and related securities, largely focused on selected sectors. The details:

  • Fund Type: Open-Ended
  • Benchmark: NIFTY 50
  • Launch date: Aug 20, 2009
  • Investment Plan: Growth
  • Asset Size: Rs 3,251.55 cr (Avg. AUM for qtr Jan-Mar '16)
  • Last Dividend: N.A.
  • Minimum InvestmentRs.5000
  • Entry Load: N.A.
  • Exit Load:1.00% for switch outs/ redemptions (including STP/SIP) within one year from the allotment date, irrespective of the amount invested.

SBI Blue Chip Fund (G)

https://www.wixifi.com/mutualfunds/SBI-BLUE-CHIP-FUND—Growth-1662

The investment goal of SBI Blue Chip Fund is to offer investors with prospects for long-term appreciation in capital by opting for an active management of funds in a diversified basket of stocks of firms whose market cap is more than or equal to the stock with lowest market capitalization listed in BSE 100 Index. The details:

  • Fund Type: Open-Ended
  • Benchmark: S&P BSE 100
  • Launch date: January 20, 2006
  • Investment Plan: Growth
  • Asset Size: Rs 5,981.62 crore (Average AUM for quarter Jan-Mar '16)
  • Last Dividend: N.A.
  • Minimum Investment: Rs.5000
  • Entry Load: N.A.
  • Exit Load: 1.00% if units are switched-out/ redeemed within one year from the allotment date.

SMALL & MID-CAP

https://www.wixifi.com/mutualfunds/DSP-BlackRock-Small-and-Mid-Cap-Fund—Regular-Plan-2004

Mutual funds which diversify funds in between small and mid-cap firms are named as small and mid-cap funds. The distribution of funds between small cap and mid cap may differ from fund to fund. Due to immense exposure in high beta equities, they are suitable only for investors who have opted for high risk, high return option. Some of the famous schemes in the small and mid-cap category (Also among the best sip plans in the small and mid cap category) are:

DSP BlackRock Micro Cap Fund

https://www.wixifi.com/mutualfunds/DSP-BlackRock-Micro-Cap-Fund-2621

It is an open ended regular diversified equity growth plan intending to record long term capital growth from a portfolio that is considerably formed of equities which are not listed as the top 300 firms by market capitalization. Periodically, the Investment Manager will look to invest in other stocks to achieve optimal portfolio mix. Initially it was a three years close-ended diversified equity plan which was later converted into an open-ended plan with effective June 15, 2010

  • Fund Type: Open-Ended
  • Benchmark: S&P BSE SMALLCAP
  • Launch date: May 04, 2007
  • Investment Plan: Growth
  • Asset Size: Rs 2,028.96 crore (Average AUM for quarter Jan-Mar '16)
  • Last Dividend: N.A.
  • Minimum Investment: Rs.5000
  • Entry Load: N.A.
  • Exit Load: 1.00% if redeemed within one year from the allotment date.

Franklin India Smaller Companies Fund (G)

https://www.wixifi.com/mutualfunds/Franklin-India-Smaller-Companies-Fund-1561

It is an open end diversified equity fund which intends to offer long-term capital gains by investing in small and mid-cap firms. Previously it was a five-year close-ended equity plan which was later converted into an open end plan w.e.f. January 2011. The plan details:

  • Fund Type: Open-Ended
  • Benchmark: NIFTY MIDCAP 100
  • Launch date: Dec 14, 2005
  • Investment Plan: Growth
  • Asset Size: Rs 3,961.50 cr (Average AUM for quarter Jan-Mar '16)
  • Last Dividend: N.A.
  • Minimum Investment: Rs.5000
  • Entry Load: N.A.
  • Exit Load: 1.00% if units are switched-out/redeemed within one year from the date of allotment.

