So where all you can invest to save tax if you are salaried employee, Insurance, PPF, NSC, ULIP,
Well I will concentrate on the ELSS – Equity linked Savings Scheme
ELSS is a type of mutual fund, where majority of the corpus is invested equity and equity related products. Investment in ELSS has lock in period of 3 years and it has tax benefits. ELSS are not at all risk free , there is no fixed return , ELSS are open-ended and investor can subscribe to fund on any given day.
When I say risk – ELSS are linked to market , so does the ULIP. For your information in the last 36 years market returns were up 24 times and down 12 times.
I am no comparing the tax savings product here , remember it is just a post for understanding of ELSS :
Some Key points for ELSS :
- Equity linked savings schemes is a type of mutual fund with 3 years lock in period and tax benefits attached,
- There are three types of options in ELSS, dividend option growth option and dividend reinvestment option.
- Tax benefits on investment in ELSS may soon be phased out with the introduction of direct tax code. ( So far not done and it can be delayed).
- Investors can opt for systematic investment plan. Minimum investment required in SIP is Rs 500. An investment through SIP has a disadvantage as every monthly investment carries a lock in period.
- If an investor chooses dividend reinvestment plan the dividend reinvested is considered as a fresh purchase and has a lock in period of 3 years from the date of purchase so the dividend reinvested is further locked for a period of 3 years.
- ELSS has the potential to give higher returns as these funds invest in equity market which have given an average return of 15 years in a long-term scenario. Returns in ELSS also fluctuate depending upon the stock selection decision of the fund manager
Caveat: Invest in ELSS after consulting from your RM or doing by your own study.
Mutual Funds Are Subject to Market Risk – Please Read the Offer Document Carefully Before Investing : Horn Ok 🙂