Tax saver mutual funds are one of the best investments if you plan to invest smartly. Keep in mind that investing is not just about depositing a fixed monthly amount in your account. A proper plan to exponentially grow your wealth is essential.
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.
What are tax saving mutual funds?
In simple terms, these mutual funds are investment options that help you save on taxes. Understanding that you can save on taxes by investing in mutual funds is essential. Equity Linked Savings Scheme (ELSS) is a special category of mutual funds that allows one to save tax just by investing in them.
What is ELSS?
ELSS is an open-ended tax saver mutual funds that invest in the stocks of various organizations/companies. Notably, it has a lock-in period of three years, and you cannot withdraw the amount before the term. This is because the more you retain your investment in it, the more your chances of making money.
How does investing in ELSS help in saving tax?
According to Section 80C of the Income Tax Act, 1961, by investing in an ELSS, one can claim their investments in the fund in a financial year as deductions from the total income for that year.
For example, in my case, I invested Rs 1.3 lakh in an ELSS during the recent financial year so that I can deduct the amount of Rs 1.3 lakh from my total income. Moreover, this section further states that the maximum amount one can claim as deductions in a single year is Rs 1.5 lakhs.
However, the profits you gain at the end of ELSS’s maturity are categorized as Long Term Capital Gains (LTCG). These are taxed at a 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.
(Tip: Once you opt for the best mutual funds that helps on saving taxes, you are on the way to grow your wealth.)
How to invest in ELSS?
Personally speaking, I invested in ELSS via the Bajaj Finserv application, which I generally use for digital payments, such as broadband and mobile recharge, and I always have a good experience. There are several applications available, and readers are free to make their own choice. 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/ App Store.
- Sign up by entering your details.
- On the home page, you’ll see ‘Investment Bazaar.’
- Here, go on ELSS
- Choose the plan according to your requirement
So, if you want to save on your taxes, plan for a best tax saver mutual fund that help in tax savings. To put it straightforwardly, if you wish to save tax, you’d have to invest in an ELSS, where your invested amount would remain locked for three years.