ELSS Vs. NPS: 26 Differences, Features, Tax Benefits

With financial year coming to end, many individuals must be rushing to invest money in order to get tax benefits under the new Section 80C of Income Tax Act 1961.

Everyone wants to gain as much as return possible through the investments made as all types of investments made to get section 80C benefits has a mandatory lock-in period which is varying. However with range of investment options available in the market; where to invest is the common question amongst tax payers.

There are broadly two categories of investment instruments:

The first option is highly recommended for conservative investors who are ready to earn small but guaranteed returns whereas the second option is for people who are ready to take risk their money with an objective of earning high return along with tax benefits.

In this article we’ll discuss the differences between Equity Linked Savings Scheme (ELSS) and National Pension Scheme (NPS) with both having risks associated due to the equity exposure.

While ELSS has been a favorite amongst investors because of highest return in a short period of time, since it has lock-in period of just 3 years with an option to continue further in the same fund. However recently, NPS has also started gaining interest amongst long term investors wanting to safeguard financials during retirement as portion of money is invested in equity, although small, and what option they really choose.

Following table shows the feature comparison of NPS and ELSS:

FeatureNational Pension System (NPS)Equity Linked Savings Scheme (ELSS)
Type of schemePension schemeMutual fund scheme
Primary objectiveProviding security and pension to all Indians after retirementSave tax
Who is the sponsorer?GovernmentMutual fund houses
Section 80C BenefitYesYes
Lock-in PeriodTill retirement. i.e. until investor reaches 60 years of age3 Years
Amount of tax deduction that can be claimed1.5 Lacs1.5 Lacs
Tax TreatmentEET (Exemption on investment, Exemption on return, Taxation on redemption)EEE (Exemption on investment, return, and redemption)
Premature withdrawal possible?Yes. Only upto 25% and only for certain purpose and provided you purchase annuityNo
How many times money can be withdrawn partially?3 times during the tenureWithdrawal not allowed
Additional tax benefit?Yes. Rs. 50000 under Section 80CCD(1B)No
Are the returns guaranteed?NoNo
Are the returns tax free?Only 40% of corpus is tax-freeNo. Entire corpus is tax-free as it is a long term capital gain.
How to invest?Through select fund housesThrough multiple fund houses
Minimum contributionRs. 6000 per year in Tier-I and Rs. 2000 at the end of year in Tier-IIRs. 500 as a lump-sum in a year or every month as SIP
Withdrawn money can be used anywhere?No. 40% should be used to buy annuity, which becomes pension after the retirement and remaining 20% to buy an annuity or withdrawn after paying taxes. 40% of the corpus is tax-free.Yes
Who can invest?Indian citizens above the age of 18 yearsIndian citizens above the age of 18 years
Can NRI invest?Yes. But is useful if NRI settles in India after retirement.Yes
Historically who has offered highest returnAverage 14%Depends on the scheme but average 15%-18%
Who manages the fund?7 pension fund managersFund managers of respective fund house
Best recommended for?RetirementShort term growth
Can you hold investment after lock-in period?Yes. But only Yes
Where is the money invested?Max 50% in equity. And remaining in corporate debt funds (bonds) or government securities.Minimum 80% is invested in equity and remaining in in debt, money market instruments or cash
Can you shift from one fund to another?Yes. But only once a year.No
Can a investor choose where his/her money is invested?YesNo
Can an investor invest in multiple funds?No. Only one NPS account can be opened by a subscriberYes
Does employer also contribute?Yes, under Tier-I accountNo

Monthly Investment with Rs. 56 Lakhs on Maturity

The golden rule for a successful, secure, and growth oriented financial future is consistent investment in best products for a long term and depending on the risk appetite.

Now investments can be made in zero risk or high/medium/low risk avenues. And both have its own advantages and disadvantages. Risk and returns are the top features to be taken into account while investing. Risk here means the money is not guaranteed to provide you positive returns.

Zero risk, as the name suggests, carries absolutely no risk but gives lower returns whereas high risk investment products has risk associated with them but claims to offer high return on maturity. In case of no risk instruments, your invested money is absolutely safe and you are assured of returns. In fact, you can easily estimate your returns since the interest rates are fixed. Although in some products, the rates keep on varying but estimates are easy to calculate. However in case of risky products, the returns are not easy to estimate. This is because depending on the product, the returns fluctuate.

