In the dynamic landscape of India’s job market, uncertainties loom large, with factors like economic fluctuations, technological advancements, and industry disruptions often leading to unexpected job losses. Such situations can throw an individual’s financial stability into disarray, emphasizing the need for a safety net to cushion the blow of involuntary unemployment. Job loss insurance cover, a relatively recent addition to the insurance sector in India, serves precisely this purpose. In this comprehensive guide, we delve into the intricacies of job loss insurance cover in India, examining its features, benefits, and considerations for potential policyholders.

                                                                                                                         Subas Tiwari

What is a job loss insurance cover?

Job loss insurance is not available separately. You can usually take it with a home loan or with a critical illness or personal accident cover.

• This is a kind of add on cover that is taken with other insurance.
• If you take this facility with a home loan, then with the help of this insurance in India, your EMI of three months is repaid.
• This facility works as an income option on the way to the job.
• No insurance company offers a separate stand-alone job loss insurance cover.

Due to increasing job instability, mergers or sales between companies, cost-cutting plans or any illness, surgery, one can lose their jobs and be unable to meet their financial liability. Job loss insurance cover helps anyone to meet their financial liability in such a situation.

Key Features of Job Loss Insurance Cover

1. Coverage Period: Job loss insurance cover typically offers financial assistance for a predefined period, ranging from a few months to a year, depending on the policy’s terms and conditions.
2. Eligibility Criteria: To qualify for job loss insurance cover, individuals usually need to meet specific eligibility criteria, including factors such as employment tenure, age, and income level.
3. Premiums and Deductibles: Policyholders are required to pay premiums to maintain their job loss insurance cover. The premium amount is determined based on various factors, including the coverage amount, duration, and the individual’s risk profile. Some policies may also include deductibles, which represent the initial amount that the policyholder must bear before receiving benefits.
4. Waiting Period: Most job loss insurance policies come with a waiting period, during which no benefits are payable. This waiting period serves to prevent misuse of the policy and helps manage the insurer’s risk.
5. Coverage Limits: Job loss insurance cover typically comes with certain coverage limits, including the maximum amount of financial assistance payable and the total duration of coverage.
6. Exclusions: Like any insurance policy, job loss insurance cover may have certain exclusions. These may include voluntary unemployment, termination due to misconduct, or job loss resulting from pre-existing health conditions.

Benefits of Job Loss Insurance Cover

1. Financial Security: Job loss insurance cover provides a crucial safety net, offering financial security and peace of mind to individuals facing involuntary unemployment.
2. Debt Management: It helps policyholders manage their debts and financial obligations, such as loan repayments, mortgage instalments, and utility bills, during periods of unemployment.
3. Maintaining Lifestyle: By providing a regular income stream, job loss insurance cover enables individuals to maintain their lifestyle and meet their day-to-day expenses without significant disruptions.
4. Job Search Support: Some job loss insurance policies offer additional benefits, such as career counselling, job search assistance, and training programs, to help policyholders find new employment opportunities.

Companies Offering Job Loss Insurance Cover

1. ICICI Lombard’s Secure Mind Critical Illness Plan
2. HDFC Ergo’s Home Security Plus (Home Protection Plan)
3. Royal Sundaram’s Safe Loan Shield (Critical Illness Plan)

Who can claim job loss insurance cover?

• If someone has lost his job due to non-medical reasons
• When opting for an additional cover, insurance protection remains available even if you leave your job due to medical reasons.
• If the company is suddenly closed, declared bankrupt, then the cover is provided through the Add on Service cover.
• It’s important to note that the job loss insurance cover provided through the home protection plan is valid for only five years. This means that the entire duration of the home loan tenure may not be covered.
• Prior to filing a job loss insurance claim, it’s essential to have a thorough understanding of your add-on cover.

Who cannot claim job loss insurance cover?

