I'm a retired government employee who gets a pension. Since I have to pay tax, I am thinking of investing in equity-linked savings scheme (ELSS) to save tax. Is it safe to invest in equity investments at my age?
The nature of equity investments is such that over the short term, they are subject to volatility but over the long term, they have the potential to create wealth. While you can invest in ELSS to derive the twin benefits of taxation and capital appreciation from equities, given your age and profile, you might also consider investing in other traditional tax-saving instruments like Public Provident Fund or tax-saver bank fixed deposits, to protect your portfolio from the volatilities of equity funds.
For regular income, should I invest in systematic investment plans (SIPs) or systematic withdrawal plans (SWPs)? What is the difference?
In case of a monthly SIP, dividends are subject to availability of distributable surplus. While these plans endeavour to meet your liquidity needs, they do not guarantee an assured regular income. On the other hand, an SWP gives a stable pay-out at predetermined intervals to you but at some stage, the investments will be completely repaid, along with the gains.
Also, this would make sense only if you invest a big sum at the first go, so as to withdraw sizable amounts at the predetermined intervals.
Can I reduce my monthly systematic investment plan amount? What is the procedure for this?
Yes, you can reduce the amount invested in Systematic Investment Plan (SIP) for which you will have to stop the existing SIP investment and start afresh. You may contact your financial advisor or nearest asset management company branch for the same. It is important to mention here that SIPs are the best tools to build wealth for the long term. Therefore, we recommend you avoid reducing your monthly SIP amount, unless you really have to.
managing director & chief executive officer, ICICI Prudential Asset Management Company, answers your questions
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