Now depending on the risk appetite of the investors, money can be put in either of the above mentioned categories or mix of both as follows:

Risk Free: Best recommended for conservative investors wanting guaranteed returns. Public provident fund, Sukanya Samriddhi Yojana, Fixed Deposit are few examples of safe investment options.

Investment ProductInvestment Tenure (Years)Current Interest RateMonthly Investment Amount (Rs.)Total Invested Amount (Rs.)Return Amount (Rs.)
Sukanya Samriddhi Yojana148.3%10,00016,80,00056,18,575
Public Provident Fund157.8%10,00018,00,00034,58,202
Fixed Deposit 56.5%Lump sum investment for 5 years2,40,0003,40,563
Recurring Deposit37.5%10,0003,60,0004,04,828

Risky Assets: This category of investment Equities, Mutual Fund, Company Fixed Deposit, Non-convertible debentures, (NCD) and Bonds, Real estate before launch.

Investment ProductInvestment Tenure (Years)Expected Annual Returns (%)Monthly Investment Amount (Rs)Total Invested Amount (Rs)Expected Return Amount (Rs)
Equity Linked Savings Schemes315%10,0003,60,0004,56,794
Mutual Fund515%10,0006,00,0009,00,000
Equities5-Bought 1000 RIL shares in Jan'13 & sold in Jan'184,40,0009,50,000

In the above table, for investments associated with risk, the estimated returns are calculated on the basis of historic returns of each product or fund or equities. And there is no guarantee that the investor will earn similar returns in the future.

Calculating equity returns is very difficult as it depends on which company’s share purchased, quantity bought, price at the time of buying, and at the time of selling. So someone who had purchased 1000 RIL shares in January 2013 at the price of Rs. 440/share (i.e. total investment of Rs. 4, 40,000) and sold all 1000 shares in January 2018 with current market price of around Rs. 940/share, would have earned Rs. 9, 40,000. This is almost a 113% increase in 5 years which beats any other investment products (except real estate). Investing in equity can be done by putting all eggs in one basket or eggs in different baskets. It’s all about timing the market, at the right time, and at a right price.

Similarly returns from mutual funds depend on invested amount and the fund. Every fund gives varying return depending on the fund performance over a period of time.

Always remember to invest depending on the risk appetite and never get attracted towards quick get rich money making schemes/products. There is no investment product which will make you enormous amount of money in short span of time. It takes years of efforts to generate wealth ethically.

Zero Risk Investments 2018: Invest 500 Monthly, Earn 280000 on Maturity

Do you know that investing even a smaller amount every month for a certain period can grow your wealth substantially?

In this article, we’ll discuss about how your wealth will grow if you invest 500 every month in various zero investment products and the returns at the end of maturity.

Investment products can be classified broadly into two categories:

  • No risk or zero risk – This includes National Savings Certificate, Sukanya Samriddhi Yojana, Public Provident Fund, Fixed Deposit, etc.
  • Moderate to high risk – This includes mutual fund, stocks, corporate FDs, etc. Check out such high risk-high return investment products.

But for poor earning investors with no risk appetite, the best options to invest 500 per month are Sukanya Samriddhi, PPF, FD, NSC.

Public Provident Fund:

The target audiences for this favorite investment product of Indians are non-employed individuals. However anyone can contribute money to PPF which has a pre-fixed tenure of 15 years and current interest rate offered is 7.80% (October 2017-December2017) and the rates are revised every quarter. The minimum amount required to invest is also small i.e. Rs. 500 and maximum you can invest is Rs. 1, 50,000 if section 80C deduction benefit is the aim. Most importantly the entire interest earned is also exempt from tax.

So investing Rs. 500 monthly i.e. Rs. 6,000 per year @interest rate of 7.8% for a period of 15 years will fetch a return of Rs. 1, 72,000. The returns are 100% guaranteed (and you would never be at loss) although there would be fluctuations due to interest rate revision.

Sukanya Samriddhi Yojana:

Securing the future of girl child is the objective of this most loved investment product by the parents having daughters. The interest rate offered is 8.3%. Parents have to invest minimum Rs. 1000 yearly in Sukanya Samriddhi Account (SSA) for a period of 14 years. However the scheme matures after 21 years. So anyone investing Rs. 6000 every year will earn maturity sum of above Rs. 2, 80,000.

