The introduction or rather reintroduction of long term capital gains taxes on equity mutual funds including ELSS (equity linked savings schemes) has made some novice investors a bit jittery. A lot has already been written and said about long term equity gains taxes on equity schemes. In short, considering the potentially high returns, Rs. 1 lakh annual gains taxation threshold and the grandfathering of returns till 31^st January 2018, equity schemes still hold the edge over competing investments. This also holds true for ELSS funds that investors choose for making tax saving investments. In case you are still on the fence regarding if there are any benefits of opting for tax saving mutual funds over traditional tax saving investments, the following are seven top reasons to choose ELSS.

1. Short Lock-in:

All tax-saving investments feature a lock-in period which currently varies from 3 years to 15 years. During this lock-in period you are not allowed to redeem your investment or make withdrawals except for some specific emergencies. As per existing rules, among the available tax saver investments in India, ELSS i.e. tax saver mutual funds have the shortest lock-in period of 3 years. This allows you the ability to shift to a different investment option within a relatively shorter period of time in case your chosen investment is not performing as per your expectations. Obviously in case of tax saver schemes with longer lock-in period, you do not receive the same flexibility.

2. Flexibility to Choose Investment tenure:

The flexibility of mutual fund schemes is unmatched even in case of tax saver investments as you have the option to choose your investment tenure beyond the 3 year lock-in. In case of most other tax saving investments you have to invest in blocks of 5 years or more beyond the initial lock-in period. This is not the case with ELSS schemes – you can stay invested for a day or even for decades after completion of the initial three year lock-in period. Typically staying invested in a top rated ELSS mutual fund for a longer period offers you greater compounding benefits.

3. Potentially Higher Market Linked Returns:

ELSS are market-linked diversified equity schemes, this gives them an edge over fixed return investments that offer tax benefits. The main problem that fixed rate tax saving schemes such as PPF have is that inflation reduces the actual returns generated by these investments over time. Fortunately being market-linked, tax saver mutual funds can provide potentially higher returns that can beat the adverse impact of inflation in the long term. This is the key reason why many individuals who make investments with the intention of planning for retirement or other future expenses have moved away from old school options such as fixed deposits and PPF to mutual funds and ELSS instead.

4. Compounding Benefit:

Compounding is what makes today’s investments more valuable in the long term and equity linked savings schemes can potentially deliver superior compounding benefit when compared to traditional tax saving investments. This is because the returns offered by traditional instruments such as tax saver fixed deposits and PPF tend to offer a lower rate of return than the average ELSS. This causes the compounding of the initial investments to grow slowly and reduces the overall benefit of compounding for you in the long term. In case of mutual funds such as ELSS, the potential returns being higher, these compounding benefits tend to add up faster for investors. It must however be pointed out that ELSS returns do not have a fixed ROI, hence during some periods, returns will be considerably higher than during other periods with historic long term average returns of equity schemes recorded at 12% per annum.

5. Option of SIP Investment:

SIP or systematic investment plans are akin to recurring deposits for ELSS investments and currently this route has emerged as the key driver of equity mutual fund investments in India. For starters, a SIP allows you to invest over the long term in small installments, as low as Rs. 100 per month, so you do not need to worry regarding upsetting your monthly or annual budget. SIP is also suitable for individuals who tend to have trouble saving as the amount gets debited automatically from your bank account. This way you will end up saving money for the future instead of spending it all. Last but not the least, SIP also provides the benefit of rupee cost averaging to investors. The NAV of an ELSS fund changes daily and investing via SIP eliminates the need for investors to time their entry into the market by providing an average value of units (rupee cost averaging) over the chosen investment tenure.

6. High Levels of Transparency:

Mutual fund houses i.e. asset management companies (AMC’s) who manage ELSS and other mutual fund schemes are regulated by SEBI (Securities and Exchange Board of India). As per SEBI guidelines, AMCs have to make periodic disclosures regarding key information of all schemes managed by them. Information provided through these mandatory disclosures include net asset value (NAV), assets under management (AUM), scheme returns over different periods, total expense ratio (TER), current asset allocation, etc. While some of these have to be reported daily, others need to be reported as per a monthly or quarterly schedule. As of now, no tax saver investment in India features a higher degree of transparency than ELSS. Hence tax saver mutual funds ensure that you always have the latest information regarding the status of your investments.

