ELSS Money For Retirees’ Tax Saving?


Retirement is a significant milestone in everyone’s life. Because you will no longer have a steady stream of salary money after retirement, managing your finances for living after retirement is critical.

While numerous investment options are available for retirement planning, this article illustrates why investing in an Equity Linked Savings Scheme (ELSS) may be one of the finest.

Under Section 80C of the Income Tax Act, ELSS or Equity Linked Savings Schemes can help you save money on taxes. Do you want to learn more? It would help if you first familiarised yourself with ELSSs before going.

What isELSS?

The Equity Linked Savings Scheme (ELSS) is a form of equity mutual fund with a three-year lock-in period and allows for tax deductions up to Rs. 1.5 lakh per year under Section 80C of the Income Tax Act, 1961.

Buying units of the ELSS plan allows you to invest in tax-saving mutual funds. The units are assigned based on the current NAV (net asset value). The NAV fluctuates based on the price of the equities owned in the scheme, which fluctuates every day. As a result, the ELSS returns fluctuate with the underlying equities’ price movement.

Factors to consider before investing in ELSS

Investment horizon: You must have a longer-term investment horizon than five years to invest in ELSS funds. Because of the equity component in ELSS funds, a longer investment horizon is required to reduce market volatility.

Returns: Because the success of ELSS mutual funds is dependent on the performance of the underlying stocks, you should be aware that they do not guarantee returns. On the other hand, having a longer investment horizon than 5 years can provide better results than any other tax-saving investing method.

Lock-in term: ELSS mutual funds have a three-year lock-in duration. Your investments must be locked in for three years from the date of purchase, and you cannot redeem them until that time has passed.

Should retirees invest in ELSS?

As investors approach retirement, most investment gurus advise them to shift their portfolios to safer investments. They also used to advise investors to avoid investing in equity after retirement, claiming that a retired individual would be unable to withstand large losses.

All of that changed after studies in other countries showed that too much safety makes pensioners poorer with each passing year. Safer options give low returns that can’t keep up with inflation, particularly medical inflation.

How much should you save for your retirement?

To avoid over or under-investing, you must first determine your specific post-retirement monthly needs and then begin saving for them.

  1. Get a handle on your family’s current monthly spending at current prices.
  2. Determine how many years you have till you can retire.
  3. Increase the current monthly expenses of the household by around 5%. After correcting for inflation, you arrive at the monthly expenses you will incur once you retire.
  4. Now calculate how much corpus you’ll need to cover the increased monthly expenses.
  5. Finally, you’ll need to calculate how much monthly savings you’ll need to build that corpus. There could be other retirement funds available.

It may be difficult to choose the best ELSS. Some ELSS may have a higher exposure to large-cap equities, while others may have a higher exposure to mid-cap or multi-cap stocks. It’s best to spread your money among no more than two or three ELSS and make sure they’re invested in distinct industries and market capitalizations.

Final Thoughts

After the lock-in period has ended, keep an eye on the performance of the schemes. If the ELSS program is functioning well, there’s no reason not to keep your money in it for another year. When evaluating a fund’s performance, don’t be swayed solely by its return. Compare the scheme’s performance to that of its benchmark.

A fund that can’t consistently outperform its benchmark shouldn’t be in your portfolio. Also, comparing your investment to its rivals’ average returns will inform you how excellent or awful it is. There could be a reason for this, which you should investigate before switching.