A investment of Rs. 1000 in SSA will yield a return of around Rs. 6 lakh. You can open account in SSA only for a girl child who is less than 10 years of age at the time of opening the account.

Fixed Deposit:

Another guaranteed return investment product is fixed deposit which can be opened with most of the banks in India such as ICICI, SBI, Axis, HDFC and others, government post offices and other financial institutions. Interest rates, tenure and minimum deposit differs with each bank. However the minimum deposit is greater than Rs. 500 for most of the banks. But bank like SBI requires a minimum amount of Rs. 500 and tenure of 5 years. So a monthly investment of INR 500 (i.e. Rs. 6,000 every year i.e. a total investment of Rs. 72,000) for a period of 5 years will give a return of above Rs. 99, 000.

National Savings Certificate:

Investor can buy NSC for a fixed amount of Rs. 100, 500, 1000, 5000 or 10000 and multiple certificates can be purchased. If someone buys Rs. 500 certificate then after 5 years the maturity value would be Rs. 733 @ an interest rate of 7.8%. The biggest advantage of NSC is that the interest rate is fixed, so investor knows the maturity amount he/she would be receiving.

Recurring Deposit:

This is another excellent no risk investment product especially when deposit amount is on a lower side. Investor needs to deposit minimum monthly amount which is typically Rs. 500. The interest rate and tenure varies with each financial institution. So a Rs. 500 monthly investment for a tenure of 2 years will yield return of Rs. 12984 at an interest of 7.5% compounded quarterly. Similar to NSC, the interest does not change periodically. So investor beforehand knows the maturity value.

Here’s the summary table showing returns from Rs. 500 monthly investment:

Investment ProductInvestment Tenure (Years)Current Interest RateTotal Invested AmountReturn Amount
Sukanya Samriddhi Yojana148.3%84000280000
Public Provident Fund157.8%72000172000
Fixed Deposit56.5%7200099000
Recurring Deposit27.5%1200012984
National Savings Certificate57.8%500733

Although the returns look smaller but for a poor income earning person, zero risk investment avenues are best recommended as their money is safe. Higher the sum invested, higher would be the returns. There are other no risk avenues as well, the returns from these five products are the best.

Remember it takes a disciplined approach to earn good return and reach your financial objective which could be child’s marriage or education, buying car or house, and others.

Invest Rs. 500 Monthly, Earn Rs. 2,71,061 on Maturity: 100% Safe

Investing is a key to safeguard your financial future. No longer can you rely on interest earned on savings account to meet the future expenses. Especially for salaried individuals it is very essential to invest money regularly because of uncertainty in the job market coupled with the rising inflation.

Whether the amount is small or large, regular investment for a long term is the best recommended solution to generate sufficient corpus that can take care of your daily needs during the retirement period or other future expenses such as child’s marriage, higher education, medical expenses, and others.

In this article we will consider investing Rs. 500 every month (i.e. Rs. 6, 000 annually) and the estimated returns. Such investments are best recommended for conservative investors who do not want to take risk with their hard earned money.

There are many options where an individual can put their money giving 100% assured returns i.e. zero risk products. The only drawback of such investment is that the returns are small. Safety of money is of high importance.
Instruments falling under zero risk category are – public provident fund (PPF), bank fixed deposit (FD), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), and few others.

Here’s the table showing the returns (post maturity) after investing Rs. 500 every month i.e. Rs. 6, 000 (yearly):

Investment ProductInterest RateStandard Tenure (In Years)Invested Amount (In Rs.)Expected Return/Maturity Amount (In Rs.)
Sukanya Samriddhi Yojana8.3%1484, 0002, 71, 061
Bank Fixed Deposit10.25%1060, 0001, 98,096
Tax Saving FD6.9%530, 00040, 350
Public Provident Fund8.1%1590, 0001, 77,484
National Savings Certificate8.4%56, 0009, 053
Recurring Deposit6.5%1060, 00084, 494
Senior Citizen Savings Scheme (SCSS)8.6%530, 00042, 900

As you can see above, Sukanya Samriddhi Yojana (SSY) is the best investment option especially when you have a girl child. You need to invest only for 14 years and the returns are very significant. Read more on SSY here.

