Saving taxes with mutual benefits
The one big change that
13 April 2005
Dr Uma Shashikant*, vice president, knowledge management, Prudential ICICI AMC Ltd, offers a simple investment and tax planning strategy
The one big change that will remarkably alter the long term wealth of investors is the tax concession to equity linked savings schemes. Traditionally, in order to save tax, one invested in certain specific schemes, most of which were interest bearing, fixed return bonds. The interest rate on these instruments has been reducing over the years, making these investments an inappropriate choice for long-term investment for financial goals like retirement.
Though it was well known that equity investments enable growth and offer a hedge over inflation, they were not part of the long term tax advantage savings that most investors make every year. This budget enables investment in equity upto Rs. 1,00,000 through tax saving plans of mutual funds.
What difference can equity make to a portfolio? Consider table I below, that shows the growth in the value of investment made in various avenues five years ago. Table 2: Value of Rs100 invested on April 1, 2000 in various instruments
| Instrument | Rate of Return |
|