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ELSS (Equity Linked Saving Scheme) Your Ways To Retirement

Retirement is one of the most important and inevitable events in almost everyone’s life. While all of us look forward to enjoying the fruits of years of hard work we put in during our lifetime, lack of funds can be a serious dampener in the retirement phase. Having a good retired life is a concern for a majority of the people, as retirement planning is often not taken seriously at the right age. In the context of personal finance, retirement planning means having sufficient funds to meet future needs and maintaining the present lifestyle at retirement.

Keeping all these factors in mind, one has to choose and plan for retirement in a very systematic manner. Apart from saving enough for your retirement you also need to invest those savings wisely to reap maximum benefits. For the longest time, traditional investments like PPF, EPF, Bank tax-saver FDs, NSC, and Life Insurance policies have been considered ideal for retirement planning as they are risk-free in nature.


Equity-linked savings scheme is a diversified equity mutual fund scheme, where majority of the corpus is invested in equity and works like a regular equity fund with only two exceptions that unlike other equity mutual fund it comes with a lock-in period of 3 years from the date of investment and the contribution made towards this scheme is eligible for tax deduction under Section 80C up to Rs a certain amount. The investment in tax saving mutual funds can be made by buying units of the ELSS scheme. The units are allotted based on the applicable NAV (net asset value). The NAV keeps changing as it depends upon the movement in the price of the stocks held in the scheme, which changes every day. Thus, the returns on ELSS keep on fluctuating as the price of the units changes.


While making investments, one of the most important aspects to keep in mind is whether your investments are providing positive returns after taking the rate of inflation into consideration. In the long run, the value of your currency would be much lower than what it is today due to inflation. Thus, when you are planning for retirement you have to anticipate inflationary trends otherwise your funds will be worth a lot less in the future and get exhausted much earlier than anticipated.


We cannot reiterate the importance of including an ELSS in your investment portfolio enough. It is one of the best instruments for meeting the dual purpose in financial planning. One of the main reasons why more and more people prefer to invest in an ELSS because of taxation is because it is eligible as a tax saving instrument under section 80C.


Diversification is a very important aspect of financial planning. Funds for retirement should also be well diversified. ELSS funds give one the much-needed diversification as they invest in equities and at the same time the risk is not as high as investing directly into stock markets. Even, within the fund, an ELSS fund manager invests in a variety of sectors and companies so that overall risk on the fund is considerably lower.


Contributions made into ELSS schemes are tax deductible. Even the returns on such schemes are completely exempt from tax. You can keep investing in an ELSS scheme without any limits and if you do not wish to withdraw a lump sum from your ELSS fund, you can opt for SWP (Systematic Withdrawal Plan) later on, which will give you a periodic payment like an annuity in any pension plan. Returns in either form are exempt from tax. Dividends that are earned from Dividend Schemes of mutual funds are also completely exempt from tax


Due to the above as well as other benefits of ELSS funds, financial planners recommend that they be considered for reasons over and above the tax-savings benefits they provide. Though it is always suggested that one should ideally have a diversified portfolio, with investments made across the entire gamut of tax-savings and profit-maximisation schemes, one should definitely include ELSS funds in their Investment Portfolio. This is because the risks they come with given that they are equity-based schemes are more than compensated for by their numerous advantages.