The tenure for few products is varying and its upto the investor to decide for what period investment should be done. For e.g. bank fixed deposit can be opened for minimum 7 days and each bank offers different interest rate, interest rate on government run schemes such as PPF & SSY keep on changing periodically, recurring deposit can be done for 1 year as well and so on. But as mentioned above, long term investment in low risk products will only provide higher return. Although the returns are less compared to high risk high return products.

Also, the interest rates for the above listed risk-free investments keep on changing and also vary with each entity.

There are other products for no risk taking investors such as gold, silver, diamond, tax-free bonds but the investment amount required is significant. But the ones listed above are the highly recommended and used by the low income investors.

Invest Rs.3000 per Month & Earn 16 Lakhs on Maturity

Investment experts always recommend to start investing early in life no matter what the amount is – small or large. The golden rule of investing remains the same. That is – invest small/large but do it regularly for a long term.

Not everyone has financial capacity to invest large sum of money. So in this article, we’ll consider a small amount of Rs. 3000 invested every month and the expected returns from various investment products available in India.

There are two types of investors:

  • Zero or no risk takers
  • High/moderate risk takers

We’ll consider each of the above type and calculate estimated returns in various investment products:

Zero Risk Investments:

There are many instruments falling into this category which also offer decent returns.

  • Public Provident Fund (PPF): Rs. 3000 monthly investment in PPF for the standard period of 15 years will fetch return income of around Rs. 10, 80,000 (Rs. 10 Lakh, 80 Thousand). Here we have assumed average interest rate of 8.1%.
  • Sukanya Samriddhi Yojana: This scheme is especially for the girl child. A yearly investment of Rs. 36, 000 per annum (i.e. Rs. 3000 per month) for the tenure of mandatory 14 years, will fetch a return of Rs. 16, 61,207 (Over 16 Lakh) after 21 years @ interest rate of 8.2%. Read more on SSA.
  • Fixed Deposit: Investing in bank fixed deposit offers safety although the returns are low compared to other zero risk investment instruments. If you invest Rs. 3000 per month for a period of 1 year; then the return amount would be Rs. 38, 700.
  • National Pension System (NPS): This is another guaranteed return investment product offering interest of around 8%. If three thousand is invested for 25 years i.e. Rs. 9, 00,000; then the interest earned on the investment would be Rs. 19, 47, 558. Subscriber would receive monthly pension of Rs. 6, 700 after reaching the age of 60 years.
  • National Savings Certificate: If you invest Rs. 36, 000 lump sum for the lock-in period of 5 year, then the returns would be Rs. 53, 033. The current interest rate is 7.9%.

With above mentioned risk free products, the returns are guaranteed. And your money is completely safe.

High/Moderate Risk, High Returns:

Mutual funds: A monthly regular SIP of Rs. 3000 after a period of 5 years, will earn return amount of Rs. 2, 69,045. Here the average return considered is 12%. If we assume return of 15%; then the maturity value would be Rs. 8, 35,971 after a period of 10 years.

Here are the top rated mutual funds of 2017 with the returns they’ve given in the last 1 year:

Fund Name1 Year Return (%)
ICICI Pru Top 100 Fund (G)29.6
ICICI Pru Top 100 Fund - Direct (G)31.1
SBI Blue Chip Fund (G)20.8
SBI Blue Chip Fund - Direct (G)22.1
Kotak Select Focus Fund - Direct (G)34.9
Kotak Select Focus Fund - Regular (G)33.3

All of the above mentioned funds have been ranked No. 1 by CRISIL.

ELSS: The most favorite tax saving instrument preferred especially by salaried individuals, of course, who are ready to take a risk, is equity linked savings scheme. With a lock-in period of just 3 years, the returns are spectacular. So Rs. 36, 000 invested for a period of 3 year in Reliance Tax Saver (ELSS) Fund (G) i.e. investment of Rs. 1, 08, 000; then the expected returns after 3 year would be Rs. 1, 59, 103. Assuming 21% average annualized returns. There are many high return ELSS funds in the market.

Direct equity: Either you go SIP way or invest directly in equity either yourself or through the advice of the broker. Equities have given highest return, provided you regularly invested for a long term horizon.

