Equity Linked Savings Scheme (ELSS)-A Tax Saving & Investment Option

As the financial year nears its end,every individual or invester starts looking for tax saving instruments which should yield handsome returns along with primary requirement of saving tax.There are several
options available in the market which are commonly used by people like Public
Provident Fund (PPF),National Savings Certificate (NSC) or Unit Linked Insurance Plans (ULIP).Although, these are quite popular
but  there are some disadvantages with them.PPF's and NSC's have a long lock-in period,ranging from 8-15 years and the returns produced by them fail to beat Lifestyle Inflation so that real returns are not sufficient to accommodate the purchasing power.ULIP's have the potential to beat the inflation but they are quite costly and require investment for 15-20 years to yield those gains.So what is the best option?

Equity Linked Savings Scheme (ELSS)

Equity Linked Savings Scheme or ELSS as it is popularly called is proving to be a good alternative to these options.ELSS is a Mutual Fund investment which also gives the advantage of tax saving.Due to equity exposure,the ELSS provides the return which also beats the inflation.Although the risk involved with markets are there but if you choose a good fund with good track record and little longer period of investment,ELSS is capable of fairing far better than other mentioned instruments.

Second advantage with ELSS is that it has a lock-in period of 3 years only compared to longer period in PPF & NSC.ELSS is a type of Systematic Investment Plan (SIP) which is done in a Tax Saving fund scheme on regular intervals.If you opt for three years ELSS on monthly basis,depositing your fixed amount every month,you can withdraw that monthly deposited amount after three years and not the whole amount invested in three years.All in all,you have to keep every installment for three years in the fund.

Also you need not to deposit the whole amount in lump sum basis.You can start investing in ELSS from the start of the new financial year after calculating the total amount you need to save for tax saving and dividing it into 12 equal installments for the 12 months.

So,if you have a conservative risk profile,want to save tax on your incomes and willing to give a little longer time than lock-in period to your investment by choosing carefully a good mutual fund scheme, ELSS can do wonders for you.