The start of new financial year approaches while you just got done with your last year’s tax investments. However, what about getting a jump-start this year? You can plan and execute your tax-saving investments from now itself. A smart investor is always cautious about saving money and has a long-term investment horizon. You may want to invest in mutual funds, as is one of the most economical ways to grow your money in the long term. But when it comes to tax saving, then you can think of investing in ELSS funds.
Equity Linked Saving Scheme or ELSS is an ideal scheme for investors who want to save tax. ELSS mutual fund scheme invests a majority of its corpus in equity or equity-related products. ELSS is not just a tax saving option bus also a wealth creation opportunity. Under Section 80C of the IT Act, ELSS helps you to utilise Rs 1.5 lakh tax deduction. Here we share how and why you should start to invest in ELSS funds to save taxes.
Start SIP Early On
When you start early, it gives you have the option to invest via SIP (Systematic Investment Plan) from April itself. This will help to avoid you the hassle of investing a lump sum in January or February. Let us understand this with an example. If you want to invest Rs. 50, 000 for tax saving under section 80C, you can start by investing Rs 5,000 a month from April to January in the next year. This is a better way rather than investing a larger chunk in one go. Moreover, when you start early, you put your money to work sooner than later.
Among all the Section 80C options, ELSS has the shortest lock-in period of 3 years. Traditional investment options such as PPF and FDs have a lock-in period of 15 and 5 years respectively. Hence, ELSS mutual funds provide more liquidity as compared to other tax-saving investment options. Moreover, the lock-in period also helps you embed a good habit to stay invested for a certain period.
Save Tax and Create Wealth
ELSS funds are nothing but equity mutual funds that invest in companies of all sizes such as large, mid or small across a variety of sectors. Hence, ELSS funds allow you to create wealth over a long-term investment plan through equities. If you fall under the highest income tax bracket of 30%, then with investments in ELSS tax saving mutual funds you can save Rs 46,800, including 4% cess in income tax. Moreover, after the 3-year lock-in period, your long-term capitals gain of up to Rs 1 lakh from ELSS mutual funds are exempted from taxes. So, here you can say that with ELSS you get the opportunity to create wealth but with an added advantage of saving taxes.
ELSS is a great investment choice owing to its tax saving feature, convenience for investing as a mutual fund and a potential for long-term wealth creation. However, make sure to choose the apt ELSS fund for your financial goal. Happy investing!