Axe your tax and create wealth by investing in tax saving mutual funds

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A couple of days back you must have completed tax planning formalities to save tax for the financial year 2020-21. Now that we have entered the new financial year 2021-22 let’s take some learnings from last year and start tax planning from the beginning of the year. The biggest advantage to do tax planning now is you will be able to take a more informed decision that will enable maximizing returns compared to a hurried decision that is taken at the end of the year with the sole objective of saving tax.

Well, when it comes to tax-saving Equity Linked Saving Schemes (ELSS) is an ideal way to save tax as well as create wealth.

What are ELSS Funds? Equity Linked Saving Schemes (ELSS), popularly known as tax saving mutual funds, are equity-oriented mutual funds. As per the SEBI regulations, ELSS funds have to invest at least 80% of their corpus in equity or equity-related instruments.

These funds come with a lock-in period of 3 years and qualify for a tax deduction of up to Rs 1.5 lakh per financial year under Section 80C.

Advantages of ELSS Mutual Funds The lock-in period of three years is the shortest of all investment options under section 80C.

ELSS mutual funds have the potential to offer much higher returns than other tax saving instruments such as PPF or NPS.

Rs. 1 lakh a year from ELSS mutual funds is exempt from income tax and long-term capital gains above Rs. 1 lakh is taxed at 10%.

Investors need not have in-depth knowledge of the markets. As the scheme is managed by experienced professional fund managers.

Now that you have understood why ELSS is the best tax-saving instruments. Let’s now have look at which are the top performing ELSS mutual fund schemes.

Investing in ELSS through the SIP mode will give you the benefit of averaging and also wouldn’t add pressure to your cash flows as you don’t need to shell out the entire Rs 1,50,000/- in one go.

(Disclaimer: The above list is for informational purpose only. Before investing, please consult your financial adviser.)