TAX Saving for Retirees

For Retirees and senior citizen with taxable income, ELSS funds are an excellent option for tax-saving

A popular misconception is that ELSS of mutual funds are not suitable investment options for senior citizens and retired persons. This comes from the widespread notion that equity-backed investments in any form are unsuitable for older and/or retired people. The reality is to the contrary.

Everyone who has taxable income should invest in ELSS.

The idea that equity is risky and therefore suitable only for young people actually pushes many old, retired people towards financial problems. The culprit, of course, is inflation. And that's a problem that may abate, but will not go away to any substantial degree for a long time.

Equity investment maybe risky over the short term, but the long-term is an entirely different story. For investment periods of three to five years or longer, equity investments are actually low in risk and high in returns.

In fact, when you take inflation into account, it is bank FDs and similar deposits generate returns that are barely higher than the inflation rate and in effect, you lose value or barely maintaining it. The purchasing power of your money reduces at about  the same rate as its value increases in a fixed deposit.

There are also some other points you should consider:

1.    The returns you 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 cannot take a loan against them either.

Of course, like all equity investments, the best way of investing in ELSS funds is through monthly SIPs throughout the year. However, a smaller number of evenly spaced investments are also suitable