Suggestion regarding mutual fund investment

POSTED BY Priti Srinivas ON April 3, 2012 3:39 pm COMMENTS (5)

Hi members,
I have a goal for marriage in 3 years from now. So want to invest some money for mutual funds, say a balanced fund like Tata balanced fund.
Plus I also have to put in mutual funds to save taxes.

The maximum I can save per month is 5000.

Below is my salary break-up.

Can you please advise
1> How should I put in tax saving mutual fund?
2> How much can I invest in a balanced fund?
3> And which funds to invest..?
Salary Component Amount
BASIC 5800.00
HOUSE RENT ALLOWANCE 2320.00
BENEFITS PLAN 10380.00
COMMUTATION ALLOWANCE 800.00
ADDITIONAL ALLOWANCE 4167.00
PROVIDENT FUND 696.00
GRATUITY 308.00
QPLC 2290.00
MEDICAL 325.00
MONTHLY GROSS 27086.

Regards,
Priti

5 replies on this article “Suggestion regarding mutual fund investment”

  1. Dear Priti, for all the calculations provided to you by others, it’s quite clear that your income tax liability is not more than 5-8K Rs. in the whole year. In my opinion, you should not think of Tax saving for the plain fact that you do not have enough money for the purpose as you need a major part of your investments in next 2-3 years & there is no such instruments for 2-3Y period. Tax saving MFs are there but as you ‘ll invest on mly mode, each mly investment ‘ll be locked in for next 3Y period.

    Please think over it.

    Thanks

    Ashal

  2. TheZionView says:

    Priti

    You yearly gross is 3.25 out of which 2 L is exempt
    Now include
    HOUSE RENT ALLOWANCE 2320 X 12 =27840
    COMMUTATION ALLOWANCE 800. X 12= 9600
    PROVIDENT FUND 696 X12 =8352
    MEDICAL 325 X 12=3900

    Total=49692

    3.25L – 2L= 1.25L
    1.25L – 49692=75308 this will be your taxable income
    To become tax free you will need to invest 75308/12 =6275/month

    But you need save for marriage in 3 years there is no risk free tax saver instrument with 3 year lockin period.

    ELSS is 3 year lock in but carries high risk as the 3 years is very short period.

    My suggest will be to invest in ELSS the amount you are comfortable with in that 6275.
    Remaining should goto RD or FD which will give assured returns

  3. Ramprakash says:

    Tax calculation:

    BASIC 5800.00 Fully Taxable

    HOUSE RENT ALLOWANCE 2320.00 HRA exemption = minimum of (40% (50% for metros) of Basic+DA or HRA or rent paid – 10% of Basic+DA)

    BENEFITS PLAN 10380.00 Fully Taxable

    COMMUTATION ALLOWANCE 800.00 Upto 800 per month is Non Taxable

    ADDITIONAL ALLOWANCE 4167.00 Fully Taxable

    PROVIDENT FUND 696.00 Non Taxable under Sec 80c Max. 1 lac p.a.

    GRATUITY 308.00 Non Taxable. But you only get this if you have completed a min. of 5 years of continuous service with the same employer

    QPLC 2290.00 Fully Taxable

    MEDICAL 325.00 Non taxable on producing bills. Max amount 15k p.a.

    MONTHLY GROSS 27086.


    Unfortunately for short term, there is only one tax saving instrument. Thats ELSS Mutual Funds. So in your case I dont think you can invest in any tax saving instrument. I wont suggest ELSS in your case. As ELSS are subject to market risk and 3 years is not a long duration to reap equity benefits. In your case, since the goal is marriage, which is very important, you should invest strictly in Fixed Instruments (debt) with low risk. Also I would suggest you to get a 3 lac health insurance (should cost you 3-4k p.a.). You dont wont ur wealth to get eroded should something happen to you, God forbid.

  4. Priti Srinivas says:

    Ok. I’m very new to this financial planning so I am trying to understand which option will be better. At this stage I am looking at having 3-lakhs after 3 years. I know bank rd is an option but I have read that it is not tax- saving.

    I had initally thought of investing in growing mutual funds for the inital period and at a point closer to 2.5 years move into debt funds. Will balanced funds be good for this..?

    And regarding the tax bracket- my yearly gross would be 3.25 lakhs. After 2 lakhs deduction and hra .. the amount would be approximately 50000 to my understanding..

    Should I be invest this amount in some tax saving funds..?

    Also I wanted to know wat are the taxable components of salary and how would it be calculated..?

  5. Your duration is very short. Further you need this money for your marriage. If was you i would have not gone for MF for now. i would have gone for Bank RD.

    You are in lower tax bracket. I assume, after deduction you will come in lowest or no tax bracket. I dont see need for you to think about tax saving MF right now.

    What is amount you are looking to fund your marriage?

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