ELSS or RGESS: ELSS or Rajiv Gandhi Equity Savings Scheme (RGESS) is a good option for those who have not exhausted the 80C limit, despite being in the highest income tax bracket. While the latter is meant only for investors with taxable income of Rs 10 lakh, the benefit is nominal as well – just Rs 50,000. While the benefits under ELSS are likely to go away once the direct taxes code (DTC) is implemented, one could still use it for this year. The entire amount will give tax benefits.
Nitin Vyakaranam, founder and CEO of ArthaYantra, says, "An individual with high risk tolerance can consider ELSS or RGESS. The investment instruments should be treated based on their merit, rather than their returns. For instance, in the past five years, ELSS has not given good returns. But historically, equities have always fetched good returns in the long term."
With a Rs 100 entry load for investing more than Rs 10,000 and expense ratio of 2-2.5 per cent, ELSS is a good option. The only drawback: lock-in for three years. But since the capital gains tax is zero, there will be no tax on returns.
While RGESS was introduced only this year, ELSS, being an equity scheme, can return an average of 10-12 per cent in the long term.