“Money saved is money earned.”
Savvy investors understand the importance of maximizing their returns while minimizing tax obligation. There are several tax-saving options available to ensure that you don’t pay more taxes than necessary and can earn optimal returns. Investbazaar is here to help you in managing your finances so that you can reduce your tax liabilities through well-informed investments. Let us help you plan and optimize your portfolio for maximum benefits!
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Equity Linked Savings Schemes (ELSS) are mutual fund schemes that invest in stocks, offering investors a chance to earn higher returns. What sets ELSS apart from other tax-saving options is its minimal lock-in period of just three years. Investors who choose ELSS can also enjoy tax benefits as their investments qualify for a deduction under Section 80C of the Income Tax Act for up to Rs. 1.5 lakhs. However, before investing in an ELSS fund, it’s essential first to consider your financial goals and level of risk tolerance.
For novice investors looking to gain experience with equities, ELSS funds offer an excellent opportunity while encouraging them to explore other equity-oriented mutual funds too!
Investors often make the mistake of waiting until late in the financial year to invest in ELSS (Equity Linked Saving Scheme). However, investing early in the year can lead to higher returns on your investment over a longer period. It’s important to remember that a good tax-saving investment is an investment first and a saving solution second. Once you have completed the mandatory 3-year lock-in period, if your fund underperforms relative to expectations, it may still be advantageous for you to stay invested as markets change. On that note, savvy investors should always keep an eye out for positive market shifts and rising NAVs (Net Asset Values) within their chosen schemes so they can exit or shift their investments accordingly.
Investors have the option of investing in this ELSS tax-saving instrument either through a lump sum payment or a monthly Systematic Investment Plan (SIP). Opting for the SIP route can potentially help beat market volatility and average out investment costs. With greater flexibility, convenience, and opportunities to cultivate financial discipline, SIP investments are highly desirable. However, investing a lump sum amount in ELSS could potentially result in entering the market at an unfavourable time. It’s important for investors to weigh their options carefully before making any decisions to ensure they make sound investments that align with their financial goals.
Investors need to be just as diligent about tracking their tax liability and plan ahead to tackle it. One smart approach for saving on taxes while also earning yields is by investing in Equity Linked Saving Schemes (ELSS). By utilizing this investment option, investors can not only benefit from potential financial gains but also reduce the amount of tax owed during the tax season. It’s a win-win strategy that should definitely be considered and added to any savvy investor’s portfolio.
Frequently Asked Questions (FAQs):
1. What are the tax implications of ELSS?
ELSS schemes can have a significant impact on an investor’s tax situation. One of the most notable benefits is that long-term capital gains (LTCG) up to Rs. 1 lakh is exempt from taxes, which provides substantial savings for investors over time. When LTCG exceeds Rs. 1 lakh, it is subject to a flat tax rate of 10%. Additionally, under section 80C of the Income Tax Act, investors are entitled to deduct up to Rs. 1.5 lakhs from their taxable income – providing further opportunities for reducing overall tax liabilities and increasing net returns in the process!
2. What are the risk factors with ELSS?
For investors willing to take on more risk, Equity Linked Savings Scheme (ELSS) programs may be a viable option. These funds predominantly invest in equities yet are considered safer than other equity-based mutual funds due to their lower volatility. Additionally, ELSS programs provide the potential for greater returns since they carry higher risks compared to conventional investment options. So, if you’re an investor seeking higher returns with a manageable level of risk, ELSS schemes could be worth considering in your investment portfolio.
3. What distinguishes ELSS from other conventional tax-savings options?
The primary benefit of investing in ELSS is that, when compared to conventional tax savings vehicles, it offers the lowest lock-in and the best average returns.
| Investment | Returns | Lock-in |
|---|---|---|
| ELSS | 12 – 14% | 3 Year |
| NPS | 10 – 11% | Till the age of retirement |
| ULIP | Till the age of retirement | 5 Year |
| PPF | 7 – 8% | 15 Year |
| NSC | 7 – 8% | 5 Year |
| Senior Citizen Saving Scheme | 8% | 5 Year |
| Bank FD Five Year | 6 – 7% | 5 Year |
| Insurance | Vary from plan to plan | 5 – 10 Year |
Disclaimer: The information provided in this article is for informational purposes only and should not be considered as investment advice. Please consult with a professional financial advisor before making any investment decisions.
