When it comes to saving taxes under Income Tax Act, financial planners and advisors say that Equity Linked Savings Schemes (ELSS) from Mutual Funds score over other comparable investments. ELSS offer better returns over the long run, charge their customers a lower fee and have lower lock in of just three years. Unknown to most investors, pension plans floated by mutual fund houses also offer attractive tax savings options under the income tax act.
In this article we will discussabout saving taxes using the ELSS and MF pension plans, and also the advantages and the disadvantages these schemes have over comparable investments and other products.
If you are a long term investor, you should consider investing in these type of funds through the SIP route. That way you can continue to enjoy tax advantage for the long term (we are assuming current tax concessions will continue), have a disciplined approach to investing and also expect superior returns at a much lower costs.
ELSS, the tax saving mutual fund schemes, invest more than 65% of the corpus in equities and come with a lock in of three years. If you invest in an ELSS, you are eligible to claim income tax rebate under section 80c of the Income Tax Act for up to Rs 1.5 lakh.
Here are some of the features of ELSS:
With high equity exposure, they are ideal for long term investing
Among tax saving instruments, ELSS have the shortest lock in period of three years
They are a low-cost option to investing. Although NPS is probably the lowest cost tax saving investment product available to investors, ELSS also has a low cost structure when compared to some other similar products.
MF PENSION PLANS
Currently, some of the top fund houses have launched pension plans which are allowed by the government for tax concessions. Some are more conservative in nature while the new pension funds offer investors the flexibility to invest fully into equities. These plans prompt investors to remain invested for the long run, till the time of retirement. And hence most of these funds have exit loads if the money is redeemed before you retire.
Some of the features of these schemes are:
MF pension schemes enjoy tax concessions under section 80c limit of Rs 1.5 lakh
In some of the pension schemes you can invest 100% in equities, unlike in NPS that doesn’t allow the same
In these plans after an initial lock in of three to five years, you can withdraw the corpus partially or fully, an option not readily available in comparable products
When you with draw money from these funds, you are not forced to buy annuity. This is not the case for NPS and most pension schemes floated by insurance companies where at least a part of the corpus goes into annuity
For investors, the inducement to save taxes is always high. But most of them rush in at the last few months of the financial year, that is in the January February March period. Financial planners and advisors always advice investors to invest regularly through the SIP route which brings in discipline and also helps them to suddenly not read just their monthly budgets during the closing months of the financial year.
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