• If you have your own business or are already unemployed, then you cannot claim cover.
• If you face suspension due to poor performance, fraud, retirement, termite damage, or company-related reasons, including being on probation, the job loss insurance cover cannot be claimed.
• Job loss from any disease not mentioned in the add on cover.
• No cover is available if you take early voluntary retirement.
• People working temporarily or on contract will not get cover.

Considerations for Potential Policyholders

1. Policy Terms and Conditions: Before purchasing job loss insurance cover, it’s crucial to thoroughly understand the policy’s terms and conditions, including coverage limits, exclusions, waiting periods, and premium payments.
2. Comparison of Policies: It’s advisable to compare multiple job loss insurance policies offered by different insurers to find the most suitable coverage that meets your specific needs and budget.
3. Financial Assessment: Evaluate your financial situation and assess whether job loss insurance cover aligns with your overall financial plan and risk management strategy.
4. Claim Process: Familiarize yourself with the claim process and documentation requirements to ensure a smooth and hassle-free claims experience in the event of unemployment.
5. Review Existing Benefits: If you already have certain benefits through your employer, such as severance pay, unemployment benefits, or group insurance coverage, consider whether additional job loss insurance cover is necessary.

In conclusion, job loss insurance cover serves as a crucial financial safety net for individuals navigating the uncertainties of the job market in India. By providing a buffer against the financial impact of involuntary unemployment, this insurance product offers much-needed support and stability to policyholders and their families. However, it’s essential to carefully evaluate the terms, coverage, and suitability of job loss insurance policies before making a purchase decision. With the right approach, investing in job loss insurance cover can offer valuable protection and peace of mind in an ever-changing job market scenario.

In the intricate realm of business operations, Supply Chain Finance (SCF) has emerged as a pivotal financial instrument, fostering collaboration, and enabling seamless transactions among stakeholders. This article aims to delve into the intricacies of Supply Chain Finance offered by banks in India, providing insights into its processes, features, advantages, challenges, and its overall impact on businesses.

                                                                                                                              Subas Tiwari

Participating Banks: The following banks were included in the comparative analysis:

1. State Bank of India (SBI)
2. HDFC Bank
3. ICICI Bank
4. Axis Bank
5. Punjab National Bank (PNB)
6. Bank of Baroda

Defining Supply Chain Finance

• Understanding Supply Chain Finance

SCF is a financial solution designed to optimize cash flow within a supply chain, allowing businesses to unlock working capital trapped in payables or receivables. It involves leveraging financial instruments to enhance supply chain efficiency, benefiting both buyers and suppliers.

• Evolution of Supply Chain Finance in India

SCF in India has evolved from traditional trade finance to address diverse financial needs across industries, driven by technological advancements and shifts in business dynamics.

• Regulatory Framework

The regulatory landscape, governed by entities such as the Reserve Bank of India (RBI), ensures transparency, security, and fair practices in SCF transactions.

Dynamics of Supply Chain Finance

• Features of Supply Chain Finance

SCF includes features like Invoice Financing, Dynamic Discounting, and Vendor Financing, tailoring financial solutions to meet the diverse needs of supply chain businesses.

• Types of Supply Chain Finance

Encompassing Reverse Factoring, Payables Finance, and Inventory Finance, SCF offers various types to cater to the specific requirements of businesses.

• Comparison with Traditional Financing

Compared to traditional financing, SCF provides enhanced liquidity and risk mitigation, improving the overall financial stability of businesses involved in the supply chain.

Advantages of Implementing Supply Chain Finance

• Improved Cash Flow Management

SCF facilitates enhanced cash flow management, optimizing working capital and ensuring the smooth functioning of the supply chain.

• Strengthened Supplier-Buyer Relationships

By offering early payment options and favourable financing terms, SCF fosters stronger relationships between buyers and suppliers.

• Mitigation of Financial Risks

SCF helps businesses mitigate financial risks associated with the supply chain, providing timely access to funds and improving overall financial stability.

Challenges and Risks in Supply Chain Finance

• Technological Integration

The integration of technology in SCF processes poses challenges for businesses in adopting and adapting to new digital platforms.

