MANISHA THAKUR MMS/07-09/ROLL NO.

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Equity-Linked Savings Schemes are by far the most exciting of all the tax-saving schemes. High Returns Tax benefits The catch in this financial product is that if the returns are high, so are the risks.

Twin Advantages Equity Returns Tax Benefits

Instrument
National Savings Certificate - NSC Public Provident Fund - PPF Mutual Fund ELSS

Expected Returns
8.16% 8.50% Around 15%-20%

Lock-In Period
6 years Up to 15 years 3 years

Investment Avenue

1 Lac Returns 3

End Value of Investment in Rs. Lac after - Years

6 8 10 15 20

NSC
PPF ELSS

8.16%
8.50% 15.00%

1.27
1.28 1.52

1.60
1.63 2.31

1.87
1.92 3.06

2.19
2.26 4.05

3.24
3.40 8.14

4.80
5.11 16.37

An ELSS has a lock-in period of three years, which entails a minimum investment of Rs 5,000.
According to your risk appetite there are three options available to choose from: growth, dividend and dividend reinvestment.

Investing in ELSS attracts entry and exit load. Every fund house has a different load factor, varying from zero to 2.5%. Exit load may be in the range of 1% to 1.5%.

Investors making investments in tax saving mutual funds can avail of a deduction of up to Rs 1 lakh under Section 88 from the gross total income. The tax benefit is 33% if the gross taxable income comes in the highest income tax bracket of 30%. In addition to this, the capital appreciation you get on your investment will be totally tax-free after one year. Also, the dividend distributed does not attract dividend distribution tax.

Who can subscribe? Individuals, Hindu Undivided Families (HUFs) and companies. Where can you apply? Various mutual funds. Nomination. Nomination facility is available with ELSS. Are the units transferable? The units can be easily transferred by filling out a transfer form. Investment limit. A maximum investment of Rs 10,000 to claim an income Tax rebate of 20 per cent. Maturity period and returns. Open-ended mutual funds have no maturity period. However, to claim tax rebate under Section 88, the minimum lock-in period is three years.

Withdrawal. In the case of open-ended schemes, the units can be sold anytime after the initial lock-in period of three years. In the case of closed-end schemes, the units can be sold only on the due date specified. Tax benefits. Dividends from mutual funds are fully exempt from income tax under Section 10(33). Equity funds (schemes that invest 50 per cent of their funds in equity) are also exempt from dividend tax. ELSSs offer under section 88 tax rebate on investments up to Rs 10,000 in a financial year. The difference between the selling price and the cost price is taxable as capital gains in the year of sale, at 10 per cent or 20 per cent, depending on whether or not you claim indexation benefits.

Pluses Possibility of high returns Lock-in period of only three years Easy transfer Low tax incidence (10 per cent) on redemption Efficient service, especially in the case of private mutual funds Minuses High risk Difficult to choose the right fund

PRINCIPAL Tax Savings Fund Principal Personal TaxSaver Birla Sun Life Tax Relief 96 Kotak TaxSaver - Growth DWS Tax Saving Fund - Growth Sundaram BNP Paribas TaxSaver (Open Ended Fund) - Growth Fidelity Tax Advantage Fund - Growth SBI Magnum Tax Gain Scheme 93 - Growth UTI Equity Tax Savings Plan - Growth ABN AMRO Tax Advantage Plan - Growth Birla Equity Plan - Growth Franklin India Tax shield - Growth Tata Tax Saving Fund HDFC TaxSaver - Growth Reliance Tax Saver Fund - Growth HDFC Long Term Advantage Fund - Growth ING Tax Saving Fund - Growth ICICI Prudential Taxplan - Growth [Ranking Source: ICRA Mutual Fund Award]

You can save taxes up to Rs.33,660/- by investing the optimal amount in ELSS schemes till 31st March for the current F.Y.

Taxable Income

Tax before Planning

ELSS Optimal Amt.

New Taxable Income

Tax After Planning

Savings

150,000
300,000 500,000 900,000 1,200,000

5,100
40,800 102,000 224,400 347,820

50,000
100,000 100,000 100,000 100,000

100,000
200,000 400,000 800,000 1,100,000

0
15,300 71,400 193,800 314,160

5,100
25,500 30,600 30,600 33,660