Why people should invest in ELSS in 2016 for Exemption u/s 80C of Income Tax Act

ELSS is one of the fancy products nowadays. More and more people are choosing ELSS and most of tax saver funds are getting overwhelming response. There are certain factors who have make it the best product among the all tax saving products

Expectation of High return

Equity market is more than 20% down from its peak of 9000 points. This level of 7300-7500 is a good opportunity to enter in market. Investors who lost the chance to reap the market run after Modi government come into power will be able to find a safe level to enter in market. This is the reason that more and more investor are investing in ELSS for Section 80C deduction as they expect a little more than normal return. In ELSS investment time horizon will be automatically long term as there is a lock in period of three years.

Less return in other 80C products

Where the equity is expected to fetch better return, other products for tax saving under section 80C of Income Tax Act are expected to fetch lower rate of ROI as interest rate is falling and fixed interest bearing products like FD, PPF, NSC or PF won’t be able to fetch a high return of income, not enough to cover the inflation. Thus more people are choosing the ELSS over FD and PPF.

Least Lock-in Period

ELSS has least lock-in period in comparison to other investment options for tax exemption under Income Tax Act. Like FD is having the Lock in period of 5 years whereas Lock in period for PPF is more than 7 years. Investors choosing ELSS over FD’s will be having more liquidity and will be able to reinvest their money soon.

No tax on profits earned on investments

Best part of ELSS is that after three years all the profits earned on the scheme will ne STT paid Long term capital gains, which will be Tax free in the hands of investor. On FD they will earn the interest which will be taxable at normal income tax rates. Here also ELSS will provide an edge to their investors.

Systematic investment of small amount

Best thing with ELSS is that you can invest in ELSS via SIP means you don’t need to make outflow of cash at one time in year end when you are already suffering from cash crunch. But you can start an SIP and a small amount will be deducted from your account every month on a fix date chosen by you. In this manner it will complete your investment by the year end automatically.

Although market risk is always there in equity based products but ELSS being a long term product give enough time to recover any negative situation. Also the downfall in equity market in last one year has provided a good opportunity to enter in market.

This is the time when smart investors will enter into the market and over smart will ignore it citing the return of past 8-10 months. Yes it’s negative because market always makes a correction and that is the perfect time to enter and give it enough time to perform. And then if we are getting a tax exemption also it is even better. Hope you will make a smart decision but never forget the basic rules. Invest systematically and always keep a time horizon of more than 2 years, keep some emergency money with you so that you won’t have to redeem your investments in loss. Keep this in mind and start your wealth building from today itself.

Cheers

CA Shafaly Girdharwal

9953077844

Shaifaly.ca@gmail.com