• Regulatory Compliance

Compliance with evolving regulatory frameworks can be challenging, requiring businesses to stay abreast of changes and adhere to guidelines set by regulatory authorities.

• Counterparty Risks

Inherent counterparty risks in SCF transactions, particularly related to the financial stability of buyers and suppliers, necessitate effective risk management practices.

The Digital Transformation of Supply Chain Finance

• Digital Platforms in SCF

The digitalization of SCF processes is a significant trend, streamlining transactions, enhancing transparency, and providing real-time access to financial information within the supply chain.

• Blockchain Technology

The implementation of blockchain technology in SCF ensures secure and transparent transactions, reducing fraud risks, and enhancing the efficiency of the entire supply chain financing ecosystem.

Collaboration and Innovation in Supply Chain Finance

• Collaborations Between Banks and Corporates

Increasing collaborations between banks and corporates tailor SCF solutions to specific financial needs, fostering innovation and efficiency.

• Technology-Driven Innovations

Integration of advanced technologies like artificial intelligence and machine learning drives continuous innovation in SCF, offering more sophisticated solutions to businesses.

Securing the Best Deal on Supply Chain Finance: 30 Tips

To optimize working capital and foster financial efficiency within the supply chain, securing the best deal on Supply Chain Finance (SCF) from banks in India is essential. Here are 30 tips to guide businesses in obtaining favourable SCF terms:

• Understand Your Needs: Clearly define your business’s financial needs within the supply chain to identify the most suitable SCF solutions.

• Research Banks: Conduct thorough research on banks offering SCF in India, comparing offerings, reputation, and customer reviews.

• Compare Interest Rates: Compare interest rates offered by different banks for SCF, considering variations based on your specific financial situation.

• Assess Eligibility Criteria: Understand eligibility criteria set by banks for SCF, ensuring your business meets income, creditworthiness, and other requirements.

• Review Fees and Charges: Examine fees and charges associated with SCF, including processing fees and hidden costs, opting for banks with transparent fee structures.

• Evaluate Repayment Terms: Look for banks offering flexible repayment terms for SCF, aligning with your business’s financial capabilities.

• Check Prepayment Options: Understand prepayment terms and conditions, considering penalties or allowances for prepayment.

• Maintain a Good Credit Profile: Strengthen your business’s credit profile for improved chances of securing favourable SCF terms.

• Review the Agreement: Carefully read and understand terms and conditions of the SCF agreement, ensuring transparency in all clauses.

• Avoid Multiple Applications: Submitting multiple SCF applications simultaneously can impact your credit profile negatively; apply to one or two suitable banks.

• Consider Collateral: Evaluate if opting for secured SCF with collateral benefits your business, influencing interest rates and terms.

• Explore Online Platforms: Consider banks with user-friendly digital interfaces, as many offer convenient online SCF platforms.

• Read Customer Reviews: Look for reviews and testimonials from businesses using SCF from banks you’re considering for valuable insights.

• Negotiate Terms: Don’t hesitate to negotiate terms with the bank, leveraging a good credit history for more favourable conditions.

• Calculate Total Costs: Before finalizing any SCF deal, calculate total costs, including interest, fees, and other charges for informed decisions.

• Plan for Cash Flow: Assess your business’s cash flow and plan for SCF repayments, aligning with operational and financial needs.

• Keep Documentation Ready: Have all necessary documents ready before applying for SCF, expediting the application process.

• Be Wary of Scams: Verify the legitimacy of the bank to avoid fraudulent practices and ensure regulatory approvals.

• Utilize Customer Support: Reach out to the bank’s customer support for questions or concerns, assessing responsiveness and helpfulness.

• Maintain Financial Discipline: Ensure timely payments, responsible credit usage, and sound financial management to enhance the business’s stability.

• Review Competitive Offers: If multiple banks provide competitive offers, meticulously review and compare them before choosing the most suitable one.

• Stay Informed on Market Trends: Stay informed about SCF market trends to negotiate better terms and adapt to evolving financial landscapes.

