Types of Mutual Fund schemes

Mutual Fund schemes available are specific to investor needs such as financial position, risk tolerance and return expectations etc.

These can be classified by:

Structure

  1. Open-end Funds

Open-ended funds are MFs which can issue and redeem their shares at any time.

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Investors can conveniently buy and sell units at the existing NAV of the scheme.

There is no fixed maturity of these funds.

Key feature: liquidity of funds.

  1. Close-ended Funds

Close-ended schemes are MFs with a fixed no. of shares (or units) which are issued through a New Fund Offer (NFO).

The fund is open for subscription only during this specified period.

Stock-Market

The fund is then structured, listed and traded on stock exchange. Investors can buy or sell the units on this stock exchange.

Some close-ended funds also give an option of selling back the units to the MF through periodic repurchase at NAV related prices.

They have stipulated maturity period (usually 3 to 15 years).

Key features: fixed no. of units, limited availability.

 

  1. Interval Schemes

Interval schemes combine features of both open-ended and close-ended schemes.

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The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV-related prices.

Key features: features of both open-ended and close-ended schemes.

Investment Objective

  1. Growth or Equity-Oriented Schemes

The aim of growth funds is to provide capital appreciation over the medium to long-term.

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These schemes usually invest majority of their portfolio in equities and so have comparatively high risks.

Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Key features: capital appreciation over the medium to long-term.

It can be further classified into following depending upon objective:

  • Large-Cap Funds: invest in companies from different sectors largely in BSE 100 and BSE 200 Stocks.
  • Mid-Cap Funds: invest in companies from different sectors largely in BSE Mid Cap Stocks.
  • Sector Specific Funds: invest in a particular sector eg. IT.
  • Thematic: invest in various sectors but restricted to specific theme e.g., services, exports, consumerism, infrastructure, etc.
  • Diversified Equity Funds: all non-theme and non-sector funds.
  • Tax Savings Funds (ELSS): investments in these funds are exempt from income tax at the time of investment.
  1. Income or Debt oriented Schemes

The aim of Income Funds is to provide regular and steady income to investors.

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These funds generally invest in fixed income securities such as bonds, corporate debentures and Government securities and money-market instruments. So, the opportunities of capital appreciation get restricted.

These funds do not participate into markets. Hence, there is no market risk or volatility and are less risky compared to equity schemes.

Key features: regular and steady income to investors.

  1. Balanced Funds

The aim of Balanced Funds is to provide both growth and regular income.

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These schemes invest both in equities and fixed income instruments in the proportion indicated in their offer documents.

Balanced funds are ideal for investors looking for income as well as moderate growth.

Key features: capital appreciation and regular income to investors.

  1. Money Market Funds or Liquid Funds

The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income.

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These funds exclusively invest in safer short-term instruments such as Treasury Bills, Certificates of Deposits, Commercial Paper and inter-bank call money, Government Securities, etc.

Fluctuations in returns of these schemes are much less than other funds.

These are appropriate for investors who wish to invest for short periods.

Key features: easy liquidity, preservation of capital and moderate income.

 

  1. Gilt Funds

These funds invest exclusively in Government Securities.

  1. Fund of Funds Schemes

Fund of Funds invests in other MF schemes.

Such schemes can help investors reduce their chances of selecting a wrong MF.

  1. Gold Exchange Traded Funds

It is an open-ended Exchange Traded Fund which provides return that is in line with the return on investment in physical gold.

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  1. Floating Rate Funds

These are open-ended income schemes which invest equally in floating rate debt instruments and fixed rate debt instruments.

Other Schemes

  1. Tax Saving Schemes or Equity linked Savings Schemes (ELSS)

Investments in these funds are exempt from income tax at the time of investment upto Rs. 1,50,000 per annum under Section 80C.

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ELSS have a lock in period of 3 years.

  1. Index Schemes

Index schemes replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc.

  1. Sectoral Schemes

Sectoral Funds are those which invest exclusively in a specified sector(s) such as FMCG, IT, Pharmaceuticals, Infrastructure, petroleum stocks, etc.

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While these funds may give higher returns, they are more risky compared to diversified funds as their portfolio is restricted to the specific sectors.

  1. Load or No-Load Funds

A load fund is one that charges a percentage of NAV for exit ie.

A charge is payable each time one sells units in the fund.

This charge is used by the MF for marketing and distribution expenses.

  1. Dividend Payout Schemes

As and when MF companies make profits, part of the money is distributed to the investors by way of dividends.

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  1. Dividend Reinvestment Schemes

This is similar to the previous scheme.

However, the dividend declared is re-invested in the same fund on the same day’s NAV.

 For more information please visit http://www.fortunawealth.in

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Tax saving: Section 80C

Section 80C is the most popular tax saving option. The maximum deduction allowed is of Rs 1,50,000. It includes:

  1. Employee Provident Fund (EPF)

EPF is a savings scheme for retirement for all salaried employees. You receive compounded tax-free interest on the amount.

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You and your employer contribute equally towards this provident fund. Employer’s contribution is tax exempt and your contribution is claimed in Section 80C investments. You can also increase your contribution through voluntary contributions (VPF).

