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.
