Financial stability is a crucial factor in the fulfillment of your aspirations. Whether you desire for a bigger house, quality higher education for your children, a lavish lifestyle, or a comfortable retirement, you need money to acquire it. Adequate financial planning and proper investment of your hard-earned money can compound your savings to fulfill your dreams.
The key is to choose the right investment channel to ensure that your money grows well and avoid undue risks. Choosing the right investment vehicle also becomes essential so that you don't lose your gains in taxes.
Investing in tax savings schemes offered by mutual funds called Equity Linked Savings Scheme (ELSS) through a systematic investment plan(SIP) can be the ladder to your financial success.
How SIPs can help you save tax
You can lose a substantial amount of your income in paying taxes which means you lose out on your savings. SIPs can be one of the best tax-saving instruments with high returns on your investments.
You can claim a deduction of up to Rs. 1.5 lakh from your taxable income for investing in ELSS through SIPs under Section 80(C) of The Income Tax Act, 1961. With the highest tax slab of 30%, you can save up to Rs. 45,000 in a year.
Along with inculcating a habit of disciplined investment and ensuring auto-investment management, early tax planning through systematic investment will also enable you to plan your monthly cash balance in a better way.
The SIP calculator helps you look at your total investment amount, total maturity amount and your income on your investment.
Get more from ELSS
Apart from being one of the best tax saving schemes, ELSS scores high on almost every parameter to ensure maximum returns on your investments. Moreover, they are transparent, with high liquidity and low charges, and give better returns than most other investment tools.
When compared with other tax-saving investments like Public Provident Fund or a 5-year fixed deposit, ELSS promises higher returns along with a low lock-in period of three years. You can start a SIP in ELSS mutual funds as low as Rs. 500 per month.
SIP Tax Benefits
Effective tax planning is essential, and without it, one risks losing a significant portion of money to taxes. SIP falls under the EEE (Exempt, Exempt, Exempt) category for Equity Linked Saving Schemes (ELSS). The amount invested, the amount received at maturity, and the amount of the withdrawal are all tax-free. One may deduct up to Rs. 1,50,000 annually using SIP in an ELSS fund.
Start your tax planning early
The ideal way to start your tax planning is to begin in the month of April itself through a SIP in ELSS rather than waiting till the end of the financial year. It saves you from the bunch of frantic investments made at the end of the year to save taxes and accumulate your wealth with higher returns.
ELSS Mutual Funds are hence part of the growth asset class. The difference in returns, along with the power of compounding over the long-term results in a huge amount. So, start an SIP in tax-saving ELSS by providing an ECS mandate to deduct a fixed amount from your bank account every month to invest in mutual funds.
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