tax planning with mutual funds

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Investing in Mutual Funds is one of the easiest ways to save taxes as well as earn some extra money. Especially ELSS is one of the most preferred investments to save tax. Apart from offering tax exemption under Section 80C, Equity Linked Savings Scheme also offers two more benefits: It offers investors the dual benefits of capital growth or capital gains and tax savings. This savings plan also includes a lock-in period of three years. Let us have a closer look at the tax-saving benefits of ELSS:

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

Short lock-in period: The three-year lock-in period of ELSS funds is much less than the lock-in period demanded by other investment options like PPF or NSC under Section 80C of the Income Tax Act.

Tax-Free Dividend/Capital Gain: All dividends declared under ELSS are exempt from tax. When ELSS units are sold, the profit from the sale is treated as long-term capital gain and is tax exempt.

High Returns: In case of ELSS funds, a major portion of the fund is invested in equities. Equity has the potential to generate wealth over the long term, even if it is affected by short-term volatility.

Investing in Equity Linked Savings Scheme is a good solution for certain types of investors. If you are an investor who wants to generate wealth in the long term, then ELSS is a good investment for you. If you are looking to invest in something that will provide you tax deduction under section 80C, then ELSS is one investment that should definitely be considered. If you have an investment horizon of three years or more, you can consider investing in ELSS funds.

When it comes to investments, the approach of investing small amounts but at regular intervals is a wiser strategy than investing huge amounts at one go. This is why Systematic Investment Plan or SIP is a good idea. SIP is a mode of investment in which you can invest small amounts in mutual funds at regular intervals.

Generally, you can start investing in SIP with an initial amount of Rs. 5000. Thereafter, through a systematic investment plan in an Equity Linked Savings Scheme the minimum investment amount can be as low as Rs. 500. Also note that SIPs are a good option as they are quite safe in a market that can be quite unpredictable. Remember, by investing in tax-saving funds you can save up to Rs. 1.50 lakh on your taxes! So make sure you get your investments in order!

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