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ELSS is a good option for saving taxes and investing in equities

2 min read . Updated: 18 Nov 2021, 11:00 PM IST Surya Bhatia

Tax saving in an ELSS is a good option. You not only save taxes but also invest in schemes that you will be doing in regular course for investments

I’m new to mutual fund investing, and am interested in investing in equity funds. My goal is to save for a pension and to also save taxes ( ₹1.12 lakh per annum). In this context, kindly guide me on the following: On the fourth year, is it wise to redeem and reinvest ₹1.5 lakh from my ELSS (equity-linked savings scheme) in another ELSS to save tax for this amount, or is it better to invest fresh money in a new ELSS fund so that my initial capital from the first ELSS is safe? I’m a private sector employee and do not have an NPS account; so, is HDFC retirement savings fund equity plan direct growth a good alternative to invest in until my retirement? Is this fund also a tax saver? I’m planning SIPs totalling ₹60,000 per year in the ELSS funds Quant Tax Plan, Mirae Asset Tax Saver and BOI AXA Tax Advantage Direct Growth. Please advise if these are good choices. Ideally how many years post the lock-in period should I redeem my ELSS fund to ensure better returns? I do not appreciate NPS, as the 40% annuity scheme is taxable, or is it just a myth as some say that upon maturity, instead of withdrawing the 60% amount in cash, one should actually consider having annuity products for 60% to ensure better pension per month?

—Maya

Tax saving in an ELSS is a good option. You not only save taxes but also invest in schemes that you will be doing in regular course for investments. And once your three-year lock-in in the ELSS is completed and you need to do the tax saving for the next year and you also have surplus to invest, then compare the ELSS already invested in with any other scheme. If the ELSS scheme is good to hold, then you can further add to the same and in case of underperformance, you can book your profits and move to another ELSS scheme with better performance records.

HDFC Retirement Savings Fund is a good flexi-cap fund and is not an ELSS. But do not purely go by retirement tag. As it is meant for a retirement corpus which is long term, you can consider any diversified fund and it can be held for long term.

Investments in ELSS does not mean you need to invest in multiple schemes. All the three schemes mentioned have been good performers.

Annuity is taxable like salary. However, if you need an assured return, then many annuity plans do offer you assured income for your life, albeit the interest rate is not high but give you the advantage of assurance. You can also plan your own annuity by using your mutual funds for a regular income by using SWP (systematic withdrawal plan).

Surya Bhatia is managing partner of Asset Managers.