Take example of State Bank of India. If you had bought SBI stock worth Rs. 36, 000 (assuming Rs. 3000 invested in phases) in May-2016 when the stock price was hovering at around Rs. 165; then the return in April-2107 would would be around Rs. 61, 000. Which is the nearly 75% gain. The current stock price in April-2017 is Rs. 286. So if you spread portfolio in the best expert recommended stocks or any other relevant sources, then in the long run the returns is most likely to beat other options. But remember that, stock market investments are highly risky, as market conditions keep on changing.

So here’s the summary showing the returns you can expect after investing Rs. 3000 every month for the mandatory tenure or for long term in the above listed products.

Investment ProductReturn on Maturity/Interest Income Earned
Sukanya Samriddhi YojanaRs. 16, 61,207
Public Provident FundRs. 10, 80,000
National Savings CertificateRs. 53, 033
National Pension SystemRs. 19, 47, 558
Bank Fixed DepositRs. 38,700
Mutual FundRs. 8, 35,971
ELSSRs. 1, 59, 103
EquitiesRs. 61, 000

There are many investment options in India, however the ones mentioned in this article are most preferred and widely recommended by the experts. Real estate is one such investment which in comparison to any investment instrument offers, the highest return. However investing in real estate requires lot of money. So this is the reason, it is not covered in this article.

ELSS Vs. PPF, NSC, Tax Saving FD – Differences

Every year tax planning season begins in January-March. It is the time of the year when investors put their hard earned in investment instruments to save taxes. However many individuals make a mistake of keeping their objective to just save taxes and end up investing in products that do not generate enough wealth in the long run. This usually happens when financial goals are not set.

For those who want to save taxes and at the same time create wealth there are multiple options available in the market. And ELSS is one excellent product which stands out in comparison to other tax savers.

Here’s the table showing comparison of traditional tax saving instruments with ELSS on the basis of following key parameters:

  • Tenure of the product
  • Minimum investment amount
  • Risk involved
  • Most importantly the potential returns
Investment ProductLock-in Period (in Years)Returns CAGR per annumTax Status of ReturnsRiskPartial Withdrawal
Public Provident Fund150.081Tax FreeZeroPossible
National Savings Certificate50.081TaxableZeroNot Possible
5-Year tax saving bank deposit50.07TaxableZeroNot Possible
Equity Linked Savings Scheme319.68**Tax FreeHighNot Possible

The above returns from ELSS are as on November 2016.

The only risks associated with ELSS are:

  • Since the investments are market linked, the risks are higher as returns are not guaranteed. So past performance may not continue in the future. However it depends on the fund invested in. Check out zero risk investment options in India.
  • It carries a lock-in period of 3 years, so there is no way out to exit i.e. withdraw money from the fund if losses are predictable. Although the lock-in period is lowest amongst other tax saving investment products.
  • The diversification offered by these funds is across sectors and market capitalization. This allows your hard earned invested money to greatly benefit from the stock markets in terms of returns.

In addition to the above comparison table, ELSS offers multiple advantages over other tax savings instruments as follows:

Free insurance cover: Many ELSS funds free life cover to the investors. The premium cost is bourne by the MF company. And in the event of death of the investor, the insurance cover is used to pay the SIP amount.

Read about benefits of ELSS.

No cap on investment amount: Unlike few other tax saving instruments there is no limit on the maximum amount that can be invested in ELSS.

Ease of performance tracking: Every month the AMC releases the fund performance. So investor can track the minute details of how their hard earned money is invested and the returns generated at a regular interval. This helps investors to regularly track the list and type of stocks their money is invested in, sectors, and exposure in debt and cash.

Tax Payers Love these 10 Benefits of ELSS – Returns, Lock-In, Tax Free & more

In India, there are bunch of financial instruments in which money can be parked to claim tax deductions under section of 80C of the Income tax act. Although the advantages of investing for a long term cannot be emphasized more, there is an investment gem for tax payers – Equity Linked Savings Scheme – ELSS.

ELSS stands out in comparison to other tax saving instruments and is recommended for everyone. As the name suggests, ELSS is the only tax saving option with significant equity exposure.

So what are the benefits of ELSS funds?

