My annual salary is ₹5.5 lakh. I pay a premium of ₹3,000 per month for my LIC policy. I want to invest to save tax under Section 80C and for retirement. I want to invest ₹8,000 per month. Should I invest in equity-linked savings scheme (ELSS), or traditional instruments like Public Provident Fund (PPF) and FD? My investment horizon is 30 years. What is the average return I can expect? Is there any chance of getting negative returns in the long term?
—Biplab Mridha
With ₹3,000 per month for LIC premium and ₹8,000 per month for ELSS, you will have ₹1.32 lakh covered under Section 80C for tax-saving. I do not know your EPF contribution, but it is likely to cover the ₹1.5 lakh limit under Section 80C. Among tax-saving options, without doubt, ELSS is a superior returning option with a shorter lock-in compared with PPF. Also, it is far more tax-efficient than a tax-saving FD. You should consider ELSS for your discretionary tax-saving investments as the traditional option of EPF would anyway be covered. For investment choices, you can consider two funds with ₹4,000 each. ICICI Prudential Long-term Equity Fund and Invesco India Tax Plan are good choices. You don’t need too many tax-saving funds. You can continue adding investments to this small portfolio of funds every year going forward, and they will help save tax and create wealth.
