Why should you prefer ELSS to save tax?

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About ELSSElss

Many tax saving schemes that attract a person to save tax are flooded by the financial market. The Equity Related Savings Scheme is one of the successful tax savings strategies suggested by financial advisors for tax planning purposes. There are almost 51 ELSS schemes and an estimated amount of 14,829 Crores (as of Dec’13) across all mutual fund houses, showing that a significant number of retail taxpayers have adopted the ELSS group as an avenue for tax savings.

Is there a question as to whether ELSS is an attractive and beneficial tax-saving option?

What does ELSS mean??

The diversified scheme offered by mutual funds in India is an equity-linked saving scheme. In compliance with the current Section 80C of the Income Tax Act 1961, ELSS provides tax benefits. It provides a lock-in duration of 3 years.

Why ELSS?

ELSS which has a lock-in period of 3 years is preferred more than considered above NSC(6 years) PPF(15 years) Ulips (5 years) and Bank Fixed Deposits (5 years). With a minimum investment requirement as low as Rs. 500, it also offers a quick entry. To ensure reasonably decent returns, investing in equity-related securities requires a long-term holding period. Both Lump Sum (bulk or one time) and Gradual Investment Plans (phased and in installments) are options-both types of mutual fund investment.

Relevant Characteristics

1) ELSS is an equity fund, so the ELSS fund’s returns represent the equity market’s returns.

2) It has exposure to instruments connected to equity and equity.

3) Ideal for all risk profiles where it is possible to take a fair equity sum

4) It has a lock-in duration of 3 years, which means that each of your assets will be locked in for 3 years from the respective investment date if you launch a Systematic Investment Strategy in an ELSS.

5) Investors in growth schemes earn a lump sum at the end of 3 years.

Why not limit the lock-in time until it is over?

Given that ELSS investments have a lock-in duration of three years, the individual is limited to only three years, but it is advisable that investors should consider such schemes for a duration of more than three years. This proposition is substantiated by the success of ELSS systems.

Caution Word

1) ELSS is not for investors who are risk averse. ELSS applies to all risks associated with equity investments.

2) It is not possible to withdraw funds before the maturity date.

3) Subject to such conditions, other instruments such as PPF and bank deposits permit premature withdrawal.

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