• Consider Long-Term Impacts: Evaluate how SCF terms impact your business in the long run, considering scalability and sustainability.

• Explore Cross-Border SCF: If your supply chain involves international transactions, explore banks offering cross-border SCF solutions, considering currency exchange rates and geopolitical risks.

• Seek Professional Advice: Consult financial experts or advisors to navigate complex SCF terms and make informed decisions if needed.

• Diversify Funding Sources: Consider exploring SCF options from multiple banks to diversify funding sources and enhance flexibility.

• Assess the Bank’s Reputation: Consider the bank’s reputation, as a strong reputation indicates reliable and customer friendly SCF services.

• Stay Compliant: Ensure your business adheres to all regulatory requirements for a smooth SCF process and a positive relationship with the bank.

• Explore Value-Added Services: Some banks offer additional services alongside SCF, such as risk management or financial consulting. Explore these value-added services.

• Review Periodic Reports: Periodically review reports provided by the bank regarding your SCF transactions, staying informed about performance and impact on your supply chain.

By incorporating these tips, businesses can enhance their chances of securing the best deal on Supply Chain Finance from banks in India, optimizing financial processes within the supply chain.

The future of Supply Chain Finance (SCF) in India is on the brink of transformative changes, propelled by technological advancements, shifting business dynamics, and an increasing recognition of the advantages linked with efficient supply chain financing. This narrative outlines the pivotal trends and factors that are poised to define the trajectory of SCF in India:

1. Technological Integration:

• Blockchain Technology: The integration of blockchain technology is anticipated to witness a surge, providing a foundation for secure and transparent transactions. This move aims to diminish fraud risks and amplify the overall efficiency of SCF processes.
• Artificial Intelligence and Machine Learning: Advanced technologies, specifically Artificial Intelligence (AI) and Machine Learning (ML), are set to play a pivotal role. They will automate intricate processes, enhance risk assessment methodologies, and introduce more sophisticated and tailored SCF solutions.

1. Digital Platforms:

The widespread adoption of digital platforms for SCF is expected to become the norm. This shift will streamline transactions, elevate transparency levels, and furnish real-time access to financial information within the supply chain.

1. Collaboration and Industry Standards:

A surge in collaboration between traditional banks, non-banking financial companies (NBFCs), and corporate entities is foreseen. This collaborative spirit is likely to pave the way for the establishment of comprehensive industry-wide standards for SCF. Common frameworks, documentation practices, and operational standards may be developed, contributing to a more streamlined and efficient SCF ecosystem.

1. Cross-Border SCF:

The globalization of supply chains will drive an escalating demand for cross-border SCF solutions. Banks are expected to introduce specialized services tailored to facilitate international transactions. Key considerations will include factors such as currency exchange rates and geopolitical risks.

1. Regulatory Evolution:

Regulatory bodies, with a primary focus on the Reserve Bank of India (RBI), are anticipated to evolve their guidelines. This evolution is crucial to keeping pace with the dynamic nature of SCF. Clearer regulations are likely to in still increased confidence among stakeholders, fostering greater participation in SCF activities.

1. Increased Awareness and Adoption:

As businesses gain a deeper understanding of the myriad benefits associated with SCF, there is a projected surge in adoption across diverse industries. Small and medium-sized enterprises (SMEs), in particular, stand to benefit from the accessibility and flexibility that SCF affords.

1. Sustainability and ESG Considerations:

Environmental, Social, and Governance (ESG) considerations are gaining prominence in contemporary business practices. SCF solutions are expected to evolve to incorporate sustainability criteria, aligning with the broader trend of responsible and ethical business conduct.

1. Fintech Disruption:

The anticipated entry of fintech companies into the SCF arena is likely to catalyze increased competition and foster innovation. Fintech platforms are poised to introduce agile and user-friendly SCF solutions, challenging traditional banking models.

1. Continuous Innovation:

Banks and financial institutions are foreseen to remain at the forefront of innovation in the SCF landscape. This continuous innovation is expected to manifest in the development of novel products and services catering to the evolving needs of businesses. The focus will be on providing more efficient, cost-effective, and tailored solutions.

