Are you looking at some options for tax savings? As the financial year ends, 2019-20 is the time of year when taxpayers are busy finalizing their tax-saving investments. As always, Equity Linked Saving Schemes (ELSS) is on the shopping list of many savvy investors looking to save taxes.
The ELSS fund or equity-linked saving scheme is highly popular among investors as it is a tax-saving fund. Under the Income Tax Act of 1961, up to 1, 50,000 of these funds are exempt from tax. Such funds have a lock-in period of 3 years, which is lower than other means of tax saving. Why investors like these funds because they give good returns on investment in equities. However, they are risky instruments and can consider equivalent to any common equity fund when it comes to the risk-reward structure.
A shareholder can invest in various schemes, but only Rs 1.5 lakh is the highest tax benefits one can claim. So primarily, an investor can invest in multiple tax-saving options and there is no limit to investing in only one of the options listed below.
Equity-linked saving scheme (ELSS), also known as a tax saving scheme, is a government-created mutual fund class to promote long-term equity investment.
The government has allowed investments in equity-based mutual funds to be tax-deductible through ELSS schemes to improve equity participation. The average citizen is motivated to invest a large part of their savings inequalities by offering a tax deduction. Investing in ELSS can benefit an investor in many ways.
SIP vs. Lump sum: Which investment is better for ELSS?
For many investors, ELSS fund is a popular option because it helps to build wealth and provides positive returns. ELSS offers tax benefits under Section 80C of the Income Tax Act among all mutual funds. They have a lock-in period of 3 years as compared to other popular tax-saving instruments such as PPF account, National Savings Certificate, Tax Saving a Fixed Deposit, five years, or more lock-in period.
ELSS vs. PPF: Which tax savings are better?
While ELSS involves some risks, it has emerged as the most attractive tax-saving vehicle, at least with lock-in time today. ULIPs vs. ELSS: Which investment gives you the highest ROI?
ELSS fund is a great way to increase your money and save tax. Like any other mutual fund, SIP mode is the best way to invest in ELSS. To reduce the risk of entering the market at the wrong time, you should plan your investment throughout the year. The primary goal of every ELSS investment should be to achieve future financial goals or to generate long-term money for distant purposes such as retirement planning etc. Tax savings in the year of investment should be an unexpected benefit or secondary objective.
Note: Investing in online mutual funds is very simple and paperless. Just log into your account, choose a fund, and invest using net banking – just like you do when shopping online. Start investing in mutual funds early and invest for an extended period to get the right benefits from it.