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Can I set off the brought forward speculative loss of money against my current year profits? One of the payments that qualify for deduction under this section is the principal repayment of housing loan, where the loan is taken from a bank and also from certain other institutions. If all these conditions are not satisfied the transactions would become speculative. It is not clear if the sum paid to you in UK has suffered tax in India. The principal repayment will qualify for deduction under section 80C. If I repatriate my savings to India, will I be liable to pay tax on that amount? If this view were taken it is possible that your brought forward loss of money is not treated as speculative but as a regular business loss of money and hence will be eligible for set off against your current business profit from dealing in futures. What if everything else remains same but my stay outside India is less than 180 days? Section 80C allows a deduction in respect of certain payments or deposits.

India as well as in UK and tax is deducted at source on both salaries. If the property is let out, there will be no restrictions on the amount of interest that can be claimed as deduction in computing income from house property. It may be required to understand the full facts before having further clarity in this matter. If this were so, the said sum may also be taxable in India but credit is to be allowed to you in India in respect of the tax paid on such income in UK but not exceeding the tax payable on such income in India. Virtual Trade in action. Dedicated support from Scottrade with.

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You can open an account in a post office branch or a bank. Just make sure you invest the minimum Rs 500 in your PPF account in a year, otherwise you will be slapped with a nominal, but irksome, penalty of Rs 50. However, the Rs 15 lakh investment limit somewhat curtails its utility. The investor also decides the allocation to equity, corporate bonds and gilts. Being equity funds, these schemes can generate good returns for investors over the long term. The scheme scores high on flexibility. It is not the core objective of the policy. The PPF offers investors a lot of flexibility.

The interest is paid on 31 March, 30 June, 30 September and 31 December, irrespective of when you start investing. Though the PPF account matures in 15 years, you can extend it in blocks of five years each. To make most of ELSS funds, stagger your investment over a period of time instead of putting a large sum at one go. New Pension Scheme an ideal investment vehicle for retirement planning. The tax saving is only meant to reduce the cost of insurance. But this should not be the most important reason for investing in this avenue. Rs 500 in an ELSS scheme. There is no other charge except for the risk cover provided by the policy.

The minimum investment in ELSS funds is very low. Be ready for a lot of legwork before you can buy. Unlike a Ulip, pension plan or an insurance policy, there is no compulsion to continue investments in subsequent years. The charges of pension plans offered by life insurers are significantly higher than those of the NPS. The difference can snowball into a wide gap over the long term. If you are retired defence personnel, then you can open this account without any age limit, provided you fulfill other specified conditions. The section offers various investment options to the taxpayer which not only generate returns for him but can also be claimed as deduction while calculating total taxable income. Tax queries: Does the senior citizens savings scheme qualify for section 80C benefits?

The minimum annual deposit is Rs 1000, which can go up to Rs 150000. Any amount deposited in this account would be eligible for deduction under Section 80C. Also Read: Look beyond Section 80C: Have you missed out on any of these tax breaks? The rate is subject to revision every quarter. So if you have an outstanding home loan in your name, then the repayment of the principal amount made by you in a financial year can be claimed as deduction under Section 80C and you need not invest in other products specifically to avail tax benefits. Further, this account can be opened for a maximum of two girls and in case of twins this facility will be extended to the third child as well.

VPF so that the EPF and VPF contributions total up to Rs 150000. National Pension Scheme is also allowed as deduction to the individual under section 80CCD. The investments that you make in ELSS are eligible for deduction under Section 80C. Also popularly called Infra Bonds, these are issued by infrastructure companies, not the government. An individual above 55 but less than 60, and having retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme, can also open an account under this scheme, but such an account must be opened within three months of the retirement date. The amount has to be deposited in this account for 15 years. NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the previous years and the capital amount.

Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. This additional contribution is called VPF and is also eligible for deduction under Section 80C. In this scheme, you can open an account on behalf of your minor daughter. Interest on this scheme is also reset every quarter by the government for new accounts opened under the scheme. You can invest as low as Rs 500 and as high as Rs 150000 in a financial year. Any term deposit with a tenure of at least five years with a scheduled bank also qualifies for deduction under section 80C and the interest earned on it is taxable. NSC for as low as Rs 100. Can I invest in PPF to claim tax deduction under Section 80C? Please note that the interest earned is entirely taxable.

Even the interest can save you significant income tax, but that would be under Section 24 and section 80EE of the Income Tax Act. Any investment in this account would be eligible as deduction under Section 80C. Tax queries: Can I claim Section 80C deduction for investment in PPF account of my minor son? The amount invested in these bonds can also be included in Section 80C deduction. Please note the interest is payable quarterly instead of compounded quarterly. The interest on new issue of these certificates is revised quarterly by the government.

This is one of the best ways to grow your money and enjoy tax benefit simultaneously as the return generated by ELSS is much more than those generated by other investment products. POTDs are similar to bank fixed deposits. Any investments in NSC are eligible for deduction under Section 80C. PPF is a scheme provided by the government and the investment in it is eligible for deduction under Section 80C. Majority of people invest in life insurance policies, PPF, ELSS etc. This interest is compounded half yearly and is taxable.

This scheme, as the name suggests, is meant only for senior citizens. Any individual in the 60 or above age group can open an account under this scheme. The interest rates offered by them is compounded quarterly, but paid annually. Interest rate on new deposits is subject to revision every quarter. If you are paying premium for more than one insurance policy, all the premiums can be included. Most of us are already well aware of the deduction available under section 80C of the Income tax Act, 1961.

The principal qualifies for deduction under Section 80C. Please note that the fees should be paid to a school, college, or university in India only. The main objective of these funds is to offer investors a liquid investment avenue that also offers scope for good returns, unlike a bank fixed deposit which offers low fixed returns. These plans effectively automate both the processes of investing and disinvesting. If you have invested in sector funds, these must be compared with the sectoral indices. When you invest directly too there are certain expenses that you will have to bear. Look for size and credentials. These schemes have a stipulated maturity period and the fund remains open for subscription only during a specified period, at the time of launch of the scheme. Debt funds that invest all or a substantial part of their corpus in such funds are called floating rate funds.

The Equity Linked Savings Schemes are popularly known as ELSS. It is mandatory for the mutual funds to dispatch annual reports or abridged annual reports to unit holders every year. Besides, dividend yield stocks offer reasonably good returns over the medium to long term. The schemes are suitable for investors who are ready to take on some amount of risk to receive good returns. Cumulative or growth schemes, dividend reinvestment schemes and dividend payout schemes Mutual funds usually give investors a choice of three ways in which they can receive their profits from a scheme. How do I make or receive payments to or from SKP?

It is better to buy units in a new fund offering at Rs 10 than an existing fund at a higher NAV. Indian Trusts Act, 1882 and has a three tier structure, in order to prevent potential conflicts of interest. Who are the players in the Commodity Market? Similarly, if the NAV of a scheme is Rs 15, and the scheme levies an exit load of 2 per cent, then your sale price is 14. SEBI has prescribed limits for the maximum expense that can be charged to the scheme. The sponsor of a mutual fund is the promoter who establishes a mutual fund and gets it registered with SEBI. That goes for shares too; the return you receive could be good or bad depending on the stock that you choose.

Sector funds invest only in companies belonging to specific sector mentioned in the offer document. Reinvestment of the dividend takes place at the NAV prevailing at the time of dividend declaration. The returns the mutual funds generate depend on the type of mutual fund scheme you select. NAV on 30 September 2005. NAV of the scheme as on the day of conversion. The core attraction of this product is that even individuals with relatively small investment amounts have access to real estate investment, which has been the privilege of big investors over the years. Before you evaluate mutual funds on the basis of a comparison between schemes, you must keep in mind that there are numerous types of mutual fund schemes in the market. Further, in addition to sparing you from the need to time the market, it makes investing relatively simple as fund houses allow you to invest using post dated cheques, ECS transfers, etc.

