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Save Tax

Money saved is money earned!

Isn’t this a great ground to save as much tax as you can?

While there are numerous ways you can save your tax including the traditional instruments like Public Provident Fund (PPF) and National Savings Certificate (NSC), it is the investment in Equity-Linked Savings Schemes (ELSS) offered by mutual funds that promise tax saving along with attractive returns.

ELSS funds are tax saving schemes that invest in a diversified portfolio of stocks with a lock-in period of 3 years.

How can one invest in ELSS?

The ideal way to invest in ELSS is through an SIP i.e. Systematic Investment plan which allows you to invest a certain predetermined amount at a regular interval. This comes with the benefits of flexibility, convenience and financial discipline.

Why should one invest in ELSS?

ELSS comes with dual benefit of tax saving and capital appreciation for investors.

ELSS funds give an option of investing in both dividend and growth schemes. While the dividend one ensures regular income even during the 3-year lock-in period, the growth one comes with a lumpsum amount at the end of the lock-in period.

Investment in ELSS schemes can start from as low as Rs 500 per month; this is something that helps the person save without any major impact on monthly budget.

Why is it better to invest in ELSS via SIP than lumpsum?

If one invests in ELSS via the SIP route, there are better chances of beating the market volatility and averaging the cost of purchase. This also saves the investor from committing a large amount at a time during the tax saving season of January-March.

Besides, if one invests a lumpsum in ELSS, there is a fair chance of catching the market at a wrong time.

Here’s why ELSS is a better choice than traditional tax-saving instruments

Schemes Lock-in Period Returns
15 years
6 years
Tax Saving Fixed Deposits
5 years
Equity Linked Savings Scheme (ELSS) – Tax Saving Mutual Funds
3 years
~12-14% and even higher (not guaranteed as it is subject to market volatility)

The icing on the cake is that capital gains earned through ELSS funds are subject to lower taxes (10% long term capital gains tax on gains over Rs. one lakh), which makes them not just the better tax saving option but also the preferred saving choice.