I’ve been investing about ₹50,000 in ELSS funds for tax saving functions for the previous 4 years and have discovered them very profitable. But this yr, the markets are trying very overvalued. Should I keep away from ELSS and spend money on some safer choice this yr?
-Name withheld on request
ELSS funds are fairness funds and carry market danger. Though you’ve earned good returns previously, the identical will not be doable in future. Analysts are saying that the fairness market will stay range-bound and will even decline over the following few months. For this yr’s tax planning, go for much less dangerous choices such because the PPF or NSCs.
Having mentioned that, please notice that fairness is the easiest way to create wealth over the long run. Your PPF and NSCs won’t be able to match the returns of ELSS funds over the long run. At the identical time, your publicity to ELSS funds ought to be decided by your total asset allocation. Don’t make investments greater than what you intend to allocate to equities.
You want to vary the best way you do your tax planning. It appears you spend money on ELSS funds at one go throughout the tax planning season that begins in January. Lump-sum investments aren’t the easiest way to spend money on equities. A greater choice is to begin month-to-month SIPs so that you simply get the benefit of rupee value averaging. Instead of investing ₹50,000 in ELSS at one go, you need to break that down into month-to-month SIPs of ₹4000-5000.
When doing all your tax planning, you also needs to think about opening an NPS account and investing within the scheme. You can declare a further tax deduction of ₹50,000 underneath Sec 80CCD(1b) by investing within the NPS.
-Raj Khosla is Managing Director at MyMoneyMantra.com. Queries and views at [email protected]
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