#ELSS is a clear winner amongst the Tax saving instruments in India
Under section #80c of the Income tax act, there are many instruments one can opt for to save tax and create a wealth kitty. In the last post on Tax saving instruments under section 80C, I have listed down all the options of investments, insurance and expenditures. Here, I would like to elaborate on the specific product “Equity Linked savings scheme” Mutual Funds, and a basic comparison with the other options in terms of liquidity, lock-in, potential return etc.
Let me begin with the table of popular investment tools under 80C and their features.
|
Instrument
|
Maximum investment amount
|
Lock-in
|
Potential return
|
Actual tax benefits
|
|
#PPF
|
Rs. 1,50,000
|
15 years.
|
8-9% per annum, compound interest
|
Triple exemption benefit
|
|
Sukanya Samrudhi Yojana
|
Rs. 1,50,000
|
Only for daughters, the lock in depends on the daughters age
|
8-9%, compound interest
|
Triple exemption benefit
|
|
NSC
|
Rs. 1,50,000
|
5 years
|
8-9% per annum, compound interest
|
Returns are taxed as per laws
|
|
#Tax saver Deposits
|
Rs. 1,50,000
|
5 years
|
7-9% per annum, compound interest
|
Returns are taxed as per laws
|
|
#ULIP
|
Rs. 1,50,000
|
10 years onwards.
|
As per equity market movement. After deducting various charges
|
Triple exemption benefit
|
|
#ELSS mutual funds
|
Rs. 1,50,000
|
3 years
|
As per equity market movement.
|
Triple exemption benefit
|
|
#RGESS
|
Rs. 50,000
|
3 years
|
As per equity market movement.
|
50% tax relief on returns
|
1. The mutual fund has minimum #lock-in period of 3 years amongst the tax saving instruments.
2. Though it has a lock-in period, the open ended #ELSS funds, don’t have a maturity date.
3. The funds come with multiple options of growth, dividend option (dividend reinvestment is currently discouraged by the regulator in recent times, hence getting discontinued for the new investment options, because of its complex nature of 3 year llock-in for every purchase)
4. The ELSS schemes enjoy triple tax exemption benefits on redemption
5. Unlike PPF, ULIP, ELSS mutual funds don’t carry an obligation of investment amounts, hence it could be an one time investment or repeat depending on investor’s wish.
6. Unlike insurance plan, investor can buy different plans basis his research and recommendations
7. Minimum investment is as low as Rs. 500/-
8. The dividend earnings are tax-free in the hands of the receivers
9. It can be held as long as the investor wants; hence, the potential of high returns of 12-15% can be easily achieved in long-term, 5-7 years period.
10. The cost of investment is very low compared to the endowment insurance products, which doesn’t reflect too much as the returns on the investment over a long term compensate well beyond the cost implications and inflation.
A hypothetical return graph of tax saving instruments over 3, 5, 7.10 year period
|
initial investment
|
3 YEARS
|
5 YEARS
|
7 YEARS
|
10 YEARS
|
|
|
PPF
|
1,00,000
|
130864
|
156568
|
187320
|
245135
|
|
NSC
|
1,00,000
|
127023
|
148984
|
174742
|
221964
|
|
ELSS
|
1,00,000
|
156394
|
210718
|
283911
|
444021
|
Assuming a 15% return on ELSS for the period
Top 5 #ELSS Mutual funds for reference purpose –
|
Scheme name
|
1 year
|
2years
|
3 years
|
5 years
|
|
ICICI Pru RIGHT Fund (G)
|
10.9
|
7.2
|
24.4
|
21.2
|
|
Axis Long Term Equity Fund (G)
|
8.8
|
9.2
|
26.5
|
21.0
|
|
Reliance Tax Saver (ELSS) (G)
|
13.9
|
6.2
|
29.9
|
20.4
|
|
DSP-BRTax Saver Fund (G)
|
20.1
|
12.7
|
25.5
|
19.7
|
|
Birla Sun Life Tax Plan (G)
|
12.6
|
12.3
|
24.5
|
18.1
|
Suggestion for the young investors would be to buy ELSS fund, and treat it like a PPF account, invest regularly, preferably through SIP, for 15 years and stay invested through the term. You will end up saving a big amount for yourself. 🙂 Happy investing. Happy Saving!
