Old vs New Tax Regime: Which Should You Opt For Tax Saving Purposes?
Should people stick with tax-saving funds and stay in the old regime, or switch to the new regime and not rely on tax-saving funds?
Shweta Jain and Rohin Pagdiwala in conversation with Niraj Shah on ‘The Mutual Fund Show’.
Shweta Jain and Rohin Pagdiwala in conversation with Niraj Shah on ‘The Mutual Fund Show’.
Transcript
00:00 (upbeat music)
00:02 - Hello and welcome to the Mutual Fund Show
00:12 on Indy TV Profit.
00:13 I'm your host, Neeraj Shah.
00:14 As always, this show aims to bring you expert commentary
00:17 from the mutual fund industry and the planners
00:19 so that you can make smart choices
00:21 when it comes to investing your money
00:23 through the mutual fund route.
00:24 Talking about smart choices,
00:26 we ask in this question whether people should continue
00:28 their tax saving funds or depend on the new tax regime
00:32 for the tax saving ability.
00:33 It's a bit of a personal finance question
00:35 into the Mutual Fund Show
00:36 because it involves mutual funds, of course.
00:40 So today on the show, to talk about that and more,
00:42 we're joined by Rohin Pagdiwala,
00:45 founder of Pagdiwala Investments,
00:47 and Shweta Jain, who is the founder of Investography.
00:50 Both of you, thanks so much for taking the time out
00:52 and being with us on the show.
00:54 There's lots more to discuss.
00:55 We'll have queries from our guests,
00:57 from our viewers as well, which we'll urge you to answer.
01:01 But can I start off with this?
01:02 It's a bit of a personal finance overlap on the MF Show,
01:05 which is not something that we usually do,
01:07 but it becomes important right at the nick of time
01:10 and also maybe for FY25,
01:14 which is that should people continue with tax saving funds
01:17 and thereby be in the old regime,
01:20 or should people move to the new regime entirely
01:22 and not depend on tax saving funds for tax saving purposes?
01:27 Shweta, can I start off with you on this?
01:30 What are your thoughts?
01:31 - So thanks for having me on the show, first of all.
01:35 And it's a great question,
01:37 and I love that angle of personal finance
01:39 in any mutual fund show,
01:40 because that's where it all starts.
01:43 So tax planning per se,
01:44 we like to link it with goal planning.
01:46 We like to link it with behavioral aspects.
01:50 So for anybody looking to better their behavior,
01:54 I think ELSS is a great start for them.
01:57 And if it has to be done through the old regime,
02:00 I think that's a great place for them to start off with,
02:04 especially for newer investors,
02:06 especially for people who are young
02:08 and are looking to start their investment journeys,
02:12 life journeys.
02:13 So I think ELSS is a great way to start.
02:16 The 3R lock-in gives them a good kind of experience.
02:20 The volatility in the ELSS,
02:23 because it's equity, gives them a good experience,
02:25 but they can't withdraw that money.
02:27 So they'll stay and they'll learn through that.
02:30 So I think when you combine all of this,
02:32 we sort of gravitate towards the old regime,
02:36 also because the old regime sort of incentivizes you
02:41 through deductions to save and invest.
02:44 And anywhere where the behavior
02:45 is towards saving and investing,
02:47 I gravitate towards that.
02:49 So yeah, I think especially for younger investors
02:53 who are just starting their journeys,
02:55 ELSS is a great way to start.
02:56 An old regime is the way I would go.
02:59 - Okay, Rohin, would you stick to the old regime
03:02 or are you going for the new regime?
03:04 And therefore, if you're sticking to the old regime,
03:05 I believe tax-saving funds become a bit of a no-brainer,
03:08 or am I wrong?
03:09 - No, you're right.
03:11 And I think I tend to agree with Shweta's views as well.
03:14 I think the first question that the investor must,
03:17 or rather the taxpayer must answer
03:19 is which regime he wants to go for.
03:22 In my observation, people with higher salary incomes
03:26 will tend to prefer the older regime
03:28 because net-net that saves you a little more tax.
