1. What is the tax saving advantage of mutual funds?
A significant amount of your earning is usually eaten away by taxes. To ensure you keep more of what you make, tax planning becomes imperative. Which means, you need to invest your money in places that help you save taxes and even better to earn something out of them.
While there are many tax saving instruments available in the market, you have to be wise while selecting one. Just keeping your money in PPF or NSC to claim tax-break would yield moderate returns. If you want to make your money work harder and earn higher returns, then mutual funds can be a great place to invest.
This is where Equity Linked Savings Schemes (ELSS) come into the picture. With a 3-year lock-in period, they have the potential to earn higher returns than most tax-saving options and reduces your taxable income by Rs. 1,50,000.
2. Why should I opt for an ELSS?
Income Tax Benefit: Investments made in ELSS plans are entitled for deduction from the taxable income under Section 80C of the Income Tax Act.
There is no limit for investments in ELSS plans, but investments of up to Rs. 1,50,000 qualify for income tax benefits. Investments made in standard mutual funds (other than ELSS plans) do not qualify for income tax deduction.
3 Year Lock-in Period: Investments made in ELSS plans have a lock-in period of 3 years which inculcates a long-term investing discipline. This lock-in period is not available in the case of standard mutual funds.
3. When should I buy an ELSS?
Investing in small bits at regular intervals is smarter than devoting a huge chunk at a single go. That is why Systematic Investment Plans (SIPs) can be a great entry point as they are a safer bet in a relatively unpredictable market. Most SIPs can be started with an initial investment of Rs. 5,000 and periodic investment of Rs. 500.
4. Which are the different tax saving funds?
You can save up to Rs.1,50,000 on taxes by investing in tax-saving funds. IDFC Tax Advantage (ELSS) Fund not only helps you gain concession on your tax, but also earn handsome returns.