1. Integration with Supply Chain Management Systems:

An increased level of integration between SCF platforms and supply chain management systems is likely. This integration is envisaged to enhance visibility, coordination, and overall efficiency across the entire supply chain, creating a seamlessly interconnected financial and operational ecosystem.

The future of SCF in India presents a dynamic landscape characterized by a strong emphasis on technology, collaboration, regulatory evolution, and sustainability. Businesses that adeptly adapt to these trends and leverage the evolving SCF landscape are poised to derive benefits such as improved financial processes, enhanced collaboration, and optimized supply chain operations.

In conclusion, SCF plays a pivotal role in optimizing financial processes within the supply chain, contributing to the growth and stability of businesses. As the landscape continues to evolve, businesses must stay informed about the options, risks, and benefits of SCF to make sound financial decisions, leveraging opportunities presented by banks for financial growth and efficiency.

An Equity Linked Savings Scheme (ELSS) is a mutual fund scheme primarily focused on investments in equity and equity-related securities. ELSS funds are strategically structured to enable investors to reduce their tax liabilities under Section 80C of the Income Tax Act in India. In this article, we will provide an extensive examination of ELSS mutual funds.

                                                                                                                                                        Subas Tiwari                                                                                                                                                                               In comparison to Fixed Deposits or the National Pension Scheme (NPS), Equity Linked Saving Scheme (ELSS) provides numerous tax-saving benefits while also delivering higher returns. Mutual funds, including ELSS, typically yield greater returns than FDs or NPS. Consequently, individuals who invest in ELSS funds or equities tend to regard ELSS as a more effective option.

Imagine the advantages of accumulating funds while also enjoying a substantial tax exemption. Tax exemptions essentially translate to savings, which can then be strategically allocated to other financial objectives. A similar program, known as Equity Linked Saving Scheme (ELSS), allows individuals to save up to Rs. 46,800 in taxes.

ELSS is an investment fund that offers optimal returns within a minimal lock-in period. It is predominantly composed of stocks from large and medium-sized companies. ELSS has been thoughtfully structured to simplify tax-saving for investors. Over an extended holding period, it presents significant potential for growth and enhanced returns. This fund boasts various appealing features; for instance, you can initiate investments with as little as Rs. 500, and it accommodates systematic investment plans (SIPs). The fund comes with a minimum lock-in period of 3 years, meaning you can easily exit the fund and access your funds after this period. The most noteworthy feature is that this fund empowers taxpayers to potentially save up to Rs. 46,800 in taxes.

Fund’s salient features

There is a specified range for the minimum deposit amount in this tax-saving fund. In this particular fund, you can commence your investment with as little as Rs 500, and the upper limit for your deposit is capped at Rs 1, 50,000. Your earnings from this fund are contingent on both your deposit amount and the prevailing market conditions. Considering the performance over the past year, it has been promising, with mutual funds, as well as equities, delivering favourable returns.

Multiple benefits with single investment

Indeed, an Equity Linked Saving Scheme (ELSS) is a tax-saving fund that predominantly allocates its funds to equity schemes. Equity funds are investment schemes that channel funds into the shares of various companies. The selection of companies for investment is typically based on their market capitalization, and the fund’s assets are distributed among these companies. If an individual consistently invests Rs 1.5 lakh in an ELSS every year, they can avail a tax saving benefit of up to Rs 46,800 under section 80C of the Income Tax Act. It’s important to note that while the tax benefit is capped at Rs 1.5 lakh, you are indeed allowed to invest more than this amount in ELSS if you choose to do so.

Why invest in ELSS?

ELSS is considered to be much better than those who follow the traditional methods of tax saving. Compared to Fixed Deposit or NPS, ELSS offers many tax saving facilities along with giving higher returns. Mutual funds earn more than FDs or NPS. Therefore, people who invest in ELSS funds or equities consider ELSS to be more effective. The biggest thing is that the lock-in period of ELSS is very less as compared to FD or NPS. That is, the possibility of high returns in a short time can be found in ELSS.