03:31 And if you're going for the older regime,
03:33 I think Section 80C funds, ELSS funds
03:35 are a no-brainer choice.
03:38 They've historically shown that they give the best returns.
03:42 They also have the lowest lock-in period.
03:44 So if you're going with the old regime,
03:46 definitely ELSS funds are the best choice.
03:49 For people who go with the new regime,
03:52 obviously there's no point doing ELSS funds
03:54 because there isn't much performance difference anymore
03:58 between ELSS funds and let's say FlexiCab funds.
04:02 There's a very marginal difference in returns
04:05 and for which I don't think a lock-in period is justifiable.
04:08 - Interesting, Rohin, there are some proponents
04:12 of the tax-saving funds who say that it's a great way
04:16 to invest all your money as well
04:18 because by default it locks you in
04:20 for a period of three years
04:21 and mutual fund investing should be done
04:23 with that kind of a perspective.
04:25 Now, I for one believe liquidity is as important
04:28 because we all invest money
04:29 so that it's useful for us when we want.
04:31 I'm just trying to understand,
04:32 independent of the tax-saving benefits,
04:36 do tax-saving funds become an interesting choice for people?
04:41 Or if not bound by the tax-saving rules,
04:44 you would rather choose the non-tax-saving funds?
04:50 - I'd like to say it, I mean split in two ways.
04:53 If you're a novice investor,
04:54 if you're an absolute new investor
04:55 and you don't have, let's say somebody guiding you
04:59 or educating you on the need to be invested
05:01 for the long-term, then I think, yeah,
05:03 ELSS funds are okay because they'll help you
05:07 remain invested for three years
05:08 and therefore eliminate any behavioral biases
05:13 that might tempt you to, you know,
05:14 withdraw the money earlier.
05:16 Having said that, if you have a financial planner
05:20 helping you or a distributor helping you
05:22 or an advisor helping you,
05:23 then I think it's their job to educate you
05:25 on the need to remain invested for the long-term
05:27 and you shouldn't force your hand
05:29 by being in ELSS funds.
05:30 So that's the only, I mean, that's the only difference.
05:35 Lock-in is a negative in my opinion
05:37 because it's forcing you
05:38 and you will not have the liquidity, come what may.
05:42 If you have an advisor or a planner who's talking to you,
05:44 then it's their job to educate you
05:45 and help you remain invested for the long-term
05:48 despite any volatility.
05:50 - Okay. Shradha, the same question to you, really.
05:53 - So I have a little bit of a different opinion.
05:56 I would still allocate some part of it to ELSS,
06:00 especially seeing how,
06:01 especially new investors react, right?
06:04 Whether it's, you know, just seeing markets go up
06:07 and then where the time horizon,
06:09 when they came to us would be, say, 10 years, 20 years
06:12 or five years or whatever, right, long-term.
06:15 But then suddenly they see this portfolio with good gains
06:18 and they're like, "Okay, let me cash in
06:20 and, you know, spend it," or whatever.
06:22 So I have seen parts of portfolio
06:25 where there is a lock-in that's still there
06:26 without really impacting their lifestyle or anything,
06:29 but the part that was free is really something
06:32 that they liquidate because they feel that markets
06:35 is heated up or on highs or whatever, right?
06:39 So some part of the portfolio,
06:42 I would still guide towards ELSS,
06:44 even if there was no tax benefit,
06:46 especially for newer investors.
06:48 Because that sort of helps them save from themselves,
06:51 you know, or save their money from themselves.
06:54 - And viewers, in some sense,
06:56 this boils down to the kind of discipline
06:58 that you believe you have within yourself.
07:02 And if you believe that you're disciplined enough
07:03 that if you're allocating some money for investments
07:07 and you're allocating it at the start of the allocation
07:09 with the belief that you will hold it for five years,
07:12 and more than what if you can do that for five years,
07:14 then ELSS funds need not be the way to go to.
07:17 You'd rather have the choice under your control.
