FAQ's

I have heard from friends & relatives that PPF (Public Provident fund) is the best type of Investment?

PPF is a safe form of investment but poor on returns & liquidity front. Currently PPF gets 8% pa (Per Annum) rate of interest, which is revised every year as per prevailing interest rates. Hence it is not necessary that you will earn the same rate of interest in the coming years. On the liquidity front also PPF scores poorly as the lock in period is for 6 years. However the scheme scores high in terms of tax benefits. Investments from RS 500/- to Rs 70,000/- pa are eligible for deduction under section 80C; further the interest earned is tax exempted under section 10 of the Income Tax Act.

I have heard from friends & relatives that NSC (National Saving Certificate) is the best type of Investment?

NSC is a safe form of investment but poor on returns & liquidity front. Currently NSC offers a coupon rate of 8% pa( Per Annum) with half yearly compounding. The tenure is for 6 years and the rate of return is locked at the time of investment i.e. unlike PPF, investments in NSC are both assured and fixed. On the liquidity front NSC scores poorly as the lock in period is for 6 years. Interest earned from NSC was exempt under section 80L in the erstwhile tax regime. However section 80L was omitted in Finance Bill 2005. As a result interest earnings from investments in NSC are now fully taxable.

I have heard from friends & relatives that ELSS(Equity Linked Savings Schemes) gives high returns on Investment?

ELSS funds are tax saving funds which have a mandatory lock-in period of three years. Section 80C has come as a boon to investors who have an appetite for risk. Until previous year, investment in tax-saving funds(otherwise known as Equity Linked Savings Schemes) for the purpose of availing a tax benefit was restricted to Rs 10,000/- pa only. In the current year all such restrictions have been done away with. Individual assessee can avail tax benefit up to Rs 1,00,000/- under section 80C. The returns are high as compared to PPF & NSC aggregating to an average of 15% to 20% or higher, but are termed risky as they are solely dependent on the share market. An Investor may get the return or may not earn anything as per the prevailing market conditions. Lastly ELSS do not give options of switch overs, and since the market cannot be predicted in the long run, investors are stuck with the funds as they have no options of switch over during the bad spell of the market. Hence there is always a possibility of selecting the wrong funds.

I have heard from friends & relatives that Market Link or ULIP(Unit Linked Plans) give security as well as high returns on Investment?

Market Link or ULIP alike ELSS funds have a lock in period of three years. Firstly they are more secure as they are routed through the Insurance channel. They provide a good investment option as well as extend protection for the investor and his/her family by way of insurance cover i.e. if an investor happens to start saving & investing, but in the first year meets with an unforeseen accident, since a life cover is provided alongwith the investment under ULIP, the investor's family still benefits the entire amount as if the investor were still alive and saving for the future needs of the family. Hence ULIPS are considered as double edged swords in the investment market. Unlike ELSS, ULIPs provide an option to switch over during bad market spells, giving total control to the investors over their investments. Individual assessee can avail tax benefit up to Rs 1,00,000/- under section 80C. The returns are high as compared to PPF & NSC aggregating to an average of 15% to 20% or higher and the maturity amount is currently treated as tax free under section 10 (10D) of the Income Tax Act.

I have heard from friends & relatives that Investing in Equity Market (Share Bazaar) is profitable as profits earned are exempted from Tax?

In the Equity Market there are two types of gains, long term and short term. Gains arising after a period of twelve months are termed as long term gains, whereas gains arising under a period of twelve months are considered as short term gains. Currently short term gains attract 10% Tax whereas long term gains do not attract any tax. Hence more and more people are resorting to Equity investments in the bullish markets.

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