In India, section 80C allows 1.5 lakhs from gross total income for investments, insurance and specified expenses. This 1.5 Lakhs is non taxable to encourage saving and investment among Indian citizens. The eligible investments include life insurance, Equity Linked Savings Schemes (ELSS) mutual funds, Public Provident Fund (PPF), National Savings Certificate (NSC), etc., while expenses and outflows can include tuition fees, principal repayment of home loan, among others. Tax Planning is process to select best saving and investment option to utilize the tax exemption of 1.5 lakhs in section 80C.
To Encourage Investment :
Section 80C exempt 1.5 lakhs from income tax to encourage investment, saving and insurance. But most of the tax planners keep lump sum only life insurance for tax planning. Life insurance is not an investment, it is saving.
Life insurance is not an investment, it is saving.
ELSS Mutual Funds :
An Equity Linked Savings Scheme or ELSS is a type of mutual fund which invest money mostly on equity related products. Since it is invested in stock market(equity), returns from an ELSS fund reflect returns of the equity markets. ELSS mutual funds mutual funds gives tax benefits as well as investment in market. Tax planning in ELSS gives you an opportunity to grow your money.
Tax planning in ELSS gives you an opportunity to grow your money.
In ELSS funds, money would be locked-in for 3 years and invested. After 3 years, it can be withdrawn or continue to grow in the market. ELSS has the shortest lock-in period of 3 years. Other investment products that provide tax benefit u/s 80C like insurance, PPF, National Savings Certificate (NSC), Employee’s Provident Fund (EPF) have a minimum lock-in period of 5 years.
ELSS funds can be start with monthly 500 rupees or lumpsum investment. ELSS funds are very easy to start compare to other tax planning options. ELSS mutual funds can be started by login to the mutual funds house portals.
- Best tax planning and investment option for government employees, business persons, senior citizens and salaried employees.
- Can be invested using SIP with minimum and affordable investment amount being just Rs. 500 a month.
- Investment can be done online very quickly and easily.
- Minimum lock-in of just 3 years which is considerably less in comparison to other tax saving options.
- Returns is bit more than traditional insurance and post office saving scheme.
- The concept of compounding returns help to earn in multiples of the principal amount invested.
- ELSS funds can be used to plan your long term goal.
- Tax saving of up to Rs 46,350 can be achieved by making an investment of Rs 150,000 + investment of Rs 150,000.
How to Evaluate the Best ELSS Mutual Funds:
Fund Returns: Compare the fund’s performance with peers to ensure that the fund has been consistent over the past years. Based on these parameters, you can invest in the recommended funds. However, remember that the past performance is not indicative of future returns. The future returns are dependent entirely on the market movements and fund manager’s decisions.
Fund History: Choose fund houses that have performed consistently over a long period, say 5 years to 10 years. A fund’s performance is reflected based on the quality of stocks in its portfolio and benchmark.
Expense Ratio : Expense ratio depicts how much of your investment goes towards managing the fund. A lower expense ratio translates into higher take-home returns. Therefore, if there are two funds with a similar track record and asset allocation, you need to choose that fund which has a lower expense ratio.
Financial Ratios : Consider various parameters such as Standard Deviation, Sharpe ratio, Sorting ratio, Alpha, and Beta to analyze the performance of a fund. A fund with a higher standard deviation and beta is riskier than a fund having a lower deviation and beta. Choose funds with a higher Sharpe Ratio as they offer higher returns for the additional risk you take. The fund manager plays a crucial role.
How to start in ELSS mutual funds:
In order to apply for ELSS mutual funds, you should have PAN and Aadhaar number. This is mandatory as per KYC regulations so as to avoid fraud. KYC verification can be done online also. Login to mutual funds portal such as ICICI mutual fund, HDFC mutual fund, SBI mutual fund portal. If you are planning to invest in multiple funds and multiple funds, login to mutual fund aggregators portals such as groww.in, Zerodha coin portals. They charge minimal amount to start the mutual funds. But we can invest in all mutual funds using single portals.
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List of ELSS mutual funds for Tax saving:
You can select anyone the funds in the list for tax saving. Investing in ELSS mutual funds takes 10 min your time. Do not invest in regular plan, invest only in direct plan for better returns.
- IDFC Tax Advantage Growth Direct Plan( Top rated by MoneyControl)
- Nippon India Tax Saver Growth Direct Plan
- Canara Robeco Equity Tax Saver Growth Direct Plan(Top rated by Mint)
- DSP Tax Saver Growth Direct Plan
- Mirae Asset Tax Saver Growth Direct Plan (Top rated by Value Research and Mint)
- UTI Long Term Equity Growth Direct Plan
- Motilal Oswal Long Term Equity Growth Direct Plan
- Kotak Tax Saver Growth Direct Plan
- ICICI Prudential Long Term Equity Growth Direct Plan
- Invesco India Tax Growth Direct Plan
- SBI Long Term Equity Growth Direct Plan
- L&T Tax Advantage Growth Direct Plan
- Axis Long Term Equity Growth Direct Plan
- Aditya Birla Sun Life Tax Relief96 Growth Direct Plan
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