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 (Photo: iStock)
(Photo: iStock)

Don’t use ELSS for goal-oriented saving

  • All tax-saving options come under Section 80C of the I-T Act which covers other products such as life insurance premium, home loan repayment, PF, NPS and others
  • For long-term portfolio, you can consider a mix of large-cap funds such as Mirae Asset Large cap fund and diversified funds such as Kotak Standard Multicap fund

I am 24 years old and I’ve just started working. I am willing to take moderately high risk with my investments. I want to save 50 lakh in the next 10 years. I’m planning to invest through systematic investment plans (SIPs) in mutual funds. Could you help me understand how much I should invest and in which schemes? Should I consider tax-saving funds? If yes, how much should I invest in equity-linked saving schemes (ELSS) and how much in other regular funds?

—Kumaran R.

If your target is to reach 50 lakh in 10 years, you would need to save and invest about 22,000 a month in this period. If you do that, you would have invested a total of about 25 lakh and assuming a 12% long-term average growth, your investment would have grown to your expected corpus.

Regarding ELSS, the decision on whether to invest in them and how much should be determined by your need to save taxes. All the tax-saving options in this regard come under Section 80C of the Income-tax Act which covers other products such as life insurance premium, repayment of home loan, Provident Fund, National Pension System and others. If after exhausting your mandatory payments from this list, you still need to get to the 1.5 lakh limit, you can consider adding ELSS funds into the mix. Else, please keep to regular (non-tax-saving) funds in your portfolio. The larger point is that tax-saving funds are meant for reducing your taxable income and can additionally serve as an investment option. However, they should not be a core component in your goal-oriented portfolio.

For your long-term portfolio, you can consider a mix of large-cap funds such as Mirae Asset Large cap fund and diversified funds such as Kotak Standard Multicap fund.

Srikanth Meenakshi is co-founder and former chief operating officer, FundsIndia.com. Queries and views at mintmoney@livemint.com

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