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Tax Saving And Investment

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Mutual Funds India | Investment Plans | Tax Saving

The world we live in is deeply dependent on the incredible ease and comfort gained from the wonders of automation. We all love to have an auto-pilot mode on everything from cars to our homes. What if we say that you could adopt auto-mode in investing too? Because that’s precisely how it feels like to invest in Mutual Funds.

A mutual fund is managed by professionals, they allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. The funds are invested into various securities like stocks, bonds, money market instruments, etc, and the returns are then distributed to the investors. In simple terms, mutual funds help you invest your hard-earned money in the right places. 

Investors typically profit from mutual funds in three ways:

1) Income from the interest gained: A mutual fund’s income is derived from dividends on its stock shares and interest on the bonds held in the portfolio. This income is a sum of all of the income that the fund receives over the year and is shared with the investors in the form of a distribution. Funds often give investors a choice either to receive a check for distributions or to reinvest the earnings to purchase additional shares of the mutual fund.

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2) Capital gain from the sale of securities: Whenever a security’s price in the fund’s portfolio increases and is sold, the  fund realizes “Capital gain.” This capital gain is passed on to the investors as distribution.

3) Increase in mutual fund scheme’s value: The price of the fund’s shares is proportional to that of the mutual fund assets, so investors can earn from the market by selling their mutual fund shares.

A financially secure future is now a distant possibility due to rising living expenses, inflation, and shrinking reserves. So, start investing a portion of your savings to create a secure future for yourself. And as an added benefit, there are some specific circumstances where we can also receive tax benefits. The Income Tax Act of India contains a section titled Section 80C that lists a number of investments and expenses that are not subject to income tax. It permits a maximum annual deduction from an investor’s total taxable income of Rs.1.5 lakh if they invest in certain schemes like the Equity Linked Savings Scheme (ELSS) or infrastructure bonds, etc. Nonetheless, there are other Mutual Funds investment schemes with other benefits of their own:

 

Equity or Growth FundsIncome/Bond/Fixed Income FundsHybrid Funds
These mostly invest in equities or company stock.A type of debt mutual fund that invests in corporate and government bonds as well as money market instruments. As the name suggests, they’re a combination of Equities funds and Fixed Income funds, providing the best of both worlds: growth potential and income generation.
The fundamental goal is to create wealth or capital appreciation.They have investment-grade credit quality. Eg: Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.
They are best suited for long-term investments and can generate higher returns for the investor.They are relatively safer investments and ensure capital preservation.
Various types of Equity Funds are

  1. Large Cap funds primarily invest in well-established major corporations.
  2. Mid Cap funds invest in mid-sized businesses.
  3. Small Cap funds that invest in small-scale businesses.
  4. Multi-cap funds invest in a combination of large, mid-sized, and small-cap companies.
  5. Sector funds invest in companies that are tied to a specific industry, like Real estate funds that only invest in the real estate market.
  6. Thematic funds invest in one theme (different from sector funds which invest in a specific sector/industry). An infrastructure theme fund will invest in cement, power and steel among other sectors.
  7. Tax Saving Funds(aka ELSS funds) invest at least 80% of their total assets in equity and equity-related securities and provide a tax benefit under the law.
Eg: Liquidity funds, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, and Gilt funds.
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Mutual fund investments can also be widely grouped into two groups based on the mode of payment.

  • A lump sum investment is one in which an investor invests all of his or her money. For instance, you can do a one-time transaction with an amount as low as Rs.5000 with Karnataka Bank to make an investment for your future.
  • A Systematic Investment Plan (SIP) Mutual Fund, allows you to make fixed investments at predetermined times. With Karnataka Bank, your SIP can be as low as Rs.1000 per month. With SIP you can reap the benefits of Compounding, the flexibility of investment frequency, low initial investment, etc. SIP offers wealth creation with inflation protection, evading any worries of market dynamics thanks to rupee cost averaging. Most banks facilitate hassle-free investing with automatic debits.

To begin your journey with Mutual Funds, start with understanding your financial goals. Some Mutual Fund schemes are more suited to short-term objectives, whereas others could be better suited to long-term goals. Different individuals have different levels of risk tolerance. Some can be financially comfortable even with high-risk products, while others are not.

Investing in Mutual Funds has now become so simple and convenient that one can consider investing in a reasonable number of funds with hardly any hassle. If you want to seek guidance or need assistance in investing, you can do it through an intermediary such as a distributor, investment advisor, bank, or other financial institution to help you realize your financial goals and risk appetite in order to open your own Demat trading account

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