Mirae Asset Emerging Bluechip Fund (G)

https://www.wixifi.com/mutualfunds/MIRAE-ASSET-EMERGING-BLUECHIP-FUND-4678

This fund objective is to fetch capital appreciation and income from a diversified portfolio largely investing in Indian equities and related securities of firms which are not included in the top 100 equities by market cap. These stocks should have market cap of minimum Rs. 100 Cr. at the investment time. Periodically, the fund manager may reshuffle the portfolio to achieve optimal mix. The plan doesn’t assure or guarantee any returns. The plan details:

  • Fund Type: Open-Ended
  • Investment Plan: Growth
  • Launch date: June 22, 2010
  • Benchmark: NIFTY MIDCAP 100
  • Asset Size: Rs 1,104.68 crore (Average AUM for quarter Jan-Mar '16)
  • Minimum Investment: Rs.5000
  • Last Dividend: N.A.
  • Entry Load: N.A.
  • Exit Load: 2.00% if redeemed within six months (182 days) from the allotment date and exit load of 1.00% if redeemed after six months (182 days) but within 1 year from the allotment date.

Since it’s extremely tough to identify when the market will support large cap, small-cap or mid- cap funds, it’s a wise approach to include a mix of different funds in your portfolio. Overall SIPs are good tools but we believe it is better for you to maintain your own discipline and invest on your own every month.

Let Wixifi’s analytics engines work on the complex math and invest in a few clicks by trying out the robo advisory service if you like. We look forward to your comments and suggestions.

Disclaimer:
The views in this article are those of the author and are not investment advice in any way.

Taxes In India

taxes

Types of Taxes In India

There exist different types of taxes in India which are levied by the State Government and Central Government. Then there are some taxes which are introduced by the local governing bodies like the Local Council and the Municipality. In India, the government has to formulate fiscal policies to boost the development and economic growth of the nation. In an attempt to support these policies, the government seeks capital and for meeting these needs, the taxes are levied on businesses and individuals. It, therefore, becomes vital for citizens to pay their taxes on time to the government.

The different types of taxes are listed below:

Direct Tax

The first category of tax that we would be discussing is Direct Tax. These taxes are directly levied by and paid to the government. The different types of Direct taxes are explained as under:

Income Tax

It is one of the most heard forms of tax, and most of the citizens are familiar with it. Income tax is deducted from income in case the individual’s income surpasses the taxable limit. The twelve month period is considered for the purpose of taxation, which starts from April 1, and ends on March 31. As per the stated guidelines, the income is classified under five heads, Salaries, Capital Gains, Business Income, House Property and others. An individual should look for which heads their income is falling into. Other income includes interest income from dividend, savings, and fixed deposits.

Income tax slabs:

table

Securities Transactions Tax

When investors sell or buy a stock form the share market, they are required to pay ‘Securities Transaction Tax.’ It is levied the Government as a big percentage of investors who fetch their earnings from the share market hide their assets. They dodge paying capital gain tax because these taxes can be imposed only on the earned profits. The Securities Transactions Tax (STT) is taxed on derivative instruments, equity oriented mutual funds, equity shares, etc.

Capital Gains Tax

This tax is imposed when people sell their property, jewelry, shares, bonds, or anything that help earns them those gain. The profit can be computed by deducting the amount people earn by selling their asset and the funds they have paid for it. Capital Gains tax is computed on the profit.

Corporate Tax

The tax paid by the companies of India to the Government is termed as Corporate Tax. It is imposed on the earnings of the corporate. In addition to the corporate tax, the companies are also required to pay other forms of taxes.

Perquisite Tax

Perquisite Tax, formerly known as Fringe Benefits Tax (FBT) is imposed on employees for the non-financial advantages provided to them by employers. For instance, if a firm provides employees with non-monetary privileges life a rented flat, the employee have to compensate tax, which was previously borne by the employers.

Indirect Tax

Indirect tax is a tax that is collected by an intermediary – who is different from the person who actually bears the burden. In general this is the tax you pay on goods on services you consume – the more you consume the more tax you pay. It is typically baked into the price of goods and services.

