Tax Saving Equity Instrument

Tax saving through Equity instrument
Due to the current global financial and economic crisis, stock prices are available at rock bottom price. In this situation one has to make some courage and utilize this excellent opportunity to invest in equity related tax saving instrument and also have the tax advantage under section 80 C.

Two options are available in this category:

Equity linked saving schemes (ELSS): This is mutual fund scheme with a lock – in period of three years. Being equity linked, the risk is associated with these schemes. But the average return for the last five years under this category is almost 15%.
Being locked in for three years, the timing matters a lot as the market is almost at its bottom one can invest in the best performing fund under this category and can make a decent return for the next three years, as investment strategy invest in bulk for this financial year and take the SIP route for the next one year.
By opting for SIP route, you can get the rupee cost averaging benefit. This will allow you to buy more units when the market fall further and lesser units when the market is moving up.

Unit Linked Insurance Policy (ULIP): It is a combination of insurance and mutual fund schemes. It provides protection as well as investment option. It has a lock-in period of three years, but investment for period of 5-6 years can give a decent return. One can choose between Equity/Balance/Debt option based on the market condition and your risk profile. Switching options is also available and if utilized this facility properly, it can help you in achieving higher returns.

In this global economic grapple with slow down or recession, having equity exposure may not look as a prudent investment option. But remember, once the economy revives sooner or later, equity related instruments will be the multi bagger.

As we are in the end of the financial year and those wanting to save tax under section 80 C can invest in Equity Linked Saving Scheme or Unit Linked Insurance Policy.