Come December and everyone has already started thinking about tax and started to think about tax saving on their hard earned money. Effective financial management will lead to tax savings and higher return on investment. Though tax payment is fundamental duty of democracy, but every tax payer has right to save tax by investing money.
No one would like to pay thousands of rupees to Government while they can save money for better reasons. The reason behind to this is why not saved the tax money for their retirement funds?
Yes, up to Rs.46, 350/- in a single year!
For tax savings purpose different Alternate Investment Plans are available like NSC,Bank Fixed Deposit, PPF, retirement benefit plans, various mutual fund tax savingschemes, are available and above all you have scheme of ELSS viz. Equity LinkedSavings Scheme. ELSS is a type of diversified equity mutual fund, which qualifies for tax exemption under section 80C of the Income Tax Act. It is a scheme where you can save your tax as well as grow your investments!
So how does it work? Well, the calculation is like this:
If you invest up to Rs 1,50,000 in an ELSS and you fall into the 30% tax bracket, you
can easily save up to (150000 x 30% + 3% Cess =) Rs 46,350!
What's more is, if you invest Rs 1,50,000 in any ELSS with a CAGR of 15%, you
would potentially reap over Rs 3 lakhs in the next 5-6 years and double that in the
next 10 years.
In comparison to that, an FD and a PPF would lead you to just Rs 2,25,000 and Rs
2,20,000 in the first 5 years.
No wonder mutual funds are the favourite of thousands of people in India. And
nevertheless, for the high tax payers, ELSS is the best option no doubt.
To understand ELSS more, let us understand in detail.
Tax Efficient:
When we compare with other instruments, Mutual Fund-ELSS is better in earning
side. Because in other instruments return on investment is less than Mutual Fund as
well as tax is levied on return on investments.
Example: If you invest your amount in Bank fixed deposit, NSC, PPF than earning
from investment is taxable while in MF ELSS, Dividend or long term gain is tax free.
Lock – In Period:
Mutual Fund ELSS has a shorter lock-in period, that’s why it is better than other tax
savings instruments. It has only 3 years lock in Period while bank fixed deposit, NSC
has a 5 years and more period.
Efficient Fund Management:
Mutual Fund is managed by professionals with sound knowledge about fund
management. That’s why it gives better returns than fixed instruments.
Although investing in a mutual fund is risky but if you invest in the RIGHT mutual
fund, you would get higher gain than you can probably expect from a fixed deposit,
PPF account or savings certificate.
Capital Appreciation:
Like other equity mutual fund schemes, these mutual funds too are optimized for
highest returns possible. Just start a SIP in the right fund and rest assured that you
grow your wealth over long term even without any significant effort on your part. You
can grow your money in a matter of 3 to 5 years considering the market is
favourable, of course.