Sensex fall is rather a boon in disguise

The three-day continuous fall, a 984 point correction in the benchmark index – Sensex may not be all that bad for the small retail investors. It’s rather a boon in disguise. Here’s why?

December is the month when a lot of small retail investors start their tax planning. With the current 7% plus correction, many equity linked tax savings instruments such as equity linked savings schemes (ELSS) and unit linked insurance plans (ULIPs) have seen massive correction in their net asset values (NAVs).

In many of these funds, the correction in NAV is more than 7%. This is because, these funds invest in the broader market and not just the benchmark indices. And since the second rung (small and mid cap) stocks have fallen much higher than the benchmark indices, NAVs for both ELSS and ULIP schemes have plunged more than 7%.

So suddenly ELSS and ULIPs might see a lot of inflows. Already domestic institutions are sitting on plies of cash, which might start finding its way into the equity market after the current correction.

Tax payout can be cut down by investing into 80C investment vehicles and investments up to Rs 1 lakh in 80C eligible instruments qualify for the same. Assuming a flat 30% tax rate, you can save nearly Rs 30,000 in taxes per annum by investing into 80C instruments.

There are seven investment categories where you can invest to save taxes – provident fund, PPF (public provident fund), NSC (national savings certificate), infrastructure bonds, pension plans, ULIPs (unit linked insurance policies) and ELSS (equity linked savings schemes). But, with a marked rise in the equity market, many small retail investors are being led to invest into the equity linked savings option in order to save taxes.