The number of units that you would hold is a function of your purchase price and not the NAV. Some debt instruments are characterised by a floating rate of interest. Such schemes focus on preservation of capital but in case the fund management team gets their market timing wrong, it could lead to erosion of capital. The value of each unit is called the Net Asset Value or NAV of the scheme. The level of risk that you are willing to accept and the returns that you expect will be the criteria for determining which category of funds you choose to invest in. Suitability: This fund is suitable for investors who are convinced about the future prospects of a particular industry and wish to cash in on it. Comparing a Pharma fund with a BSE Healthcare index would be more appropriate than comparing it with the BSE 30 Sensex. The longer the duration of the paper held by the fund, the higher this risk. Income funds have the liberty to invest in longer maturity instruments, like commercial papers, treasury bills, repos, medium term bonds, debentures and government securities. This annuity will ensure that the investor receives a regular stream of income post retirement.

Then there could be a time lag between identification of investment opportunities and actual investment. There are other indices, such as the BSE Mid Cap and the BSE Small Cap, which can be used as benchmarks to evaluate the performance of mid and small cap mutual funds. The way in which your money is divided is called your asset allocation. These funds balance their portfolios so as to prevent any adverse impact on returns due to a downturn in one or two sectors. As far as possible, avoid investing in funds with an asset base of less than Rs 25 crores. Income funds fall into the category of medium term debt funds. Monday to Friday: 10 am to 11. Generally, income earned by any mutual fund registered with SEBI is exempt from tax. Value at Risk model.

All those risks which are associated with equities are associated with these funds. The load is based on the NAV and is calculated as a certain percentage of the NAV. In the growth option, the profits are not distributed and accordingly, the value of each unit keeps appreciating as the profits increase. Normally, sectors that are in the limelight or are witnessing robust growth are the ones targeted by the mutual fund industry in order to launch sector funds. The domestic mutual fund industry is governed by the Securities and Exchange Board of India, Mutual Fund regulations and the Indian Trusts Act, 1882. Accordingly, the risk and return profile is somewhere between debt and equity funds. These funds are suitable for those who wish to play on the interest rate risk. At the same time, the profits could be better than those of a diversified fund if the sector takes off since a bulk of the funds are invested in a winning sector. These schemes are suitable for investors who are looking for a tax break from their mutual fund investment and can safely lock away their funds for a period of three years.

This allows you to receive a regular income from your investment in a scheme or simply invest the gains from the scheme elsewhere. You can do it not difficult on the portfolio tracker at IDBIpaisabuilder. The income of such funds comes from the interest that the debt instruments held in the portfolio deliver. Investment in these funds comes with a higher risk attached, since the investment is spread only across a single sector. At the outset, the units issued have a face value of Rs 10 each. NSE Nifty or the BSE Sensex. These funds also have some of their corpus invested in short term avenues like the money market and treasury bills. NAV comparison is suitable if the investor has selected the growth option, under which no dividends are declared. Investors who wish to regularly enter and exit index funds may prefer ETFs if they work out more cost effective.

Because of these charges, your purchase price is higher and your sale price is lower than the prevailing NAV of the scheme. You could do this online on IDBIpaisabuilder. As this technique results in buying more units when the price is low and less units when the price is high, it has been found to lower the average cost per unit purchased, irrespective of whether the market is climbing, falling or generally volatile. Hence, the returns change more or less in tandem with the broad movement of the stock market. Such schemes can further be further categorized into short term and long term gilt funds depending on the types of instruments that they invest in. Can you get in touch with them not difficult? Rs 10 lakh per annum. Since dynamic asset allocation funds regularly reallocate their portfolio based on market conditions in order to prevent capital erosion, they are suitable for investors who would like an exposure to equity markets along with capital stability.

As per the definition, the net assets mean the current market price of all securities held plus cash and any accrued income, minus liabilities. It is quite possible that even the best of fund managers may not be able to deliver consistent returns over the years. This is because they may follow a defensive investment method, wherein safety of capital is given preference over earning higher returns. The trustees delegate the task of floating schemes and managing corpuses to AMCs, who are investment experts. The NAVs of open ended schemes are published on a daily basis in newspapers and available on the web sites of mutual fund houses. Check out the customer service delivery mechanism of the mutual fund you choose. An index funds replicates a selected index, such as the Nifty 50 or the Sensex, etc.

