ELSS mutual funds investment - Pros and Cons. Are 3 years locking ELSS most preferred way to save tax under 80c?The problem with ELSS funds is
a) You can't switch from Regular to direct (if you had purchased regular plan)
b)You can't exit before 3 years if your investment going to low
c) Can't change the distributor before 3 years
Still ELSS is the least-locked mode of investment u/s 80C. All other 80C investments have higher lock-in periods.Imagine the alternative - if one could invest in any 80C tax exempt asset, then withdraw prematurely next FY, after claiming the tax benefits from IT. Wouldn't this create more headache for IT dept., as well as the person who'd now have to file revised returns and pay extra taxes for previous Financial Year(s)?
a) You can't switch from Regular to direct (if you had purchased regular plan)
b)You can't exit before 3 years if your investment going to low
c) Can't change the distributor before 3 years
Still ELSS is the least-locked mode of investment u/s 80C. All other 80C investments have higher lock-in periods.Imagine the alternative - if one could invest in any 80C tax exempt asset, then withdraw prematurely next FY, after claiming the tax benefits from IT. Wouldn't this create more headache for IT dept., as well as the person who'd now have to file revised returns and pay extra taxes for previous Financial Year(s)?
ELSS mutual funds should be the number one 80C instrument even if you consider the expected returns and the lock-in in isolation. Payments made as LIC premiums, interest paid on home loan EMI’s, registration and stamp duty charges while buying a house, school/college/university fees are also eligible for deduction under Income Tax Section 80C.
But those payments are inescapable. So, you should firstly calculate how much are you spending towards these payments. Once you know that, you simply subtract that amount from Rs. 1,50,000 to calculate how much should you be allocating to the instruments in the table.
For example – ABC person has decided to buy an LIC policy which requires a premium of Rs. 2,500 to be paid every month. So, he contributes about Rs. 30,000 as LIC premiums per year.
ABC person should invest Rs. 1,20,000 (Rs. 1,50,000 – Rs. 30,000) in ELSS mutual funds and other 80C instruments to make full use of Income Tax Section 80C allowed deductions.
It is, however, not the wisest decision to invest in ELSS or 80C investments once you have ensured Rs. 1,50,000 in contribution. This is because the tax-saving advantage of these instruments is coupled with the lock-in disadvantage. And it is always better to have liquid investments like open-ended mutual funds.
Any comment suggestions regarding the post would be highly appreciated.