I want to invest R10,000 a month in an SIP. What kind of fund should I invest in and will I get tax benefit for it?
Generally, longer the investment horizon and higher the risk appetite, higher would be the allocation to equity. Typically, for an investment horizon of up to two years debt funds are suitable, hybrid fund categories like Monthly Income Plans (or MIPs) can be considered for a horizon of two to four years, Balanced funds for a horizon of four to six years and equity funds for a horizon seven years and above.
There are two categories of mutual funds, namely Equity Linked Savings Schemes (or ELSS) and notified retirement funds, that provide tax breaks on investments under Section 80C of the IT Act. Investments made up to a total limit of R1,50,000 per annum in these categories is deductible from your gross total income under Section 80C. Each of these fund categories carry lock-in periods or loads for exit prior to specified time periods.
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Additionally, the Rajiv Gandhi Equity Savings Scheme 2013 (RGESS guidelines) can be used for claiming tax deduction. The tax deduction in terms of RGESS guidelines will be offered to a ‘new retail investor’ who complies with the conditions of the RGESS and who has a gross total income, for the financial year in which the investment made under RGESS, of not more than or equal to R12 lakh.
The maximum investment allowed for claiming deduction under RGESS is R50,000. The investor will be eligible to get a 50% deduction of the amount invested from the taxable income of that year under Section 80CCG. The benefit is over and above the deduction available under Section 80C.
Dhiraj Singh, The writer is director, Investment
Advisory, Morningstar Investment