Periodic savings: The route to a solid financial future

Do you earn enough to live off your savings for the rest of your life? Or is it time to go the investment route and save more money for the future?

For all purposes, your life seems set to follow the course you have defined for it. You are committed to working hard till you retire, and use your income to fund everything you and your loved ones require. You are reasonably confident of paying for household expenses, children’s education, buying a home, going for vacations and then retiring peacefully.

But as living expenses mount and inflation takes a toll on your finances, you begin to wonder if you are making a mistake. After all, how far can you sustain your finances if there is an unexpected expense, such as medical treatment for a loved one? All your carefully-cultivated savings can be lost in an instant when an emergency strikes. So is it prudent to merely depend on the portion of your income you save every month, or should you look at making a good investment for better returns?

Let us answer that question for you: it is time to consider investing in an Equity Linked Savings Scheme (ELSS).

Why consider an ELSS?

The money you make is subject to taxation. The taxes you pay at the end of every financial year take away a large chunk of your funds – but there is a way to safeguard against this happening. Simply purchase a tax saving mutual fund product known as the Equity Linked Savings Scheme (ELSS) and ensure handsome tax deductions and good returns on investment.

The ELSS is a diversified equity mutual fund scheme that offers you the benefit of good capital appreciation plus tax benefits every year. The money you pay towards the ELSS is invested in high quality equities, and the returns are accrued from the equity shares’ performance on the markets. The better the fund’s performance, the higher is the rate of return on investment.

The ELSS offers you dividend as well as growth options, and is hence recommended for every kind of investor. Both highly risk-averse to seasoned investors are drawn to ELSS funds because of the sound returns the scheme offers – the money is invested in high grade equities, hence good returns are assured at the outset.

Investors also like to explore the ELSS option for its low lock-in period: just three years. This is the lowest lock-in period of any other popular investment instrument available in the market today. After three years, you receive a tax-free lump sum amount of money, which you can put to a variety of personal and professional uses. Up to Rs 1,00,000 of your ELSS investment is exempt from tax in a financial year under Sec 80C of the Income Tax Act, 1961.

If you do not wish to use the money at that point, you can continue the ELSS and reinvest in more equities. While a fund manager will handle the actual investment and oversee the performance of your portfolio, you must note that the outcome of your investment is subject to market forces.

All in all, equity linked savings schemes offer you a much better shot at creating a good financial corpus for your family’s future.