Now Is Best Time To Save Tax & Earn Returns Too

February 13, 2015 Investment Taxation, Smart Investment Tips 3 min read
Taxation on Income Earned from Share Trading

Now Is Best Time To Save Tax & Earn Returns Too

A New Fund Offer (NFO) is the first-time subscription offer launched by the investment banks or assets management companies.  It is primarily launched in the stock market to raise capital from the public to buy securities such as shares, bonds from the stock market.

Tax saving scheme every stock broker should know

Previously, the first public issue of Mutual Funds was also named IPO, but investors got confused between the IPO of a share and IPO of Mutual Fund. Later, the first public issue of Mutual Fund was named as the New Fund Offer or popularly known as NFO.  It is to be noted that NFO is always issued at a face value unlike the IPO, which can be issued at a premium.

When an Asset Management Company (AMC) plans to offer a new Mutual Fund Scheme, it launches offer document first. Important information to look for in the offer document is the risk related to the investment both general, as well as, specifically related to the scheme.

Best time to Invest in NFO

Many brokerage firms offers investment in mutual funds. Mutual fund provides dividend and capital appreciation to its investors, and at times even bonus is also issued to the investors. Now, a genuine question is that why to invest in Mutual fund when one can individually buy the security. Answer to this confusion is that Mutual Fund offer risk diversification and risk reduction.

Generally, NFOs are offered to the public towards the end of the year. This is done so because every individual needs to invest their money in some good schemes to save tax.  So, we can say that the end of the year (generally 2-3 months before the closing) is the best time to invest your money in NFOs. Investing in the NFOs 2-3 months before the closing serves dual-purpose that is apart from saving taxes you can also strengthen your portfolio.

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Save Tax, Earn Returns too

As we all know, Under Section 80C of the Income Tax Act, tax-saving mutual funds popularly known as equity-linked savings schemes (ELSS), and a few other investments are tax-exempt. Also, the Future returns (capital gains, dividends) from tax-saving equity funds are tax-free when received.

Apart from saving taxes, NFOs can help you earn better returns also. Listed below are some of the NFOs that were launched last year in January.  All these NFOs were from reputed fund houses, and outperformed the benchmark on almost all the occasions.The following funds are still doing well, and the following return is till year 2014.

Mutual Fund Scheme AUM (Rs cr.) 1 mnth 3 mnth 6 mnth 1 yr.
Reliance Tax Saver(ELSS)-Direct (G) 37.93 10.9 16.5 47.6 100.7
SBI Tax Advantage Sr-2 (G) 47.21 10.3 15.3 43.1 84.1
IDBI Equity Advantage -Direct (G) 1.19 10.8 21.1 48.7 72.6
Axis Long Term Equity – Direct (G) 34.87 11.5 15.1 39.0 72.4
IDBI Equity Advantage – Reg (G) 112.18 10.7 20.9 48.2 71.5

ELSS enjoys certain tax advantages over other tax saving options. Some of these advantages are discussed below:

Lower Lock-in Period: When compared to other tax saving investment options, ELSS have relatively lower lock-in-period. Lock-in period forTax Saving Fixed Deposit is for five years while NCS is locked for six years, and PPF investments have the highest lock-in period of fifteen years. Compared to all these ELSS has a lock-in period of only three years. You can ask to your brokerage firms for this service.

Opportunity for Long-Term Capital Gains: ELSS as the name suggests invest in equities, and the fund is managed by professional and experienced fund managers. Therefore, with ELSS there are relatively more possibility of long-term capital gains compared to other passively managed asset classes.

Systematic Savings: Even though we are talking here of NFOs, which require a lump-sum investment, but with ELSS or for subsequent investment we can plan effectively and invest in ELSS through the SIP (Systematic Investments Plans).

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