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ELSS is great for retirees too

If a senior citizen has taxable income, then ELSS funds are an excellent option for tax-saving


My father is a retired government employee. He is looking for options for tax saving for this financial year. Is it advisable for him to invest in ELSS now? He already invested some amount in PSU tax saving FD. Kindly guide us in this regard.
- Kiranmayi Kakaraparthi

By all means, he should invest in ELSS funds for saving tax. Everyone who has taxable income should invest in ELSS. It's one of the most misguided and harmful beliefs of investment planning that equity investments are not suitable for seniors. The idea that equity is risky and therefore suitable only for young people actually pushes many old, retired people towards financial problems.

Equity investment is only risky over the short term. For investment periods of three to five years or longer, equity investments are low in risk and high in returns. In fact, when you take inflation into account, it is bank FDs and similar deposits that are harmful. The returns are barely higher than the inflation rate and in effect, your father is losing value or barely maintaining it.

There are also some other points you should consider:

  1. The returns your father will earn from ELSS will also be tax-free because there is no long-term capital gains tax payable on equity. On FDs, the returns are taxable and TDS is deducted yearly. The yearly deduction of TDS further reduces returns by making less money available for long-term compounding.
  2. ELSS is more liquid because the lock-in is three years. In tax-saving FDs, the lock-in is five years.
  3. Unlike other kinds of FDs, tax-saving FDs are completely illiquid. Not only can you not break them prematurely, you can not take a loan against them either.

Of course, like all equity investments, the either way of investing in ELSS funds is through monthly SIPs throughout the year. However, your father can still invest whatever he needs in about five evenly-spaced installments over the remaining part of the year.

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