Call it the wages of demonetization, if you will. Thanks to the government move to scrap existing Rs 500 and Rs 1,000 notes in November, 2016, many young Indians in their first job, never had such large account balances. This happened after the deposits of old notes even as cash withdrawal restrictions remained.
For those young Indians who live from pay cheque to pay cheque, thanks to expenses being in hot pursuit of income, the respectable account balance will be a major departure from the past. Yet ample money at hand could well become their new reality in the not-so- distant future if they make the right moves now.
Young investors in their first jobs can use their account balances to start investing in equity linked savings scheme (ELSS) offered by mutual funds. They not only can save up to Rs 1.5 lakh under Section 80C but also typically provide high growth in the long term from equities in which the money is invested subject to eligibility. Compared to investments in other classes such as debt, in the long term i.e. over 8-10 years or more, equities typically provide better returns. These returns typically outpace inflation and seeks that future expenses always lag way behind savings and regular income. As a result, investors are well placed for major future requirements such as buying a home and children’s education.
Four major concerns of young investors with equity investments Many young investors in their first job stays away from equities. They are under the impression that they need to save big in order to make these investments. After all, early in your work life you don’t tend to save so much. Many would also argue that all that they manage to save goes in tax saving investments. Then, there are some young investors who get deterred by the fact that they don’t understand equity investments. Also, there are young investors who feel uncomfortable with the volatility associated with equity investments.
ELSS investments take care of most of these issues and makes possible that both equity investment and tax saving investment is less taxing.
How ELSS makes tax saving investments less taxing You can invest small amounts, even Rs 500 per month with ELSS. Since your money is managed by expert fund managers you don’t have to sweat over how to invest. What’s more, you can invest in ELSS through systematic investment plans (SIP) which allow you to make regular monthly investments. This investment route is profitable as well. Regular investments through SIP ensure that when the markets are at a high, less number of units and more units are bought when the market is low. Over the long term, this results in the average price of unit being low and as the value of your investment typically appreciates in the long term, you make substantial gains.
This brings us to the obvious question: which ELSS should you choose? Birla Sun Life Tax Relief’ 96 is one of oldest and ELSS scheme. Now it’s the turn of young investors to deploy their account balances smartly. The value of monthly SIP of Rs10,000 could have grown to Rs 10.39 lakh in just 5 years as on 30 September 2016. If you had started this process in April 2008 by investing the same monthly amount in the growth option of the scheme you would have saved Rs 22.16 lakh*. By investing Birla Sun Life Tax Relief’ 96 an open ended equity linked savings scheme with a lock in period of 3 years you do not just save tax but also enable for long term capital growth. To enhance the ease of investing, you can invest in the scheme through an SIP.
Many experts expect the demonetization to help India in the future in different ways. The young and the restless need not wait. They can start driving home the advantages right away. One way to do it is to invest in equity investments and aim to benefit from the wealth being created in the stock markets by India’s companies. ELSS like Birla Sun Life Tax Relief 96 is possibly one of the best ways of getting their rightful share of India’s economic growth and make the most of opportunities from the recent demonetization.
For further details on the scheme, investors can refer to Scheme Information Document and Key Information Memorandum on the website of the Fund.&
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Tax saving of Rs. 53,303 is calculated assuming qualifying amount of deduction is Rs. 1.50 Lakh and the investor falls in the top income slab of 30% and includes the applicable cess. 12% surcharge is also taken into account which is applicable if the income of the investor is over Rs. 1 Crore.
Investors are advised to consult their tax advisor in view of individual nature of tax benefits. Investors are requested to note that fiscal laws may change from time to time and there can be no guarantee that the current tax position may continue in the future.
Note: The comparison of ELSS Vs other traditional savings instruments has been given for the purpose of the general information only. Investment in ELSS carry higher risk, does not guarantee returns and any investment decision needs to be taken only after consulting the Tax Consultant or Financial Advisor. Birla Sun Life Mutual Fund / Birla Sun Life Asset Management Company Limited will not accept any liability/ responsibility/loss incurred on any investment decision taken on the basis of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully