Investors are perpetually debating should they invest to generate returns or should they invest to save taxes? The answer to this is rather simple, you could do both. While investing in a tax saving product you could also look into the rate of returns the product will yield in future. Equity Linked Savings Scheme (ELSS) is a uniquely advantageous scheme. While there are many schemes that are offered to save taxes, ELSS can also be used for wealth generation as it invests heavily in Equities to ensure the desired long term yields.

ELSS at a glance

• The lock in period is only three years, the least among the tax saving instruments.
• Investors can invest in equities and also get their funds managed by professionals.
• Long term capital gains are tax free. The dividends earned from an ELSS scheme are also tax free.
• The investors can avail a tax deduction of up to 1,50,000 INR on the ELSS investments u/s 80c of the Income Tax Act
• Investors can reduce the risk by investing in ELSS through SIP which ensures that the investor can take advantage of Rupee Cost Averaging.

ELSS vs United Link Insurance Plans (ULIPs)

ULIP has a lock in period of three to five years. ULIP has often been criticized due to lack of transparency along with high costs. The overhead costs such as the premium allocation charge and the policy administration charges in the investment of ULIPs have often been known to eat in to the returns. Hefty surrender charges are levied if the investment is withdrawn before five years often making this a very expensive investment. No such charges are applicable for ELSS except for a minor annual management fee deducted by the Asset Management Company. The performance of ULIP is often hampered by the overhead and administrative cost involved. The same is not applicable for ELSS.

ELSS vs Public Provident Fund (PPF)

It is a traditional scheme of the Government of India often used by tax payers to save tax up to 1,50,000 INR u/s 80c of the Income Tax Act. The lock in period of the scheme is as long as fifteen years and can be extended in block of five years after maturity. Partial withdrawals can be made on the commencement of the seventh year. The scheme mostly invests in both government and corporate bonds and securities and is a debt scheme.While the risk is low in PPF, the returns are not at par with that of ELSS.

ELSS vs National pension Scheme (NPS)

NPS is more of a retirement solution than an investment solution. It invests partially in equities but the lock in period is till the retirement age of 60. This may be restrictive for young investors who are aiming for higher returns in a relatively medium period time. If you are looking to generate returns within the timeframe of three to five years then NPS is not the scheme to invest. The long term capital gains on ELSS are tax free. The same is not applicable for NPS. 40% of the maturity amount has to be used to buy annuities and remaining amount is taxable according to the income tax slab. While, NPS enjoys an additional 50,000 INR benefit under Section 80CCD, the tax treatment at maturity, moderate or low exposure to equities makes it slightly disadvantageous to ELSS.

ELSS vs National Savings Certificate (NSC)

NSC is a scheme launched by the Government of India. It is a fixed income earning instrument and the interest rates are almost at par with other Government tax savings instruments. NSC is compounded half yearly and the interest rates are declared annually. The current rate of interest is 8.1% compounded half yearly for an investment period of five years. The major disadvantage of NSC over ELSS is the tax treatment of interest earned. The interest earned in NSC is taxable and for this purpose it is reinvested as the reinvestment within the one lakh limit is not taxable. ELSS does not come with any such tax clause.

ELSS Vs Sukanya Samriddhi Scheme (SSS)

Sukanya Samriddhi Scheme (SSS) is an investment option for you only if you have a girl child of ten years or below. The return for the FY2016-17 is 8.60%. The account matures in 21 years before which it is in a lock-in period where funds cannot be withdrawn. In ELSS good returns can be earned due to exposure to equities and the principal along with the growth can be redeemed after three years. ELSS has a minimum lock up period of three years. Investment in SSS is goal specific and the maturity amount is accessible only to the girl child in whose name the account has been opened. ELSS serves no specific purpose and can be used to generate returns for any financial goal.

ELSS Vs Tax Savings Fixed Deposits

Tax savings fixed deposits have a minimum lock in period of five years. Withdrawal before the expiry of the lock in period will attract tax treatment on the principal. Tax rebate for such a scheme is extended only for the principal and not for the interest unless it is reinvested. The interest amount upto 10,000 INR is non-taxable other wise 10% TDS is applicable. ELSS trumps this scheme both on counts of lock in period and tax treatment. The lock in period for ELSS is only three years and the long term capital gains and dividends are totally tax free.

Hence, ELSS wins both on count of having a lock in period of only three years and being a scheme that heavily invests in equities and equity related instruments. Along with availing tax rebates u/s 80c tax payers can also look to generate wealth with substantial returns.

ELSS: Managing the Risks

It is often said that investment in equities is ridden with risks. It should be avoided by conservative investors and people who are planning for retirement at a very late stage in their lives, because of the volatility involved. This could not be far from the truth. Investing in equities for short term makes it risky. If the same investment is done for long term then it reduces the risk as the long time period diversifies the risk.

Investor can invest for tax saving purpose in ELSS through both SIP and lump sum mode. SIP allows an investor to pay a stipulate amount throughout the year. Investment through SIP also reduces the risk as it benefits from rupee cost averaging. Rupee cost averaging helps to stabilize an investment, especially equity investments, where the risk involved is higher.