Let’s get to know:

Highest Returns: ELSS is one of the very few investment products promises to beat the inflation, when invested in funds with a proven track record. Few of the top CRISIL ranked funds which has given highest returns are:

Name of Fund1 Year (% Return)2 Year (% Return)3 Year (% Return)CRISIL Ranking as on Dec-2016
(Source: CRISIL Website)
DSP Black Rock Tax Saver Fund (G)36.211.926.61
Birla Sun Life Tax Plan (G)
Birla SL Tax Relief 96 (G)22.17.725.52
Kotak Tax Saver - Regular (G)32.9825.62
L&T Tax Advantage (G)31.99.623.32
Sundaram Tax Saver (G)35.49.723.83
Reliance Tax Saver (ELSS) (G)31.74.5303
Franklin India Tax Shield (G)22.86.8243
Axis Long Term Equity Fund (G)

The 3 year return on all ELSS ranges from 23% to 26.5% as on 10th Feb 2017.

This clearly proves that even the average performing equity linked savings scheme fund has tremendous potential to grow your wealth which is higher than any of the guaranteed return tax saving options available in the market.  Check out zero risk investments in India.

Over years equity as an asset class has proven to be beat the inflation.

Dual benefits – tax saving and grow money: ELSS is an open ended equity mutual fund offering twin advantages – saving tax and long term wealth creation.

Shortest lock-in period: ELSS has a lock-in period of 3 years, which is lowest in comparison to other tax savings instruments.

Fundamentally, this 3 year period has advantage to the involved entities i.e. investor and fund manager. Both of them have necessary time to counter market volatility by assessing the risk. Since ELSS invests most of the corpus in equities, the investor has an edge to generate higher returns. And this benefit has been proven to beat inflation as shown in the above table. Note that 3 years starts from the day respective units are allotted and not from the day you start making investment.

So if anyone is planning for retirement or create wealth for child’s education 3 years ahead, then ELSS is worth recommended.

Read about high risk – high return investments in India.

Tax Saving: Investments made through ELSS funds qualify for tax deduction under section 80C of income tax act. At the highest tax bracket, Rs. 46,350 can be saved when investor plans to maximize the section 80C benefit.

Multiple funds to choose from: There are multiple ELSS funds available in the market. So investor gets multiple funds to compare and invest.

Ease of investment: Investor gets two options to invest in ELSS – lumpsum or SIP. Although lumpsum is not recommended as there is no option for purchase cost averaging and beat volatility. However SIP mode i.e. at a regular interval helps in disciplined investment approach. And most importantly risk can be tackled as you can stop yourself from entering into the downward moving market at the wrong time.

100% tax free returns: There are many tax free investment products whose returns are taxable. But this is not the case with ELSS, as the dividends and long term capital gain is completely tax free.

Free insurance cover: Many mutual funds companies have been recently launching schemes offering free life insurance cover with no additional cost. Premium is bourne by the MF company. The cover normally a certain % of the SIP account. In an event of demise of the investor, the insurance cover shall be used to pay the SIP amount. However there is a cap on insurance cover which is less than 20 lacs. Although small, insurance linked funds are worth to look at, if you do not have insurance policy.

No cap on investment amount: You can invest in ELSS through lump sum or SIP returns. And there is no ceiling on the upper limit on the investment amount. It basically means that an individual can invest beyond the Rs. 1, 50,000 limit.

Ease of performance tracking: Every month the AMC releases the portfolio in which the fund has invested. This helps investors to regularly track the list and type of stocks their money is invested in, sectors, and exposure in debt and cash.

Although appetite risk is a crucial factor separating ELSS investors. According to Association of Mutual Funds on India (AMFI), MF industry has been adding average 6.19 lacs SIP accounts each month; which is a huge number making ELSS a definite addition into the investors kitty.

Switch ELSS Fund, Direct Equity Vs. Mutual Fund, Balanced Fund Importance & More

Here are few questions commonly asked by mutual fund investors.

Can you switch from one ELSS fund to another with same or different fund house?

Switching ELSS is not allowed to different fund house. However if you want to move from one ELSS fund to another within the same fund then you will have to stop making contribution in the existing fund and start new investment in another.

Also be noted that ELSS funds have a lock-in period of 3 years.

If I plan to invest in multiple SIPs for a longer duration, what date should I start putting money?

There is no golden rule for investing on any day or date to start SIP. There is no return differentiation as in the long run, returns won’t change drastically if they are invested in a same month but at different date. But experts always recommend to invest in the first week of any given month.

