save tax

Secret to Save Tax: Revealed

It’s a known fact that a lot of personal investments are made every day to save tax. Various investment options are made available to save tax such as Public Provident Fund (PPF), Employees’ Provident Fund (EPF), Sukanya Samriddhi Yojana (SSY), to name a few. However, one that is more than often recommended and seems promising is Equity Linked Savings Schemes (ELSS). Let us take a closer look at this scheme and how it could help you.

What are ELSS Funds?

The only mutual fund eligible under Section 80C income tax deductions is Equity Linked Savings Schemes, commonly known as ELSS. It is an equity mutual fund and invests at least 80% of its total assets in equity and equity-related instruments. It is one of the best schemes that offer tax benefits.

What Makes ELSS More Promising for Saving Tax?

ELSS is arguably more preferable for people who wish to invest for tax-saving reasons. But there is more to them than meets the initial appearance. Let’s take a closer look:

1. Tax Benefits

  • Under the Section 80C of the Income Tax Act, ELSS funds are eligible for tax exemption up to a maximum of Rs. 1,50,000.
  • Tax-free returns on long term capital gains (LTCG) up to Rs. 1 lakh. ( 10% tax on returns > Rs. 1 lakh).

2. Better Returns

ELSS Funds also try and generate higher returns, anywhere between 15%-17%, because they leverage the benefit of equity markets. These are also safer for investors who want to invest in the stock market but not directly. So if you are wondering how to have equity exposure for your investments, it’s simple, opt for ELSS funds. However, remember to stay invested for a long period (at least 5 years) that’s the secret of getting high returns with equity funds.

3. Less Risky

ELSS Funds are safe for investors than investing directly in the stock market. This is made possible through fund managers who make sure to choose securities of companies which have a high growth prospect.

4. Lock-in Period

ProductsReturnsLock-in Period
ELSS Mutual Funds~15%-16%3 years
Bank Tax Saving FD7%-8%5 years
National Saving Certificate8%5 years
Insurance Policy4%-5%10 years
Public Provident Fund8%15 years

The above table clarifies that amongst the tax-saving products (under Section 80C), ELSS has the shortest lock-in period after which you can redeem or reinvest. However, since ELSS is equity-linked, investors who have long term goals and are willing to remain invested are likely to benefit the most from ELSS funds.

5. Flexibility

Most of the tax-saving instruments, such as tax-saving FDs for instance, accept only lump-sum deposits or one-time investment. However, ELSS funds give you the flexibility to choose One-time or Systematic Investment Plans. For investors who want to cultivate the habit of regular investments and are comfortable to deposit small amounts, ELSS funds are the best option. All that you need is an investment as low as Rs. 500 and you can start in SIPs of ELSS Funds.

Hence, conclusively ELSS is the right choice of investment if you want to save tax, along with rewarding benefits. So remember:

  • Have equity exposure for your investments
  • Save a substantial amount of salary from taxes
  • And get high returns for your long term financial goals, then

  It’s simple, opt for ELSS Funds!

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