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Look at equity-linked schemes for tax relief

Feb 1, 2001

Equity linked saving schemes (ELSS) are a crucial component of the investor’s tax planning program.

Open-ended, ELSS NAV(Rs) 6-mths 12-mths 3-yrs *Inception
Alliance Cap. Tax 1996 64.6 2.1% -6.8% 88.0% 60.4%
Zurich(I) Tax Saver (Div) 18.2 7.0% -7.3% 76.9% 46.4%
Tata Tax Savings 11.8 -4.0% -47.1% 51.7% 27.5%
Magnum Taxgain 23.1 -10.5% -52.6% 42.7% 13.9%
Canpep 1993 19.5 -0.8% -17.3% 33.3% 14.1%
*Compounded Annual Growth Rate

31st March marks the tax-payers date with the authorities, in the sense that he has to tie-up all his investments to avail of rebate (under Section 88) to reduce his tax liability.

Under Section 88 an investor can invest upto Rs 60,000 across a slew of investments - public provident fund (PPF), National Savings Certificate (NSC) and ELSS. He can also avail of a rebate under Section 88 by buying a life insurance policy. However, an insurance policy by nature is not an ‘investment’ in the truest sense of the word, and are essentially instruments for financial security.

Of Rs 60,000 that an investor can invest under Section 88, the ceiling for investments in ELSS is Rs 10,000. In other words, he can invest in (or contribute towards) ELSS upto Rs 10,000 (out of Rs 60,000). On an investment of Rs 10,000 he will earn a rebate of Rs 2,000 i.e. @20% of investment. The investor can invest more than Rs 10,000 in ELSS, however his rebate will be calculated at Rs 10,000, i.e. his rebate will only be Rs 10,000 regardless of his investment.

ELSS products are riskier as compared to other investment avenues, because they are largely equity products. (By law ELSS have to invest over 80% of the corpus in equity/equity-linked schemes). So investors who still have a few years to their retirement (i.e. are below 50 years) can consider investing in ELSS. Investors who have a large portion of their investments in fixed income investments (bonds, company and bank deposits) can diversify to equity by investing in ELSS to boost returns.

For a more detailed report on ELSS click here.


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