Why Equity Linked Savings Scheme (ELSS) Is The Best Tax Saving Investment?

Nutan Gupta

05 Oct 2016

Tax saving Investment

There are a lot of tax-saving instruments that are available in the market for investments viz. Public Provident Fund (PPF), life insurance premium, and five-year bank fixed deposits. However, one of the most exciting options available for investors is Equity Linked Saving Scheme (ELSS). As the name suggests, ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products.

Investing in ELSS is the right way to start investing in equities. Investment in this asset class requires a disciplined approach as well as a long-term view, and ELSS takes care of both these considerations. Investment through mutual funds provides the required discipline and the lock-in period of three years gives the necessary timeframe for the portfolio to perform, as equity investments may be volatile in the short term. An individual is eligible for a tax benefit of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Moreover, the long-term capital gain and dividend earned from ELSS is also tax-free.

Best Tax Saving Investment – ELSS Scheme from 5 Paisa

Lock-in Period for ELSS investment

ELSS has the shortest lock-in period as compared to other instruments (PPF- 15 years, NSC- 6 years). This makes ELSS one of the most attractive instruments for investment.

ELSS Investment Options for Tax Saving

An investor can invest in ELSS in two ways - growth option or dividend option. An investor’s cash flow needs and tax bracket play a major role in deciding whether he should go for growth or dividend options. In growth option, the profits that one makes remains reinvested, while in dividend option, the profit is given back to the investor in cash.

Suitability

ELSS is suitable for all kind of investors, big or small. A small investor can choose the SIP (Systematic Investment Plan) route, wherein he can invest a fixed amount of money every month, which can be as low as Rs. 500.

Best Tax Saving Instruments from 5 Paisa
Parameter ELSS PPF NSC
Tenure 3 years 15 years 6 years
Taxation Criteria Capital Gains and dividend tax-free Tax-free Taxable
Returns 16-21% 8% 8.6-8.8%
Risk Factor High Risk Low Risk Low Risk

As it is clearly visible in the chart, ELSS is the only tax-saving investment option which has the potential to generate high returns over a longer period of time. ELSS is the best investment option for people who have just started their careers, as it helps to inculcate a habit of saving and investing in equities. There is no right time to start investing in ELSS, every time is the right time! If you have already not invested in ELSS, start investing NOW!


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Why Equity Linked Savings Scheme (ELSS) Is The Best Tax Saving Investment?

by User Not Found | Oct 05, 2016
Tax saving Investment

There are a lot of tax-saving instruments that are available in the market for investments viz. Public Provident Fund (PPF), life insurance premium, and five-year bank fixed deposits. However, one of the most exciting options available for investors is Equity Linked Saving Scheme (ELSS). As the name suggests, ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products.

Investing in ELSS is the right way to start investing in equities. Investment in this asset class requires a disciplined approach as well as a long-term view, and ELSS takes care of both these considerations. Investment through mutual funds provides the required discipline and the lock-in period of three years gives the necessary timeframe for the portfolio to perform, as equity investments may be volatile in the short term. An individual is eligible for a tax benefit of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Moreover, the long-term capital gain and dividend earned from ELSS is also tax-free.

Best Tax Saving Investment – ELSS Scheme from 5 Paisa

Lock-in Period for ELSS investment

ELSS has the shortest lock-in period as compared to other instruments (PPF- 15 years, NSC- 6 years). This makes ELSS one of the most attractive instruments for investment.

ELSS Investment Options for Tax Saving

An investor can invest in ELSS in two ways - growth option or dividend option. An investor’s cash flow needs and tax bracket play a major role in deciding whether he should go for growth or dividend options. In growth option, the profits that one makes remains reinvested, while in dividend option, the profit is given back to the investor in cash.

Suitability

ELSS is suitable for all kind of investors, big or small. A small investor can choose the SIP (Systematic Investment Plan) route, wherein he can invest a fixed amount of money every month, which can be as low as Rs. 500.

Best Tax Saving Instruments from 5 Paisa
Parameter ELSS PPF NSC
Tenure 3 years 15 years 6 years
Taxation Criteria Capital Gains and dividend tax-free Tax-free Taxable
Returns 16-21% 8% 8.6-8.8%
Risk Factor High Risk Low Risk Low Risk

As it is clearly visible in the chart, ELSS is the only tax-saving investment option which has the potential to generate high returns over a longer period of time. ELSS is the best investment option for people who have just started their careers, as it helps to inculcate a habit of saving and investing in equities. There is no right time to start investing in ELSS, every time is the right time! If you have already not invested in ELSS, start investing NOW!

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