What should you choose to save tax?

ELSS vs PPF: Which Tax Saving Instrument Is Better

“...but in this world, nothing can be said to be certain, except death and taxes.”

Benjamin Franklin

While we can’t get clever with death, we can be smart with taxes and save our hard earned money. One can save tax by investing in various instruments such as Equity Linked Savings Scheme (ELSS), Public Provident Fund(PPF) and National Pension System(NPS) and tax saving fixed deposit etc.

Out of these tax saving options, ELSS and PPF are the most popular. Investment of up to Rs.1.5 lakh in a financial year in these two options among others qualify for tax deductions under Section 80C of Income Tax Act 1961.

Have you invested in PPF or ELSS? In this article, we will compare these two tax saving instruments which will help you to figure out the right one for you. 

Lock-in Period:Both ELSS and PPF come with a lock-in period. ELSS funds have a lock-in period of three years while PPF comes with a 15-year lock-in period. However, in PPF, you can make partial withdrawals after the seventh year. Hence, we see that ELSS has a shorter lock-in period than PPF. This means that you can redeem the ELSS fund’s units after three years. However, it is suggested that you do not redeem it, as by being invested your capital will appreciate over time.  

Returns:The returns is one of the key factors that distinguishes PPF and ELSS. The government of India fixes the interest rate of PPF every quarter. On the other hand, the returns in ELSS is not assured and is linked to the equity market. If we see the historical performance of both the two options, ELSS funds, in the last ten years has given returns of 13.55%* while the interest rates in PPF has ranged from 7.6% to 8.8%.  

According to research by Value Research, an investment of Rs.1.5 lakh every year over the last 20 years, has grown to Rs.79.39 lakh in PPF. While in the same time frame, investment in ELSS has increased to 2.28 crore.  Hence, in terms of returns, ELSS has outperformed PPF. 

Investment amount: In the case of PPF, you can only invest up to Rs.1.5 lakh in a financial year. However, there is no such restriction in the case of ELSS. While the tax benefit will apply to Rs.1.5 lakh, you can invest more and earn returns on the entire investment amount. As a result, ELSS is also a popular option to plan for long term goals.

Taxation: Gains from ELSS funds are taxed as per the equity funds and is subject to short term and long term capital gains. Short term capital gains are applicable if the units are sold before the 1st year. In this scenario, a tax of 15% will be applicable. If the units are held for more than a year, gains up to Rs.1 lakh in a financial year is exempted. If the gains are higher than Rs.1 lakh, long term capital gains will be applied in ELSS funds.

On the other hand, PPF falls under the EEE(Exempt, Exempt, Exempt) category. This means that the interest earned by investing in PPF and the principal amount is exempted from taxation.


By now, you may have become familiar with the differences between PPF and ELSS. PPF is the darling of the Indian masses, but its long term performance is not attractive while ELSS funds have given attractive returns. Also, with the interest rate trending down from 7.9 % to 7.1% (Jan - March 2023), it is unlikely that PPF will give a better return.

ELSS is not only a tax saving instrument; it can also help you to achieve your long term financial goals such as retirement. It is because you can invest over and above the Rs.1.5 lakh mark and still earn returns on the entire corpus.

If you have just started working or have no exposure to the equity market, you can invest in ELSS funds. Once you are comfortable with ELSS funds, you can start investing in other equity funds to achieve your financial goals.

In case of any queries, please get in touch with a financial advisor. He or she will be able to help you out with the best ELSS funds.

* Data as on 3rd Jan 2023



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Direct Stock Vs Equity Mutual Funds

Direct Stocks vs Equity Mutual Funds: Which is Better?

If you ask anyone if they have invested in equities, the most common response that you will get from them is, ‘no baba; it is very risky. I am happy with my fixed deposits.’ Their response stems from what they have seen in their friend circle or what they have experienced. While everyone knows that equities give the highest return on a long-term basis, the risk associated with it deters many investors from investing in equities.

However, what many people do not know is that there is another smooth way to take equity exposure, and that is through mutual funds.

Mutual funds pool money from many investors and expert fund managers manage it. While you can pick up the stock of your choice when you are directly investing in equities, the fund manager takes the investment calls in a mutual fund.   