Service Tax

When people pay tax on the services availed, they are said to be paying Service Tax. It was established in 1994 and is now valid on all type of services. The tax is not applicable on the services listed in the negative category. Also, the service tax is applicable in all the states, barring J&K. It is levied on varied services including but not limited to health care, advertising, beauty salon and financial services.

Sales Tax

While making an investment in commodities, investors are required to compensate the cost price as well as the sales tax. Sales tax is then paid by the manufacturer to the Government. In India, the sales tax is compensated to both the central government in the form of Central Sales Tax and state government in the form of Sales Tax. However, the tax is imposed merely on the intra-sale of commodities, indicating the sale carried out within one state. On the contrary, the Central Tax is imposed on inter-state sales.

Excise Duty

The Excise Tax, also termed as the Central Value Added Tax is imposed on the products that are manufactured within the nation.

Anti-Dumping Duty

When products are exported from one nation to another at a cost that is not equivalent to the actual cost of that commodity, then the Indian government levies anti-dumping duty tax on such products.

Customs Duty and Octroi

It is levied on the products exported to foreign nations as well as the products that are imported into the country. Customs Duty is levied at the entry check of the country like docks, airport, etc. However, the Octroi Tax is charged for goods that are sent from one municipality to another.

Other Taxes

There are a few other types of taxes:

taxes

Municipal Tax

Indian citizens owning a property have to pay Municipal tax to the local municipal corporation body. The tax rate differs in every city.

Professional Tax

People employed in a private firm have to pay Professional tax, and this tax is subtracted by the employer from salary. The tax rate varies in every state.

Entertainment Tax

This tax is paid by Indian citizens whenever they spent money on entertainment stuff like buying movie tickets.

Stamp Duty, Registration

When people purchase a property, they need to pay Stamp Duty and registration in addition to the price set by the seller. Unless they follow the process, they don’t get the property transferred to their name.

Gift Tax

All the gift values surpassing more than Rs 50,000 per annum are taxable.

Toll Tax

This tax is paid by the drivers when they use the country’s infrastructure like the highways and roads. Toll tax is charged so that the government has enough funds to maintain the infrastructure in the long run. The list of taxes doesn't stop here, as there are many more taxes like wealth tax, education tax and dividend distribution tax levied in India. Taxes play a vital role in the development of a country. The funds collected from taxes aids in the implementation of numerous economic policies to boost the growth of a nation. Instead of cribbing about the taxes, people should understand the significance of taxes. Taxes do not benefit the government, but it is only us and the economy that eventually benefits from the well-planned taxation systems. Be smart, and never put yourself or anyone you care about in a position where you have to explain yourself. Better to adhere to all tax norms and comply with the letter and the spirit of the law.

PPF accounts & PPF Calculators: 10 questions you should have about

ppf

PPF accounts & PPF Calculators: 10 questions you should have about

Public Provident Fund (PPF), by definition, is a long-term savings scheme. Constituted under the ‘PPF Act of 1968’, it is a plan offered by the Central Government. It was initially introduced by the Government as it wanted to offer retirement security to workers in the unorganized segment and self-employed individuals. Currently, it is one of the most popular investment choices in India. People who are looking for a safe investment, tax benefits, a decent rate of return, and have a long-term horizon, should put in their funds in Public Provident Fund. It is a disciplined investment instrument because the fund is blocked for fifteen years.

When to open A PPF Account?

The short answer is NOW! There are certain things that people should give thought to when opening PPF account. They can open PPF account either in the post office or in the selected list of nationalized banks. The only prerequisites are one photograph and the PAN number. Once the formalities of application are completed, investors get a passbook in which they can record all their PPF transactions. Users are allowed to open just one account in their name. However, they can open an account in the name of their minor children. It would solely be the child’s account, and the parent will act as the guardian. There is no joint account facility in case of PPF. People who have an Employees Provident Fund Account or General Provident Fund Account can still open a PPF account.

coin

When to invest?