  1. Public Provident Fund (PPF)

PPF is a popular long-term investment option backed by Government of India which provides tax-free returns. Interest is compounded annually and it has a maturity period of 15 years.

Piggy Bank savings

The minimum annual investment is Rs. 500 and the maximum annual investment allowed is Rs 1,50,000.

  1. Principal repayment of housing loan

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Principal repayment of loan taken for buying or constructing a residential house property is also eligible in Section 80C.

  1. Stamp duty and registration charges for house

Stamp duty, registration fees and other expenses while buying a house can be claimed as deduction under section 80C in the year of purchase of the house.

  1. Life insurance premium

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All life insurance premium payments including Unit Linked Insurance Plan (ULIPS) for self, spouse and children are eligible for tax benefits under section 80C.

  1. 5 year tax saving Fixed Deposit (FD)

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Tax saving Fixed Deposit (FD) with bank or post office is eligible for section 80C deduction. These deposits have a mandatory lock in period of 5 years.

  1. Tax saving mutual fund Equity Linked Saving Investments (ELSS)

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Investment in Equity Linked Savings Scheme (ELSS) mutual funds is eligible for deduction under section 80C. These mutual funds have lock in period of 3 years.

  1. National Savings Certificate (NSC)

National Savings Certificate (NSC) is an investment which can be purchased from designated post office. It has a maturity period of 5 to 10 years. Interest earned is taxable and is compounded annually. However, if the accrued interest is reinvested it qualifies for deduction under Section 80C.

  1. Contribution to Sukanya Samriddhi Account

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Sukanya Samriddhi Account is a special account for a girl child. Parents can deposit minimum Rs. 1000 to maximum Rs.150000 to this account. The interest earned is compounded annually and is fully exempt from tax.

  1. Tuition fees for children’s education

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A tuition fee paid for any two children is eligible for deduction, which covers any school, college, university or other educational institution in India.

  1. Contribution to certain pension funds

Retirement plan

Investment in certain pension funds is eligible for deductions under section 80 C.

For more information please visit http://www.fortunawealth.in

9 Tax saving tips

 

At the end of every financial year most individuals seek options to minimise taxes.  Here are few tax saving tips:

1. Avoid the last minute rush

Due to various reasons, many of us keep postponing our tax planning and do it in the last few months of the financial year. In this last minute rush, you might not choose the right tax saving scheme/investment.


In fact the right time to do the tax planning is the beginning of the financial year.

2. Salary Restructuring

Restructuring of salary (permitted in few Companies) includes restructuring of few components of the salary which could reduce your tax liability.

Salary

Perks and expenses such as medical allowance, transport allowance, education allowance, uniform expenses (if any), and telephone expenses can be included as part of the salary.

Bills of the actual expenses incurred for these allowances need to be submitted.

You can also opt for food coupons instead of lunch allowances.

3. House Rent Allowance (HRA)

If you reside in a rented house, you can claim HRA, which could be partially or completely exempt from taxes.  

House rent expenses are deducted from the gross taxable income.

Rent


The deduction available is the minimum of the following amounts:

  • Actual HRA received
  • 50% of [Basic salary + DA] for those living in metro cities (40% for non-metros)
  • Actual rent paid less 10% of salary
  1. Section 80C and other deductions

 

 

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  1. Leave Travel Allowance (LTA) and Medical Expense

Tax exemption on LTA can be claimed when you apply for leave from your company for travel and have an actual journey.

Only the cost of travel for the trip is included in LTA. Hotel accommodation, food, etc. cannot be claimed for this exemption.

LTA exemption is limited to two times in a block of 4 years.

Mediclaim

Other prominent exemption is medical expenses incurred by self and his/her family in a financial year.

This implies you do not have to pay tax on the amount of medical bills submitted in a financial year.

You can claim tax exemption only up to Rs.15,000 per year.

  1. Tax planning as per financial goals

Identifying your financial needs/goals is important.

Your financial goals could be your children’s higher education, buying a home, retirement planning or buying a car.

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Tax investment planning can be done in a manner that aligns with your financial goals. This would mean your tax investments can provide tax relief as wells as help you to achieve your future financial requirements.

  1. Understanding future commitments in tax saving schemes

Before choosing a tax saving scheme, understand your future financial commitments.

Tax saving options like NSC and Mutual fund tax saving (ELSS) need only one time investment. However, PPF  and life insurance require periodical investments year after year.

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You need to check if you will be able to meet the future commitments at ease, if you need such a future commitment, if you can commit for periodical future payments, etc.

If there is a change in law, you may not get any tax exemption for your future payment. so, you need to consider if you want to buy the scheme irrespective of tax benefit for future.

  1. Income changes- Redo your tax plan

If you change your job or there are any changes in your income, you need to change your tax planning accordingly.

  1. On time tax declarations

One of the most vital tips for tax saving is timely tax declaration.

Employers need to pay advance tax every quarter. Therefore, they deduct TDS every month from your salary.

If the planned tax saving, investment and expenses of the year is not declared, the projected tax will be higher. The employer would deduct TDS according to this projection.

Income_tax_declaration

While filing your income tax return, you can claim a refund for these extra taxes paid. However, to avoid tax deduction, it is always better to submit a tax declaration to your employer at the beginning of the year.

For more information please visit http://www.fortunawealth.in