Here’s some of the differences between Mutual Funds and Direct Stocks that will help you to figure out the right option for you.

You don’t need to be an expert to invest in mutual funds

When you invest in equities through mutual funds, you don’t need to be an expert in stock picking. Fund managers pick up stocks that they expect will be the best for their investors according to their investment objectives. In the case of direct equities, you will have to do the research and pick up stocks. In many cases, it is seen that many people invest in stocks as per their friend’s suggestion, and this is where they go wrong and end up with sour memories. Investing in direct stocks requires expertise. If you are new to the world of investing, investing in mutual funds will be the better option for you.

The risk in mutual funds is lesser than investing directly in stocks

The risk associated with direct stocks is higher than investing in mutual funds. Mutual funds have a diversified portfolio, and fund managers invest on an average of 30 stocks across different sectors and market capitalization. This reduces the risk associated with an individual stock. E.g., if stock A is not performing well due to some sector-specific problem, the underperformance of the stock will be offset by the other stocks in the portfolio.

Moreover, the market regulator has capped the investment in a single listed stock at 10%. That means that if the total assets of the fund are say Rs.100, then the total investment in one stock can’t be more than Rs.10. This reduces the risk when compared to investing in direct stocks, where the total allocation to a single stock in your portfolio would be higher.

Equity mutual funds are for the long run

Equities tend to be volatile in the short term, but in the long term, the returns tend to average out and give more attractive returns than other asset classes. Direct stocks can be for trading and investing purposes. However, equity mutual funds are only for the long term. Equity funds may give attractive returns if you stay invested for more than five years.

Fulfill your goals through SIPs in equity mutual funds

One of the most important parts of investing is discipline. Having a disciplined approach will make sure that you can meet your goals. Mutual funds have a facility through which you can invest a fixed sum of money periodically called as a systematic investment plan(SIP).  By investing in equity mutual funds through SIP, you will be investing in a fixed amount of money irrespective of the market levels. Rupee cost averaging is one of the most important benefits of SIP. Through SIPs, you will be allotted lesser units when the market is going up and more units when the market is low. Once the SIP mandate is set, the investment amount will be automatically debited from your bank account. This gives you the best of both worlds. However, in the case of direct stocks, you do not have the option to automate your investments and pay a certain amount of money every month.


When choosing whether to go for direct equities or through mutual funds, you need to ask yourself what kind of investor are you. Do you have the market knowledge or the time to do extensive market research to pick the right stocks for yourself? Can you bear the risk associated with investing in just a few stocks? If the answer to these questions is a resounding NO, then investing in equities through mutual funds may be the best option for you.

If you want to know more about investing in mutual funds, get in touch with a financial advisor. He or she will be able to guide you and clear all your doubts. Happy Investing!

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Active fund vs Passive fund

Active funds vs passive funds: Which one should you choose?

Mutual funds have become a hot topic of discussion among everyone. The general curiosity among people about mutual funds has increased, especially after the ‘ Mutual Fund Sahi Hai’ campaign that went live a few years ago. Mutual funds come in different shapes and sizes, and they can be classified into various segments. Mutual funds can be broadly classified into active and passive funds.

Active Funds

Actively managed funds are the most common category of mutual funds. In an actively managed fund, the fund manager is responsible for stock picking based on the scheme’s objectives. His objective is to beat the fund’s benchmark. This leads us to the concept of the benchmark. To gauge the performance of the fund, every fund tracks a specific benchmark. The benchmark is typically the broad market indices such as Nifty 50 TRI or BSE 200 TRI. The benchmark of the fund depends on the category of the fund. E.g., if the fund is a small cap equity fund, then its benchmark is most likely to be Nifty 500 TRI than Nifty 50 TRI.

Passive Funds

Passive Funds mirror the benchmark. That means that the fund will invest in stocks as per the index. The goal of the passive fund is not to beat the index but deliver the same returns as the index.  The extent to which the fund does not track the index is called the Tracking Error. Tracking error is an essential determining factor in passive investment. Tracking error is the percentage of deviation from the index. E.g., if the index has gained 5% in a month and the return given by the index fund is 4.5%, then the tracking error of the fund is 0.5%. In the second scenario, if the index fund has given a return of 5.5%, then the tracking error of the fund is still 0.5%.