The most preferred time to invest in PPF is in the first week of any month, starting in April each year. The interest is computed for the calendar month on the minimum balance at credit of investor’s account, between the 5th day closing amount and amount recorded at the end of the month. The interest is credited at the year’s end.

Can NRIs invest in PPF?

As per the PPF guidelines, NRIs are not allowed to open a PPF account. However, if a resident who later becomes an NRI during the prevalence of the maturity period set under the PPF plan may continue with their investment in the account till maturity on a non repatriable basis.

Loan against PPF

People can avail loan facility against their PPF investment. They can avail the first loan in the third year after opening the PPF account. For instance, if a person opens an account during the year 2015-16, the first loan can be availed during the year 2017-2018. The loan limit will be 25% of the balance amount including interest for the 2015-16 in the account as on 31/3/2016. The availed loan can be repaid in 36 EMIs. The second loan can be availed against PPF before the sixth year ends. However, the facility of the second loan is available only when the first loan is fully paid.

Options available on maturity

Investors have three options available to them at the time of maturity. They can either withdraw maturity amount, or they can extend account duration by a 5-year block. It can be done as many times as investors want and contribute fresh funds. They also have the option to extend the duration of account without opting for additional contributions, and still earn interest on PPF amount every year. The maturity amount is exempted from tax. In case, the investors decide to extend the duration for five years block; they can make withdrawals up to 60% of the balance available at the start of the extended period. In order to extend PPF account, investors need to submit the mandatory documents for extension within one year of the maturity date. Also, investors can withdraw the PPF amount without any restriction only if they have decided to extend account period without opting for fresh investments. However, the withdrawal limit is limited to one time per year. The interest will continue to grow in the balance amount.

Withdrawals before maturity

Investors can withdraw the amount of not more than 50% of the preceding year's PPF balance or fourth year, whichever is less. However, this advantage is offered only after the completion of five years. In the case of loan availed on PPF account, the withdrawal limit gets reduced. Only one withdrawal is allowed in a single year. Investors have to submit Form C for withdrawal.

Prefer PPF loan over Personal Loan

Investors looking to get funds for a short period in the absence of any mortgage privilege, mostly avail the personal loan. However, if the investors have a considerable amount in PPF, then they can avail a loan against that amount. The interest levied is less than the interest rate of 13%-36% generally applicable in the case of personal loans.

Lump Sum Investment

Besides small savings, investors can invest a big amount at one go in the PPF account, which also makes investors eligible for the bonus. This lump sum amount will result in substantial maturity amount without pinching investors. Additionally, increased investment implies increased tax savings.

PPF calculation

There is increased confusion among people on how interest on their PPF amount is computed? As many investors are not aware of the computation, they have queries like when to invest, how much to invest, and others. Once investors know the process and interest computation method, financial picture become clear. Interest on PPF account is computed monthly on the minimum amount between the end of the fifth day and last day of a month. The total interest earned in a single year is added to the final amount at the end of the year.

Key points

When investors are investing in PPF periodically, the deposit date whether it is after 5th or before 5th will not hold much significance. If they are investing a lump sum amount in PPF account on a yearly basis, it is better to invest in PPF before 5th April. It will ensure that the account earns interest on substantial balance for April. The interest earned in a particular month largely relies on the rate applicable for that specific month. It is evident that when it comes to investing in PPF account, it is not as easy as it appears. There exist some minor lines, which if crossed can change the entire picture of PPF investment. In the case of any PPF related query feel free to write back to us. Overall if you are not investing your full PPF amount of 1.5 Lakhs per year you should be. Please do not look to any other investment options before investing your full PPF balance – the interest rate of 8%+ on PPF net of tax with zero risk is pretty much the best safe investment you can find. It’s significantly higher than debt returns and lesser than the potential of equity returns but the risk is even lower than bank FDs.