Comparison of various Tax Saving Instruments
ELSS is Equity Linked Savings Scheme. ELSS as the name clearly suggests is a savings scheme linked to equity markets. It is a type of equity mutual fund, which offers tax benefits to the investors added with possible high returns comparable to any other equity fund.
Equity linked saving schemes is a mutual fund diversified equity funds with Tax benefits. It is just like other tax saving instruments like National Savings Certificate and Public Provident Fund. Main advantage with ELSS is lock-in period is only 3 years while for NSC it is 6 years and for PPF it is 15 years. At the same time risk factor is high in ELSS and also with high possible returns. Also as per present tax norms, withdrawal after 3 years is exempted from any kind of tax.
The only disadvantage is that switch option is not available as ULIPs. Example, if you have invested in ELSS and suppose you get 100% yield in 1 year, you cannot lock that return and NAV after 3 years only will be paid when you encash this. This can be done easily in ULIP’s by switching from Equity fund to Debt fund.
Particulars | PPF | NSC | ELSS | Bank Deposits | ULIP | Infrastructure Bonds |
Tenure (years) | 15 | 6 | 3 | 5 | 5 | 3 |
Min. Investment (Rs) | 500 | 100 | 500 | 10,000 | 10,000# | 5,000 |
Max. Investment (Rs) | 70,000 | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 |
Risk | Low | Low | High | Low-Medium | Medium-High | Low-Medium |
Nature of Returns | Fixed | Fixed | Market linked | Fixed | Market linked | Fixed |
Interest Frequency | Compounded annually | Compounded half yearly | No assured dividends/ returns | Compounded annually | NA | Options available |
Taxation of Returns | Tax-free | Taxable | Tax-free | Taxable | Tax Free | Taxable |
With a higher risk factor,will it be wiser to opt for ELSS??
You see, Although risk is high, but that also gives you an oppurtunity to earn high returns. Equity in long term has always outperformed fixed return investment options
What will be the faith of ELSS in new tax regime....Any comments...Even the updated DTC released on June 2010 doesnt mention anything on this....Expect all the equity capital gain will be taxable by certain slab