Although these funds are almost risk free, they are subject to interest rate volatility. Other risk factor is the intrinsic risk attached to the paper held in the portfolio; for instance government bonds are risk free but corporate bonds have some risk attached. They have better access to information than individual investors. The returns, in this case, have to take into account both these aspects. But in case of an increasing trend in interest rates, Gilt funds can give low or negative returns. In this case, the BSE Sensex will be known as the benchmark index. The performance of mutual fund schemes should be compared with benchmark indices and judged accordingly.

Market cap based equity funds invest in stocks that belong to either only one or two or all three of the stated segments. Large caps on the other hand invest in stocks which are established and unlikely to suddenly lose value. These schemes invest most of their funds in conservative instruments since capital preservation is their prime objective. Based on their market capitalisation, companies that are traded on the bourses can be classified as large caps, mid caps or small caps. NSDL and will hold your securities in electronic form. The investors can buy or sell units on any business day at NAV based prices from the fund house.

It invests principally in common stocks with significant growth potential. Draw up your asset allocation. Auction Market and gives them to the buying trading member. Equity funds invest largely in the shares of companies which are listed on the stock exchange. It changes on a daily basis. You have chosen to have this dividend reinvested back into the scheme at the prevailing NAV of Rs. These funds are suitable for people who wish to allocate some part of their assets to a variety of long term debt but may not have enough capital to get such an exposure without the help of a mutual fund. This concept is new to the Indian markets and has recently been approved by SEBI. Since the interest rates of the securities held in the portfolios change, the return on floating rate funds also changes accordingly.

Mutual funds offer hassle free investing as the investor need not continuously track individual stocks, which may be required in case of portfolio management. If the prices of the stocks in its portfolio fall, the NAV of the schemes too will register a dip. The performance of the mutual fund whether existing or new scheme solely depends on factors like the skills and investment strategies adopted by the fund managers, quality of the portfolio, exposure to various industries and so on. The returns on such schemes are fairly predictable since the scheme invests in instruments whose maturity date coincides with the duration of the plan and the fund manager does not change the composition of the portfolio unless there is a better opportunity available. Such investor must also have the ability to cope with risk. Debt oriented schemes cater to more conservative investors as they invest all or a significant portion of their corpus in various debt instruments, such as company bonds and debentures, treasury bills, government securities, etc. Later, as the corpus is invested and the value of the investments change the value of each unit changes proportionately. Lastly, the Association of Mutual Funds in India works towards promoting the interests of mutual funds and unit holders.

Mutual funds are subject to market risks and do not guarantee any kind of returns to unit holders. You can pick and choose as per your risk appetite, return expectations and overall investment objective. SWPs can be used to regularly disinvest either fixed amounts or some or all of the appreciation that is generated from your investment in the scheme. Such schemes are ideal for individuals who are currently in a high tax bracket due to the magnitude of their current income but expect to witness a drastic fall in income post retirement. ELSS is a variant of diversified equity funds, however, these schemes come along with income tax benefits. With a comparatively small capital investment in a mutual fund scheme, you can profit exposure to a large variety of instruments. Monitor regularly and review your mutual fund portfolio. However, while income funds offer scope for better returns, they come tied with greater risks. The Balanced Schemes invest in equities as well debt instruments.

The returns generated by dynamic funds can be lower than those of diversified equity funds. It shows the sensitivity of the fund to movements in the benchmark. If you have opted for the dividend reinvestment plan you will get additional units to the extent of the dividend declared. Read through the offer documents and check to see whether the mutual funds identified meet your investment needs in terms of equity share and bond weightage, downside risk protection, tax benefits offered, dividend payout policy, sector focus etc. In proportion to their contributions, investors receive units of the mutual fund. If you are ready to take on a fair amount of risk and are not necessarily keen on investing in stocks that are popular at present, you could consider such schemes. The NAV of a mutual fund scheme, which is determined by dividing the net assets of the scheme by the number of outstanding units as on particular date, fluctuates up or down depending on the market value of its investments. What is taking a position?