Who can invest?

ELSS can be invested by any person who wants to reduce his income tax under section 80C by investing money in tax saving scheme. It is an equity investment, so those who invest money for a long term and expect returns, who are less concerned about market risk, can make the most of this fund. Since ELSS has a lock-in period of 3 years, the fund is taxed on the basis of long-term gains. If earning more than Rs 1 lakh then interest of 10% will have to be paid.

More work with less investment

You don’t have to contribute a substantial amount of money all at once to participate in this fund. You needn’t worry about having to make a large initial deposit to benefit from this tax-saving program. You can join this scheme with a minimal investment. By averaging your contributions to this fund every year, you can start your investment journey with the same amount of money. You’re not required to make substantial payments per unit of the fund. If you prefer, you can begin your investment with as little as 500 rupees, and this approach also fosters a disciplined investment strategy.

What are ELSS funds?

ELSS is a mutual fund scheme & is quite similar to diversified equity fund of Mutual Fund. As the name suggests, the scheme primarily invests in equity market by buying equity stocks of companies listed on the stock exchanges. The units of the scheme are offered at the NAV (Net Asset Value). The NAV is announced for all business days and keeps changing primarily depending upon the movement in the prices of stocks held in the portfolio of the scheme in relation to market fluctuations. Mutual Fund ELSS is a good tax-saving instrument but still is not invested in large numbers by tax-savers. So, this article is just to wake them up & take notice of this tax-saving investing option so that there is maximum participation of the public from all walks of life.

What is the urgency to invest in ELSS?

It is most likely that the Direct Tax Code (DTC) proposed by the Government will come into effect (sooner than later), and your most dependable tax saving section – Section 80C of the Income Tax Act would undergo amendments. While the DTC includes a proposal to increase the eligible deduction under Section 80 C, Equity Linked Savings Schemes (ELSS) -also known as ‘tax saving mutual funds’, would no longer continue to be a part of eligible tax saving instruments, thus leaving you with fewer market-linked investment options to accelerate the process of wealth creation.

Who are advised to invest in ELSS?

YES. This is an important aspect of tax-planning especially when you look at ELSS as a tax-saving option. The following are the factors that could be considered.

Those who have clear & focused financial goals

If you have financial goals set in your life, the same too should influence the way you do your tax planning and invest in tax saving instruments. So, say for example your goal is retiring from work 5 years from now, then your tax saving investment portfolio should be less tilted towards market-linked tax saving instruments, as you are quite near to your goal and your regular income will cease. Likewise, if you are many years away from the financial goal, you should ideally allocate maximum to market-linked tax saving instruments and less towards those instruments (tax saving) which provide you assured returns.

Those who have risk appetite

It refers to your ability to take risk while investing, and it is totally dependent on your age, income, expenses, and nearness to your goal. So, if your willingness to take risk is high (aggressive), you can tilt your tax saving investment portfolio more towards the market-linked instruments such as ELSS. But if you have a moderate-risk profile, then you can take a mix of 60:40 into market-linked tax saving instruments and assured return tax saving instruments respectively.

Thus, now if you are young, income is higher, and therefore willingness to take risk is highest along with your financial goals being far away; you may look at ELSS mutual funds to avail a tax benefit under Section 80C. Please note that ELSS mutual funds are 100% diversified equity funds and a distinguishing feature about them is the compulsory lock-in period of 3 years brings in financial discipline towards holding one’s investments for the long-term. For investment in ELSS, there is a minimum investment amount of Rs. 500 which is unlike the other equity-oriented funds (which generally demand Rs. 5,000 as the minimum investment amount).

What should be the income bracket to enter investing?

It is said that if your income is high, your willingness to take risk is generally high. This can work in your favour, as you can allot your portfolio more towards equity-related instruments such as ELSS, and make your portfolio appear more aggressive. Similarly, if your income is not high enough, you can invest in other tax-saving instruments which provide you assured returns.

