Is it safe to invest in ELSS for tax saving even when market is overvalued?

I’ve been investing about 50,000 in ELSS funds for tax saving functions for the previous 4 years and have discovered them very profitable. However this 12 months, the markets are trying very overvalued. Ought to I keep away from ELSS and spend money on some safer choice this 12 months?

-Title withheld on request

ELSS funds are fairness funds and carry market threat. Although you’ve gotten earned good returns up to now, the identical might not be doable in future. Analysts are saying that the fairness market will stay range-bound and will even decline over the subsequent few months. For this 12 months’s tax planning, go for much less dangerous choices such because the PPF or NSCs.

Having mentioned that, please notice that fairness is one of the best ways to create wealth over the long run. Your PPF and NSCs will be unable to match the returns of ELSS funds over the long run. On the identical time, your publicity to ELSS funds must be decided by your general asset allocation. Don’t make investments greater than what you intend to allocate to equities.

It’s good to change the best way you do your tax planning. It appears you spend money on ELSS funds at one go in the course of the tax planning season that begins in January. Lump-sum investments aren’t one of the best ways to spend money on equities. A greater choice is to begin month-to-month SIPs so that you just get the benefit of rupee price averaging. As an alternative of investing 50,000 in ELSS at one go, it’s best to break that down into month-to-month SIPs of 4000-5000.

When doing all of your tax planning, you must also contemplate opening an NPS account and investing within the scheme. You possibly can declare an extra tax deduction of 50,000 below Sec 80CCD(1b) by investing within the NPS.

-Raj Khosla is Managing Director at MyMoneyMantra.com. 
Queries and views at mintmoney@livemint.com

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