Investing in tax saving investmentsis often a priority for those investors who wish to benefit from the Section 80C tax deduction of up to Rs 1.5 lac per annum. There are several Section 80C investments that offer this tax deduction. Examples include Unit-LinkedInsurance Plan (ULIP, bank Fixed Deposits (FD), Post Office Monthly Income Scheme (POMIS), Public Provident Fund (PPF), National Pension System (NPS), Senior Citizens Savings Scheme (SCSS), Equity-Linked Savings Scheme (ELSS), etc. According to your investment objective, you can choose a scheme that best aligns with your portfolio. If your underlying aim to is to create wealth while saving on tax, you might consider investing in tax saving mutual funds – ELSS. Let’s analyse top few reasons why you must consider investing in ELSS.
What is ELSS?
ELSS schemes are equity-oriented schemes that invest the majority of their corpus, at least 80% of their assets in equity and equity-related investments. As ELSS mutual funds are one of the Section 80C investments, you can save up to Rs 46,800 per annum by investing in these tax saver mutual funds. These funds are believed to provide dual benefit of wealth creation and tax-saving attributes to investors.
ELSS funds have a lock-in period of three years. Just like any other type of mutual funds, you can invest in ELSS via SIP mode or lumpsum mode.
Why should you invest in tax saving mutual funds via SIP mode?
Systematic Investment Plan (SIP) helps investor to accumulate a significant amount by investing small, insignificant sums of money in a particular mutual fund scheme regularly for a pre-determined period of time. Let’s understand why you must consider investing in ELSS funds via SIP:
- Flexibility to invest according to your needs
SIP investment offers a lot of flexibility to their investors. First, an investor has the option to invest in different types of SIP according to their investment needs – they can invest in top-up SIPs, vanilla SIP, perpetual SIP, and trigger SIP. The periodicity of the intervals can be daily, monthly, weekly, semi-quarterly, semi-annually, or annually, as per an investor’s needs.
- Invest a small, insignificant amount
Investment in SIP does not require an investor to shell out a major portion of their earnings. An investor can invest a small, insignificant amount in SIP investments over a period of time to achieve their financial goals. An investor can invest in mutual funds via SIP an amount as low as Rs 100 per month.
- Instils the habit of financial discipline
Investments in SIP requires investors to allocate money towards mutual fund units periodically over a specified period of time. This encourages the habit of regular saving and investing. Hence, SIP investments inculcate a sense of financial discipline among investors which is important to achieve your goals in a systematic manner.
Now that you have understood the reasons for investing in tax-saving mutual funds via SIP, what are you waiting for? Just bear in mind that when you choose to invest in ELSS via SIP, each SIP instalment would be considered as a new investment and have to complete the three years lock-in period individually. Happy investing!
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