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8 benefits you must know about this tax-saving mutual fund
March, 25th 2017

With the end of the financial year 2016-17 just around the corner, one must be looking for good investment options to save tax under section 80C of the Income Tax Act. If you are also doing that, then you must consider making some of your investments in equity-linked savings schemes.

With the end of the financial year 2016-17 just around the corner, one must be looking for good investment options to save tax under section 80C of the Income Tax Act. If you are also doing that, then you must consider making some of your investments in equity-linked savings schemes. These schemes will not only save your taxes but also help you in achieving your desired financial goal of life.

Here are 8 things to know why you should invest in ELSS:

Equity’s potential in getting returns

Equities give the benefit of long-term high returns, potentially higher than the other tax-saving instruments available in the market. Since the fund has a lock-in of three years, so neither you nor the fund manager has to worry about redemption pressures and therefore, fund managers can more effectively and efficiently construct a portfolio with a long-term perspective.

Tax-free returns

As per the asset allocation, ELSS mutual funds are classified under equity funds and any return received from equity funds after the end of 1 year is absolutely tax-free. We all know that ELSS funds come with a lock-in period of 3 years. So, returns, dividends, and the capital gains from such funds also become tax-free.

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Tax-saving instrument

Investments in ELSS mutual funds are eligible for tax exemption under section 80C. Tax saving of up to Rs 46350 can be achieved by making an investment of Rs 150000 where the investor falls in the top income tax slab of 30 percent (inclusive of applicable cess of 3 percent). However, the tax saving may differ depending on applicable tax slab of an individual and moreover, the investments made under the section 80C of the I-T Act.
Outperforming funds

In the market, many tax-saving avenues are available such as Public Provident Fund, National Saving Certificate, Fixed Deposits etc, which are by origin debt funds. Thus, if you want to save money and earn a higher return of approximately 15 percent or more, then you must invest some amount in ELSS funds. However, unlike other debt avenues, ELSS funds are market linked where returns are not guaranteed by the AMC.

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Financial goal planning

These funds are also the best for your long-term financial goals. The inflation-beating returns help you achieve your goals like a house purchase, wedding planning, child education goal, etc. However, it is not so simple as you need to regularly review the funds and its performance under the proper guidance of a financial adviser.

Plan option availability

Investors can also opt for the dividend option instead of the growth plan option, whereby schemes will consistently declare dividends over the years to enable investors to regularly book profits and receive tax-free income.
Investment option availability

You can either make lump sum investments or else you can opt for a SIP mode. Suppose you want to save tax of Rs 60000 in a year, then in such a case, either invest Rs 60000 in one go or else do a SIP of Rs 5000 for a year to avail tax benefit during a particular financial year. However, it is always advisable to invest in a lump sum while planning for tax saving through the ELSS fund.

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Minimum lock-in period

As compared to other investment avenues like PPF, NSC, FDs, TD, which have a lock-in period of five years and more, ELSS fund has a lock-in period of 3 years only.

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