Why investing through mutual fund is recommended over direct investment in equity?

Although anyone has an option to investing in equity directly, but investing in it through mutual fund is recommended especially to those who are not enough knowledgable or have time to track market. Reasons are fund managers and their team who manages respective funds are highly skilled and knowledgable. Decisions on what to invest in, when and how much to invest is taken by these managers and their team. It is their job. Investors only role is to go through all the terms and conditions of the fund and select the fund house and put money. Not everyone has time and especially knowledge of selecting best stocks from plethora of options, analyse, when to invest and exit, keep track of economy, market trends to name a few. So for such individuals investing through MF is worth recommended. Basically MF route minimizes losses, as careful evaluation is done before investing. And that’s what makes them easiest and safest way to invest in equity.

Why balanced funds should not be ignored over tax saving funds?

Compared to tax savings ELSS funds, balanced fund offers lower returns. However the risks involved are lesser in case of balanced fund also called as hybrid fund. The reason they are called hybrid is because investment is done in equity and debt in a certain ratio through asset rebalance, which is not possible in case of pure equity funds. The fall in market will not lead to higher losses in case of balanced fund. So for low risk investors, balanced funds offer higher returns compared to traditional options such as PPF, LIC, etc. but lesser returns compared to equity oriented funds which involves higher risk.

When should you invest in short term debt fund?

If your investment horizon is very short e.g. 3 months, then you should opt for short term funds. Other option is liquid fund which is tax efficient. But both these avenues involve risk. So in such case, bank fixed deposit is also a recommended solution.

Is there any mutual fund with zero risk involved?

Answer is NO. Every MF carries risk. So if someone who wants to play completely safe bet then public provident fund, bank fixed deposit, recurring deposit, Sukanya Samriddhi yojana, etc. are worth recommended. Check out zero risk, high return investment options in India.

Investment of Rs.5000 in Mutual Fund for 25 Years Aged Individual

Mutual fund investments has become popular as risk appetite of individuals have gone up. Here are few queries asked the readers of this blog.

How should an individual aged 25 years and earning Rs. 25, 000 per month invest in mutual fund?

25 years is an excellent age to enter investing in mutual fund through systematic investment plan. If such an individual is ready to invest Rs. 5000 every month in SIP, then long term systematic investing through SIP is recommended. Once such an individual arrives at the time frame for which regular investments are planned, then he/she should assess the risk tolerance and decide on an appropriate asset allocation which can be a mix of equity and fixed income. Then select the funds to start build a portfolio.

Top rated (Rank-1) CRISIL funds for the year 2017 are:

Large Cap1 Year % Returns as on 12Jan2017Small & Mid Cap1 Year % Returns as on 12Jan2017
DSP BR Focus 25 Fund (G)15.4DSP-BR Micro Cap Fund - RP (G)20.5
Kotak Select Focus Fund - Regular (G)18.3Franklin (I) Smaller Cos (G)18.3
SBI Blue Chip Fund (G)12.8Mirae Emerging Bluechip Fund (G)21.2

Finally, review the performance of these funds at least every year and accordingly make changes or rebalance your portfolio to maximize the gains.

What if someone has invested in an ELSS in the year 2015 for 2 years and wants to redeem or take money out?

Equity linked savings scheme or ELSS have a lock-in period of 3 years. It means that unless your investments complete three years, you cannot redeem them.

If someone has Rs 1 Lac and wants to invest for child’s future in mutual fund, how can he go about it?

A sizeable corpus can be created for the child’s future by investing regularly through SIPs in mutual funds. Consider long term goal of minimum 10 years and start investing in the following top rated diversified equity funds by CRISIL (Rank-1):

Diversified Equity1 Year % Returns as on 12Jan2017
Birla SL Advantage Fund (G) 18.5
Birla Sun Life Equity Fund (G)26.1
Birla SL India GenNext (G) 16.2
Principal Emerging Bluechip(G)20.4
Sundaram Rural India Fund (G)31.5

Assuming 1 Lac is deposited in bank, SIP can be started in any of the above two funds for a monthly sum for long term. However it is the duty of the investor to track the performance of the invested fund regularly and assess the growth and realign whether it is moving in the direction of achieving the set financial goal.