At what age should one begin investing?

Your age should determine your asset allocation. If you are young, you can take more risk and vice-versa. Hence, for prudent tax planning too, if you are young, you should allocate more towards market-linked tax saving instruments such as ELSS. Moreover, you would also enjoy the advantage of greater investment tenure which would enable you make more aggressive investments and create wealth over long-term to meet your financial goals. 

How to select ELSS funds?

Ideally while evaluating ELSS mutual funds, one should assess their performance over a 3-year time frame, as this would enable you to judge whether they have created wealth for your post- lock-in period.

Moreover, the fund has to ensure to its investors to fairly low-risk, but should provide risk-adjusted returns thereby making it a low risk-high return investment proposition in the category. Also, the returns should have been achieved by the Fund without indulging in much portfolio churning.

What are the benefits of ELSS MF?

Tax benefit on the Investment

You can get full tax benefit of investment under section 80 C of Income Tax Act. Maximum taxable limit is Rs. 150000 for the current Assessment Year.

Shortest lock-in period (period during which payment will not be made if you go in for tax benefit)

Lock-in period of ELSS is 3 years which is shortest in comparison to any other tax saving investment. This lock-in period is the only difference between diversified equity mutual funds & ELSS. When compared to Bank tax-saving FDs, ELSS scores over them as Bank FDs have a lock-in period of 5 years.

Tax-free returns

Any profit/ capital gain you have from ELSS is completely tax free. If you compare the returns from NSC & Tax-Shield Bank FDs, these are completely taxable & paid interest is added to your income for tax computation. So, you end up paying tax on interest received. Only PPF offers tax- free returns but it has a maturity period of 15 years.

Tax free dividends

ELSS schemes give dividends on regular intervals and the dividend you receive is tax free.

No entry loads

Say if you invest Rs. 15000 in ELSS Scheme, your Rs. 15000 is invested in ELSS Mutual Fund. You have to decide how much want to pay your financial advisor. Take a word of caution: some insurance agents sell ULIPS as Mutual Fund + Insurance with lots of ‘load’ expenses.

High growth

Equity funds can be volatile in the short run, but have been known to beat inflation and create wealth over the long run. If you are looking at investing some money that you won’t need in future, and are willing to stand atop the ups and downs of the market, you may find ELSS an ideal tax saving option.

Systematic Investment Plan (SIP) in ELSS

In SIP, you invest a certain amount each month in a fund. It’s an effective way of investing in ELSS as the concept of rupee cost-averaging and the power of compounding works well. Even if you have done your tax planning for this year, start from 1st AUGUST, 2015.

Comparison with Unit-Linked Insurance Plan

The investors & tax-saving public sometimes think of ELSS funds and ULIPs as alternatives. This is a mistake as functionally, there is nothing common between ELSS funds and ULIPs. It’s a basic rule of saving to not mix up insurance and investments. ELSS and ULIPs are two different products that serve different purposes.

COMPARISON OF ELSS WITH ULIP
ELSS	ULIP
ELSS is an equity fund in the market	ULIP is a mix of life insurance and investment offered by life insurance companies
ELSS have a predictable cost, and easily understandable returns and are transparent about how the fund operates and what it invests in	From the premium paid, the insurer deducts charges towards life insurance (mortality charges), administration expenses and fund management fees. So only the balance amount is invested
Only payment of fund management charge (as expenses) per year is applicable	ULIPs have high first year charges towards acquisition (including agents’ commissions)
The total investment under ELSS is in Equity Funds only	In a ULIP, the mix of investment and insurance prevents savers from having a clear cost-vs-benefit understanding of either of the two components
In ELSS, there is no fixed period of maturity except for the lock-in period as the fund is open-ended	With an ULIP, you have to block your money for long periods of time. So, you sacrifice on transparency and liquidity
ELSS has a 3 years lock-in period	ULIPs have a 5 years lock-in
ELSS has no switching facility of funds as it is controlled by the fund manager	ULIPs provide for ‘switch’ from one fund to another

 

Where do ELSS stand as a preferred fund for investment?

