Did you know that you can save on taxes by making smart investment choices? Check out the top reasons why tax saving mutual funds is an excellent choice for your portfolio.
Are you looking for tax saving investment options? Have you considered ELSS (Equity Linked Saving Schemes)?
As the name suggests, these funds invest a huge percentage of their portfolio in equities. You can save up to Rs.1.5 lakhs per annum in your income tax filings by making smart investments. While there are several tax saving options, ELSS is considered one of the best tax saving instruments and are in fact recommended by several investment experts.
Here are the top reasons why investing in tax saving mutual funds are the best option for your portfolio and to reduce income tax returns.
- Complete Tax Benefits
One of the biggest draws of ELSS mutual funds is that they offer all-around tax benefits. Meaning the principal amount you invest in the fund, the gains earned, and the final maturity amount are all exempted from taxes.
Apart from ELSS, the only other two schemes that offer full tax benefits are EPF (Employee Provident Fund) and PPF (Public Provident Fund). However, ELSS scores over these two by providing better returns.
- Shortest lock-in Period
Among all the tax saving instruments available in the market, ELSS has the shortest lock-in duration of just three years. This offers you better liquidity. Additionally, the shorter lock-in period works in favour of both the investor and the fund manager, by countering volatility and beating inflation levels.
A look at the lock-in periods of other popular tax saving options will give you a fair idea why ELSS stands tall. The lock-in period for PPF is 15 years, NPS – until the age of retirement, Bank FDs that are tax exempted – 5 years and NSC – 6 years.
Unlike PPFs and FDs where there is an upper limit to the number of investments you make in a year, ELSS doesn’t have any such restrictions. You can invest any amount, any number of times. Also, the amount you invest can be as low as Rs.500 or as high as you wish. But, you have to remember that only investments up to Rs.1.5 lakhs per annum are eligible for tax exemptions.
Also, ELSS is pretty flexible in the investment frequency. You can choose to invest a lump sum at one go or make periodic investments via a SIP scheme.
- No maturity date
This is one of the biggest advantages of ELSS mutual funds. As there is no maturity date, you can stay invested even after the lock-in period, thereby compounding the returns generated. Also, you have the freedom to continue or stop investing at any point depending on your financial circumstances. There is no compulsion to contribute all through the tenure of the fund.
- Returns that exceed Inflation Rates
Since ELSS funds invest a major portion of their assets in equities; they generate returns that exceed prevailing inflation rates. While it may appear like equities are volatile in the short run, they often provide handsome returns over an extended period.
Considering all the benefits listed above, it’s no wonder that ELSS is gaining an increase in popularity as one of the best investment options for tax savers. Choose the best tax saving mutual fund that works for you and enjoy handsome savings on your taxes.