There are two main reasons behind tracking errors in index funds.

The constituents and the proportion of the different companies in the index keep on changing. If there is any such significant change such as the addition and removal of stocks in the index, the fund will show a higher tracking error till the fund manager can align the portfolio as per the new changes. Large scale redemption pressures from investors is another reason behind the tracking error. If the redemption requests are more than inflows, the fund manager has to sell shares to honor the redemption requests. It will lead to a higher tracking error as the fund won’t be in sync with the index.

Difference between active and passive fund

Active Funds

Passive Funds

Aims to beat the benchmark

Aims to mirror the benchmark

Fund manager plays an active role in stock picking

The fund manager does not play a role in stock selection

Has shown to give higher returns

Gives returns as per the index

Has a higher expense ratio

Has lower expense [PC1]


Objective: The objective or the goal of the active funds is to beat the benchmark. The higher the outperformance, the better is the fund. On the other hand, passive funds seek to give index returns. The lower the deviation from the underlying index, the better is the fund.

Returns: Active funds have the potential to deliver high returns as the experienced fund managers manage these funds. During a phase of falling markets, active funds tend to fall lower than the broader market.

Fund manager’s role: In active funds, fund managers play an active role in stock picking. However, there is no role of the fund manager in passive funds. The fund manager has to increase or decrease allocation to a specific stock as per as the underlying index. 

Expenses: Active funds charge a higher expense ratio than passive as the fund managers play an active role in stock selection, which is not the case in passive funds.


Which one is best for you?

Passive investment is still in the nascent stages in India. Many top fund managers have beaten the benchmark by a higher margin. As the Indian market is still growing, fund managers have ample opportunity to identify growth stocks with their strong research team and beat the benchmark. Thus, investors tend to earn higher returns by investing in active funds.

Volatility is part and parcel of the Indian market as geo-economic factors like trade wars and internal factors like elections and politics play a significant role in the Indian market. Hence, by taking the active route, you can be assured that the fund will give better returns or fall less than the overall market.

One of the drawbacks of the active funds that has been a constant topic of discussion is the higher costs. However, the market regulator has addressed this issue by cutting the expense ratio of equity funds to 2.25% from 2.5% and debt funds to 2% of their daily net assets.

To summarise, in the current scenario, investors may be better off by investing in active funds as it has the potential to earn higher returns. 

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Debt funds are now more secured with new regulation

Worried about investing in debt funds? Debt funds are now safer

In the last few months, there has been a lot of volatility in the debt market. For many investors, investing in debt mutual funds was riskier than equity funds. It all started with the IL&FS fiasco in September 2018 when the group companies defaulted on their payments. Many mutual fund houses had invested in these companies. Essel Group and other similar episodes followed. In short, it has been a wild ride for debt fund investors who had invested in liquid funds and other debt funds with the notion that debt funds are completely safe.

To safeguard the interest of the mutual fund investors, the market regulator, the Securities and Exchange Board of India (SEBI) has laid down guidelines that will govern debt funds.

Here are some of the changes laid down by SEBI are as follows:

Liquid funds to hold at least 20 percent of assets in liquid assets

This move aims to enhance the liquidity of liquid funds. Mutual funds have to keep 20% of their assets in liquid and safe instruments such as cash, government securities, treasury bills and repo instruments. It will make sure that the fund houses will be able to manage large-scale redemption requests without adversely affecting the unit price (net asset value) of the liquid funds.

Cap on the maximum exposure to one sector

Liquid funds will now not be able to invest more than 20% in a single sector. The earlier limit was at 25%. This aims to reduce the risks associated with a single sector. Also, the exposure of liquid funds in housing finance companies cannot be more than 10%, down from 15% earlier. This is over and above the 20% limit on each sector.

