Tuesday, April 30, 2019

The months of January to March is the time people are resorting to the use of tax saving investments? Numerous tax saving instruments are available to you in the form of PFFs, NPS and NSC. But among the lot investment in the top ELSS funds appears to be the top draw. Let us now outline the reasons on why investment in ELSS is important.

Tax benefit under section 80 C of the Income tax act

There are no surprises here as any investment you make in ELSS is bound to a leverage of 1.5 lakhs. This happens under the section 80 C of the Income tax act. Though you can obtain leverage to the tune of 1.5 lakhs there is no limit on how much you can invest in such schemes. Anyone can invest more than 1.5 lakhs but the extra amount is not going to avail you any deduction. If you invest 1.5 lakhs in ELSS it can ensure tax savings to the margin of 46, 350.  Though this is going to depend upon the income tax slab that is applicable to you.

Lock in period at the lowest level

Any tax saving instrument has a mandatory lock in period. Say for example PFF that falls under the scope of the income tax act under section 80 C has a lock in period of 15 years. But you can opt for partial withdrawals once you touch 7 years. On the other side term deposits have a lock in period of 5 years? In case of ELSS the lock in period is of 3 years. Any investments that you are going to make in ELSS could be sold after 3 years.

A valuable advice, even though ELSS has a time frame of 3 years, but do invest with a horizon of 5 years.  This would be to be on the safer side as ELSS primarily invests in stocks. Any stock is volatile and risky in the short term.

To achieve your local term financial goal it makes sense to invest in ELSS. For long term benefits investment in equities is the key as stocks have the power to beat any form of investment over a given period of time.

Maturity date

Any tax saving instrument like PFF, term deposits have a fixed maturity date. For a PFF account it matures in 15 years and you can keep on renewing it. In case of ELSS there is no maturity date or period. Just keep continuing with your ELSS investments as long as you can.

To conclude there is no denying the fact that ELSS has a lot of benefits. Though in no way it means you need to adopt a blind approach while investing in them. Only invest in them if it goes on to match your risk profile and horizon. In case if you can take a little bit of risk and hold on to the investments for another 5 years then you should make a move towards ELSS.

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