ELSS stands out as a favored tax-saving choice for savvy investors. It not only offers diversification through its equity investments but also comes with a relatively short lock-in period of just 3 years from the date of investment. The returns generated from ELSS investments are closely tied to the performance of equity markets. Furthermore, the returns from ELSS schemes are tax-free.

In recent years, some of these funds have demonstrated exceptional growth, multiplying in value by three times within a 5-year period. It’s worth noting that there is no specific limit on the amount you can invest in ELSS funds. However, you can claim a tax deduction of up to Rs. 1,50,000 under Section 80C of the Income Tax Act.

It is always better to invest-

• via SIP mode rather than lump-sum (for cost-averaging)

• in GROWTH options (for wealth accumulation)

• in DIRECT Plan (to save costs & higher returns)

ELSS vs. NPS vs. PPF

ELSS (Equity Linked Savings Scheme), NPS (National Pension System), and PPF (Public Provident Fund) are all popular tax-saving investment options in India. Each of these options has its own set of features, benefits, and limitations. Here’s a comparison of ELSS, NPS, and PPF to help you make an informed decision:

1. Nature of Investment:

ELSS: ELSS is a mutual fund scheme primarily investing in equities. It aims for capital appreciation and carries market-related risks.

NPS: NPS is a retirement savings scheme that allows you to invest in various asset classes, including equities (up to 75% of the contribution in Tier I account). It is designed for building a retirement corpus.

PPF: PPF is a long-term fixed income investment scheme offered by the government. It offers a fixed interest rate and is considered a safe investment option.

2. Lock-in Period:

ELSS: ELSS has a lock-in period of three years, which is the shortest among the three options.

NPS: NPS has a lock-in period until retirement (with some exceptions). Partial withdrawals are allowed under specific circumstances.

PPF: PPF has a lock-in period of 15 years, but it can be extended in blocks of five years indefinitely.

3. Tax Benefits:

ELSS: Investments in ELSS are eligible for a tax deduction under Section 80C of the Income Tax Act, up to ₹1.5 lakh per financial year. However, returns from ELSS are subject to long-term capital gains tax.

NPS: Contributions to NPS enjoy tax benefits under Section 80CCD (1) and Section 80CCD (2) of the Income Tax Act. However, there are restrictions on withdrawals, and the maturity amount may be partially taxable.

PPF: PPF investments and interest earned are both eligible for tax deductions under Section 80C. Additionally, PPF returns are tax-free.

4. Risks and Returns:

ELSS: ELSS investments carry market-related risks. Returns can be higher but are subject to market fluctuations.

NPS: NPS offers a mix of asset classes, including equities, which can provide potentially higher returns than PPF but with some risk.

PPF: PPF offers fixed, guaranteed returns. It is a low-risk investment but typically provides lower returns compared to ELSS and NPS.

5. Flexibility:

ELSS: Offers flexibility in terms of investment amount and frequency (through SIPs). Post-lock-in, you can redeem or switch your investments.

NPS: Provides flexibility in asset allocation and contribution amount. It is designed for long-term retirement planning, so withdrawals are restricted.

PPF: Offers flexibility in terms of contribution amounts and frequency but has a long lock-in period.

6. Purpose:

ELSS: Primarily used for wealth creation and tax-saving goals.

NPS: Designed for long-term retirement planning and building a retirement corpus.

PPF: Suited for long-term savings, particularly for conservative investors.

7. Liquidity:

ELSS: Becomes liquid after the three-year lock-in period.

NPS: Generally, not liquid until retirement, with some exceptions.

PPF: Offers partial withdrawal options from the seventh year onwards.

The choice between ELSS, NPS, and PPF depends on your financial goals, risk tolerance, and investment horizon. Many individuals opt for a combination of these investment options to balance risk and returns while achieving their financial objectives. Consulting a financial advisor can help you create a tax-efficient and diversified investment portfolio based on your specific needs and circumstances.