By Nivesh Gyan 4 JulyCategory: Save Tax
Saved money saves you at the time of crisis! 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.
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.
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.
With higher liquidity and impressive returns, ELSS funds have an obvious advantage over its traditional peers to save income tax of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
|Tax Saving Fixed Deposits||5 years||~8%|
|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 also tax-free, which makes them not just the better tax saving option but also the preferred saving choice.