07:20 But if you are somebody who you know
07:23 that you might be falling prey to some temptations
07:26 here and there for liquidating investments,
07:28 and ideally, MF investment should be
07:29 for a slightly longer term,
07:31 then by all means, if you're a novice investor,
07:33 then tax saving funds might be a good option
07:36 because they lock you in for three years.
07:37 Even if you want, you can not liquidate the funds
07:41 until the three years are over.
07:43 So please keep that at the back of your mind.
07:45 Okay, now moving on topics.
07:47 The other one is around healthcare funds.
07:51 And this is a bit of an investing angle coming in out here
07:54 as opposed to it being pure play MF advice.
07:58 And I don't know if you guys have a view on the sector,
08:00 but if you do, I would love to understand, Rohin,
08:04 for example, let me start this with you.
08:06 A lot of market experts and fund managers
08:11 have come in and said that healthcare
08:12 is a space or a juncture
08:14 from where the space could give good returns.
08:19 Have you been able to analyze any of the healthcare funds
08:23 and are you recommending them to people
08:26 who are not averse to taking a slight bit of risk
08:29 and investing in thematic funds?
08:31 - Yes, Neeraj, to answer both your questions.
08:36 In both cases, yes.
08:37 In fact, I've had some of my clients move
08:39 to healthcare funds about a month, month and a half ago.
08:43 The reason for that is, I mean, twofold.
08:46 One, healthcare valuations,
08:48 even after the recent rally are still
08:51 what I'd call fair valuations.
08:52 We also think that the healthcare sector
08:55 is structurally poised for growth
08:59 given improvements in the US market,
09:02 given a lower cost for the sector.
09:04 So definitely I think some part of the portfolio,
09:07 if the investor can digest a little heightened risk,
09:11 I think there's opportunity in healthcare
09:13 and you could make money from some allocation
09:17 to the healthcare sector.
09:19 Let me add also that in case,
09:21 given that the overall market valuations are high,
09:24 healthcare, and if the markets overall turn negative,
09:28 healthcare still acts as a good defensive option.
09:30 So in both ways, whether for the upside or for the downside,
09:33 I think healthcare is a good option at this stage.
09:35 - A slew of funds out there.
09:36 I'm not asking for particular recommendations, Rohin,
09:39 but a broad list of funds that people can look at
09:42 and study or maybe ask their advisor as well.
09:44 - I think Quant Healthcare stands out
09:47 simply for its performance
09:49 and Quant across all equity funds
09:51 has been stellar with its performance.
09:53 I think Birla has a healthcare fund
09:55 which has also done really well.
09:56 So between the two, maybe the investor can pick one.
10:01 - Okay, okay, fair call.
10:03 And viewers, remember, if you have a financial advisor,
10:05 please ask your financial advisor for the same.
10:07 But yes, Rohin's recommendations are indicative.
10:10 Please do your own little bit of due diligence as well.
10:13 Shweta, same topic before we take that break.
10:15 Healthcare funds, are they a no-no
10:17 or are they a yes for you?
10:20 - So I like to keep my life simple
10:23 and investors' life simple as well.
10:26 So I really avoid thematic funds.
10:29 And as a philosophy, we stay away
10:31 unless we can get their entry and exit right,
10:34 which is quite tricky, so to speak.
10:37 For investors who are really looking
10:40 to get this exposure, we could recommend
10:43 maybe up to 5% of their portfolio,
10:46 but we usually don't recommend thematic funds itself.
10:51 Pharma, of course, is one of the better thematic funds
10:54 because the sector itself is a little bit of a defensive one.
10:59 So people do tend to invest up to 5%,
11:02 but usually they go by our advice and avoid this.
11:06 - We'll address some queries that have come in.
11:08 The first one is from Sudhir,
11:10 and the query is that he's planning to start
11:16 a monthly SIP of 1,000 rupees for 10 years.
11:19 Sudhir's monthly income is 20,000
11:22 and approximate monthly expenses are 18,000.
11:26 So then you need to save more.
11:27 But Sudhir says, "I do not have any mutual fund holdings
11:31 "right now, so what company fund would you suggest to me?"
