Equity Linked Saving Scheme

Defn:

Equity linked saving schemes are mutual funds with a tax benefit.

ELSS are the mirror image of diversified equity funds.
That means the fund manager will invest in shares of various companies across various industries. Hence, it is a normal equity diversified fund.Since they invest most of their money in equities and equity related instruments, there is some amount of risk involved.

Other Notes:

- Comes under Section 80C -tax benefit upto Rs 1 lakh
- The dividends earned will be tax free.
- When you sell the units of these funds, you can avail of the long-term capital gain for which there is no tax.
- Lock in period of 3 years
- Investment possible through SIP(Systematic Investment Plan)
- ELSS commands better risk ratios as compared to open-ended equity schemes, with respect to the risk
- Comparison of ELSS with other tax saving schemes
(Click on image to see details)


Source: rediff.com articles, way2wealth pdf

PPF Vs NSC

My notes from the rediff article:
http://www.rediff.com/getahead/2006/jun/14nsc.htm

1. Size of investment

NSC - Sold in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000
PPF - Rs 500 to 70k per annum(it is incremental)

2. Returns

NSC - 8% compounded bi-annually
PPF - 8% compounded annually

3. Tax Benefits

Both these investments fall under Section 80C. That means the investments made under this section are eligible for an income deduction upto a maximum Rs 1,00,000.

With PPF, you pay no tax on the interest you earn.
But, interest accrued on NSC is taxable. But, it is also eligible for a deduction under Section 80C.

4. Holding Period

NSC - 6 years
PPF - 15 years
- extendable for block of 5 years

5. Holding upper limit

NSC - No limit
PPF - One account only
- Separate acc. can be opened for child
- Tax benefit will be upto 70k only, and not 140k even though you may be depositing 140k

6. Holding pattern

NSC - Hold it jointly or you can hold it singly and nominate someone
PPF - Cannot be held jointly
- You can nominate someone though

Investment Options in India

This is a broad collection of investing options commonly used in India:

Bank Fixed Deposits (FD)

Fixed Deposit or FD is the most preferred investment option today. It yields up to 8.5% annual return depends on the Bank and period. Minimum period is 15 days and maximum is 5 years and above. Senior citizens get special interest rates for Fixed Deposits. This is considered to be a safe investment because all banks operated under the guidelines of Reserve Bank of India.

National Saving Certificate (NSC)

NSC is backed by Govt. of India so it is a safe investment method. Lock in period is 6 years. Minimum amount is Rs100 and no upper limit. You get 8% interest calculated twice a year. NSC comes under Section 80C so you will get an income tax deduction up to Rs 1,00,000. From FY 2005-'06 onwards interest accrued on NSC is taxable.

Public Provident Fund (PPF)

PPF is another form of investment backed by Govt. of India. Minimum amount is Rs500 and maximum is Rs70,000 in a financial year. A PPF account can be opened in a head post office, GPO and selected branches of nationalized banks. PPF also comes under Section 80C so individuals could avail income tax deduction up to Rs 1,00,000. Lock in period for PPF is 15 years and interest rate is 8%. Unlike NSC, PPF interest rate is calculated annually. Both PPF and NSC considered to be best investment option as it is backed by Government of India.

Stock Market

Investing in share market is another investment option to get more returns. But share market investment is volatile to market conditions. Before investing you should have a thorough knowledge about its operation.

Mutual Funds

Mutual Fund companies collect money from investors and invest in share market. Investing in mutual funds is also subject to market risks but return is good. To know more about mutual funds visit Mutual Funds

There are many investment options available like investing in Gold, Real Estate etc.