This is a process by whichthe impact of inflation onthe returns generated bydebt funds are reducedbefore the governmenttaxes the returns. Everyyear the governmentpublishes inflation-linked

indexation numbersand investors use thenumber to reducehis/her tax burdenwhich could, post-indexation, be justabout 3-5%. Unknown

to many, if youinvest in a debt

fund now andwithdraw itin April2022, thatis a littleover threeyears, youcould even

enjoy fourindexation

benefits.

These are government-approved equity fundsthat has to invest atleast 65% of its corpusin equities or equivalentinstruments.Government has allowedinvestments of up to

Rs 1.5 lakh in ELSS toremain tax free. Sincethe money is locked-infor three years, the fundmanager enjoys greaterleeway to select andinvest in his/herfavourite stockscompared to other openended equity funds.

Investing for taxadvantage is not theideal strategy to investbut a large number of

Indians take this route,especially during the lastthree months of the financialyear when investments tosave on taxes become almostan urgent affair. Debt fundsalso offer a unique taxadvantage but not manyinvestors know about it.

In equity mutual funds,equity linked savings scheme(ELSS) is the most popular ofthe schemes that comewith some tax sop anda three-year lockin. Debt funds, onthe other hand,come with apost-investment taxadvantage,provided youremaininvested formore thanthreeyears.

NEXT EDITION: In our first edition of the new fiscal, we will tell you some smartmoves to plan your finances through the year and also for the long term.

STEPS TODOWNLOAD ANDSCAN A QR CODE

Download QRcode app onyour phone

Run app andscan the QR code

Your smartphonewill read the code& navigate to thedestination

Scan this QR codeto calculate your tax

liability and how muchyou need to invest to

save tax

Scan this QR codeto look for last

minute options tosave taxes?

Scan this QR code toknow know how a simpledecision of investing in an

SIP can make a hugedifference to your life

PERSONAL TAXES AND INVESTMENTS

HOW INDEXATION CANSAVE SOME TAXES?

SMART INVESTORS’ SMARTMIX: ELSS + INDEXATION

Equity funds with tax sops come with a three-year lock in while investments of over threeyears in debt funds enjoy indexation benefits

— This article has been exclusively created for UTI SWATANTRA

Indexation is the government’s wayof compensating investors for theimpact of inflation that adds up toone’s total return. The governmentpublishes the indexation number

every year and investors canuse the same to calculate theirinflation-adjusted cost ofacquisition. Then this is

deducted from the final selling price ofthe debt fund. The tax is charged on thisbalance. A smart investor could investin the closing months of a fiscal year,

remain invested for a little over three yearsand then withdraw the money during theearly months of the fourth fiscal sinceinvesting. This way he/she could claim fourindexation benefits by investing for much lessthan four years.

The graph above shows the total corpus (in Rs)after 10 years if Rs 1 lakh was invested at the end

of each year starting 2009 in various taxsaving instruments

* Senior Citizen’s Savings Scheme

ELSS

THE ELSS EDGE RS 22 LAKH

RS 16 LAKH

INDEXATION

ILLU

STRA

TION

S:SA

CHIN

VAR

ADKA

R

CASE STUDY

Schubert Mendes replies,

At the outset, it iswonderful that youhave taken your re-

tirement seriously andhave started saving andinvesting towards it.Based on your informa-tion, you are saving Rs15,000 (5,000 x 3) towardsyour retirement goal, andhence have no surplus toinvest to create the cor-pus of Rs 15 lakh to meetwedding expense. The fol-lowing courses of actionare recommended: 1. Review and scale downyour budget of Rs 15 lakh;identify non-essentialitems and try to reduce

costs wherever possible.2. Since your impendingmarriage has now as-sumed priority, you willneed to channelize yourinvestment of the last 20months i.e. 5,000 x 3 x 20= 3 lakhs into a marriagefund and the further SIPinputs towards your wed-ding corpus.

Since you have a 3 - 4year horizon and yourwedding cost is Rs. 15lakhs, I advise you to in-vest in aggressive hybridfunds which provide agood mix of debt and eq-uity. This should be idealto achieve your goal butyou should be comfort-able and understand thevolatility of the equitycomponent of your invest-ment. At an estimatedgrowth rate of 10% thesefunds can sail you throughyour goal. However, makesure that at least 12months prior to the mar-

riage you move your in-vestments to a debt fundto safeguard the returns.Also, after your marriage,you have to immediatelyget back to retirementplanning and other goalsin your new phase of life.

