Why ELSS is popular among the various tax saving instruments?

Indian laws provide access to a plethora of tax saving instruments. The list is long and exhaustive where you will be spoilt for choices. But still, it is common among masses to end up making sub-optimal choices as far as tax saving instruments are concerned. Now, why does such a situation arise?
The main reason why such a scenario occurs is when you end up seeing all tax saving instruments at odds with one another. People end up thinking about tax saving instruments in the manner by which they end up seeing other financial instruments. Having said so they do not prioritize investments in the same manner.

Why ELSS is popular among the various tax saving instruments?

Typically a panic-driven investor makes this decision in the month of March, with a fast-approaching deadline or it can be under the pressure of a salesperson for which time could be at a premium. This pressure could multiply if the salesperson is a friend or even a relative. The outcome is less than an ideal decision being made. On coming up with such a situation a natural reaction would be at least we have tax benefits.

In the long run, this approach lacks logic. The confusion over a tax saving instrument needs a level heading thinking on what you are availing from the tax saving instrument in the first place. The quantum of disadvantages obtained is worth the tax benefits obtained. As an investor, you should work towards eliminating the poor sources in relation to decision making. Coping with time pressure is an easy task. The key is to plan out these financial investments in the early part of the year. Once you have started investing keep things simple till you end up reaching your end goal.

For the second category of people, an investment which makes sense is the best tax saving ELSS funds. A salaried individual has a certain sum of money for PF deductions. To achieve a balance, investing in equity is a must. The best part about an ELSS fund is that you can claim tax rebate to the tune of 1, 50,000 cashing in on the benefits of equity returns.

If you are a newbie into the financial market then ELSS makes an excellent choice. They first gain a taste of investing in mutual funds. The main reason why they end up investing in such funds as a tax saving instrument attracts them coupled with a short lock-in period. For this reason, as compared to the other tax saving options, they end up investing in ELSS funds. Once you gain a hang of long term equity funds you might be looking at the option of investing in another type of funds.

Over a short period of time equity funds carry less risk. In case if an investment horizon is more than 5 years or so the risk works out to be relatively lower. Just about any other type of investment the best way to invest in ELSS funds is through the medium of SIP. In a market downturn, they protect your investments.

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