Friday, 4 February 2011

Equity Linked Saving Scheme is the best tax saving option

Income Tax payers are interested to invest in Tax Saving Schemes. Investment experts are also saying to invest in tax saving schemes. As we aware that when we invest in tax saving schemes, we can save our tax up to a certain extent and at the same time we can get a profit in the form of interest from our tax saving investments or growth of such investments. Tax payers in highest tax bracket can save more from tax saving investments, because they will get more tax exemption comparatively with tax payers in lower tax bracket. As a tax payer you may be aware about various types of tax saving schemes. Here you can read more about Equity Linked (Tax) Saving Scheme (ELSS)

Equity Linked Saving Scheme is a mutual fund which you can get tax exemption under section 80C of income tax act, which allows you to get exemption up to Rs. 100,000 of your income. This mutual fund is almost equal to other mutual funds where the pooled money of investors invest in shares of stock market and the profit is divided among the investors in the form of dividend or growth of Net Asset Value (NAV) of each unit. But in ELSS the tax benefit is also added and the investor can avail tax exemption also for the investment made in ELSS under the present tax rule.

All tax saving schemes such as PPF, NSC etc has a lock in period as per the rules of such financial instruments, here ELSS also has a lock in period of 3 years and it is comparatively lower lock in period with other tax saving schemes. Most of the ELSS gets more return than other tax saving schemes. PPF and NSC are getting only 8% interest. But for ELSS you can get more, if the ELSS is performed better. You can reap a high return if you allow them in the scheme itself for a long period.

The dividend which we get from ELSS is tax free under the current tax rules. So you can get a high tax free return from the ELSS. With the lock in period coverage the fund managers can perform well, so that they can act accordingly that the investment will be held up for at least three years.

You can redeem this ELSS only after three years and you can enjoy the tax free return from the redemption also, because the profit from sale of ELSS comes under long term capital gain (Capital gain from equity shares after holding more than one year) and it is tax free.

But keep in mind that the return form ELSS is not guaranteed and you may get loss also from the volatile stock market, where the ELSS is invested. So handle with care and remember the old principle of investment is that “do not put all your eggs in one basket”. Diversify your tax saving investments and also diversify your ELSS investments in different Schemes and different fund house. Consider your age also, if you are in a younger age you can keep the money for a longer period and can assure a positive return from ELSS. Systematic Investment Plan (SIP) facility is also available in ELSS.

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