i want Rs.5 lacs lumsum for 10 yrs .suggest ELSS
Ans: You’re looking to invest Rs. 5 lakhs over a 10-year period. To maximize both tax benefits and overall returns, a split investment strategy makes sense. Here’s a recommended approach:
Allocate Rs. 1.5 Lakhs to ELSS
Tax Benefits: Invest Rs. 1.5 lakhs in an Equity Linked Savings Scheme (ELSS) to avail of tax deductions under Section 80C of the Income Tax Act, 1961.
Short Lock-In Period: ELSS has a lock-in period of three years, making it more liquid compared to other tax-saving instruments like PPF or NSC.
Potential for High Returns: ELSS funds, being equity-oriented, offer the potential for significant returns over the long term.
Allocate Rs. 3.5 Lakhs to an Actively Managed Diversified Fund
Diversification: By investing the remaining Rs. 3.5 lakhs in an actively managed diversified equity fund, you can spread your risk across multiple sectors and stocks.
Higher Growth Potential: Diversified funds aim to outperform the market by carefully selecting stocks across various sectors, potentially leading to higher growth.
Professional Management: These funds are managed by experienced fund managers who make informed decisions based on market conditions, ensuring your investment is in capable hands.
Flexibility: Unlike ELSS, there’s no lock-in period, giving you the flexibility to adjust your investment based on your financial needs and market conditions.
Why Not Invest the Full Amount in ELSS?
While ELSS is an excellent tax-saving tool, it’s important not to over-allocate. The Rs. 1.5 lakhs investment cap allows you to fully utilize the tax deduction benefit under Section 80C. Beyond that, it’s more strategic to diversify your investments.
Active Funds vs. Index Funds
Choosing actively managed funds for the Rs. 3.5 lakhs portion of your investment is more beneficial than going with index funds. Here’s why:
Active Management: Fund managers actively select stocks and sectors, aiming to outperform the market.
Adaptability: Actively managed funds can adapt to changing market conditions, whereas index funds simply follow the market, regardless of performance.
Risk Management: Active funds employ strategies to mitigate risk, providing a buffer against market downturns.
Regular Funds vs. Direct Funds
When investing in these diversified funds, it’s advisable to go through a Certified Financial Planner (CFP) rather than opting for direct funds. Here’s why:
Expert Guidance: A CFP offers personalized advice, helping you make informed investment decisions aligned with your goals.
Convenience: A CFP handles all the administrative work, making the investment process smoother and less time-consuming for you.
Holistic Financial Planning: CFPs provide a comprehensive view of your financial health, ensuring all your investments work together towards your financial goals.
Final Insights
By allocating Rs. 1.5 lakhs to ELSS and the remaining Rs. 3.5 lakhs to an actively managed diversified equity fund, you strike a balance between tax savings and wealth creation. This strategy ensures you’re making the most of your investment over the next 10 years.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
