Tax saver mutual funds are one of the wisest investments of your hard-earned money. Remember, investing is not about depositing a fixed monthly amount in your account just to save some bucks. A proper plan to exponentially grow your wealth is very important.
In order to have a stable financial life, it is essential to have a sound financial execution plan. In simple terms, financial planning is analyzing your current economic scenario and accordingly constructing a plan to reach your desired goals. However, apart from long-term planning, which we all do, if you are even planning a short-term goal, one of the best investments is the best performing mutual funds.
What are tax saving mutual funds?
Now, I’m pretty sure about the fact that many of you might not know that you can actually save on taxes by investing in mutual funds. Equity Linked Savings Scheme (ELSS) is a special category of mutual funds that allows you to save tax by simply investing in them. Apart from ELSS, even SIP helps you save taxes, so going for the best mutual funds for SIP is another way.
What is ELSS?
ELSS is an open-ended tax saver mutual funds that invests in the stocks of various companies. It has a lock-in period of three years. This is because the more you retain your investment in it, the more your chances of making money.
So if you wish to save tax, you’d have to invest in an ELSS, where your invested amount would remain locked for three years.
How does investing in ELSS help in saving tax?
According to Section 80C of the Income Tax Act, 1961, by investing in an ELSS, you can claim your investments in the fund in a financial year as deductions from your total income for that year.
For example, I invested Rs 1 lakh in an ELSS during the recent financial year (2021-2022) so that I can deduct the amount of Rs 1 lakh from my total income for that year. This section further states that the maximum amount one can claim as deductions in a single year is Rs 1.5 lakhs.
The profits you gain at the end of ELSS’s maturity are categorized as Long Term Capital Gains (LTCG). These are taxed at 10% flat rate. Now, the LTCG above Rs 1 lakh in a year is only liable for being taxed, so there would be no tax if it is below it.
(Remember that the best mutual funds are those which help you build your wealth.)
How to invest in ELSS?
I invested in ELSS via the Bajaj Finserv application, which I generally use for digital payments, such as broadband and mobile recharge. So I’ll share my personal experience, and here is a step-by-step guide for your reference –
- Download the Bajaj Finserv Application from the Play Store or App Store.
- Sign up with your personal details.
- On the home page, you’ll see ‘Investment Bazaar.’
- Here, go on ELSS
- Choose the plan according to your requirement
So, all-in-all, investment is not about searching for the best mutual fund to invest today’ on your search engine and just going for it. It is very important to carefully research and do your groundwork before investing.