The major reason for its popularity amongst the options available under section 80C is its shortest lock-in period. In this the returns are also higher than bank FD and PPF.
If your wealth is not beating inflation, you are losing your capital. In the new financial year, the gap between inflation and income from traditional investments has caused many Indians to lose their wealth.
At the global level, Pakistan and Sri Lanka are the latest examples of this. Their condition worsened due to inflation and other economic troubles.
The average return of fixed deposits after tax ranges from 2.5 to 3 percent, which is less than the CPI inflation of 6.07 percent. Also, the post-tax returns of most debt mutual funds have barely managed to beat inflation.
You have seen that in the last two weeks, there has been a huge increase in the prices of petrol. Oil prices in Mumbai have risen by 55 per cent in the last two years. Petrol price increased from Rs 76 in April 2020 to Rs 119 per liter on 4 April 2022.
Unfortunately, inflation is not going to go away for now. That’s why people should make inflation proof portfolio.
For this, investors would be better off investing in Equity Linked Savings Scheme (ELSS) funds. It is capable of beating inflation. Its ROI is 14 percent. While the ROI of Tax Saving FD is 5.50 percent and that of PPF is 7.10 percent.
What is ELSS?
Equity Linked Savings Scheme (ELSS) is a type of diversified equity mutual fund that invests in capital markets and select companies with different market caps. One can invest a maximum of Rs 1,50,000 in this during a financial year and can avail tax exemption under section 80C of the Income Tax Act.
It comes under the equity category. In this, about 65 percent is invested in shares. The return on ELSS depends on the performance of the stock market over a long period of time.
You also need to note that ELSS has a lock-in period of three years. After three years, you can withdraw your money without any charge.
Long term capital gains of more than Rs 1 lakh are taxed at the rate of 10 per cent (surcharge and cess extra) and tax is payable at the slab rate by adding dividends to the overall income.
ELSS return
Despite the returns being taxable, ELSS is becoming more popular than PPF and FD as the returns are higher even after deducting the tax. According to the data, ELSSs of more than 10 years have given returns above 12 per cent so far.
