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Golden Opportunity To Reap Healthy Returns

Coupled With Valuable Tax Saving Benefits

Equity Linked Savings Scheme (ELSS) has emerged as an amazing new investment option, offering you the golden opportunity to reap healthy returns through equity investment via mutual funds, coupled with valuable tax saving benefits. If the choice is judicious, the timing is right and lady luck smiles on you, ELSS can be a champion winner all the way.

ELSS Investment Features

            Investment in ELSS bears a lock in period of 3 years.  Thereafter, the investor has the option to exit at any period of time of his choice.  Apart from the benefit of deduction under Section 80C, which can offer a straight return of upto 30% right away in form of income-tax saving in the year of investment, dividends declared on ELSS units are tax free under Section 10(35) during the period of holding and the long term capital gains earned on sale of units at the time of exit are further tax exempt under Section 10(38). 

      Even if PPF continues to be your first choice for investment upto Rs.70,000, you may still like to consider the balance Rs.30,000 for ELSS investment, which in all probability can fetch you a healthy return and that too tax exempt! 

Case Study:  Latesh Parikh had invested Rs.1,00,000 on 1st January, 2005 in the SBI Magnum Tax Gain Scheme notified as ELSS.  At the then prevailing Net Asset Value (NAV) of around Rs.15.57 per unit, he was allotted 6,422 units.  Being a taxpayer in the top bracket, Parikh saved income-tax of Rs.30,600 in the year of investment itself by availing the benefit of deduction of Rs.1,00,000 in ELSS under Section 80C.

 Post investment, he received dividends of Rs.10.20 per unit in June, 2005, Rs.15 per unit in March, 2006, Rs.11 per unit in March, 2007, Rs.11 per unit in February, 2008 and Rs.2.80 per unit in May, 2009. Thus in 60 months, Parikh received total dividend of Rs.3,21,100 (6,422 units x Rs.50 per unit), which has been totally tax-free u/s.10(35).

  Parikh being eligible to redeem his holding of 6,422 units anytime after the three year lock in period of ELSS, he decides to redeem the units on 31st December, 2009 at the prevailing Magnum Tax Gain NAV of Rs.57.77. The appreciation as on date, which works out to Rs.2,71,008, at Rs.42.20 (57.77 – 15.57) per unit, being long term capital gains (LTCG) on redemption, will be fully exempt under Section 10(38).




How Rs.1,00,000 invested in SBI Magnum Tax Gain

 have grown to Rs.7,22,708 in 5 years?

             Original Investment on January 1, 2005                                        Rs.1,00,000


                        Tax Saved on Investment (in year of investment)                              Rs.   30,600

                        Tax-free Dividend Earned (in 5 years)                                                Rs.3,21,100

                        Exempt Gains on Redemption (on December 31, 2009)                   Rs.2,71,008

Effective Tax Saving, Income & Appreciation

on Investment realized in 5 Years (623%)                                                Rs.6,22,708                                                   

Using the SIP – ELSS Cocktail!

            Investing would be simple, if an investor could always pick up the best time to buy and sell.  However, in practical reality, timing the market is indeed a difficult task.  Stock Markets may be volatile, but in the long run, they do help an investor for wealth creation, if a disciplined approach and judicious choice of investments are adhered to.

                        Systematic Investment Plan (SIP) is an investment vehicle that permits an investor to invest fixed amounts of money at regular time intervals (monthly or quarterly) in a Mutual Fund Scheme for a continuous pre-defined period, just like a recurring deposit account with a Bank or Post Office. 

                       While considering investment in SIPs offered by Mutual Funds, it would be even more worthwhile to look at SIPs of ELSS since in respect of the same you can enjoy a straight deduction u/s. 80C.  In addition to the above, you can also avail the benefits of tax exemption u/s. 10(35) in respect of the annual dividends earned and long term capital gains tax exemption on redemption of units u/s. 10(38).


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