ELSS (Equity Linked Saving Scheme) General Discussions

[riteshcrown]

Hi Traderji and all readers,

as per new budget amount upto one lac will be deducted from taxable income.
can we now invest more than Rs. 10000/- in ELSS???

thankx

[TATrader]

It is best for the Finance Ministry to come out with the provisions of this budget and then we will have a clear picture.

[riteshcrown]

Hi TATrader
could not understand what u hav replied sir!!!

can we invest entire amount (1 lac) in ELSS??
thanks

[Mohan]

If you invest in ELSS through the SIP route, it will give you the best combination of low risk and good returns, along with tax benefits!

In the budget, the Finance Minister has eliminated the rebates under Section 88 and scrapped Section 80L. In place of these, he has allowed every taxpayer a consolidated limit of Rs 1 lakh for savings, which will be deducted from your income, before tax is calculated.

There will still be a whole list of approved instruments, under the new Section 80C, in which your savings must be channelised, in order to benefit from the tax break. However, the most important benefit is that there will be no sectoral caps.To make the most of this benefit, the best strategy would be to invest in Equity Linked Savings Schemes (ELSS) of mutual funds, through the Systematic Investment Plans (SIP) route.

ELSS BENEFITS
From all classes of investments, which are eligible for a tax rebate, the returns from ELSS have been the highest. ELSS is basically a diversified equity scheme, which has a 3-year lock-in period.

As the fortunes of these instruments are tied to the equity market,they have a high risk-high return profile.However,as these funds are professionally managed and as they have a 3-year lock-in period,fund managers are able to make long-term calls on the scrips that look like winners.Unlike open-ended funds that are bogged down with redemption pressures,these schemes enjoy the best of both,returns and capital appreciation.

The returns generated by the ELSS schemes,in the past couple of years have been,on an average, more than 30 per cent.In the future,too,these funds have good prospects.Asia,in general,and India,in particular,are being touted as the next high growth economic engines in the world.This is bound to be reflected in the performance of the Indian stock market; and the best way to capture a piece of the action is through investment in ELSS.

MINIMISING RISK
Although ELSS offers tax benefits, with equity market linked returns, there is no running away from the fact that they are subject to equity market risk.As we all know,the equity market can be very volatile and fluctuate not only due to fundamentals but also sentimental factors.Diversifying your portfolio across sectors and scrips is one way of minimizing the risk that you face.However,these are decisions that you entrust to the capa ble hands of your fund manager, once you invest in a diversified mutual fund.What you can do is diversify your investment across time periods.SIPs are a tried and tested method of minimizing risk and yet enjoying good returns,by regular,periodic investment,over a long horizon.

SYSTEMATIC INVESTMENT PLANS
An SIP is an investment schedule offered by mutual funds.These plans allow you to buy units on a regular basis over a fairly long period of time.While you invest the same amount at each time interval, you receive a different
number of units each time, based on the NAV, as it stands at the time each investment.The choice of how much you wish to invest and at what frequency is up to you.When you decide to go in for an SIP, you can specify the frequency and size of the investment that you plan to make, in the application form.

SIP BENEFITS
Rupee cost averaging:When you invest a fixed amount at regular intervals, you buy more units when prices are lower and fewer units when price is high. So at the end of a sufficiently long period, the average cost of the units that you hold will be low.

Small contribution: By contributing small amounts on a regular basis you can create a substantial asset base for yourself over a period of time.

Discipline: Regular investing becomes a habit.

Hassle free investing:When you opt to invest through an SIP, you deposit post dated cheques with the mutual fund or mandate an auto debit from your account. This way, you save yourself the inconveniences usually associated with regular payments.

No entry load: Many mutual funds waive the entry load for investors who invest through SIPs. This improves the returns.

A FANTASTIC COMBINATION
SIPs along with the tax benefit that can be availed of by investing in ELSS,makes this investment option very attractive.Instead of simply putting in a chunk of Rs 1 lakh at the end of each fiscal year, if you develop a healthy saving habit,you could invest a fixed amount every month and benefit from the advantages of both SIPs and the tax rebate.

IN BRIEF
Section 88 and 80L benefits have been replaced by Section 80C in the budget 05-06. Sectoral caps have been removed for investments under Section 80C. ELSS offers the best returns from all instruments under Section 80C. The Systematic Investment Plan route has a number of time-tested benefits. SIP in an ELSS allows you all the benefits of systematic investment with a tax break.

[nkpanjiyar]

Nicely explained Mohan. Thanks.

