Tax Saving Mutual Funds
When we start working and enter into tax slab, we are guided by our family members and friends to save tax under section 80 C by investing into traditional plans of LIC, PPF, Bank deposits etc, which are safe and will yield 5-8% returns respectively.
There is another instrument by the name of ELSS (Tax Saving Mutual Fund) which has silently given over 15% compounded return for last 20 years. The difference of returns is more than double.
Lack of awareness among the public at large and so-called " RISK" involved (which is NIL in long-term) has led less participation in Tax Saving Funds.
People don't understand that the RISK of interest rates coming down in Fixed Instruments is much more than that in Equities. Last year PPF interest rates were 8.1%, Now it has been reduced to 7.8% per annum.
How has Equity markets delivered returns in last 1 year?Over 20%,
Equity markets are likely to outperform other asset classes for next 3-5 years at least, if not more and interest rates are going southwards.
ELSS Funds - Lock-in is only for 3 years (Returns also Tax Free)
PPF - 15 Years lockin
Bank Tax Saving FD - 5 Years (Interest is Taxable)
Life Insurance (Traditional Policies) - 20 years lock-in
It is therefore recommended to invest in ELSS (Tax saving Mutual Funds). One can invest 150000 or more in lumpsum Or One can start SIP in Tax Saving Funds. Tax Exemption will be U/S 80 C will be on 150000, but there is no capping on Investing.
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