ELSS - an easy way to save taxes
Equity linked saving schemes or tax saving mutual funds are one of the better options for you to invest if you have not totally exhausted your 1 lac limit under section 80C.
December 15, 2011 / 12:25 IST
Lovaii Navlakhi
Equity linked saving schemes or tax saving mutual funds are one of the better options for you to invest if you have not totally exhausted your 1 lac limit under section 80C.
See whether the investments you have already made such as the PF that gets deducted from your salary each month; life insurance premium that you have paid or need to pay; tuition fee for your 2 kids, if any; and the principal amount of your housing loan, all add upto Rs.1 lac. If not, then ELSS could be the better option to choose from amongst the other products under section 80C, provided you have the appetite for risk.- First, it is the only product which has equity exposure (100% equity) and thus can offer you superior returns as compared to FDs or NSCs. The New Pension Scheme (NPS) also has exposure to equity, but it is limited to only 50%.- As a mutual fund, ELSS offers you all the advantages such as diversification, expertise of fund managers, convenience and ease of investing through ECS and you can invest with as little as Rs.500 unlike other equity mutual funds.- With a lock-in of 3 years, ELSS also has the shortest lock-in period. So, your funds are not tied up for 5 years or 6 years like in FDs and NSCs.- As a category ELSS funds have performed well, the 3 year lock-in period giving the room to fund managers to take long calls and thus reap benefits. However, there are some points you need to consider before investing in ELSS.1. All things said and done, you should invest in an ELSS only if it suits your requirements and goals. The younger you are, higher the propensity to take risk and invest in aggressive investments like equity. So if you are nearing retirement, ELSS may not be the best product for you. Similarly, if you have some important goals coming up within the next 3 years, then locking in your monies in a risky investment like ELSS would not be advisable as markets could be having a bear phase and hence your ELSS investment may not fetch you good returns though you may get some tax advantage.2. While selecting ELSS you choose should look at its track record and definitely at the mutual fund promoting the ELSS, its investment systems and processes. Always remember there
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