11:36 Okay, Shweta, here's a 49-year-old man
11:41 who has very little disposable income left
11:46 post the monthly expenses,
11:50 wants to allocate half of that 2,000 rupees of savings
11:55 to mutual funds.
11:57 He's a newbie, doesn't have any holdings as of now.
12:00 What would you recommend?
12:02 - So I don't know.
12:04 I think it's another part of his portfolio or savings.
12:07 So if I assume that he has some bit of emergency funds,
12:11 then I would say he could start with investing in equity
12:15 because that's something that people look
12:17 to mutual funds for.
12:19 So then he could start with something like a UTI Nifty 50.
12:23 It's a passive fund, a good experience
12:26 from a large cap point of view,
12:28 from a new investor point of view.
12:30 That is something that he could do.
12:31 If he doesn't have any liquidity at his disposal,
12:35 so I would recommend at least two to three months
12:37 of expenses, if not more,
12:40 then he can start off with a liquid fund.
12:43 He could look at something like an ICHL liquid fund
12:46 or a short-term fund as well.
12:47 So he has some bit of experience in mutual funds,
12:51 but my experience is when people come to mutual funds,
12:53 they actually mean equities,
12:55 and that's why he could start off with the Nifty 50.
13:00 - Okay, sound advice per se as well.
13:03 We work with the permutations and combinations that we have.
13:05 So yes, even we don't have the idea
13:07 about what other investments,
13:08 but safe to assume that some bit of innocence would be there
13:11 considering the gentleman is 49 years old.
13:13 Rohin, what would your view be?
13:16 Maybe a category, maybe a fund, or maybe both?
13:19 - Yeah, I'd sort of like to tend to agree
13:24 with what Shweta said,
13:25 that assuming that he's coming into the category
13:28 for some bit of equity exposure,
13:31 I think he can maybe start an SIP in an index fund
13:36 or potentially even a Flexicap fund.
13:39 Parag Parekh is one name I can suggest.
13:42 There are several other Flexicap funds.
13:44 Almost all fund houses have one,
13:46 so he could pick a name from any of them.
13:49 Parag Parekh is a good one to start with.
13:51 - Okay, well, you know, Sudhir, in some sense,
13:56 I hope this helps you.
13:58 A NIFTY fund or a Parag Parekh Flexicap fund
14:02 might be good starters with an assumption
14:04 that you do have some emergency contingency funds,
14:07 and therefore, being in equity even at 49 is a great idea
14:10 because it'll speed up your wealth creation process.
14:14 Now, the second one is Anil.
14:16 The second category is coming from Anil.
14:17 Anil is 32 years of age.
14:19 His monthly income is 20 lakh rupees a month.
14:23 Currently does not have any mutual fund holdings,
14:26 has a small cap PMS,
14:29 and has invested about a crore and a half in it,
14:33 and has gotten a whopping 39% CAGR return.
14:35 I don't know what time frame,
14:37 but I think the question is that Anil wants recommendations
14:42 for a small cap fund, a balanced advantage fund,
14:46 and a Flexicap fund,
14:47 where he can invest about two and a half lakh rupees
14:49 as an SIP or lump sum, as the case may be,
14:52 because Anil's goal is to provide for his lifetime needs,
14:56 including travel and other expenses.
14:58 So a really long-term portfolio creation,
15:01 starting right now,
15:02 considering that he's got the very good goal
15:04 to invest two and a half lakh rupees per month,
15:06 and Anil is only 32 years of age.
15:09 Rohin, it's a bit of a complex query,
15:11 a few things that he needs.
15:13 I don't know what all can you advise,
15:15 but between a BAF, a small cap fund, and a Flexicap fund,
15:20 what would you recommend as a combination?
15:22 He's got sums large enough to invest across the three,
15:26 in whichever proportion you would deem fit.
15:30 - Yeah, so what I'd like to first tell Anil
15:36 is that the return that he's so far gotten from the PMS,
15:40 which is a small cap PMS of 39%,
15:43 is something that he should not expect going forward.
