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Equity Linked Saving Schemes + Life Insurance as an Add On
By: Sanjay Mathew |
| word count: 502 comments(0) views: 141 |
| Life insurance is provided as an extra benefit as far as most of the Equity Linked Saving Schemes are concerned. |
Equity Linked Saving Schemes (ELSS) is a popular investment option because of its tax free status. It enjoys the tax benefits u/s 80 C up to Rs. 100,000 on the money invested, dividends earned and capital gains made when you sell the units. But the recession of 2008 discouraged a lot of investors from market linked investments. In an attempt to get more people to invest in ELSS, fund houses started offering life insurance plans as add on - as an incentive to invest in ELSS.
Life insurance as an add-on can be beneficial like any other freebies offered on buying a particular product. But what an investor needs to check before being tempted is - Is the fund house going to pay the premiums of the insurance policy or do you have to bear this cost? Many a times the burden of premiums is passed on to the investors indirectly as expenses of the fund. An investor may be completely unaware of this as such charges will not be shown specifically but adjusted in NAV. In such a case an investor stands to gain nothing extra. This scheme is worth its salt only if the fund house will cover the cost of the premiums from its own assets.
Generally, any life insurance cover offered as add on will be quite small. Also the type of life insurance benefits under such schemes is usually limited to death in accident, critical illness and for specific amount of compensation. An investor should understand if the type of plan is suitable to his/her needs at all, only then does it make sense to opt for such a scheme. Anyway, such a policy is a little extra bit on the side and an investor should not neglect to have an additional insurance policy to meet his actual requirement, in terms of amount of mortality cover and type of plan.
ELSS with life insurance as add-on becomes a bit like a ULIP, though the former is purely an equity investment and the latter is a balanced investment. In fact the charges of ELSS are much lower than of ULIP and no surrender charges have to be paid after the lock- in period is completed. So, ELSS with insurance policy as add-on presents an attractive package of investment and risk cover, but it must be kept in mind that the such a policy should be supplemented with another if needed. Any add on should be enjoyed as a bonus and should not be the driving factor for investing in an ELSS.
Both ELSS and life insurance policies are set to lose their tax exempt status either wholly or partially with the introduction of DTC (Direct Tax Code) which will replace the current Income Tax Act. The new laws are expected to be in force from 1st April 2012. As ELSS and life insurance are long term instruments it will be prudent to wait and watch before making any new investments if they are primarily for reasons of tax benefit. |
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