Saturday, August 9, 2014

Tax saver Mutual fund that I recommend now


As a starting point, you may like to read my last post on tax saving options - http://mbaclassdiscussions.blogspot.in/2011/12/how-to-save-tax-under-section-80c.html

Not much has changed since I last wrote this - except one thing - the finance minister, Mr Jaitley, has increased the amount that you can invest under this section from Rs. 1.0 lac to Rs. 1.5 lacs per annum from this year.

Tax saver Mutual funds are basically equity funds that have 60% plus exposure to equities. To avail of tax benefit, you need to stay invested in the fund for three years and that is where the catch is. In Mutual funds, I do not believe in committing to stay invested in one fund for so long. With the markets being so dynamic, I believe in keeping a check on MF’s every quarter and changing my portfolio if the situation demands. For example, I had recommended FMCG, IT and Pharma funds last year (http://mbaclassdiscussions.blogspot.in/2013/05/where-am-i-investing-now.html)–  but this year, post election, I have recommended, that you exit these funds and invest in Large cap and mid cap funds now (http://mbaclassdiscussions.blogspot.in/2014/04/where-to-invest-post-elections.html ).

Now I am open to changing my stance of Tax saver funds with the basic assumption that the economy will slowly but surely do well over the next 4 -5 years. Hence, I am recommending the following tax saver funds - stay invested in them for three years  and avail section 80C tax benefits



Both these funds have done well in the past – have good fund managers and have a fairly large amount of money invested by investors (AUM) and I believe these two funds will give more than 15% returns annually for the next three years.

Also the earlier you invest, the better for you. As currently the markets are in a wait and watch mode, I would think you should invest now if possible. If you do not have the liquidity, do not wait for Jan –Feb – March – invest in them as early as possible.

The risks are quite a few keeping a three year time frame – Syria, Ukraine, Ebola to name a few that are currently visible. There may be many more in the quarters ahead. But then I am an eternal optimist J

Disclosure - I have invested in the HDFC fund for my tax planning for this year.