personal finance

I will receive a lump sum of Rs 15 lakh. Where should I invest it to save income tax?

I am a retiree earning a monthly pension of Rs 30,000. I will soon receive a lump sum of Rs 15 lakh. Where should I invest it to save income tax and grow the principal?
Naveen Kukreja CEO and Co-founder,
replies: If your monthly pension is your only source of income, you won’t have to pay income tax. However, if you have other sources of income, and your total annual income exceeds Rs 5 lakh, you may invest up to Rs 1.5 lakh in equity-linked savings funds (ELSS). Investment in these tax-saving funds qualifies for deduction under Section 80C. The lock-in period of these funds is three years-the shortest among all tax-saving investment schemes. These funds have also outperformed comparable products by a wide margin.

You can invest the remaining amount in one fund each from the large-cap, multi-cap and balanced advantaged fund categories in the ratio of 50%, 25% and 25% respectively. Opt for their direct plans as the lower expense ratios of direct plans help generate higher returns compared to regular plans. For tax-saving funds, you may choose from the following: Axis Long Term Equity, Aditya Birla Sun Life Tax Relief 96 and IDFC Tax Advantage. For multi-cap funds, SBI Magnum Multicap, Franklin India Focussed Equity and Aditya Birla Sun Life Equity are good options. Axis Bluechip, ICICI Prudential Bluechip and Reliance Large Cap can be considered for your large-cap investment. For the balanced advantage category, you may choose from ICICI Prudential Balanced Advantage, Aditya Birla Sun Life Balanced Advantage and HDFC Balanced Advantage.

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I have accumulated Rs 1.1 crore in EPF, bank and corporate FDs, post office and bonds. I also have MF and stock holdings worth Rs 5.3 lakh and Rs 4.7 lakh respectively. I will be retiring after eight years and need to build a corpus of Rs 2 crore. I can raise my SIPs from the current Rs 30,000 per month to Rs 50,000. Please advise.
Prableen Bajpai Founder, Managing Partner, FinFix Research & Analytics
replies: Your goal of accumulating a corpus of Rs 2 crore is feasible. Your portfolio within the fixed income space is fairly diversified. Assuming a post-tax, conservative return of 6%, your existing fixed income investments should help accumulate Rs 1.75 crore. The monthly mutual fund SIPs of Rs 30,000 should help you build an additional corpus of Rs 36 lakh, assuming 10% returns over seven years.

You can start shifting from equity to low-risk products a year before you retire. Additionally, the investment of Rs 10 lakh in mutual funds and stocks should be worth Rs 21 lakh, assuming 10% return over eight years. So, you should be able to accumulate around Rs 2.32 crore with your existing structure of investments. However, if you allocate an additional Rs 20,000 a month to equity mutual funds, you could accumulate up to Rs 2.56 crore. Given your time horizon, ensure that your equity portfolio-stocks and mutual funds-is titled towards large-caps.


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