In general,start of november is initiation of tax saving investments.Shortly we will view ads of all insurance companies across your favorite TV serials.
Yesterday,I meet one 23 year old software engineer.He told me that he is planning for higher education next year and thinking to save tax for this year,but I do not want to open PPF account immediately neither want to open LIC policy..I immediately suggest him ELSS scheme of mutual fund as he was an ideal candidate for the scheme..
We will take a view of Equity linked saving schemes(ELSS) of mutual funds.
What are ELSS schemes:
These are equity oriented schemes offered by mutual funds.Difference only is that ELSS schemes invests min 80% of fund in equity unlike to 65% of other equity schemes.
Advantages Of ELSS Schemes:
1.Tax Benefit U/S 80C: Investor can claim tax benefit u/s 80c upto limit of Rs.1Lac.
2.One time investment: This is only one time investment unlike to LIC policies where annual premium is payable.
3.Tax Free Maturity Benefits:Maturity amount received is completely free from income tax.Investors with higher tax brackets have a good advantage of it.
4.Transparancy: Daily NAV is declared and scheme portfolio is open for anyone.
5.Min Lock in: ELSS schemes have lock in period of 3 yrs which is minimum among the other available instruments.
6.Due to mandatory lock in period,fund manager of the scheme can think of longer term as there is no immediate redemption pressure.This is in favor of both investor and fund manager.
7.Partial liquidity is possible through divedends declared from funds.Dividends are tax free in the hands of investors.
8.Risk: ELSS returns are linked to market.So there will be a market risk which can not be avoided,but high risk also come up with chances of higher returns and chances on benefits in future are quite high.
If you are relatively young,can take some risk,have a longer horizon then do not forget to think of this instrument….
