CEO Speak

The Indian equity markets moved on a positive trend in February 2024. Positive economic indicators like increased GST collections and strong government spends allocated for infrastructure development supports the strong growth momentum projected for the Indian economy. However, there remains uncertainties like global geopolitics and the upcoming general elections in India, hence, one cannot rule out the possibilities of market volatility. We at HSBC mutual funds will always advise our investors to be investing with clear financial goals and not get swayed by ups and downs in the markets.

I see many young and old struggle with their tax planning towards the end of the financial year. Some I see can do better with their tax planning, others I find struggling for enough funds to invest in tax saving instruments. This month let me spend some time in some of the basics of tax planning and how mutual funds can be your friend for tax efficiency.

Efficient Tax-Planning through Mutual Funds

Tax planning is a crucial aspect of financial management for individuals and businesses. Mutual funds offer a compelling avenue for tax efficient investment options.

Tax planning through Equity linked Saving Schemes (ELSS):

ELSS as a category of equity mutual funds is specifically designed for tax benefit as it qualifies for deductions under section 80C of the Income Tax Act up to an amount of Rs 1.5 lacs. It has a lock-in period of 3 years which gives the advantage of long-term investment to retail investor to benefit from the equity markets. Hence, is a smarter tax saving financial instrument, especially when you have the risk appetite for equity markets and a long-term investment horizon.

Tax Planning through equity mutual funds:

As equity mutual funds invest into the stock markets and have a historical track record of returns over a long term, they quality for long term capital gain (LTCG) treatment. Under the current tax regulations, capital gains from equity mutual funds up to Rs 1 Lac a year is tax exempt. Any long-term capital gains exceeding this limit attracts LTCG tax at 10 per cent, without indexation benefit.

Tax planning through Systematic investment plans (SIPs)

Systematic Investment Plans (SIPs) allow investors to invest a fixed amount in mutual funds at regular intervals. SIPs offer the benefit of rupee cost averaging and can help in wealth building over a long-time horizon. From a tax planning perspective, SIPs in equity mutual funds and ELSS provide the advantage of staggered investments, reducing the impact of market volatility while potentially enhancing tax efficiency. SIP is also a great way to plan your savings in a disciplined manner so that you may have the required amount of funds for investment over long run if you want to make lumpsum investments.

While I see a lot of investors doing last moment tax saving investments to meet their company deadlines, my recommendation is to plan your investment along with your tax planning at the beginning of every financial year. Let this article serve as a reminder for those who have not paid attention to their tax planning.

Note: Investors should consult their financial advisers or tax consultant if in doubt about whether the product is suitable for them. SIP in ELSS scheme will lock your investment on each Investment installment (i.e. for 3 years). Make your investments tax efficient through Mutual Funds.

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