save tax

Where should I invest to Save Tax?

There are various reasons why people invest their money. Some invest to earn returns for their Children’s education/ marriage, some to buy a house or vehicle and some invest to save for their retirement. Now amongst these are people who want to invest so that they can “Save Tax”. Various investment options are available to save tax such as Public Provident Fund (PPF), Employees’ Provident Fund (EPF), Sukanya Samriddhi Yojana (SSY), and so forth. However, amongst these, one of the most recommended and promising options is Equity Linked Savings Schemes (ELSS).

What are ELSS Funds?

The only mutual fund eligible under 80C deductions is Equity Linked Savings Schemes, commonly known as ELSS. It falls under the category of equity mutual funds 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. Let’s find out!

Why is ELSS better?

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 not only provide tax advantage but also try and generate higher returns, anywhere between 15%-17%, because they leverage the benefit of equity markets. These are also safe for investors rather than investing directly in the stock market. So if you are wondering how to have equity exposure for your investments, it’s simple, opt for ELSS funds. However, remember to remain invested for a long period (over and above five 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. Also, the fund managers make sure to choose securities of companies which have a high growth prospect. However, remember to remain invested for a long period (over and above five years) that’s the secret of getting high returns with equity funds.

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 clearly shows 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 say for example tax saving FDs accept only lump sum deposits/ 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 SIPs with ELSS Funds.

So if you are wondering how to:

  • 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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