Consider “Tax”- a factor and make smarter investments!

Here is the clear count that Expected returns of equity investments are higher than returns from other avenues such as Fixed income, Gold etc. However, taxes are on the lower side of the spectrum. So is there any catch? We explain –

We keep hearing that investments in equities and mutual funds are too risky to consider over other asset classes and saving instruments. However, when held for long term, these investments tend to give much superior returns along with often overlooked tax saving benefits.

• Equities and FDs are taxed differently and that actually makes a big difference. There is no income tax on equity held for a year or longer whereas FDs attracts income tax at normal rates. On a post-tax basis the FD return is lower by 10-30% depending on your tax bracket.

• Equity return over the last 30 years has been about 15%, despite many sharp downfalls in equity markets. Well managed mutual funds have delivered even better.

• There is exemption of upto 1.5Lakhs under Sec 80C of the Income Tax Act on capital gains through diversified equity mutual funds qualified under ELSS. The only catch here is lock in period of 3 years.

So here’s how the alternatives measure up historically:

Equity: ~15% annual return with no income tax if held for more than a year.

ELSS Mutual funds: ~15% annual return, tax benefit of upto 1.5L per annum if held for more than 3 years.

FD: ~8.5% annual return, fully taxed.

So Invest Smartly and take full benefits of Equity Investments for a larger return base in the long run.

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