No wonder, this is also the time when mutual funds and distributors aggressively push equity-linked savings schemes (ELSS) as tax free saving instrument because one gets tax relief under section 80C for investing in these schemes. In fact, some fund houses pay higher upfront fees to distributors for promoting ELSS.

There are other tax saving investments such as Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), unit-linked insurance plans (Ulips), various insurance policies and principal repayment on home loans.
Many feel ELSS Mutual funds have twin-advantage: Besides giving tax benefits, it also leads to ‘forced savings’ because of the lock-in period. This allows investors to earn market-based benefits over a longer period of time. While ELSS, NSC and PPF offer tax benefits, the advantage of ELSS is that it offers equity market exposure and shorter lock-in period as compared to NSC and PPF.
For an ELSS investor, there are two options – lumpsum investment or investment through systematic investment plans (SIPs). For employees, who have still not invested to meet their section 80C commitments, it could be a good idea to invest the entire lumpsum. Experts say starting an SIP only for the last four months does not make much sense.
Like all equity schemes, these schemes come with both growth and dividend options. In case, one opts for the growth option, he/she will not get any returns till the time he/she is holding the investment. But returns at the end of three years will get the benefit of compounding along with being tax-free because there aren’t any long-term capital gains tax on equities after one year.
ELSS do offer the best of both worlds (saving and equity exposure), but after the Direct Tax Code details coming into picture and ELSS investments future painted blurry, I feel that one should limit exposure to ELSS and instead opt for diversified equity funds, atleast one has the provision of no lockin persiod.
ReplyDeleteThe Direct Tax Code is still yet to come into force. In fact, already there are lot of changes being brought into this. Remember the Direct Tax Code is still a draft and not a policy.
ReplyDeleteAnd moreover, if you invest NOW, you are still eligible for rebate under sec 80c.
There is no other Tax Saving Instrument which is as effective and return oriented as ELSS.
And I challenge on you that!!!!!
I'm not here to challenge anyone. I agree that Direct Tax code is still a draft and not a policy, but we are still not sure under what regime (EEE, EET) would it cover the various investments types.
ReplyDeleteTill DTC details are cleared, this was just a suggestion and it's upto the investors for making their decision. By the way, a committee (don't remember the name) has propsed that government should continue with EEE method rather than going to EET. Lets see how the draft is modified and what comes into force.