Where should I re-invest the money from a tax-saver fund? | Value Research There are certain parameters to keep in mind when you are looking to re-invest the money generated from a fund
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Where should I re-invest the money from a tax-saver fund?

There are certain parameters to keep in mind when you are looking to re-invest the money generated from a fund

Moving your money from a regular plan to a direct plan can be a worthwhile exercise over the long-term. Direct plans charge a lower expense ratio than a regular plan which eventually turns into better returns. And coupled with the benefit of compounding, it can make a meaningful difference in your corpus.

But do note that while tax-saving funds do not have an exit load, they are liable to long-term capital gains tax. Long-term capital gains from any equity fund, including tax-saving funds, were earlier tax-free. However, the Union Budget 2018 re-introduced a long-term capital gains tax of 10 per cent on the gains beyond Rs 1 lakh in a financial year. So be mindful of the same while redeeming your money.

If you are seeking a tax benefit while re-investing this money, it can be done by investing in any tax-saving fund. The deduction under section 80C can be availed even by re-investing this money in a fund like Mirae Asset Tax Saver Fund.

Access the list of tax-saving funds handpicked by our analysts. This can be helpful if you are unable to spare money this year for making tax-saving investments.

You can also invest it in National Pension System (NPS) Tier I account. Investment in NPS is eligible for an additional deduction of up to Rs 50,000 over and above the Rs 1.5 lakh limit of section 80C. Make sure that you opt for the maximum possible equity allocation by choosing the 'Active' investment choice while opening the NPS account. It allows allocating up to 75 per cent in equities till the age of 50. Investment in NPS gets virtually locked till the age of 60 and one is able to withdraw it before that only in certain specified situations.

If you are not looking for a tax benefit by re-investing this amount, and this money is meant for your long-term goals, any of your existing flexi-cap funds can work. But if you need this money over the next three to five years, park it in a good short-duration fund.

However, there is one more thing which you should be conscious of. From a diversification perspective, it is better to spread your investments across funds of more than one fund house. Several funds of a fund house will tend to have the same fund management and research teams and if their bets go wrong, it may potentially impact the performance of all their funds. Besides, there could be other factors such as the exit of a key fund manager which may impact several funds of that fund house. Therefore, it is always better to diversify your portfolio across fund houses too. Nowadays, you have plenty of good funds to choose from across different fund houses in almost every fund category.

So just check how well your portfolio is spread across fund houses. And make the decision accordingly if you plan to stick with equity funds. You can take the help of our portfolio tracker - 'My Investments' to get insights on the same.


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