Check out: Things to remember when buying ELSS

In an interview to CNBC-TV18, Rahul Parikh of Aditya Birla Money My Universe discussed various features of Equity Linked Savings Schemes (ELSS) and how one can effectively use the instrument to save tax.

Below is the verbatim transcript of Parikh's interview with CNBC-TV18. Q: The Equity Linked Savings Schemes (ELSS) funds are the favoured investment option where tax saving is concerned. But, which is the best option to choose for, for an investor. Do you think that it is dividend reinvestment, dividend payout or do you think growth would possibly be the best option? A: Out of the three options available dividend reinvestment is something that we would not advice purely because dividend reinvestment will get the reinvested units to have a lock-in period of three years. However, between the growth and dividend payout options it depends actually on the investor. We would generally recommend growth option because that allows for long-term compounding of the returns. However, in certain cases where the investor needs liquidity before the lock-in period, a dividend payout option can work well for the investor because the dividends can mean liquidity coming out of the ELSS scheme before the lock-in period. Also Read: Mutual fund & their tax benefits Caller Q: I want to invest Rs 5,000 a month in tax saving plans. Can you give me the best investment options that are available? A: In terms of tax saving, first and foremost you should ensure that all your available options in the Section 80C, which allows a deduction of Rs 1 lakh is completely consumed by you, which basically means that first you look out for your payments under the home loan, the principal payment, look out for if there is anything related to insurance premiums that you are paying and the rest of it can go into investment, which could be a tax saving option like an ELSS scheme. Within the recommended ELSS schemes, I would generally suggest that go with a reputed fund house with a good equity team and having a generally good long-term track record. In my opinion ICICI Prudential Tax Plan, HDFC Tax Saver and Franklin India Tax Shield are the good options to be considered in the current situation.