How ELSS Can Help in Tax Saving & Retirement Planning

(Article dated – 24^th Jan ,2020)

Generally, while setting their ultimate financial goal, investors tend to ignore one of its aspects, and this is planning for retirement. Unfortunately, several investors only begin to realize the importance of planning for retirement when near the retirement stage. Mutual funds can be one of the ways of building a corpus for one’s sunset years.

Remember that there is no typical day, time, or age to begin retirement planning; the early you start, the better it is. That’s because starting early gives you more time to save until you reach your retirement age, and hence, it can also give you more time to build a corpus for your retirement life gradually. People have different ambitions; for example, some want to save enough so they can pay for their children’s overseas education, while others want to save to travel the world once they retire. No matter what the goal is, planning early for retirement will always come in handy. Saving money is not an overnight process. It requires dedication, commitment, and sacrifice. Investors, if they want to lead a stress free post retirement life, might want to consider investing in a retirement plan as early as possible.

One also cannot forget the fact that with old age, medical issues may arise. During such vulnerable situations, having a corpus might help and may even help an individual in sustaining financial independence.

Individuals may require more money when they retire than they need currently. For a majority of individuals, revenue sources post retirement shut down, and generating income may become difficult. Hence, retirement planning through ELSS may turn out to be beneficial. Investing in a tax saving instrument like ELSS may not only help in retirement planning but might also help individuals save tax.

But, investing in a mutual fund scheme like ELSS may not only be helpful in building a corpus for post-retirement life but may also be a solution to one’s tax problems. That’s because Equity Linked Saving Scheme(ELSS) is an open ended mutual fund scheme with a statutory lock in of 3 years and tax benefit. Investors can invest up to Rs. 1.5 lakhs per annum* in an ELSS fund and reduce their overall taxable income. ELSS is a tax saving instrument that comes under Section 80C of the Indian Income Tax Act of 1961.

If you want to understand how investing in ELSS can help you save tax as well as help you in retirement planning, read further:

• Equity Linked Saving Scheme has a short lock-in period of three years. This means you cannot withdraw your fund until the lock-in period is over. Having a lock-in may prove viable, as holding on to your investment for a longer duration may allow the fund to grow. Also, once the lock-in period is over, investors can either withdraw their funds or if they wish they may stay invested. This way, although ELSS is a tax-saving instrument, if one strategy their investments smartly, they might be able to use it to build a corpus for post-retirement life.
• ELSS helps investor to save tax and, at the same time, may help investors gain some returns through equity investment. Having a tax saving investment that serves dual purpose may prove to be advantageous for an individual’s investment portfolio. ELSS, under Section 80C, is eligible as a tax saving instrument. An investor may invest up to Rs. 1,50,000 annually and claim tax deductions from their gross annual income. Though investors can only claim tax deductions worth Rs. 1.5 lakhs, there is no upper limit for ELSS, and investors may invest as much as they want in an ELSS fund.
• Investing in a retirement plan may be a long term commitment. And ELSS may prove beneficial for investors willing to stay invested for the long term. ELSS, primarily being a tax saving instrument, may help the investor in saving tax.
• ELSS funds are managed by professional fund managers who generally hold some experience in managing mutual funds. Thus investing in a professionally managed ELSS fund may prove beneficial for investors as apart from saving taxes regularly, they might be able to fetch some returns from their investments too.

Most individuals desire to fulfill their dreams in their retirement life, which they were not able to accomplish during their professional career. If fulfilling these dreams require monetary assets, then they may want to begin investing in a retirement plan as soon as possible. Axis Long Term Equity Fund can be one way to build a corpus for one’s sunset years. But investors should bear in mind that ELSS is an equity linked scheme, and returns from equity investments are uncertain. .

*As per the present tax laws, eligible investors (individual/HUF) are entitled to deduction from their gross income of the amount invested in Equity Linked Saving Scheme (ELSS) up to Rs.1.5 lakhs (along with other prescribed investments) under section 80C of the Income Tax Act, 1961. Tax savings of Rs. 46,800 mentioned above is calculated for the highest income tax slab. Investors are advised to consult his/her own Tax Consultant with respect to the specific amount of tax and other implications arising out of his/her participation in ELSS.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.