Floating rate funds offer investors the opportunity to receive market related returns. When companies pay part of their profits to shareholders, those profits are called dividends. This lead time when cash is lying idle with mutual funds results in lower overall returns on the corpus. Such schemes are suitable for those who can invest their capital for a fairly long period of time. These schemes are somewhat comparable to fixed deposits and are ideal for investors who are looking for a fixed return but other benefits of a mutual fund scheme. Identify funds that fall into your buy list.

Shares generate higher returns The stock market is more exciting and direct investing in shares generates higher returns than mutual funds. This option is suitable for investors who do not have any immediate need for cash and would prefer to reap better wealth in the long run. The performance and returns of such schemes usually move in sync with that of the index that they try to replicate. This fixed period of time could range from fifteen days to as long as two years or more. However, the universe of high dividend yield stocks is limited. The differentiating factor is the level of diversification that they offer.

While the NAV is a primary parameter which helps to evaluate the performance of the scheme in question, it is not possible to draw any meaningful insights from merely being aware of the NAV itself. Lower NAVs translate into better investment opportunities Mutual funds with lower NAVs can generate better returns. Interest rate movements are the biggest risk factor for debt funds. In case of discretionary services, the approval of the client is required before investments are made whereas in case of non discretionary services, the portfolio manager makes investment decision on the basis of parameters that have been agreed upon between the client and the portfolio manager. Match your objectives with that of the fund. Natural Factors: Soil and climatic conditions, natural calamities etc. Obtain and read the offer documents. It also launches Investor Awareness Programs aimed at educating investors about investing in mutual funds.

Here, returns mean capital appreciation and dividend paid, if applicable. Investing in mutual funds is an expensive proposition Mutual funds charge various expenses such as entry and exit loads, annual asset management fees and other expenses. For example, the performance of an equity scheme can be benchmarked against the BSE Sensex. If the markets favour the chosen theme, there is a possibility of making very good returns but if they do not, there are chances of facing losses. The results also provide additional information such as annual expenses as percentage to total assets. Do they circulate investor newsletters? Is delivery of commodities available? The first and the most important measure used for evaluating the performance of a mutual fund scheme is its NAV. The return, as a percentage of the capital which you have invested, will determine which investment was a better choice.

Investors can invest in the scheme at the time of the initial public issue and thereafter, they can buy or sell the units of the scheme on the stock exchanges where the units are listed. So, you must be careful that you are not comparing apples with oranges. SKP like Internet trading. However, income distributed to unit holders by a closed end or debt fund is liable to a dividend distribution tax. Hedge Funds deploys highly speculative trading strategies in order to protect its portfolio and profit from short term speculation in the market. Market Department of SEBI. Rs 1 lakh under Section 80C of the Income Tax Act. Accounts and Contract Note from trading member. This means that the return on such instruments is derived from a particular market determined interest rate that changes periodically.

Rs 21 x 62. AMCs, conflict of interests can be promptly checked. The AMC charges a fee for the services that it renders. These funds aim to build up a corpus for investors that can be converted into an annuity on retirement. Moreover similar to an income scheme, FMPs invest in fixed income instruments like bonds, government securities, money market instruments and so on. Passive Index Funds and Active Index Funds. Investors who believe that interest rates will head upwards in the future could go in for floating rate funds. The Asset Management Company charges an annual fee, or expense ratio that covers administrative expenses, advertising expenses, custodian fees, etc. How do Commodity prices move? Dividend yield mutual funds invest in share of companies which have a high dividend yield ratio. Diversify, but not too much.