The jury is out on whether SIP is better than lump sum, or the other way round. In a runaway bull market, lump sum investments are always more advantageous. However, investors may not have the funds to invest in lump sum. Secondly, equity markets are inherently volatile. SIPs are advantageous in volatile markets because of rupee cost averaging. Thirdly, SIPs help inculcate disciplined savings and investing habit, which helps investors meet their long term goal. The benefits of SIP notwithstanding, investors should invest in mutual funds through both the lump sum and SIP modes. They should allocate a portion of their monthly savings to invest in SIPs. At the same time, they should use one time cash flows like, annual bonus payout, maturity of fixed term investments, sale of assets, etc to invest in lump sum. If the investors think that, the market will be very volatile in the short term, they can also invest in lump sum in a low risk fund, like a liquid fund and transfer systematically to ELSS funds, using the Systematic Transfer Plan (STP), so that they can take advantage of volatility.

Investment in ELSS over a long time horizon can generate good risk adjusted returns. If you are looking to invest in an Equity scheme with long term benefits this may be a good option. While selecting an ELSS scheme an investor must check the performance of the various schemes and instead of just focusing on the returns, consistency must also be considered

As an investor if you are looking to kill two birds with one sling, get returns and save tax, then ELSS is the scheme for you. You will be able to avail the maximum benefits only when you start investing in especially through ELSS route. Let the saving and investing begin!

Men and women have been created as equals and have equal rights. Unfortunately, for most of us, the financial and social status of women in India comes second to men. The women around us – be it daughters, sisters, mothers or our better halves, have a special place in our hearts and our lives. But many of them are likely to “not” be financially sound, literate or independent.

In today’s world, where society is undergoing a big change, women continue to be most prone to financial crisis and are financially most vulnerable. We believe that it is very essential for women to be financially literate and independent, for many reasons like…

• The average life of a woman is more than the average life of a man.
• There is a growing number of single women. This may occur anytime due to career choices, divorce or death / disability of husbands.
• In absence of earning male members, females often carry the burden of the family.

The work life of women is less than men because of various reasons like raising a child, family problems, health issues, etc. Generally women also receive less pay than men.

• Women are more likely to come under pressure /influence of others in financial and inheritance matters.
• Financially literate and independent women can be of great support and financial help to their families, especially husbands. Women have been known to be smart savers and money managers at home.

One needs to look at the numerous examples before judging women as not being smart enough to handle financial matters. A financially independent woman can today support herself and her family with income. Such a person would have good control over finances and would attempt to shape the financial future for the betterment of all.

Most women are totally dependent on their husbands and families, not only for their day to day expenses but also for their financial future. Women generally don’t have any clue about their family finances and are left totally dumbfounded in case of an emergency. Irrespective of how much money is the father or husband making, you are never fully financially independent without your own money. Being economically independent will boost your confidence, taking decisions for yourself, will increase your risk taking ability. You can satisfy your whims with your own money and might be the bread earner for your family in times of need.

Women generally have a different work life than men. Some are freelancing or working part-time or the hours of work are lesser or are more prone to taking leaves and sabbaticals. All these head to small savings for women. Clary Boothe Luce said “A women’s best protection is a little money of her own”. However, if not properly managed and directed into the right investment channels, these hard earned small savings will be futile.

What to do?
Proper savings and investments can help you become financially independent over time, even if you are not earning. The following are the steps that one should take…

Learn about money: Never feel shy or hesitant to learn more about money – savings, investments, investment products, mutual funds, etc. In case your family is not supportive, you can always reason with them. It is better to know about the financial holdings /assets /insurance policies and bank/demat accounts in your family to be ready for any emergency.

Be Active: The idea is to get more engaged in financial matters of your family, with the support of your spouse. Open your own bank account or have a joint account with your husband. You can also have your own credit card / debit cards for managing your regular expenses. Also start a demat & trading account with which you can make your investments.

Get Covered: Most often we find that the women, not having financial earnings are neglected when it comes to insurance coverages. This is a wrong perspective to adopt as every girl /woman has to be adequately covered with insurance.

Start Saving: The first step is to start saving and then investing those savings. The easiest way to save for long term wealth creation is by starting an equity mutual fund SIP. You can start with a very small amount, say R500 every month. Invest small savings in mutual funds through SIP and see your savings grow. You can also increase the amount of the SIP with the increase in your savings / income. Plan for your goals: You may have many short-term or long-term financial goals. Try to invest for your goals through mutual funds which offer different types of funds which will easily match your investment objectives and horizon. The investment horizon can range from few days to double digit years.

Old Age: A regular inflow of funds or a huge corpus is necessary for your maintenance in your old age. Just imagine being at the mercy of your son /daughter-in-law in future in absence of your husband. We don’t even want to imagine that! No matter how much you love your family and children, you should not leave to fate what you can prepare for your tomorrow by investing smartly.

Emergencies: As the pillar of your family, women are likely to find themselves in emergency situations like accident, ill-health, loss of income, etc. of their husband or other family members. Having some money saved for emergency can prove to be be immensely helpful and you would not be forced to beg for money from others. Keep aside some liquid investments for emergencies only.

Conclusion:
Every person has an equal right to dignity, respect, freedom to pursue own dreams and independence, including financial independence. Financial independence and empowerment of women can not only bring great benefits to a family but also to the entire community and country at large. Let us work towards ensuring this, beginning first at home.