INVESTING FOR THE LONG TERM HAS ITS ADVANTAGES

INVESTING FOR THE LONG TERM HAS ITS ADVANTAGES

An Example of Long term Close Ended Fund .... To explain the basics

Tax Benefits and Wealth Creation with SBI Long Term Advantage Fund or Any other such Fund

 

A lot can change in 10 years. And we want you to make the most of it. All companies need time to grow and realize their potential in the market. The goal is to invest in companies with solid fundamentals and remain invested. So, as they grow, the money you have invested in them grows. And if you save tax on your investments, the benefit is just greater.

 

Wealth Creation & Tax Saving

The SBI Long Term Advantage Fund is a 10-year close-ended Equity Linked Savings Scheme (ELSS), which

allows you to not only save tax upto ` 1.5 lakhs, under Section 80C of the Income Tax Act 1961#, but also to invest towards building wealth for the future. The mandate of this fund allows the fund manager to invest in companies for a long-term horizon and remain invested.

 

Key Features:

Type of scheme: A 10-year close-ended Equity Linked Savings Scheme.

Investment Objective: The investment objective of the scheme is to generate capital appreciation over a period of ten years by investing predominantly in equity and equity-related instruments of companies along with income tax benefit. However, there can be no assurance that the investment objective of the Scheme will be realized.

Triple Benefits of investing in SBI Long Term Advantage Fund – Series I: Tax Savings, Potential Capital Appreciation and Tax Free Returns.

 To identify stocks across market cap utilising asset allocation, top-down and bottom-up approach.

No Investment bias: The scheme will seek opportunities across market capitalisation, i.e. large caps, mid caps and small caps.

Targeted towards investors wishing to save tax, tax-free returns and having a long-term investment horizon.

Plans/Options offered: The scheme would have two plans, viz. Direct Plan & Regular Plan. Both plans will have two options - Growth and Dividend. Dividend option has the facility of payout and transfer.

Benchmark: S&P BSE 500.

Minimum Application: `500/- and in multiples of `500/- thereafter.

 

Tax Saving through ELSS:

ELSS (Equity Linked Savings Scheme) are diversified equity funds with a lock-in period of 3 years.

Tax benefits under Section 80C of the Income Tax Act, 1961 according to which investment upto `1.5 lakhs in ELSS is deductible from taxable income.

ELSS helps in saving considerable amount of taxes if planned efficiently as shown in the table below

 

Annual Taxable Income (Rs)	Tax before investment in ELSS (Rs)	Maximum Amount to invest in ELSS (Rs)	Taxable income post ELSS investment (Rs)	Tax After Investment (Rs)	Savings (Rs)
400000	15000	150000	250000	0	15000
600000	45000	150000	450000	20000	25000
800000	85000	150000	650000	55000	30000
1000000	125000	150000	850000	95000	30000
1200000	185000	150000	1050000	140000	45000

 

ELSS vs. Other Tax Savings Products:

Particulars	PPF	NSC	ELSS	Bank Deposits	ULIPs
Tenure (years)	15	5 and 10	3	5	5
Minimum Investment (Rs)	500	100	500	1000	10000
Max Investments under Section 80C (Rs)	150000	150000	150000	150000	150000
Safety/Risk Profile Risk	Highest	Highest	High	Low Risk	Moderate to High
Return (CAGR) %	8.70	8.50/8.80	Market Linked	8.50	Market Linked
Interest frequency	Compounded annually	Compounded Annually	No Assured Dividend/Return	Compounded Quarterly	NA
Taxation Of Interest	Tax Free	Taxable	Dividend and Capital gains are Tax Free	Taxable	NA

 

You may choose any fund available in the market after consulting your financial advisor.

I have gone about this example just to tell you how these funds operate and what are their basic methodology.

Investing for the long term with goal oriented investment not only help you take advantage of ultimately achieving the goal, it also provides the fund manager flexibility to take long calls in the market to tap the potential of growing economy, volatility, interest rates and value picks available in the market.

The idea is to invest and develop a combination of instruments available in the market to suit your risk appetite and at the same time build in enough possibilities to capture the future gains of the market in your investments.

Once you have understood the methodology, underline risks and more importantly the possible rewards which are aligned to your risk ability and future goals, You will be able to swim through it without jeopardizing your goals.

Happy Investing