INVEST IN EQUITY LINKED FUNDS TO RECEIVE TAX BENEFITS. HERE’S HOW

Come tax season, investors rush to find the most suitable tax-saving investments for their investment portfolio. To avoid missing the tax-filling deadline, taxpayers often make a knee-jerk investment decision at the last moment. This has a huge impact on their investment portfolio. However, there are several tax-saving investments available to investors, such as Public Provident Fund (PPF), National Certificate Savings Scheme (NCSS), Bank fixed deposits (FD), Unit Linked Insurance Plans (ULIP), Equity-Linked Savings Scheme (ELSS) class apart. This article will explain how ELSS funds can help you receive tax benefits. But first, let’s quickly recap what ELSS funds are.

What are ELSS mutual funds?

ELSS mutual funds are equity-oriented mutual funds that invest at least 80% of their portfolio in equities and equity-related investments. These funds are known as ELSS tax-saving mutual funds as they offer a tax deduction under Section 80C. A tax deduction of up to Rs 1.5 lac is available to investors u/s 80C of the IT Act, 1961. These funds have a lock-in tenure of three years. As these funds primarily invest in equities, they have the potential to generate significant returns. Time and again, these funds have proved their worth by providing double-digit returns to investors. Thus, these tax-saver mutual funds offer investors dual benefits of tax-saving and capital appreciation.

Tax-benefits of ELSS funds

As mentioned above, an investor can claim a tax deduction on ELSS investments for a maximum investment amount of Rs 1.5 Lac p.a. As an investor, you can save up to Rs 46,800 each year by investing in these tax-saving investments, given that you fall in the highest tax bracket. Mutual funds on redemption attract tax on capital gains. ELSS mutual funds are no different. As ELSS funds have a mandatory three-year lock-in tenure, these funds attract long-term capital gains (LTCG) tax. LTCG up to Rs 1 lac is exempted from any tax. LTCG above Rs 1 lac is taxed at 10% per annum without indexation benefits.

How to invest in ELSS funds?

You can invest in tax-saver ELSS funds just like any other type of mutual fund. Follow these simple steps:

1. Analyze your taxable income and your applicable income tax slab
2. Select ELSS funds that best suit your investment portfolio
3. Decide if you want to make regular investments (SIP – Systematic Investment Plan) or one-time investments (lumpsum investment)
4. Submit necessary documents to the bank to begin investing in ELSS
5. Decide if you wish to invest on your own or through an intermediary

Although the fund’s past performance returns earned on them at various market cycles and consistency are good indicators of mutual funds, one should not invest in mutual funds solely based on these factors. Your mutual fund investments must align with your investment portfolio, risk appetite, and financial goals. You can also take the help of a financial advisor or a mutual fund expert who can simplify the investment process. Happy investing!