For most of us, retirement planning is one of the most unheeded goals in our scheme of things since it appears distant and we do not feel the need to address it. Retirement planning is considered to be a very complex yet important topic considering the transformation that the economic and social market is going through. While there’s in general a lack of financial planning discipline in India, the options for retirement planning are also very limited.
Conservative investors have always opted for employee provident fund, public provident fund and life insurance policies for associating with retirement planning. All these investments are observed to be risk free investments, and retirement planning in India is commonly associated with such investments. Our desire to save tax for every year could be linked with one of such investment options, a tax saving instrument under section 80C of the Income Tax Act is ELSS (Equity Linked Savings Scheme) of mutual funds.
Equity Linked Savings Scheme is an equity diversified mutual fund scheme with a lock-in period of three years right from the date of investment. Once the lock-in period ends, the scheme turns into an open-ended scheme and then the funds can be withdrawn. However, instead of withdrawing the amount, it’s advisable to let the funds remain invested in order to meet your pre-decided goal, which could be your retirement. In case, you invest in an ELSS through an SIP (systematic investment plan) then each investment would be locked in for a period of 3 years from their respective investment dates. In comparison to other retirement planning investments under section 80C, ELSS offers better tax returns and high liquidity.
Why ELSS proves to be a better tax saving investment option to create a retirement corpus?
With a long list of options, choosing the right investment option can be a daunting task, to say the least. The objective of any tax-saving scheme is not just to lower the tax but also to save for the future and create a corpus of emergency funds. Aligning to the following needs, ELSS have proven to be the best fit that offer a tax deduction of up to Rs. 150000 under section 80C. These funds offer the EEE benefit which comprises of tax emption, zero exit load and wealth accumulation at the same time. Additionally, these funds predominantly invest in the equity market in a diversified manner that offers investors a good opportunity to earn inflation-beating returns.
For the early beginners, investing in equities should form a major portion of your asset allocation. As such ELSS is one of the most suitable options not just for tax saving but also for retirement planning, as far as young investors are concerned.