By now, most of you might agree that Mutual Funds Sahi Hai. You now probably know that mutual funds are a great way to build wealth, but did you know they are an even greater way to save on taxes? They are! Read on to know how.
Under Section 80C of the Income Tax Act, 1961, you can invest upto Rs. 1,50,000 in instruments like PF, PPF, ELSS, NSC, 5-year bank FDs, ULIPs, Senior Citizen Saving Schemes and more, to claim deductions on Income Tax.
At FundsIndia, we believe that Equity Linked Savings Schemes (ELSS), otherwise known as tax-saving mutual funds, are the best way to save on taxes.
Save on taxes: This is the first, and most obvious reason to invest in ELSS. You can claim a deduction on your income for the amount you invest in this. By fully investing Rs. 1,50,000, you can save upto Rs. 46,350* on taxes.
ELSS can give you higher returns: ELSS or tax-saving mutual funds invest primarily in the equity markets and thus have the potential to deliver market linked returns. Most other instruments invest in government or corporate debt, or are deployed as banks and the government see fit. As a result, ELSS can perform better than these other instruments and give you a profitable edge.
ELSS has the shortest lock-in period: When you compare the lock-in of instruments under Section 80C, you’ll see that the popular PPF has a lock-in of 15 years, NPS is locked-in until you’re 60, others have lock-ins of 5+ years, but ELSS has a lock-in of just 3 years! This means you’ll have access to your money faster and will also have better liquidity compared to other instruments.
Tax-free capital gains and dividends: When you invest in tax-saving mutual funds, your income tax liability decreases. That’s great! But what’s even better is that you don’t have to pay taxes on your earnings from ELSS, whether through dividends or capital gains. Effectively, with ELSS funds, you save on taxes TWICE!
Low minimum investment: You can start investing in ELSS funds with as little as Rs. 500. There is no maximum limit. You can continue investing as much as you want, in multiples of Rs. 500 (lump sums anytime) or set up a SIP and reap its benefits too.
There are many ELSS options to invest in: The mutual fund universe is large and you can choose one (or some) from the many tax-saving funds to invest in. You are not limited by just one scheme or plan. Your FundsIndia investment advisor can help you pick the best tax-saving funds to invest in.
Get a head-start on your tax-saving today! Remember, the earlier you start, the more your money can compound, and you’ll also be free of last minute tax worries.
*Tax saving has been calculated for the highest income slab as per Section 80C of the Income Tax Act 1961, for the financial year 2017-2018.