Source/Contribution by : NJ Publications
Happy New Year !!
As we enter 2019, a new year of promises, opportunities and hopes slowly dawns upon us. It is the season of making resolutions and before we continue with the article, there are a few resolutions or wishes that we have for you. We wish that this year, may we see you as more updated and knowledgeable, may your clients be very satisfied with your great services (make them great!) and lastly, may you achieve your business targets!
It is important to remember that investors are with you because of the services and the guidance that you provide. Thus, the edge the advisor has is his knowledge and his ability to keep the client happy.
While we have closed the calendar year 2018, it is important to remember that we are just 3 months away from closing the financial year 2018-19. One area where you as an advisor should bring into extra focus is tax savings. One can never be too soon with tax saving. Time is short and it is best that we do not let our clients be at the mercy of their CAs to take good care of it? Should you allow this to happen? Absolutely not and you have to intervene.
As an advisor, your role is not just limited to suggesting and helping your clients with investments. It is your responsibility to also make sure that these investments are being made according to the investors' requirements and also to make sure that all the benefits provided by these investments are being availed by the investor. A very important piece of investment planning is also related to tax planning. Making full use of the tax savings options available to the investors should be an aim to achieve but one should also keep in mind the investor's needs. Suggesting the right kind of instruments for tax savings to the extent feasible is what you should aim at.
Obviously, ELSS is on top of the list here. As advisors, we already know why ELSS is the idea tax saving instruments for investors and the great advantages they provide. Since ELSS invests in equities, the returns are likely to be much better than the other tax savings instruments like PPF, NSCC etc which provide tax relief under Section 80C. While most instruments provide a return of 7-8%, one can easily expect a return in excess of 10-12% in the long term from ELSS.
Another hidden advantage of investing in ELSS is that it gives the investor a taste of investing in equity. Thus ELSS can be an entry point for equities for those who are shy of it. It can also be part of the bare minimum equity asset allocation for investors who are risk averse and investing primarily into debt products. This way, limited equity exposure is provided with the primary objective of tax savings. We know that investors readily agree to invest in them because of the tax savings and low lock-in period, so if they are not happy with the returns they can exit easily. However, since our primary goal has to be tax saving along with long-term investments, as the investors notice better returns from ELSS, they are motivated to invest in other funds which are equity-linked.
But don't NPS and ULIPs provide similar returns and also help in tax savings? Sure they do, but they also have a high lock-in period. A high lock-in period disables you from getting out of the investment in case of need and also from shifting to another investment in case you are not happy with the returns. As an advisor, you must be aware that what is easier, convincing a client to invest in a new product with a higher lock-in period or a lower lock-in period.
Thus, not only will ELSS make a good tax saving instrument, but it will also help you in convincing clients to invest in schemes with high exposure in equity as they will see the return benefits. Again, this benefit is limited for those investors who have the risk appetite but are dubious of investing in equity schemes. Thus, the beginning of a new year gives you just the right opportunity to speak to your clients to invest in ELSS and not just save tax but also earn better returns.
How to plan for ELSS?
We would suggest that you get the figures for investments made into ELSS by your investors for this financial year. This can be easily fetched from Partner Desk using the Account Insight Report and/or the Transaction reports.
We would like you to calculate the following figures: ELSS investments already made this year and the like gap in the ELSS investment limits (i.e., short-fall against 1.5 lakhs limit)
Once this information is at your disposal, please identify the following investors...
1. Investors who had invested last year but have yet not invested in ELSS this year – Zero investments
2. Investors who have not invested as much or are likely to save less compared to last year – Less investments than last year
3. Investors who are likely investing in ELSS below potential – the gap in the potential of maximum 1.5 lakhs
4. New investors who have not invested or have not adequately invested in ELSS
On having the above information, you should have them sorted on the potential ELSS investments target – starting with the highest amount. This is now a piece of very important information for you. You should ideally start working on this list immediately. You may also consult your relationship manager on the entire strategy of getting more ELSS investments in the next two months. Don't leave things till the last month.
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