In the midst of tax season, thousands of us get e-mails from our employers asking us to produce proofs qualifying investments made under Section 80C, so that we may avail tax deductions.
This sends most of us in a tizzy and we start investing in the first thing we can get our hands on. Please don’t do that.
There are far too many people who think this is a good idea, and end up losing money and precious time. Instead, let’s look at one of the smartest investment instruments available in the market in a two-part series: ELSS.
What is an ELSS?
An Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund that not only helps you save tax, but also gives you an opportunity to grow your money. It qualifies for tax exemptions under section 80C of the Indian Income Tax Act,1961.
Features of an ELSS
The following are some of the features of an ELSS:
Is ELSS is a good investment choice?
When we speak of investment avenues under Section 80C, one generally comes across fixed income options like PPF, NSC, 5-year bank FD, etc. However, ELSS scores better in the following ways:
Having said that, since ELSS schemes have a substantial allocation towards equity, the returns from these schemes will carry short term fluctuations. Hence, you should keep in mind your risk profile & financial goals before taking an investment decision. Instead of planning to withdraw funds after 3-year lock-in is over, you must be willing to stay invested for a minimum time horizon of 7-10 years to get the highest returns possible. If you cannot do so or find that you need the money before that time, it is advisable to skip ELSS and consider other available fixed income options. If you’re not sure, you should consult a financial planner who can guide you properly.
To know the best available ELSS schemes available and how to invest in them, stay tuned for Part 2 in this series. If you have any specific questions, feel free to leave them below.
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