Hacking Maximum Benefits out of ELSS Schemes

• 16 December 2017 | 1224 Views | By Mint2Save

Tax Saver Mutual Funds or ELSS Schemes have held a strong grip on the investors, irrespective of the fact that to which tax bracket they belong.  A veteran in the field of tax savings, ELSS have openly been regarded as efficient money saving and inflation beating tool. The basics and necessity of this scheme has been discussed in our previous two articles:

1. What are Equity Linked Saving Schemes (ELSS)?

2. Why Do We Need ELSS Funds?

In this article, we are going to take the ELSS investment saga ahead and explore some interesting investment hacks as well as methods to reap out the maximum benefits of tax rebate and returns.

Make your ELSS Pay For Itself

This trick comes in handy when investment in ELSS funds are made in the form of a SIP. Let’s find out how it works:

1. Suppose you begin a SIP of Rs. 3000/-.
2. Being an ELSS, it each SIP would have a lock-in period of 3 years.
3. So, an ELSS investment would credit itself back to your account, along with the return that the SIP instalment has generated.
4. The interest is your tax free earning and the principal would suffice to be your future investment.
5. This means that the SIP would redeem itself into your investment source account after a period of 3 years.

Hence, following these 5 simple steps is not only going to make your SIP ultimately provide for the it’s source, but you can also some good interest/profit generated by the SIP during that tenure. All we have to hope is that markets continue on increasing at a consistent pace during those 3 years.

Hack out a low NAV for ELSS Investment

In the world of investing, to put the odds in your favour, an interesting quote goes:

“Make few bets, big bets, infrequent bets”

How are going to implement this tip when investing in market linked mutual funds like the ELSS?

Clearly, planning out an SIP is not the solution. It satisfies none of the criteria, as it is regular, smaller in amount and is usually on a monthly basis.

Now, most of ELSS investors are salaried class and are more inclined towards the idea of saving tax via ELSS. Getting best returns is not the major criteria for them.

However, a few smart lads can follow this trick, where you can invest lumsum in the ELSS funds when their NAV hits a low. Investing at a lower NAV would get more number of units and as a result, reap better results too.

Here is how to do it.

1. Fix an amount for the SIP.
2. Choose a liquid or a debt and put your SIP there.
3. Keep watching the performance of the stock market.
4. When the time of correction in the stock exchange is there, check out how much your chosen ELSS mutual fund has corrected its NAV.
5. If it is as per your desires, withdraw the sum from the liquid or debt fund.
6. Keep the minor interest in your account or invest it along with the original SIP accumulated sum in the ELSS.

Section 80(C) and ELSS Schemes

From a helicopter view, the 80 (c) section under income tax act comprises of medium to long term investments. These investments are not designed to create wealth, but provide a sheath of income tax savings. At maximum, anyone can save upto Rs. 1.50 lacs via 80c. Other than conventional insurance policies and children’s tuition fee, we have following investment options:

1. PPF
2. NSC
3. KVP
4. Tax Saving Fixed Deposits
5. ELSS

While the first four are most safe and almost guaranteed to reap interest returns, they have flaws such as :

(a) Returns not able to beat inflation

(b) Longer locking period

Further, coming to tax saving fixed deposits, the interest earned is also eligible for taxation, thus chipping off your returns again.

Following the general rule of investing of not keeping all the eggs in the same basket, it is recommended to split your investment in multiple instruments. ELSS, should be a part of it.