What are the major commodity exchanges? These funds are ideal for investors who wish to invest in an instrument that delivers equity market linked returns, without having to build up a large portfolio and monitor it separately. It would be far more difficult for a retail investor to undertake research of the same magnitude. The trustees are responsible for ensuirng that the AMC has proper systems and procedures in place and has appointed key personnel including Fund Managers and Compliance Officer. The fund manager of such schemes looks for stocks of companies which are fundamentally sound but their values are currently not recognised and invests before this value is acknowledged by the market. You need to look at the long term returns generated by the scheme in question.

The track record of the fund manager and the composition of the portfolio of the schemes are also critical factors which you should consider while choosing the right scheme. Short term capital gains on debt mutual funds attract tax at the personal income tax rate applicable to you. Bond funds and balanced funds have an investment horizon of three to five years and therefore fall into the category of long term debt funds. It will work in your interest. For instance, index funds usually report returns that are in sync with the index which they try to mirror while pure equity funds can outperform the index by a wide margin. Dividend and capital appreciation are the major revenue streams for equity funds. Invest regularly through the SIP option. The significant benefit of this scheme is diversification, not only across investments, but also across Fund Managers. The value of each unit is also impacted when management fees and other expenses are deducted from the overall pool of funds.

The cost of investing is higher in the case of portfolio management services as compared to mutual funds. Do not hold just one fund in each asset category. Accordingly, the risk exposure of such funds is minimal. In addition to this, the AMC charges annual asset management fees and expenses, which are captured in the expense ratio. The objective of diversified equity funds is to provide the investor with capital appreciation over a medium to long term by investing in stocks from various sectors and segments of the equity market. Mutual funds guarantee returns Some mutual funds assure their investors a certain level of returns. There is, however, no assured return in such schemes, unlike the Post Office Monthly Income Scheme or a Company Deposit. The minimum investment in portfolio management is very high as compared to mutual funds. The risk that such funds cGreenArrowy is directly related to the volatility of the index that they follow.

What are the obligations of the investor? The sum of money that you receive on redemption is a function of your sale price and not the NAV. SKP with respect to the settlement of the trades. It will tend to invest in stocks and bonds that normally pay high dividends and interest. However, if the fund management team goes wrong in stock selection, you might not only face a loss of money but capital erosion too. Since the investment is held for one year, no need to annualize the return. The crucial difference is that an ETF is listed and traded on a stock exchange while an index fund is bought and sold by the fund and its distributors.

Firstly, they must maintain some part of their corpus in cash, in order to meet redemption pressures. Rs 10 lakh per annum or 20. What is a Bonus Share? These can take away a significant portion of your returns. SEBI regulates all mutual funds operating in India, setting uniform standards for all funds. In fact, the additional charges that you pay towards fund management, etc. How often do they send you portfolio updates?

In the case of debt instruments that are traded, income could be accrued in the form of capital appreciation on traded debt paper. Here are some simple techniques which will help you to gauge the performance of your scheme using the NAV. You can choose to calculate your long term capital gains with or without indexation, depending on which one results in lower tax payable. No mutual fund guarantees returns but they are transparent in their operations, since they are subject to stringent disclosure norms. What are commodity futures? The biggest advantage that mutual funds offer is greater expertise on the markets, be it the stock market or debt market. You can buy the shares that are listed on any of the recognized Stock Exchanges.

And finally, it is not possible for a fund house to deploy money in the market immediately after receiving it from investors. Index funds are recommended for investors who are satisfied with a return that is approximately equal to that delivered by the index. These schemes do not have a defined or fixed maturity period. When interest rates move upwards, the return of these funds improves but at times when rates are falling, investors could receive lower returns. However, here the value of the units is not left to simply appreciate. Invest in the International equity markets. These funds invest in all kinds of instruments including derivatives and their main objective is to cash in on the arbitrage opportunities using advanced investment strategies.

The difference is that the underlying investments in this case are in gold and gold related instruments. This is normally issued in lieu of a unit certificate. Try to review your mutual fund holdings at least once a quarter. The Funds of Funds invest in other mutual funds. Board of Trustees to ensure that the mutual fund adheres to all the rules and regulation framed by the regulator. Such schemes cGreenArrowy the same risk as equity diversified schemes. Though mutual funds levy various fees they are not an expensive proposition.