Cheers,
nkpanjiyar

[TATrader]

Invest in "ELSS"

Budget 2005 has offered a phenomenal combination of tax benefits on equity investing through equity tax saving mutual funds, which, when combined with a systematic investment plan, is a sure winner!

TIMES have changed and so must you. Look around and you will see a variety of new investment options that can help you fight against rising inflation and save tax.While a good rate of return enables you to fight inflation, tax saving is a very important part of financial planning, too. Because, at the end of the day, post tax returns are what really matter. It determines the actual income that is available for spending or reinvesting.

Equity Linked Savings Schemes (ELSS) provide an ideal way to save tax and earn an equity linked return on your investment. These are, basically, equity-diversified mutual fund schemes and have a lock in period of three years. Usually, more than 80 per cent of the money invested in ELSS goes into equity and related instruments. ELSS schemes have been introduced, to give a steady boost to equity markets and, therefore, the government has provided tax concessions to those who invest in this instrument. According to the newly introduced section 80C of the Income-tax Act, an investment in ELSS, up to a maximum of Rs.1 lakh per financial year, is eligible for deduction from taxable income.

Rationale for ELSS

Equity markets are on a roll, backed by robust economic and corporate fundamentals. In 2005, the sensex crossed 6900 levels and the markets have turned quite volatile. Naturally, when the markets turn choppy, it is difficult to determine their direction. However, macro-economic factors suggest that these corrections should not be a cause of worry. GDP is expected to grow at over 7 per cent, forex reserves are crossing the US $ 100 billion mark, FII inflows are forthcoming and both the banking sector and corporates are displaying good health.This should instil confidence that the markets are headed for a healthy long-term bull run.

At times like these, staying invested in the market, through mutual funds, is the best option. It gives you the benefit of professional management. During volatile times, equity fund managers stress the need for a long-term investment approach, as it offers more returns.

Further, rising inflation and uncertainty on the interest rate front have rendered debt funds lacklustre. Interest rates on other investment avenues, such as bank deposits, are yielding lower returns and hence, investing in equities seems more attractive.Top performing ELSS has delivered returns of more than 70 per cent for last three years.

So, ELSS, with its lock in period of three years, meets all your investment objectives, especially in volatile times. It can help you to save on tax and earn high returns.Thus, it is an ideal option for investors, with a longterm horizon, who are considering investing in equity mutual funds.

SIP route for ELSS

In order to take further advantage of ELSS, you could invest through a Systematic Investment Plan (SIP). In a SIP, you are required to deposit a fixed amount, at regular intervals (monthly, quarterly, etc.), in a mutual fund scheme.The minimum investment amount can be as small as Rs 500 and you could choose from monthly, quarterly or annual investment frequencies.

SIPs offer a number of advantages:

They help you take advantage of the fluctuations in the stock markets by rupee cost averaging.

They are very convenient and enforce the savings habit. As the money is deducted from your account, through post-dated cheques in favour of the fund, you are forced to save, once you make a commitment.

SIPs allow you to invest in small amounts.

When you invest in ELSS, through the SIP route, you enjoy the multiple benefits of better market-linked returns in the long run, rupee cost averaging and a tax break. So, happy investing!

IN BRIEF

Times have changed and you have a variety of investment choices before you. So, consider your options carefully.

While a good rate of return is very important, to help you to fight inflation, a tax break provides an added incentive.

The recent budget allows you a deduction of up to Rs 1 lakh for investments in ELSS.

Through ELSS you save on tax and get high returns, too!

Further, if you invest in ELSS through SIP, you reap multiple benefits.

[amh]

I am planning to invest in Hdfc Long Term Advantage Fund and SBI Magnum Tax Gain Scheme 93 through Systematic Investment Route (Monthly). Is anybody has a better scheme or suggestions.

[shanmg]

Originally Posted by amh

I am planning to invest in Hdfc Long Term Advantage Fund and SBI Magnum Tax Gain Scheme 93 through Systematic Investment Route (Monthly). Is anybody has a better scheme or suggestions.

consider prudential ICICI tax plan....its good compared to both HDFC LT advantage and Magnum Taxgain..

[bipin61]

Hi. I would like to invest money on behalf of my 8 yr old daughter in a SIP mutual fund.I plan to keep investing without touching the money for 10 years or more.Any recommendations guys?

[yogendra]

Dear Bipin
You can invest in childrens fund from HDFC and Pru ICICI.
Since you have got 10 years in hand , consider the option where there is around 60% equity. This will give very good returns.
Yogendra