SHOULD YOU INVEST IN MARKET LINKED TAX SAVING PRODUCTS?

If you are comfortable exposing yourself to market fluctuations, consider investing in market linked investment products that save tax. Otherwise, consider traditional tax saving investment options.

Following are some of reasons that why you select market linked tax saving products:

1. Greater returns:One great advantage of market-linked investment products is the returns they offer. Unlike traditional investments that offer a static interest rate of 8%-9% , ELSS, MFs and ULPPs offer returns as high 25%. Debt funds protect your money when equity markets are not performing well, while equity funds ensure you get higher returns than debt instruments when markets are up. As a result, you benefit immensely.
2. Tax benefits:Similar to FDs and PPFs, ELSS and pension funds offer tax savings. Investments up to Rs 1.5 lakh are eligible for tax deduction under Section 80C of the Income Tax Act. In the case of ELSS, dividends earned during the investment period are tax free. Further sale of ELSS units are not subject to tax as they are considered long-term capital gains.
3. Investment frequency:These products give you the liberty of investing in lump sum or at periodic intervals. This feature trumps FDs which require lump sum deposits. A systematic investment takes advantage of market volatilities yielding positive returns.
4. Lock-in period:ELSS has the shortest lock-in period of 3 years while for ULPPs, it is 5 years. When you compare these numbers with the lock-in periods of a tax-saving FD or a PPF, you get a clear winner.
5. Fund managers:You don’t need to be an expert on stock market and portfolio management for investing in mutual funds or ELSS. The financial institution in whose scheme you have invested has professional fund managers to handle your portfolio and ensure you receive maximum gains. Therefore, you gain from a hassle-free, well-diversified package of many individual investments, which you would otherwise find complicated to manage on your own.

Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.