Investments for several individuals are just allocating funds in tax-saving investments to save tax under Section 80C. However, the newer tech-savvy generation has started considering investing in different life insurance plans or mutual funds that can help them to attain financial freedom.
Gen Y and Gen Z constitute the people that fall in the age group of 27 to 37 years of age. Millennials represent about 34 percent of the Indians and precisely 47 percent of the workforce. Their approach towards investments is quite different from their preceding generation, as Millennials tend to evaluate their investments from a technological point of view. Hence, being a financially and technologically literate generation, millennials opt for online channels for their investment decisions.
Investors are often bombarded with different investment options for their portfolios. One of the biggest dilemmas faced by them is choosing between insurance and ELSS mutual funds. Before we understand the right investment option for your portfolio, let’s quickly recall what ELSS funds are.
What are ELSS mutual funds?
Equity-Linked Savings Scheme, also known as ELSS [Tax-Saving Mutual Funds], are investment securities that invest a majority of their corpus [at least 80 percent of their assets] in equity and equity-related instruments. ELSS offers dual benefits of tax-saving attributes and capital appreciation.
Keys aspects to consider before choosing from different types of investment
Financial Goals
Indeed, an insurance policy is a vital component of a portfolio for any as it covers the financial security of your children, parents, or dependents. Mutual funds are a useful tool to meet one’s long-term financial goals, such as paying for higher studies, buying a house, starting a business, etc.
Returns
If an insurance policy is solely utilized for investment purposes, it is not only expensive but also does not promise spectacular returns as in the case of mutual fund investments. However, new insurance plans are consumer-friendly, paired with more substantial insurance rewards and returns for shifting times.
In addition to mutual fund schemes offering the option of fund diversification, one can also maximize their returns without having to depend entirely on a single mutual fund for growth.
Liquidity
If we talk about liquidity with respect to mutual fund investments, except with ELSS funds, these securities provide high liquidity. One should note that ELSS funds have a lock-in period of 3 years, one of the lowest as compared to different Section 80C investments.
One should also consider the tax aspects of their investment options. The premium paid towards an insurance policy is subject to tax deduction up to the maximum limit of Rs 1.5 lac. Further different policies offer tax benefits under Section 80C and Section 80D of the Income Tax Act, 1961. ELSS tax-saving funds also offer tax benefits of up to Rs 1,50,000 under section 80C of the IT Act. An investor can save up to Rs 46,800 by investing in these tax-saving mutual funds.
Conclusion
The decision to invest in mutual funds or insurance policies entirely lies with the investor. Before investing, an investor should analyze their investment needs. The right investment option is one that aligns with your financial goals, investment horizon, and risk profile.
Happy investing!