15:46 He's got to, while he's had a good experience,
15:48 he's got to temper his expectations down.
15:51 To that extent, I don't even think any further SIPs
15:54 or any new SIPs in small cap funds are a good idea,
15:56 given their valuations at this point.
15:59 But if he'd still like to go for a small cap fund,
16:02 then a Quant small cap is probably a good fund
16:05 to go for, maybe an SBI small cap as well.
16:08 And a balanced advantage, HDAC balanced advantage,
16:11 ICICI balanced advantage are all good funds.
16:14 Sorry, I'm missing the third part of the question.
16:18 What was the third investment?
16:19 - FlexiCap fund, a FlexiCap fund you already recommended.
16:24 - Correct, I already mentioned Parag Parekh,
16:26 so I'd suggest he can go with that.
16:28 But just a word of caution,
16:30 small cap valuations are very high,
16:32 so I would think twice before putting more money
16:35 in small caps at this point.
16:36 - Rohin quick 30 second answer.
16:37 Parag Parekh FlexiCap no longer is a tiny tune,
16:42 five, six, 7,000 crore AUM.
16:45 It's a very large AUM.
16:46 You think they'll be able to outperform even now?
16:48 - Well, that's a question that only time will tell.
16:54 That's an answer that we'll only get with time,
16:56 but Parag Parekh has done well so far.
16:59 Their performance is mostly attributed
17:01 to their international exposure.
17:02 So to that extent,
17:04 it's a slightly differentiated fund strategy.
17:08 But I'd like to go with a time-tested name,
17:10 so therefore I'm just recommending Parag Parekh.
17:13 - Fair call. - So I'll stick with that.
17:14 - No, no, fair call, fair call.
17:16 I'm just wondering.
17:17 Shweta, what would your recommendations be for Anil?
17:20 He's got the corpus and he wants the flexibility.
17:24 - Yeah, so interesting that he's seen
17:28 this amount of return already,
17:30 and now he's wondering.
17:31 So I would first of all ask him to cut down
17:32 some of his exposure to the PMS,
17:36 book some profits there maybe,
17:37 but allocate more towards large and mid-cap.
17:41 So while he's asked for these specific categories,
17:43 I would really like him to build a good core portfolio
17:47 of passive funds and definitely adjust
17:50 his return expectations a little bit,
17:53 because while he has a good income
17:57 that is coming in monthly,
17:58 I would really like to see good growth
18:00 from his portfolio on a regular basis, right?
18:02 So a good nifty-fifty would be something
18:06 that I would definitely recommend him to start off with.
18:09 Small cap, like Rohin mentioned,
18:11 valuations, and also he has seen good returns
18:14 in a small cap PMS.
18:15 So I would definitely say he could start off
18:18 with smaller amounts than he is thinking,
18:21 but that's something that he could do.
18:23 I would say a Nippon small cap
18:26 is something that he could do.
18:27 Balanced advantage, I'm not sure why he likes that category
18:29 or what he's thinking about.
18:31 Maybe he should figure out his goals
18:33 and then figure out what kind of liquidity he would need
18:36 and then adjust his portfolio accordingly.
18:38 But if it's balanced advantage funds in particular,
18:41 he's seeing ICICI is good, HDFC is good,
18:44 Edelweiss has done pretty well as well.
18:47 So these are three funds that he can definitely look at.
18:50 - And it might also pay to take advice
18:52 of a financial advisor who can advise you on such sums
18:57 so that you don't go wrong and the losses
19:00 or the underperformance is not very large for you.
19:02 But unfortunately, we are completely out of time
19:05 on this show.
19:06 Would have loved to talk about an offering
19:08 from the Parag Parekh house,
19:09 which is a new thing that they're doing.
19:12 Maybe we'll try and take it on tomorrow's show
19:14 or the show next, but Shweta as well as Rohin,
19:17 thank you so much for taking the time out
19:18 and being with us and giving us your thoughts.
19:21 And with that, it's a wrap on this edition
19:24 of the Mutual Fund Show.
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