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Equity Linked Saving Schemes - An Astute for Investment

Published on Monday, January 18, 2016
Equity Linked Saving Schemes
Many people in India are not educated or are being educated as far as financial literacy is concerned. Even in 21st century, we people, don’t have exact knowledge on power of compounding. Our forefathers had taught us to put aside some of our earnings for savings, so that one can extricate oneself from the clutches of poverty when it looms over. We all believe in the rule of thumb that FDs, RDs, Postal saving schemes, LIC endowment plans and other NSCs (10-yr NSC has been discontinued w.e.f Jan, 2016) etc. are safest investing instruments as because we middle class people have scores of unwarranted liabilities that are well gossiped. So, in a way, we people have a low-risk or no-risk appetite.

There is a famous adage in Chinese, here it goes

“Pearls don’t lie on the seashore. If you want one, you must dive for it.”

We always have deprecated the power of compounding and kept risk avenues at arm’s length. Now-a-days, young people are coming forward to take risk by venturing into most elusive market i.e. stock market so that they can manifold their savings as compared to that of primitive methods of savings, where money will accrue in volume only, not in value.

Here comes, if stock market is so spooky and elusive then why I am suggesting everyone to go for it. The answer is simple, if we get conversant of taking calculated risks even in this spooky stock market then no spectre of poverty will ever dare to touch us.

Here calculated risks means ELSS or Equity linked saving schemes. Equity linked saving schemes are among the options that are eligible for tax benefits under Section 80C. Herein are some facts and figures elucidating this amazing investing instrument.
  • ELSS are otherwise known as tax saver funds, mean Up to Rs 1 lakh invested in ELSS funds in a year is eligible for deduction under Section 80C. No tax is levied when you redeem your investment after the lock-in period. 
  • ELSS funds are controlled and managed by fund managers of different asset management companies (AMCs) who have expertise in handling portfolios with diversification of assets. So, in a way, we can say that our hard earned earnings are in safe hands. 
  • ELSS funds are part of mutual funds, so it suffices to say that these funds are regulated by SEBI, the watchdog of spooky stock market. 
  • Unlike regular equity schemes, the ELSS funds have a lower investment threshold of ` 500. You can also invest a large lump sum at one go, but the best way to invest in equity-oriented instruments is through regular monthly dribs called SIPs (Systematic Investment Plans). 
  • For Instance, if you want to invest ` 50000 then spilt it into three or more parts equally between now and 31st March. This will bring down the risk to a considerable limit by averaging out your cost of purchasing as market is not always stable, it would sometimes become whimsy. 
  • You need to start SIP and for this you would need post-dated cheques to be submitted in bank or furnish a mandate to the bank for ECS. Normally, beginners or first time investors either has to approach overtly for physical channel of opening demat accounts with AMCs or with brokers in order to avail the benefits of ELSS. 
Following is the Juxtapose of benefits of different schemes in order to have a succinct idea on the subject matter under discussion.


Illustration: -

Let us see how the investments of both investors A and B fared in the last 15 years. The table shown below the graph shows the wealth created by investor A and investor B in the last 15 years. Investor A, who chose PPF, has mustered ` 30.32 Lacs, which is double the investment of ` 15 lacs. On the other side, investor B who chose the ELSS route has generated a wealth of ` 113.32 Lacs ( ` 1.13 Crore), which is almost 7.56 times the investment of ` 15 Lacs.

Illustration of ELSS

Equity Linked Saving Schemes
Choose wisely and live a life king’s size. But, here is a disclaimer; the above write up and its explanations are strictly atypical. Please read everything about a fund you are choosing before opting it as these ELSS funds are subject to market conditions.

Written By:
Rohan Anand
(Finance Enthusiast)
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ramandeep singh

Ramandeep Singh is a seasoned educator and banking exam expert at BankExamsToday. With a passion for simplifying complex concepts, he has been instrumental in helping numerous aspirants achieve their banking career goals. His expertise and dedication make him a trusted guide in the journey to banking success.

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