However, having reached growth plateaus, such stocks are also unlikely to display spectacular take offs in price. Dividend is the part of profit distributed by the company among its investors. Investors with short to medium term horizons who are comfortable with low to medium risk could choose to invest in income funds. This will change the cost of your investment. Besides, there are different ways in which the returns can be disbursed to unit holders, such as regular dividend payouts, dividend reinvestment and so on. For instance, if the NAV of a scheme is Rs 15, and the scheme levies an entry load of 2 per cent, then your purchase price is 15. In fact, when it comes to investment there is no difference between new schemes selling at par value or existing schemes selling at higher price. In portfolio management services, the portfolio manager advises or directs the client on how he should invest his portfolio of securities or funds. Theme based funds are fairly similar to sector funds.

The mutual funds cannot remain fully invested all times due to various reasons. These funds can invest in real estate properties and instruments related to real estate. However, this comparison applies to diversified mutual funds. The sectoral equity funds dedicated to industries like technology, bank, pharmaceuticals, infrastructure, etc are good examples of such funds. Value of production around Rs. These schemes are designed to provide not difficult liquidity, preservation of capital and moderate income. Equity funds are basically high risk, high return schemes. The returns from these funds are not subject to any great risk as the instruments in the corpus can be held to maturity, unless there are better prospects.

This option is suitable for investors who would like to receive a regular income and for those who would like to use their profits elsewhere. These are called the dividend payout option, the growth option and the dividend reinvestment option. Whenever the interest rates are showing a declining trend, they will fetch higher returns due to appreciation in value of the Gilt portfolio. Operationally, mutual funds buy and sell in large volumes and voluminous buying or selling of shares often results in adverse price movements. Investors who wish to purchase or sell units of a mutual fund after the scheme is fully functional must do so at a price that is linked to the NAV. Lastly, the dividend reinvestment option is similar to the growth option, in that the profits are not distributed. This is because the prices of debt instruments and therefore their value share an inverse relationship with interest rates. Funds which buy in large volumes end up inflating the prices and when funds sell in large quantities, they tend to depress prices.

As a result, any adverse policy or environmental change which affects this sector could result in a huge loss of money to investors. Accordingly, they are ideal for corporates and individual investors who want to park their surplus funds in a safe but lucrative investment for short periods or until a more favourable investment alternative emerges. The dividend yield ratio is calculated as the dividend paid divided by the current market price of the share and represented as a percentage. In the dividend payout option, the profits of the scheme are distributed to the investors in proportion to the number of units that they hold. These funds invest in long term debt instruments which typically offer the highest returns since the durations are long and there is a direct relationship between the duration of a bond and its returns. In case of equity funds, no dividend distribution tax is payable by the mutual fund. These loads, which are a certain percentage of the value of units held, are applied to cover marketing and other costs. In respect of all mutual funds regulated by SEBI, fresh subscriptions and redemptions are processed at a particular NAV. You should consider loads applicable to schemes while investing your money as it directly impacts your actual returns from the investment.

Switching investments between different stocks in the market, with a view to give unit holders a better yield by taking advantage of market conditions. They suit conservative investors whose aim is to preserve capital rather than create wealth. Before you consider making fresh investments, you need to analyse whether you really need to make fresh investments for this financial year to save tax. Inflation erodes the purchasing power of money, especially over long term. The returns are fixed for the entire duration and generally in line with the rates prevalent in the economy and very close to inflation figure. They have the potential to generate higher inflation adjusted return in the long run to the extent they are based on the equity asset class. First, identify your financial goals; medium and long term goals. Once you categorise your investments into these two buckets, sum up the amount of your existing investments and deduct it from your total income to arrive at the taxable income.

The returns are not assured but linked to the performance of the underlying assets such as equity or debt. Taxability if income or post tax return is another factor to consider while making fresh investments. Considering the annual inflation of six per cent, the real return is almost zero! Some like life insurance require annual payments to be made for a longer duration. The investments entitled for deduction include life insurance, ELSS mutual funds, PPF, NSC, etc.