Useful tip when u buy ELSS Mutual fund for Tax saving
On a random note I asked many of my friends about the option they chose while selecting Tax saving ELSS mutual fund. Most of them answered they selected growth fund & reinvestment option.
Smart TIP: Always select Dividend Payout option while investing in ELSS Tax saving mutual fund.
Let me take an example & explain it to you guys.
Let's say I have to Invest 1 LAKH Rs to get Tax benefit(Tax waiver upto 1lakh).
If one chooses Dividend reinvestment option/Growth reinvestment option,
a) entire 1lakh is locked in for 3years
2) return is around 25% to 30%
3) During bad times market downturn one cannot liquidate their funds..
Now if user had selected Dividend payout option.
a)Usually funds pay Dividend of 10 to 15% , around Rs 10,000 to 15,000 which can be reinvested in normal Equity/Debt mutual funds or keep it for hiself.
b) Incase of downturn user can quickly liquidate his stake if dividend is reinvested in normal mutual fund.
c) Investor continues to enjoy Tax reduction on principal amount of 1,00,000.
This logic has been fruitful to me as I usally invest in ELSS at end of Feb or begining of Mar every year. Once Dividend cash is received in month of April- May I reinvest them in something more fruitful.
I hope GoI doesn't chase me for this TIP.
Also seen is due to low cost of operations & managerial fees, I always pick ELSS either of Sundaraam, SBI, HDFC or Reliance.
Smart TIP: Always select Dividend Payout option while investing in ELSS Tax saving mutual fund.
Let me take an example & explain it to you guys.
Let's say I have to Invest 1 LAKH Rs to get Tax benefit(Tax waiver upto 1lakh).
If one chooses Dividend reinvestment option/Growth reinvestment option,
a) entire 1lakh is locked in for 3years
2) return is around 25% to 30%
3) During bad times market downturn one cannot liquidate their funds..
Now if user had selected Dividend payout option.
a)Usually funds pay Dividend of 10 to 15% , around Rs 10,000 to 15,000 which can be reinvested in normal Equity/Debt mutual funds or keep it for hiself.
b) Incase of downturn user can quickly liquidate his stake if dividend is reinvested in normal mutual fund.
c) Investor continues to enjoy Tax reduction on principal amount of 1,00,000.
This logic has been fruitful to me as I usally invest in ELSS at end of Feb or begining of Mar every year. Once Dividend cash is received in month of April- May I reinvest them in something more fruitful.
I hope GoI doesn't chase me for this TIP.
Also seen is due to low cost of operations & managerial fees, I always pick ELSS either of Sundaraam, SBI, HDFC or Reliance.
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