Investing in mutual funds is one of the easiest ways to save on taxes, as well as earn some extra money. ELSS especially, is one of the preferred investments to save on taxes. In addition to offering tax breaks under section 80C, the Equity Linked Savings Plan also offers two other advantages: it provides investors with the double benefit of capital appreciation or capital gain and tax savings. This savings plan also includes a three-year lock-in period. Let’s take a closer look at the tax-saving benefits of ELSS:

Income Tax Benefit: With ELSS, investors can get a tax deduction of up to Rs 1.50 lakhs under section 80C of the Income Tax Act 1961.

Short Lockup Period: The three-year lockup period for ELSS funds is much shorter than the lockup periods required by other investment avenues such as PPFs or NSCs under section 80C of the Income Tax Act.

Tax-Free Dividends/Capital Gains: All dividends declared under ELSS are tax-free. When ELSS units are sold, the proceeds from the sale are considered long-term capital gains and are tax-exempt.

Higher Return: In the case of ELSS funds, a large part of the fund is invested in equities. Equities have the potential to build wealth over the long term, although they are affected by short-term volatility.

Investing in an Equity Linked Savings Plan is a great solution for certain types of investors. If you are an investor looking to build wealth over a long period of time, ELSS is a good investment for you. If you are looking to invest in something that will provide you with Section 80C tax deductions, then ELSS is an investment you should definitely consider. If you have an investment time horizon of three years or more, then you may want to consider investing in ELSS funds.

When it comes to investing, an approach of investing in small amounts but at regular intervals is a much smarter strategy than investing a large amount at one time. For this reason, Systematic Investment Plans or SIPs are a good idea. SIP is an investment method where you can invest small amounts in mutual funds, at regular intervals.

You can usually start investing in a SIP with an initial amount of Rs 5,000. After that, the minimum investment amount in a share-linked savings plan through a systematic investment plan can be as low as Rs 500. Also keep in mind that SIPs are a good option as they are quite secure in a market that can be quite unpredictable. Remember, by investing in tax savings funds, you can save up to Rs 1.50 lakhs on your taxes! So be sure to get your investments in order!