Most of the tax-saving instruments discover their voice during the last three months of the financial year. This is between the months of January to March. Numerous tax saving options in the form of PFF, fixed deposit are available to you. But let us explore the reasons why ELSS funds dish out to be the best option for you in terms of tax saving.
Under section 80 C of the Income-tax act tax benefits
No scope of surprise here. As per section 80 C of the Income tax act you are entitled to a tax rebate of 1, 50,000 lakhs from your gross income. Though there is a limit of deduction of 1.5 lakhs, there is no maximum amount you can invest. You can invest extra amount but this is not going to fetch you any deduction.
The various tax saving instruments like NSC, fixed deposits, PFF or even others have a maturity date. For example, PFF has a lock-in period of 15 years and then you can renew it by 5 years. Though a has 3 years, you can continue to keep on investing until you desire. ELSS mutual fund lock in period
Take the benefit of equity exposure
If you belong to the traditional investor class, you are looking for assured returns, then a small exposure to equity can be achieved with invest in elss funds online. For a first time investor to a stock market, they work out to be an ideal bet. Because of the fixed lock-in period, an investor can also experience the volatility experienced with the stock market. As the fund manager is not bothered about immediate redemption of funds, he can adopt a buy and hold strategy helping him to maximize returns. The returns are high in the long run.
Lower lock-in period
Most of the tax-saving instruments are accompanied by a lock-in period. In case of a PFF, you are allowed to make a partial withdrawal after 5 years. With an ELSS fund, you can forego the funds after 3 years.
A point of consideration, even though ELSS funds have a 3-year lock-in period, it is suggested that you invest with a long horizon in mind. This is to be on the safer side as ELSS funds tend to invest in stocks. The stocks could be volatile in the long run.
To sum it up ELSS comes with a unique set of benefits. But in no way, it means that you can invest in a blind manner. Ideally, you should invest in a fund that meets your investment objective, time horizon, and even your risk profile. This means that if you can take a little bit of risk and hold on to your investments for a certain time frame, investing in ELSS would not be a bad idea. An investment advisor would want you to observe the tax planning task in isolation. It needs to be an important part of your tax planning isolation.
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