Is it wise for senior citizens to invest in ELSS?

There are certain myths regarding ELSS (Equity Linked Saving Schemes) that these are not a good investment option for senior citizens. This is due to the understanding that equity and equity-linked investment products are volatile in the short term and hence not suitable for old or retired individuals. But this is not the complete truth.

Yes, it is true that equity carries risk, but this in no way means that they are suitable only for young or working individuals. In fact, this ideology may lead old or retired individuals towards financial problems as many people ignore the major risk, that is inflation.

Equities are said to be risky as they are volatile in nature. But on the other hand, the volatility in equity reduces in the long run and provides good returns with low risk. In the short run, equity being highly volatile would be a risky proposition though. If we take inflation into consideration, investment into FDs (Fixed Deposits) will hardly beat inflation and you won’t be able to beat inflation with FDs if you fall in 20 per cent to 30 per cent tax bracket.

It is important to understand that post-retirement at least 25 per cent of your corpus must be in equity, which will help you to keep up with the inflation and in fact, may beat the inflation. If you have taxable income post retirement then there is no better product than ELSS.

The gains on ELSS is taxed at 10 per cent with an exemption up to Rs. 1 lakh and that to if realized. This is not the case with FDs, the gains are added to your income and would be taxed as per the individual’s income tax slab rate. ELSS proves to be more liquid with 3 years lock-in period. Whereas, tax saving FDs comes with 5 years lock-in period.