Penalty for withdrawing before seven days

Liquid funds do not have any exit loads, and as a result, many large investors used to redeem from the funds within a day or so. As large investors such as institutions have the lion's share in liquid funds compared to retail investors, the question of the stability of liquid funds had sprung up. Now, mutual funds can impose a graded exit load on investors withdrawing before seven days. It means investors who redeem after a day will have to pay a higher exit load than the investors who redeem later, say on the sixth day.

All papers to be valued on mark-to-market:

Securities that mature over 30 days will now have to be marked according to the market rate, i.e. on a mark-to-market basis. Earlier, securities that matured after 60 days had to be mark-to-market. With this new change, NAVs of liquid funds will reflect a realistic value of the fund. However, it is also likely that the rate of fluctuation in NAV may also go up.

Debt funds to invest only in listed NCDs and CPs

Many companies raise nonconvertible debentures (corporate bonds) and commercial papers through private placements. Now, funds can only invest in listed securities, and no private placements will be allowed. As a result, it will increase the transparency of the quality of the papers, as listed securities have to adhere to the regulations and disclose accordingly. 

Tighter lending norms:

Mutual funds can now only lend to corporate against pledged equity shares with a cover of at least four times. Simply put, if a mutual fund lends Rs. 100 to a group company, the company would have to pledge shares worth Rs.400 with the mutual fund. If the share prices fall, the company would have to make up for the loss by paying cash to the fund. If that does not take place, the fund house can sell the shares to recover the money and to protect itself against a further fall in the share prices of the borrower company. With this new regulation in place, fund houses have no choice but to sell the pledged shares if the company’s share price falls to recover the money from promoters.

These were some of the crucial steps taken by SEBI to make debt funds safer for investors like you and me. So, leave your worries behind and start investing in debt funds. Understanding debt funds may be hard, and this is where a mutual fund advisor comes into the picture. He will be able to guide you better and clarify all your doubts regarding debt funds.

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Why term insurance?

Why you should get term insurance right now

We all love our families and want the best for them. We try to fulfill their wishes to the best of our abilities. One easy and simple way to show your love for your family and to make sure that they continue to live a dignified life even in your absence is to take a term insurance.

Life is unpredictable, and there will be times when things don’t go according to the plan. Term insurance is one of the simplest financial products which can safeguard your family in times of an unfortunate event.

Getting insurance is the first and most crucial aspect of financial planning. In term insurance, the beneficiary receives the sum insured after the death of the insured person. However, one needs to remember that the term plan does not pay back any amount if the insured person survives the tenure of the policy. You can avail of higher life cover by paying a lesser premium.

Who should take term insurance?

If you have dependents whether it is your spouse, young children or elderly parents, taking insurance is necessary. However, even if you have no dependents, but have outstanding loans like home loan or vehicle loans, taking term insurance is also essential in this scenario.  

It is beneficial to take term insurance at the earliest because the premium paid and the age of the insurer is directly proportional. This means that the longer you wait to get term insurance, the higher will be your premium. The premium is likely to increase as the number of responsibilities and health issues may crop up. Also, unlike health insurance, where the premium covered keeps on growing, the premium for term insurance remains the same throughout the tenure.

What should be the ideal insurance cover?

Figuring out the ideal insurance cover is one of the most important things to consider when taking a term insurance cover.

A cover of Rs.50 lakh may be sufficient if you don’t have dependents. But it will not be enough after you have a family. You will have to increase your cover after every significant event like marriage, the birth of the first child and second child etc.

As a thumb rule, life cover should be equivalent to 10 times of your annual income. However, that is just the tip of the iceberg. Loans and debts, future expenses, savings and investments, are some of the other factors that should be kept in mind while calculating the insurance cover. The outstanding dues on your home loans and vehicle loans should be considered in the term insurance. However, you don’t have to calculate your credit card debt in this scenario.

The other important part is providing for future expenses such as children’s education, marriage and day to day expenses. Consider a reasonable inflation rate while calculating future costs. You may also be investing in these goals through systematic plans in mutual funds, but it is essential to consider these goals as accumulating for these goals may come to an abrupt to end in your absence. Having adequate term insurance will make sure that your children don’t have to compromise with their education.  You can use a ‘Human Life Value’ calculator available on the websites of insurance companies to find out the ideal life cover for you. Don’t make the mistake of rounding of the amount to the nearest round figure.  It is better to take higher insurance cover than to take less insurance cover.

