Why ELSS are best Tax Saving option?

ELSS stands for Equity Linked Saving Schemes. These are diversified Mutual Funds with lock-in period for at least 3 years. It comes under IT section 80(C), that means it give you the option to invest money in equity mutual funds with tax deduction in income tax same as other tax saving options.

In India, mostly people consider limited options for income tax saving as LIC policies, National Saving Scheme and Public Provident Fund. But there are few more options to go for like, ULIP (Unit Linked Insurance Plans), 5 years Fixed Deposit and ELSS (Equity Linked Saving Schemes).

All options apart from ULIP and ELSS, have fixed returns at the time of maturity. That means you will already know how much you are going to get at the time of maturity. Which makes them low return option.

If we talk about ULIP (Unit Linked Insurance Plan), I personally feel ULIPs can give you good returns only if you will withdraw money after staying for long term. When I say long term for ULIP, it should be more than 10 years at least. But at young age, we do not like to wait for such a long time, as we may have sort term financial goals like buying a car or a house.

If you will go for fixed returns option, you will hardly be able to earn returns. That means you will be able to save some money in tax but not be able to earn much from investment. Also most of the fixed return tax saving options comes with at least 5 years of lock-in period.

If you will go for ULIP, you will be able to earn good returns but you will not be able to use your money for short term goals even if you need it. You need to pay the amount at least for minimum committed period and stay invested for a long time.

So the best option to go for tax saving at age 20-40 years is ELSS. There are few benefits listed below for ELSS funds.

1. You will get returns, as good as equity mutual funds. Some times better than that. (Comparatively, the funds with lock-in period perform better than open funds)

2. The money will be locked only for 3 years from date of investment.

3. It gives you the option to invest with SIP method (Systematic Investment Plan – Monthly, Weekly).

4. Option to stop your SIP anytime. (No minimum commitment required)

Most of the Mutual Funds houses have their tax saving funds. To choose the best ELSS fund, contact your financial adviser.

Stay healthy and keep investing.

Disclaimers:

The views expressed in the blog are those of the authors and do not necessarily reflect the official policy or position of any other agency, organization, employer or company.

Insurance is the subject matter of solicitation.

Mutual Funds investments are subject to market risks. Please read the offer documents carefully before investing.

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