7. Ease of Investment:

The advent of Internet and related technology has significantly eased the pains related to making tax saving investments. However many traditional tax saving schemes such as PPF still require you to physically queue up at a designated bank or post office so that you can subscribe to the chosen instruments. Not in case of tax saver mutual funds. After having adopted Aadhaar-based eKYC or as a KYC complaint investor, the industry, as a whole, allows investors to start investing online without having to leave the comfort of their home or office.

Life should be clutter free and investments should be kept as simple as we can.

With stock market going through ups and downs every day, mutual funds have become a very attractive option for investment today. There are more than 1000 schemes available in the mutual fund industry which allows us to choose funds as per our needs and risk profile. The ultimate motive of the investment is to make every penny work so it takes you nearer to you goals and dreams.

Tough time call for tough choices and pinching every penny, in this scenario when the market we get very worried about losing our money in commission and expenses ratio.

It’s true that regular funds have some commission included as a part of expenses ratio, however if you look towards the benefits of investing in regular funds, you can easily compromise on the charges part.

Why Retail Investor should avoid Direct Plan of Mutual Fund?

Records of Investment

It was quite shocking for me that none of the financial planners touch upon this point in their post on Direct Plans. Today if i invest in 8-10 mutual fund schemes of 5 fund houses then i need to remember and store details of all the direct schemes separately. If god forbids and something happens to me then my wife has to search & trace all the details. We forgot one imp point that approx 22000 Cr. investor’s wealth is lying unclaimed in various financial instruments. The only reason is either the investor forgot about investment or legal heirs of investor could not trace any record of the investment.

The basic thumb rule of personal finance says that all the investments should be consolidated, concentrated and preferably centralized. If i have single unified mutual fund account with bank or distributor then my wife can easily access all the details through single window.  Remembering password of 10 different accounts is a big hassle.

Now you must be wondering what about single consolidated statement generated by CAMS etc. for all mutual investments. Answer is that you cannot rely on same. The day i registered my email id, i stopped receiving physical statement. My wife may not have access to my Email account.

Documentation

Documentation is major hassle in direct plan for both online and offline investors. For each investment, you have to complete separate set of documentation. If you are active investor then its a nightmare. Today, i have mutual fund account with one of the leading private banks. I can place order / redeem mutual fund units with 2 mins flat without any additional documentation for each investment.

Operational Hassle

For investors who are not comfortable with online operation, it will be operational nightmare. For every transaction they have to visit the branch of fund house. In case of agents / distributors, they provide pick up service to regular investors. Also the agents / distributors have wide network of branches compared to branches of a fund house. In a city, you will find 1 branch of fund house but there will be 10-15 branches of popular agents/distributors.

Review and rebalance – Specially when the market is going against our expectation, we need someone who and hold our hands in these tough times and help us to safeguard our portfolio from market volatility, At Saffollya …, we provide you an investment advisor who help you to review and rebalance your portfolio as the need arises. It has been observed that with review and re-balances; there are higher chances of keeping you on track with your financial goals.

All funds under one umbrella -At Saffollya …, we provide you a platform, where you can purchase funds from any AMC with one account, no paper work, and no hassle to remember numerous passwords, just one login and you can perform all the transactions. You can even purchase NFOs online. The basic thumb rule of personal finance says that all the investments should be consolidated, concentrated and preferably centralized. If i have single unified mutual fund account with bank or distributor then my wife can easily access all the details through single window.  Remembering password of 10 different accounts is a big hassle.

Detailed comparison – Compare two or more funds from the same category to make smart investment choices.

Amazing customer support– Customer support is the back bone of regular funds; we are just 1 call away to provide you any guidance related to your investment. Our customer support specialist not only helps you in picking the right fund but also, they assist you for every query related to redemptions, switch or anything related to mutual funds.

Wealth Coach : Our advisor – “Wealth Coaches” are highly trained on managing personal finance and assigned to work towards clients goals with consideration of Insurance need, individual taxation etc.  Moreover, through technology support we take care our client’s interest on faster way.

No bias– The funds offered are not biased towards any single AMC, choose you funds depending on your needs and risk profile or ask for an advisor.