Risk-return And Tax Analysis.pptx

Various Investment Avenues

Risk • Risk of default • Risk of undesirable changes in Returns SD of returns Coefficient of variance for comparability (R Square)= i.e. % of variance in one variable explained by the variance of another variable. Beta of securities

Returns • Regular return • Increment in price (Capital gain) • Total Return CAGR on Increment in price + average of regular income *Post Tax Returns: When the returns are taxable, post tax returns shall be taken into account for comparability

Liquidity • Flexibility on withdrawals

Tax Effects • Tax on Returns • Deductions for Investment • Taxability in withdrawals

Fixed deposits • Fixed Deposits Risk: Very less Return: Moderate (near to 7%) Taxability: Interest is taxable, deduction under section 80C in case of tax saving fixed deposits of 5 years. Liquidity: Partially Rigid Tax Category: TTE

Public Provident Fund Risk: Very less Return: Good (near to 8%) Taxability: Interest Exempted and deduction allowed under section 80C Liquidity: Very rigid (No withdrawals permitted up to 6 years, premature withdrawals allowed after 6 years and Lock in period of 15 years for full withdrawals) Tax Category: EEE

Gold Risk: No Risk Return: Good (near to 7%) Taxability: Taxable under capital gains when sold, No deduction on investment Liquidity: Very High Tax Category: TTE

Equity Risk: Very High Return: CAGR of Sensex was around 15% since its inception. Taxability: Capital gains tax on sale, dividend is exempted up to Rs 10,00,000. More than 10 Lacs, 10% Tax-Income from other sources Liquidity: Very High Tax Category: TTE

Mutual Funds Risk: Growth Fund-High Income Fund-Low Balanced Fund-Moderate Return: Some MFs have performed exceptionally well in past few years. Last year was relatively bad for MFs. Taxability: ELSS: Deduction U/S 80C Capital Gains for Equity Funds and other source income for debt funds. Liquidity: High for ETFs, good for MFs and low for ELSS ELSS-Lock in period of 3 years Tax Category: ELSS-TEE MFs-TTE