Why Choose, When You Have ELSS.
The smartest way to save tax is through ELSS. But if you continue with your investment even after the lock-in period of 3 year, it will help you create wealth in the long-run. So keep investing in your ELSS. And if you have any queries, you can always get in touch with me. Mutual FundDistributor MF Store.
Tax Unburden
A word that everyone who earns money dreads is tax.
However much one dislikes it, income tax is inevitable.
A smart way to counter income tax implications is to
use tax saving options to ensure it works for you in your overall financial
plans. For instance, there are several financial products available in which you can put your money as
savings or investments to reduce your income tax liability. While you get the
benefit of tax savings when you put your money in them, you also benefit from
keeping aside money as savings and investments..
Section 80C is the most popular and widely known
income tax section under which one can save on tax.
Each financial year, you can save up to Rs. 1.5 Lakh
under this section to avail deductions under Section 80C of the income Tax Act,
1961.
So, depending on your tax slab of 10 per cent, 20 per cent or 30 per cent, you could be saving Rs. 15000, Rs. 30000 or Rs. 45000 on your tax liability. And depending on your comfort to risk, you can select from products that guarantee returns like the 5 year bank FD to those that are market linked like the equity linked savings scheme (ELSS). You also have the choice to put your money into insurance, PPF, provident Fund, National Saving Certificate (NSC) and the NPS, which are all the various products which one could use to save on taxes.
ELSS SCORES
OVER OTHERS
Although there is plenty to choose from as options to save on income tax, be it the PPF or life insurance, the one product that stands out most is ELSS. Not only does investment in this product save taxes, it also has the potential to earn returns.
What is ELSS?
ELSS is nothing but a type of diversified equity fund,
which is approved by the central board of direct taxes (CBDT) to qualify as tax
saving instrument. So, investments in this fund qualify for tax exemption under
section 80C of the Income Tax Act. The mutual fund structure ensures that these
funds come with the dual advantage of capital appreciation and tax benefits.
What’s more, amongst the various tax saving options available, ELSS has the
shortest lock-in of three years.
Considering these are market linked and have a considerable
equity exposure, these schemes have the potential to beat inflation and give
retunes, which are tax free.
Effectively, investing in ELSS comes with tax savings
and at the same time allows you to experience the same time allows you to
experience the potential of equity investments through a mutual fund. With so
much going for it, and these schemes being open to retail investors, there is
stability in the corpus managed by the fund manager, allowing them to invest
with little worry of short-term redemption.
Advantages of ELSS
There are several advantages of investing in ELSS,
which once you understand will help you appreciate and favour them over the
other fixed return options that exist.
EQUITY EXPOSURE
Compared to other fixed-
return options, ELSS is the only option with significant equity orientation as
a tax saving option. Though NPS and even ULIPs have equity exposure, they are
never as high as what ELSS tends to have. It’s well-known fact that in the long
run, equity is an asset class that has the potential to beat inflation, with
makes ELSS an option worth considering by every taxpayer. And long term
investment planning.
DIVERSIFICATION
Being an equity fund , the
fund is well diversified making it a suitable option for every investor looking
to save tax and also invest in equities.
The diversification that
these fund offer is across sectors and market capitalisaion, allowing your
investments to benefit from the stock markets.
FLEXIBILITY
You can invest in this
scheme just the way one invests in other mutual funds though SIPs or in lump
sum. If investing systematically, remember that each SIP amount needs to
fulfill the three year lock-in criteria before you ca redeem the units.
TAX FREE
There is no ceiling for
investments in ELSS, which means you can invest beyond the Rs.1.5 lakh limit
that is applicable to save tax under section 80c of the i-T Act, 1961 if you
with to.
LOCK-IN
ELSS has the shortest
lock-in period of three years among the other tax-saving options under Section
80c, which makes it the most liquid of all.
TRANSPARENT
Investments in ELSS are open
in the sense that each month the AMC releases the portfolio in with the fund
has invested for one to know the type of stocks in which their investments are
in the sectors, and the exposure in debt and cash. Mutual funds are regulated
by the stock market regulator SEBI, which mandates the release of daily NAVs of
the fund, indicating the value of one’s investments each day. While the lock-in
applicable for three years, one can still track the performance of their
investments in these funds regularly.
HOW THEY STACK UP?
A simple way to compare ELSS
with the other available options to save tax under Section 80c is to evaluate
them across parameters that matter the most. For instance, most important
factors that stare taxpayers are the tenure of the product, the minimum
investment to make, the risk involved when investing in the product, and the
potential returns that are on offer. While every taxpayer would have a
different appetite for risk, what makes ELSS stand out is the return potential.
And with ELSS having the shortest lock-in period, it stands out compared to the
rest.
HOW MUCH SAVINGS?
To get a sense of how much
you actually save when you deploy the entire Rs. 1.5 lakh available to save and
invest under Section 80C, you can look up the table to realize how much you
actually save on your otherwise tax liability.
SMART WAYS TO USE ELSS
Taxpayers can take advantage
of the short lock-in that comes with ELSS and use the same towards realizing long-term
financial goals. For instance, one could invest in a ELSS for the tax savings
it offers and then let the accumulated money stay in the fund for the long run.
So, one could create a corpus for financial goals that are over three years
ahead like money for child’s education or even towards one’s own retirement and
save tax at the same time.
WEALTH CREATION
As tax savings is an ongoing
process, so, by investing in an ELSS each year, you get to reduce your income
tax liability, That aside, you also get to build wealth for the long term, such
as for your retirement needs. That fact that the redemption form ELSS also
happens to be tax-free only aids in wealth building. Basically, these facets
not only make ELSS just another tax saving option but also an investment option
that can give you the potential to build wealth in the long-term.
