Indian laws provide
access to a plethora of tax saving instruments. The list is long and exhaustive
where you will be spoilt for choices. But still, it is common among masses to
end up making sub-optimal choices as far as tax saving instruments are
concerned. Now, why does such a situation arise?
The main reason why
such a scenario occurs is when you end up seeing all tax saving instruments at
odds with one another. People end up thinking about tax saving instruments in
the manner by which they end up seeing other financial instruments. Having said
so they do not prioritize investments in the same manner.
Why ELSS is popular among the various tax saving instruments?
Typically a panic-driven investor makes this decision in the month of March, with a fast-approaching
deadline or it can be under the pressure of a salesperson for which time could
be at a premium. This pressure could multiply if the salesperson is a friend
or even a relative. The outcome is less than an ideal decision being made. On
coming up with such a situation a natural reaction would be at least we have
tax benefits.
In the long run, this
approach lacks logic. The confusion over a tax saving instrument needs a level
heading thinking on what you are availing from the tax saving instrument in the
first place. The quantum of disadvantages obtained is worth the tax benefits
obtained. As an investor, you should work towards eliminating the poor sources
in relation to decision making. Coping with time pressure is an easy task. The
key is to plan out these financial investments in the early part of the year.
Once you have started investing keep things simple till you end up reaching
your end goal.
For the second category
of people, an investment which makes sense is the best
tax saving ELSS funds. A salaried individual has a
certain sum of money for PF deductions. To achieve a balance, investing in
equity is a must. The best part about an ELSS fund is that you can claim tax
rebate to the tune of 1, 50,000 cashing in on the benefits of equity returns.
If you are a newbie
into the financial market then ELSS makes an excellent choice. They first gain a
taste of investing in mutual funds. The main reason why they end up investing
in such funds as a tax saving instrument attracts them coupled with a short lock-in period. For this reason, as compared to the other tax saving options, they
end up investing in ELSS funds. Once you gain a hang of long term equity funds
you might be looking at the option of investing in another type of funds.
Over a short period of
time equity funds carry less risk. In case if an investment horizon is more
than 5 years or so the risk works out to be relatively lower. Just about any
other type of investment the best way to invest in ELSS funds is through the
medium of SIP. In a market downturn, they protect your investments.
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