Tax saving is a great tool both for the individual and the nation. It helps people decide, plan and execute their financial goals while increasing their savings. A better tax planning aids in the growth of the individuals. The government provides various financial instruments to invest and save their taxes under Section 80C of the Income Tax Act.
Different financial instruments available:
Before delving into the reasons for preferring ELSS, we need to know briefly about the various financial options available under Section 80 C of the income tax act. There are about 10+ schemes listed under it like:
- PPF
- EPF
- Life Insurance Premium
- Sukanya Samriddhi Yojana
- National Saving Certificate
- Senior Citizen Savings Scheme
- ULIP
- ELSS
- Tax Saving FD
- Infrastructure Bonds
- Stamp duty & Registration Charges for Purchase of Property
Every scheme comes with its own set of benefits in terms of return on investments.
But, considering various financial pundits, ELSS that stands for equity linked saving scheme, is one of the best ways to save taxes despite the fact that it is dependent on the market fluctuations. It comes under distributed equity of mutual funds. It has a low lock-in period of 3 years and gets fairly good returns, depending upon the market.
Let’s explore the reasons to prefer ELSS over other schemes:
- Tax saving: This is one of the primary reasons to invest or opt for ELSS scheme. One can invest in this scheme and deduct upto 150,000/- from one’s taxable income. The government also provides tax rebates on the same.
- Simple and transparent system: Investing in an ELSS scheme is quite easy and keeps your financial life simple. Also, it is quite transparent in the sense that you can always go online and check risk parameters, factors that might come across your mind.
- Comparatively higher returns: With this scheme, you get a better option to either continue with the same scheme if you are okay with the returns or opt out after its lock-in period of 3 years.
- Fosters a habit of saving: With fairly positives on its sides, it promotes the habit of savings while investing. Also, since it allows you to start with a minimum amount as Rs 500, it invites people to opt for this scheme. Though the returns are dependent on market fluctuations, the minimum time period of 3 years looks manageable for many investors to put in their money. And all of this comes with saving taxes, too.
With multiple benefits, this scheme can prove to be your first step towards investment. The only thing is to align it with the right financial goal for which you might be investing. As one cannot deny the uncertainties associated with the market.
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Happy Investments!