—The author is an independent

financial advisorThis article has been

exclusively created for UTI SWATANTRA

‘AGGRESSIVE HYBRID FUNDS PROVIDE AGOOD MIX OF DEBT AND EQUITY’I'm 26 years old and earn about Rs 20,000 per month. My father is a retiredserviceman, while my mother has two more years to retire. I am investing Rs 5000in three monthly SIPs for the last 20 months to create a retirement corpus. I alsohave an insurance policy of Rs 5 lakh. My other deductions are the monthly utilitybills of Rs 3,000 to 4,000. My short-term target is to save and meet the expenses ofRs 15 lakh for my wedding which is 3-4 years down the line, but I don't have muchsavings for that. Please advise.

— Mayur Menon

Since you have a 3 - 4year horizon andyour wedding cost isRs 15 lakhs, I adviseyou to invest inaggressive hybridfunds which providea good mix of debtand equity

Anup Prabhu Verlekar

For most of us, tax sav-ing is typically the

most important activity asit comes every year. How-ever, our desire to savetax could be channelled tohelp us achieve a long-term goal like building re-tirement corpus. One tax-saving instrument undersection 80C of the IncomeTax Act is equity linkedsavings scheme (ELSS) of

mutual funds. It is an equity diversi-

fied mutual fund schemewith a lock-in of threeyears from the date of in-vestment. After the lock-in ends, the scheme turnsinto an open-endedscheme and the funds areallowed to be withdrawn.Since the scheme is equi-ty linked, the returns willbe in range of 10-12%(long-term returns onsensex is around 16-17%)whereas for PPF, the rateis decided every quarterand it depends on theyield of government bondbut has considered 8%average.

However, selecting theright ELSS may not be aneasy task. Some ELSS mayhave more exposure tolarge-caps, while somemay be more exposed tomid-cap stocks, or multi-caps. It's better to diversi-fy across not more than 2-3 ELSS and ensure thatthey have allocation intodifferent industries andmarket capitalisations.

Income tax rules allowsone to use the redemptionproceed of a tax saving in-vestment to be used tosave tax in the same fi-nancial year. Still, avoidthe temptation to do thisas it will not help you ac-

cumulate the desired cor-pus. Keep reviewing theperformance of schemesafter the lock-in ends. Ifthe ELSS scheme is per-forming, there's no harmin staying invested in itfor one more year. Com-pare the scheme's returnas against its benchmarkreturn. A scheme whichcannot beat its bench-mark on a consistent ba-sis need not be in yourportfolio.

—The author is an independent financial advisor

This article has beenexclusively created for

UTI SWATANTRA

GURU SPEAK

TAX SAVING COULD BE CHANNELLEDTO ACHIEVE A LONG-TERM GOAL

SUNDAY TIMES OF INDIA, PANAJI - GOA FEBRUARY 24, 2019

UTI Mutual Fund

"DAWaq, Q,k bQ,kfar zindagi ka.fib- 'r

UTI Mutual Fund

4, bek4- *r zm j i k *.

UTI SMART PLANS"OVER 2.3 MILLION INVESTORS"

NOT ONLY BENEFITFROM SAVING TAX , BUT MORE.

WEALTH RETIREMENTCREATION BENEFIT

UTI Long Term UTI Retirement BenefitEquity Fund (Tax Saving) Pension Fund

UTI Long Term Equity Fund (Tax Saving) LITI Retirement Bela-2

Flexibility of investing across the market is Trusted for overIA

capitalization spectrum 0 Portfolio MIA"Potential for long-term wealth creation for both V

A

Save tax up lo,1&800 by investing ?1,50,WO per anni-e

UTI Retirement Benefit Pension Fund is an open ended retirement solution oriented scheme having a lock - in of 5 years or till retirement age (whichever isear l ier ) . UTI Long Term Equity Fund is an open ended equity linked saving scheme with a statutory lock-in of 3 years and tax benefit . As per prevailing taxlaws. "Inception date 26th December 1994. -2. 3 Million investors = Over 2.2 Million investors of UTI Retirement Benefit Pension Fund and over 1.6 Lakhinvestors of UTI Long Term Equity Fund (Tax Saving), as on 31st January, 2019. tOn investment of 11,50 ,000 per annum for the hi ghest tax bracket of 30%U/S 80C of the Income Tax Act , 1961 , UTI Smart Plans is onl y a communicat ion approach appl ied to var ious tax saving funds from UTI Mutual Fund andis not the name of a Scheme/Plan of UTI Mutual Fund.

UTI Long Term Equity Fund UTI Retirement Benefit eer,.,rer Scan the QR code(Tax Saving) Pension Fund to know more

This product is suitable for investors This product is suitable for investorswho are seeking: * who are seeking: *

Long term capital growth long term capital appreciation # $Investment in equity instruments of investment in equity instrumentscompanies that are believed to have (maximum-40%) and debt/ money Ime.wnvodentaM thm their pnr<i pal

growth potential market instruments will be v moderaley hig h dsk

'Investors should consult -heir financial advisors f in doubt about whether the product is su table for them. UTI Smart Plans

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.