How ELSS is a Wise Investment Plan for Retirement Planning?
Retirement planning is an important aspect of an individual life. It is imperative for a person to plan for his or her retirement early in working lives. But unfortunately, in India, planning for retirement is not given due importance that it usually deserves. It is necessary for everyone to plan for retirement at early stages of life in order to attain financial independence before reaching a retiring age. For the young investors, apart from life insurance policies and PPF, there are two other investment options viz. ELSS and National Pension Saving Scheme are available which will help them to maintain their current lifestyle after retirement.
Equity Linked Savings Scheme VS National Pension Saving Scheme
ELSS is actually a mutual fund scheme under section 80C and it can benefit a taxpayer to save their tax up to a limit of 1.5 lakh INR per year. It is a diversified equity tax saving scheme having lock-in period of 3 to 5 years. One can invest in ELSS scheme through a SIP, and his each investment will be locked for a minimum period of 3 years from the date of investment. ELSS investment option is much better than National Pension Saving Scheme because it delivers higher returns to the investor after the successful maturity of a policy. In ELSS investment, capital gains are totally free from taxes but in NPS, some considerable tax needs to be paid on capital gains by a policy holder. Also in ELSS scheme, investor didn’t need to pay any tax while withdrawing his money but in NPS, maturity amount is taxable. As an investor, you’ll find some limitation on equity allocations in NPS which is a risky parameter for them especially for young investors. On the other hand, ELSS investment didn’t have any limits on equity allocations that make investors conservative when they plan for retirement.
Return Comparison between ELSS and NPS
ELSS is a better option for retirement planning. Following example will make it clear to you:
Suppose as an investor, you’ve made total cumulative deposit of 15.2 Lakh INR in your PPF account since last 15 years. As per the section 80 C norms, as an investor, you’ll receive around 29.8 lacs inclusive of other interests after the maturity of scheme. But when you prefer ELSS investment through Systematic Investment Plan (SIP) then the average ELSS fund you’ll get after the maturity of the policy will be almost 4 times than yours saving through PPF scheme. In fact, cumulative deposit of 15.2 Lakh inr for 15 years will give you a return of over 1.15 crores INR which is nearly 4 times the amount retained after maturity of PPF scheme.
Is There Other Investment Options Offering Similar Returns?
If you’re expecting higher returns from other investment options then you may get it by guidance of your financial planner. But on such options, you’ll not get added benefit of saving tax under section 80 C. For investors, ELSS appears to be an appropriate investing option as it delivers the highest returns over a long investment horizon to them with ideal features like unlimited asset allocations and attractive tax saving. In case, you’ve invested the maximum amount allowed under section 80 C in ELSS, then you can either continue your further investment in ELSS or you can switch to diversified equity funds to conserve your risk profile.
ELSS investment is really a reliable option for retirement planning. As a young and energetic person, you should start your planning for retirement as soon as you start working. You should consult a financial advisor before making investment on any diversified equity funds or other plans. A wise investment decision will always pay you wise return after your retirement.
Mr. Ajay Kumar Jain, M.Sc, Chairman And Managing Director
Being the Chairman And Managing Director, he focuses on holistic investment planning and wealth management and tries to make investment planning simpler for retail and HNI investors. Investor education is one of the prime things that Mr. Ajay Jain focuses on as he believes financial education is the foundation of successful investing. With over two decades of experience, Mr. Jain has made a mark in the Indian mutual fund industry due to his compassion and sheer hard work.