Tuesday, April 29, 2008

I want to save tax; What is ELSS and how can I save tax via ELSS

ELSS is nothing but E:Equity L:Linked S:Saving S:Scheme. This are mutual funds with 3 year lock-in period.

Finance minister Mr. Chidambaram has included ELSS as one of tax saving instrument,along with your regular LIC, PPF etc.

Investments in ELSS can also get you tax benefit under section 80c. This comes under the overall exemption limit of Rupees One Lakh.

Recently last two years it has been observed that most people who used to invest Rs.70,000 in PPF and rest in LIC have now started switching there investment into ELSS.

Why is that so ?
Reason 1: The lock-in is of 3 years compare to 15 years in PPF
Reason 2: Good performing Mutual Funds normally give dividends where as PPF does not.

Last and very most important reason is over a long period of say 15 years Mutual Funds has always outperformed all other asset class. In the short term however mutual fund can give you -ve return sometimes.

you will be amazed that Rs. 1 Lakh invested in SBI Magnum Taxgain 5 years ago is now more then 10 lakhs.

NOTE: I am strong believer in SIP (Systematic Investment Planning) compare to one time investment in Mutual Fund. SIP safeguards your money against market volatility.

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