There are so many tax saving investment options; Let’s see how Mutual fund ELSS Schemes stand out from all other options? You may be also interested to check how one can take full advantage of Tax Savings without investing 1.5 Lakh.

A Mutual Fund ELSS is similar to diversified equity funds. That means the fund manager can invest in shares of various companies across various industries. The difference is ELSS has got the added tax benefit, something a diversified equity fund does not offer.

ELSS is part of the Section 80C instruments which are cumulatively eligible for a deduction from income up to Rs.1.5 Lakh. This gives the taxpayers benefits from 10 percent to 30 percent (excluding the educational cess) based on their current tax slab.

The other tax-saving investments like NSC, PPF will give only 8% return p.a whereas the Mutual Fund ELSS has got the potential to deliver more than 12% return p.a. Also, the lock-in period in Mutual Fund ELSS is 3 years and with NSC it is 6 yrs lock-in and with PPF it is 15 years.

Among the various tax saving investment option, Mutual fund ELSS has got the least lock-in period.

ULIP and Insurances are also one of the tax-saving investment options. But now everyone has realized that ULIPS/Insurance has got heavy front-loaded charges. Moreover, smart investors want to separate their insurance from their investments. They no longer see insurance as an investment; they see insurance as a protection plan. So the smart investors go only for pure Term Insurance and reject ULIP’s.

This is how Mutual Fund ELSS stands out of the crowd.

Before deciding to go for Mutual fund ELSS, here are some points to ponder over. First, check your overall portfolio. Does it need more equity exposure? If yes then you can go for ELSS; if no then you can go for PPF or NSC.

Second thing is to keep in mind, the equity investments are for the long term, say 5 years or more. Though the lock-in period in ELSS is 3 years it is better to invest with a time horizon of 5 yrs or more.

Also, investors need to keep in mind,

SIP is the best form of investing in mutual funds and ELSS is not an exception. So doing a SIP in ELSS is a good strategy to be followed.

Investors need to be careful in choosing the right ELSS scheme. Past performance, risk-adjusted return, consistency are a few parameters to be evaluated in selecting the best performing ELSS scheme. Investors also can approach financial advisors for selecting the right scheme.

There are two groups of ELSS investors.

Last Minute Investor (To Save Tax): The majority of investors belong to the first group. They will wake up late to these tax-saving investments. For salaried individuals, it is typical that they will be informed by their accounts department somewhere around December to provide proof of tax-saving investment immediately or else extra tax will be deducted from their January salary. At the neck of the moment, the choice ends up being guided by convenience alone. They tend to think about tax first and investments later. As long as something saves tax, its real benefits and features as an investment are paid less attention to. That means the investments will be chosen more for convenience than for suitability.

Informed Investor with Tax Planning: There is another group of investors. Though this group is a very small group, it is a very smart group. They will not rush for a tax saving scheme at the last minute. They will plan in advance. That means they will have more time to choose the right product. They will save tax as well as choose a good investment option. They will also check whether this particular tax saving scheme will suit their overall portfolio or not; will this tax-saving investment is going to fit into their comprehensive financial plan. That means they will consciously choose an investment that saves tax as well as helps them in achieving their financial goals like children’s higher education, buying a house, retirement plans.

So… now just check-up which group you are in?

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