What is ELSS ? Is it a good option to save tax?
“Govt to increase tax payer’s base !” – ELSS
Have you read the same headline in your newspaper? Not yet! I hope in a day or two you may be saying this eventually right . After demonetization , Govt. is now ready to take some effective steps in Budget 2017 that might divert you to visit your financial adviser’s office and make you search all the good sources about tax saving resulting in a confusion for “How to save tax this time?” So, to give you an alternative to present investment criteria we have detailed the most feasible tax saving investment ELSS in this post. .
You must be known of the basic tax deductions and investments like PPF, INSURANCE, FDS and NSC but “Have you tried mutual funds in tax saving ? like ELSS” Or you have heard it for the first time? If Yes! Then Don’t worry here we have given an overview of this instrument that will guide you from its basic details to its pros and cons in tax saving.
ELSS TAX BENEFITS AND INVESTMENT RETURNS.
ELSS stands for abbreviation of Equity Linked Saving Scheme ,as the name suggest it is an equity mutual fund investment that is traded just like a normal investment but have a standard deduction benefit under section 80C of Income Tax.
- Lock in period of 3 yrs
- Available in multiples of Rs 500
- Availability of SIP investment route .
- Dividend income if opted.
CERTAIN ADVANTAGES AND DISADVANTAGES OF ELSS .
Other than ELSS tax benefit it comes with certain other advantages from an investor view side ie: In terms of lock in period (3yrs) which is as compared to NSC (15yrs), PPF (5yrs) is very early to mature, with required transparency, tax free gains, liquidity etc.
While from an assessee view side it comes with benefit of tax rebates under 80C and tax free gains.
So overall it is considered as favorable for understanding it as an instrument for investment and a tool to tax saving . But, neglecting high risk in this investment is also not possible .
WHAT COMMON MISTAKES AN INVESTOR DO WHILE CONSIDERING ELSS?
Mostly, ELSS is looked as a short term investment which is generally redeemed after 3yrs of maturity by the investor as resultant of low returns in past but this scheme is known to be made for investors having the potential to hold it for a long time for better returns which arise with less net inflows and extended time just like a normal equity investment.
Also, fund employment in ELSS should not to be considered as an investing activity for last 3 months of financial year. but they should be taken as a part of the tax plan at the beginning itself, as last three months are generally not effective enough to give good returns to your investment.
Generously, Investment in ELSS would yield good returns only when they are bought after viewing and comparing their last continuous five years performance rather than considering only the last year.
So, in nut shell while planning your upcoming financial year you must record a provision to do some investment in ELSS and give a tax saving gift to yourself.