You can take the help of a financial advisor to calculate and find out the right amount necessary for you.

Another essential aspect of term insurance is tenure. Many people make the mistake of taking the term insurance to 75 or more. Typically, you should consider term insurance till your retirement age of 60 as the family’s dependency after your retirement will come down drastically.  

Term insurance is one of the vital steps in financial planning. Take one now and relax. 

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Investment tips for Youngistan

Investing as a newbie

After one lands in a job, the first thing that most parents will tell is to save money.  Saving money, especially for someone who is in their first job and living alone in a big city, may not be easy. But it is also not difficult. Saving is necessary as it will help you to tide over emergencies and fulfil your financial goals. Here are a few essential steps that you can take as a beginner.

Your salary is less than what you get

We always think that we will start investing once we have enough money. But it is never going to work out this way. One way to change this habit is to imagine that you get less than your take-home salary. For, e.g., You can imagine that your salary is Rs.30,000 if your actual salary is Rs.35,000. Thinking in this manner will help you to save a little amount of money every month.

How much should I save/invest?

Knowing how much to save is on everyone’s mind, but there is no easy answer to this question. It is because the lifestyle and needs of different individuals varies. While it may be easy for someone who stays with their parents to save 95% of their income, it may not be the same for someone living alone in a city.  As a rule of thumb, it is advised to save at least 20% of your income for your future goals. If you can’t start at 20%, start at 10% and gradually increase your allocation. The main point is to start somewhere.

What to do with the savings?

The next question that must have automatically come to your mind would be what to do with the savings. It is better to invest in your financial goals. However, it is most likely that you still haven’t figured out a financial goal. If you don’t have a financial goal in sight, the easiest way to save money would be to set up a one-year recurring deposit. Investing in an RD is extremely safe and very easy to open. Nowadays you don’t have to fill documents or visit the bank branch. You can create an RD in just two minutes through your bank app. All you have to do is add the tenure, the date on which money will be debited from your savings account, and the sum of money that you want to save every month. Remember to set the date within the first week of the month. 

Instead of RD you may also look at Liquid Mutual funds where you get the convenience of withdrawing at anytime just like you saving bank account and also get a chance to earn better return than savings account.

Once your financial goals are decided you can channelize your RD money or Liquid fund money into Mutual funds.

How to invest in mutual funds?

Mutual funds are an effortless and popular way of investing. Mutual funds invest in a pool of stocks and securities, and a dedicated fund manager manages it. It is especially useful for individuals who do not have the time and expertise to select stocks. To invest in mutual funds, every investor needs to complete the KYC process. The KYC is a one-time procedure. Your financial advisor will be able to help with the process. After the required processes are in place, it is time to select mutual funds. There are many categories of mutual funds for different goals and different types of investors. You should discuss your financial goas and requirements in detail with your financial advisor so that he/she can help you to choose the right product for you.

For e.g., if you want to save money for a vacation that is six months away, taking high risk and investing in equities won’t be the right way to go forward. A liquid fund can help you to save for your vacation. Similarly, for your financial goals that are 15 years away, a small-cap fund may be a good investment option. Ultimately, you financial advisor analyses your requirement, your risk appetite and your financial goals to ensure that you get right schemes in your portfolio suitable to your profile.

There are two ways to invest in mutual funds: lumpsum and through Systematic Investment Plan(SIP). SIP is one of the easiest and convenient to start investing in mutual funds, especially for salaried individuals. In a SIP, a fixed sum of money is deducted every month automatically from your savings account. SIP helps form financial discipline, which allows you to achieve your financial goals. If you have lumpsum amount at hand, you can invest lumpsum in the mutual fund of your choice. You can also invest lumpsum in the fund where you have set up a SIP. This will help you to reach your financial goals faster.

While it is reasonable to have the temptation to spend, it is crucial to save and invest money for the future as well. Investing should be appropriately planned, and mutual funds are one of the best ways to invest your hard-earned money and achieve your financial goals. If you are confused about which mutual funds to invest or how to go about it, a financial advisor can help you in your journey.

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