From PPF, LIC to mutual funds, there are several investment vehicles that not only help you save money or grow your fund, but also save you tax. As the year draws to a close and it is high time you declared your investment, many must be wondering about the best possible investment plans that will help them save money in taxes.
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While there are currently several government-run savings programs that may prove useful in your situation, it is ELSS (Equity Linked Savings Scheme) that stands out from other savings vehicles. Sorbh Gupta, Fund Manager, Quantum Tax Saving Fund, explains why ELSS unlocks a savings option that has an edge over others.
Lowest period of immobilization and tax advantage under Article 80 C
Tax saving is an option offered by the government under section 80C, where you have several options such as PPF, life insurance, etc., explains Sorbh Gupta. . 2005 under Section 80C has the lowest foreclosure period, ”Sorbh said when he began his discussion of the various tax savings opportunities available.
Possibility of creating wealth by exposure to stocks
Since this is an equity focused mutual fund under section 80C, you can claim tax benefits up to Rs. 1.5 lakes and save depending on the tax slab. “This invested amount is used to pick decent stocks and tends to help build wealth over time. So, in short, you not only get initial savings with immediate tax relief, but you can also create new money. wealth over time by investing in stocks, as stocks have done, the potential to earn risk-adjusted returns over the long term.
Ideal for employees or the self-employed
While equity requires an appetite for risk, and ELSS also has a 3-year lock-in period, it’s best suited for salaried or self-employed people who want to invest and save tax, Gupta said. “This is one of the most popular investment options for employed people looking to invest and save tax under Section 80C,” he said.
Shorter locking and dialing power
Sorbh then compared the advantage of ELSS over traditional tax saving instruments. ELSS has a shorter lockout of only 3 years.
“When it comes to investing, most people today don’t understand the benefits of long-term capitalization capabilities of investing in stocks or the benefits of staying invested longer rather than going out or relocating. ELSS brings discipline to investing in stocks because it has a 3 year lock-in period, and you can actually see the power of compounding increase over that time. It can help you understand the benefits of staying invested and develop a culture of staying invested longer.
“Looking for tax saving options in February March is not wise”
Sorbh discussed the ideal tax saving approach: “Most people look for tax saving options in February / March when their employer requests investment returns, which is not. not the right approach. The best way to do an ELSS is to start somewhere in April with SIP, so you can average market movements and not compromise your returns. The most important thing is to keep in mind the direction of the fund manager who manages the fund and his philosophy. ”
Trend shift from traditional savings instruments to ELSS
Sorbh continued, “We are seeing the strong investor interest in ELSS compared to other traditional tax saving instruments; people now understand the importance of the real rate of return, of inflation. People are more and more educated, and it helps to anchor long term investing ideas with stocks and mix that with ELSS, it also saves tax.
How much funds should we allocate to ELSS?
He says ELSS should be tied to your financial goals and needs. “Whether it’s financial goals like your child’s education, retirement, when you’re investing your money for the long term, equity mutual funds are the ideal option because they have the potential to provide long-term risk and adjusted real return. Some of that should be in ELSS. It is a way of investing in stocks which also saves taxes. This allows for long-term wealth creation with tax benefits. Investors should not view ELSS as a 3 year investment, but rather part of your goals, part of your investment in stocks and it should continue regardless. The tax advantage may end after the lock-in period, but the composition of investments will continue depending on market developments. “
(Disclaimer: The views / suggestions / advice expressed here in this article are solely by investment experts. Zee Business suggests that its readers consult their investment advisers before making a financial decision.)