Topic 3: The Many Advantages of ELSS Funds
ELSS funds are an advantageous way to use the Rs 1.5 lakh limit for tax saving investments under Section 80C
Under Indian tax laws, savers have a complete range of tax saving instruments available to them. And yet, individuals often take sub-optimal investment decisions with their tax-saving investments.
Why does this happen? One common reason is that there is a confusion of goals between saving tax and making investments. The typical investor makes this decision either in late March under the duress of having the deadline slip by. At the end of the day, we make sub-optimal investment decisions and when they ever realize it, they console themselves by saying that that at least they got tax benefits for the investments.
This duality of concern--tax as well as investments--prevents clear-headed thinking about just exactly what one is getting out of an investment and whether the quantum of disadvantages is worth the quantum of tax benefits that are being obtained. Investors should work on eliminating both these sources of poor decision-making--time pressure as well as not thinking through about these investments.
Eliminating time pressure is simple--just plan these investments as early in the year as possible--if you haven't done it already, then this is the right time to do so. And once you start in time, there's no need to stop after a year. Since the best way to invest regularly in a fund is through an SIP, you should start an SIP in a carefully-chosen ELSS fund and let it run for a long duration.
These investments are pure investments and should not be made if you do not have any plans to invest. For example, if you do not want to invest in a fixed deposit but would rather invest in equity, then do so in your tax-saving investments only. Any investment must first make sense as an investment, and only incidentally be a tax-saver.
Within this framework, ELSS funds are an advantageous way to use the Rs.1.5 lakh limit that is there for tax saving investments under Section 80C. But for many people, a good part of it gets consumed by statutory deductions.
Unfortunately, all the statutory deductions are invested into fixed income instruments Now, the Government has even placed some tax-deductible expenses under Section 80C.
Within this limit, ELSS is the better way to get the advantages of equity investing.
Source: valueresearchonline.com
Under Indian tax laws, savers have a complete range of tax saving instruments available to them. And yet, individuals often take sub-optimal investment decisions with their tax-saving investments.
Why does this happen? One common reason is that there is a confusion of goals between saving tax and making investments. The typical investor makes this decision either in late March under the duress of having the deadline slip by. At the end of the day, we make sub-optimal investment decisions and when they ever realize it, they console themselves by saying that that at least they got tax benefits for the investments.
This duality of concern--tax as well as investments--prevents clear-headed thinking about just exactly what one is getting out of an investment and whether the quantum of disadvantages is worth the quantum of tax benefits that are being obtained. Investors should work on eliminating both these sources of poor decision-making--time pressure as well as not thinking through about these investments.
Eliminating time pressure is simple--just plan these investments as early in the year as possible--if you haven't done it already, then this is the right time to do so. And once you start in time, there's no need to stop after a year. Since the best way to invest regularly in a fund is through an SIP, you should start an SIP in a carefully-chosen ELSS fund and let it run for a long duration.
These investments are pure investments and should not be made if you do not have any plans to invest. For example, if you do not want to invest in a fixed deposit but would rather invest in equity, then do so in your tax-saving investments only. Any investment must first make sense as an investment, and only incidentally be a tax-saver.
Within this framework, ELSS funds are an advantageous way to use the Rs.1.5 lakh limit that is there for tax saving investments under Section 80C. But for many people, a good part of it gets consumed by statutory deductions.
Unfortunately, all the statutory deductions are invested into fixed income instruments Now, the Government has even placed some tax-deductible expenses under Section 80C.
Within this limit, ELSS is the better way to get the advantages of equity investing.
Source: valueresearchonline.com