ELSS can give you better returns than other tax saving options: Report

Mutual fund industry in India is expecting a gush of cash flow with equity linked savings schemes (ELSS) as it's just another three and half months to go before the fiscal year ends.

This is the high time when the investors look for better ways of tax saving in the market.  Under the Income Tax Act, there are nearly 10 financial products, which are approved by the government, includes ELSS, NPS, PPF, EPF, post office saving instruments, bank FDs, insurance products and some others.

ELSS have the shortest lock-in period of three years, compared to other instruments with minimum five years for bank FDs, 15 years for PPFs and for the life of the policy for insurance products, said a TOI report.

The report said that financial planners and advisors say that ELSS is the best option to save taxes, provided the investor has the requisite risk profile. The expected return from investing in ELSS is higher in the long run than any other comparable product. Also, ELSS provides higher flexibility to investors, in terms of diversification across mutual funds, which offer diverse investment style.

The report further adds that if you invest in an ELSS once and then for some reason you cannot invest any additional amount, the money is never lost. On the contrary, in insurance there is a chance of you losing your entire investment.

Fund managers and financial advisors say that the main objective for investment should be wealth creation. For that one should look at asset allocation, while tax saving should be the accelerator.

If tax savings become your primary objective while investing then in most cases the returns may suffer. Like, if in case of bank run FDs, that is mostly used for tax savings, give you lower returns than ELSS as the fund managers opine.