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The Best Of ELSS Investments For 2013

| 2/7/2013 9:00 PM Thursday

Your investments for the future can also help you save on taxes. ELSS funds bring to you the best of investment and tax benefits. Shashikant and Saikat Mitra tell you more about the best ELSS funds to invest in 2013.

It’s that time of the year when most salaried individuals must be receiving requests from the HR department of their companies to submit investment proofs. This is a wake-up call for most of them, and this is when their search for tax saving instruments starts.

Although, there are many tax saving instruments that provide tax benefits under Section 80C of the Income Tax Act, 1961, Equity Linked Saving  Schemes (ELSS) provide the best of both worlds, i.e. tax savings as well as investment. While other instruments like PPF and NSC also offer tax savings,they do not provide the upside provided by ELSS.

It is true that ELSS funds bear higher risk and volatility as compared to other tax saving avenues. However, this very factor makes them stand out as the best tax saving products, as the so-called low risk instruments cannot do enough to help you beat the risk of ever-rising inflation that can eat into your savings.

There are two factors that weigh the balance in favour of ELSS, Dhirendra Kumar, CEO, Value Research Online explains. First, he says, “The Indian investor does not have meaningful equity exposure, and therefore, it should be a part of their portfolio, and ELSS should be the first choice to start with while investing in the equity market”.

The second point to be considered is that investment in equities should be done with at least a three-five year time horizon. ELSS are designed with a lock-in period of three years, and hence, force the required discipline for equity investment. In this respect, Kumar says, “We have conducted a study where we have studied the average returns with a three year holding period for the last 10 years. We have found that the returns have ranged from 7-28 per cent and the median return is 17 per cent. This means that if the holding period is for five years, the average returns will be as high as 17-18 per cent”.

There are reports that the Direct Tax Code (DTC), if implemented in the current format, will do away with tax claims under investment in these schemes. However, there is no clarity yet with regard to when this will be implemented. As of now, investors who choose to invest lump sums in such schemes can avail themselves of the tax benefit. However, those who choose to invest via the SIP route could be affected by the DTC as and when it comes into force.

 

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