Beginner

Retirement is often seen as the second innings of life. That is the time when you enjoy the luxury of time, while you do not have any official meetings to attend or timelines to meet. While it may be an extended vacation, you may be in for many surprises, if you have not planned for it. Retirement planning must be done prudently and systematically so that you don't have any financial constraints while planning to fulfil your pending dreams and aspirations after retirement.

We are already in the last quarter of the financial year, and most of the employers will be pushing for the proofs of your tax-saving investments. With the increasing awareness of mutual funds as an investment option, Equity Linked Savings Scheme (ELSS) funds are also emerging as the preferred option for tax savings.

A wise man once said, “the best time to plant a tree was 20 years ago; the second-best time is Now.” This quote not only gains its relevance in the World which is getting warmer every year but is equally relevant in the financial world. 

Investment in Equities is the vehicle to participate in the long-term India growth story. Investment in Index fund is the simplest way to invest in Equities and can be core part of Equity allocation due to simplicity of investment and low cost. 

When one chooses to invest in equity markets, BSE Sensex and Nifty 50 are the two most familiar words for the investors. These are the name of two major stock indices in the country – BSE Sensex and Nifty 50. Since such indices are constructed using scientific methodologies and back-tested techniques, retail investors may prefer to have investment exposure in such indices. However, one cannot invest in such indices directly as they are not a security within themselves, but just an index of different securities. 

We are already into the last month of the financial year 2019-20, and it is that time of the year when everyone starts thinking about filing taxes. Income tax laws provide for certain tax benefits under different provisions, including Section 80C (tax-saving investments and payments), Section 80D (payment towards medical insurance premium), Section 80G (donations to eligible charitable funds and trusts) etc. of the Indian Income Tax Act. 

When one is investing in equity markets through mutual funds, one is exposed to two types of risks – systematic risk and unsystematic risk. While systematic risk denotes the risk of changes in the macroeconomic environment impacting the investment portfolio, unsystematic risk refers to the risk of choosing a wrong company to invest in, thus making a wrong investment decision.

Systematic Investment Plan (SIP) allows an investor to invest regularly in mutual funds on periodic intervals. As such, it enables investors to steer through the market movements effortlessly. Indian retail investors also prefer to invest in the markets through SIPs, as is evident from the monthly SIP inflows, which have sustained above Rs. 8,000 crores for more than a year now (Source: Association of Mutual Funds in India – AMFI, as on 31st December 2019).

Market indices such as S&P BSE Sensex, NSE Nifty50, etc. are created by adopting scientific methodologies and back-tested techniques. As such, the investors may wish to invest in such indices to have smooth investment experience. However, since such indices are not tradable security in themselves, it is a difficult proposition for the investors to construct a similar investment portfolio, which replicates such an index. Index funds may be suitable to meet such investing needs.

Equity Linked Saving Schemes (ELSS) is one of the available investment options under Section 80C and is steadily emerging as a preferred investment choice amongst the investors for tax saving. This is also reflected in the ELSS Category AUM (Assets Under Management) of Rs. 1.04 lakh crores as on 31st December 2019 amounting to around 4% of the overall industry AUM.