Someone who is aged 35 years and has just started investing in mutual funds through SIP in the funds SBI bluechip equity, Birla sunlife top 100, Mirae asset emerging bluechip and BNP Paribas mid cap. Has the investor selected best funds under his/her portfolio or another fund should be invested in?

The fund selection looks good and instead of adding new fund, he/she should increase the allocation to any of the existing investments. This is because, the performance of these funds has been good. Here’s the table showing 1, 3, & 5 year performance.

Name of Fund1 Year3 Year5 Year
HDFC Equity6.3915.7416.06
Mirae Asset India Opportunities7.0518.9219.07
HDFC Top 2008.113.914.63

If this investor still wants to put money in mutual fund, then he/she can try opting for ELSS which carries a lock in period of 3 years.

Zero Risk, High Return Investments for Low Income Earners in India

Intelligent investments can make anyone’s wealth to grow substantially. Although the definition of good wealth is very broad, here, we will define it as anyone who starts investing little money and generates enormous wealth after certain years i.e. the returns are far better than the invested amount.

For individuals who earn less and are sole breadwinner of the family, there is a very limited money to invest as they have to meet demand of various things such as day to day expenses for grocery, food, travelling etc. However investment does not mean an individual should have large amount of money. There are many products for low income earners (or any category of individual) to invest in India requiring less but continuous investment with decent return and that too at an absolutely zero risk.

Broadly we will classify these into two categories:

  1. Guaranteed returns and zero risk
  2. High returns and high risk

Considering conservative nature of such low salaried people, we’ll discuss about no-risk investment products, in this article.

Guaranteed Returns and Zero Risk:

Post office monthly savings scheme: Although it requires good amount of investment but the advantage is that an investor would earn monthly income till the tenure ends. For e.g. if a lower income earner invests Rs. 1, 00,000 in MIS for a tenure of 5 years, then he/she would receive monthly income of Rs. 683 and Rs. 1, 00, 000 as a maturity value. This scheme guarantees return and your money will be always safe. It is ideally suited for retired individuals.

Public Provident Fund: This is the most favorite investment product preferred by most of the Indians. A yearly investment of Rs. 1, 00,000 for the standard tenure of 15 years will earn maturity amount of 29.6 Lakh @ 8.1% interest rate. The minimum amount to be invested is Rs. 500 annually. Read more on personal loan for Rs.5000 earner.

Bank fixed deposit: FD is another safe product for conservative investor. And especially for individuals with low monthly income or self earners who do not want to take risk with their hard earned money, FD is a very good bet. Every bank offers different tenure starting from 7 days, 1 month, and one year as per the bank’s guidelines. If someone has accumulated e.g. Rs. 50, 000 and invests in FD for 1 year; then the maturity value @ 6.5% would be Rs. 53, 250 (compounded annually). Similarly for an investment of Rs. 25, 000; the maturity amount will be Rs. 26, 625. Check out credit card for low salaried individuals.

Sukanya Samriddhi Yojana (SSY): This was launched in January 2015 under the Beti Bachao Beti Padhao mission. Accounts can be opened only in the name of the girl child and is a very good return investment product. If a low income earner, deposits a fixed sum of money every month/year for 14 years (which is the standard tenure), then on maturity (i.e. after 21 years) the returns would be excellent. For e.g. an investment of Rs. 1000 & Rs. 2000 every month for a period of 14 years, the returns @ the current rate of 8.6% would be Rs. 5, 83,944 & Rs. 11, 73,887 respectively.

There is a minimum limit of Rs. 1000 that has to be deposited every year. So higher the amount poor salaried/earning person invests, greater would be returns, which are guaranteed and fixed with no risk at all. Compared to PPF, it gives higher returns and has become favorite since its launch. However account can be opened only for a girl child. Have a look how investing Rs. 50, 000 every year will give return of over 26, 00,000 (26 Lakhs).

National Savings Certificate: Similar to PPF and SSY, NSC also offers decent return @8% compounded every six month. Investing Rs. 1000 per month for a tenure of 5 years, will earn maturity value of Rs. 14, 802.

There are many other investment avenues but the ones listed above are recommended by experts and give higher returns.

As you can see above, all of the zero risk investments products require small amount of money to invest. When people earning less, start saving regularly and invest the same, they can create good corpus in the long run. This can help them at the time of need.