Blog Details
How to Save Tax by Investing in Mutual Funds (ELSS Mutual Funds)
Wed, 13 Nov 2024
3 mins

When it comes to tax-saving investment options, mutual funds—specifically Equity Linked Savings Schemes (ELSS)—stand out as one of the most popular and efficient choices. With the potential for market-linked returns and tax deductions under Section 80C of the Income Tax Act, ELSS mutual funds provide an excellent opportunity for wealth creation and tax planning.
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Key Takeaways
- ELSS mutual funds are an efficient tax-saving tool that combines tax benefits with wealth creation.
- They offer tax deductions of up to ₹1.5 lakh under Section 80C, leading to significant savings depending on your tax bracket.
- With a short lock-in period of 3 years, ELSS funds provide liquidity compared to other tax-saving instruments.
- Regular investments through SIPs make it convenient for individuals to save tax and build wealth over time.
In this blog, we’ll cover what ELSS mutual funds are, how they work, and how they can help you save taxes.
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What Are ELSS Mutual Funds?
ELSS mutual funds, or Equity Linked Savings Schemes, are a type of diversified equity mutual fund that offers tax-saving benefits. These funds primarily invest in equity and equity-related instruments, giving you the dual advantage of wealth creation and tax savings.
Key Features of ELSS Mutual Funds:
1. Tax Benefits: Investments in ELSS qualify for tax deductions of up to ₹1.5 lakh under Section 80C of the Income Tax Act.
2. Short Lock-in Period: ELSS funds have a lock-in period of only 3 years—the shortest among all Section 80C instruments.
3. Market-Linked Returns: The returns are market-linked and have the potential to outperform other tax-saving instruments like PPF or NSC over the long term.
4. Flexibility: You can invest in ELSS through lump-sum payments or a systematic investment plan (SIP). -
How ELSS Mutual Funds Help You Save Tax
Investing in ELSS mutual funds allows you to reduce your taxable income by up to ₹1.5 lakh in a financial year. Depending on your tax slab, this can lead to significant savings. For example:
- If you fall under the 30% tax slab, investing ₹1.5 lakh can save you up to ₹46,800 in taxes.
- Similarly, in the 20% tax slab, you can save up to ₹31,200.
The tax benefits, combined with potential equity market growth, make ELSS one of the most attractive options for investors.
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Benefits of ELSS Mutual Funds Beyond Tax Savings
While tax saving is a primary motivator for investing in ELSS funds, they also provide other advantages:
- Wealth Creation: Since ELSS invests in equity markets, it has the potential for higher long-term returns compared to traditional tax-saving instruments.
- Flexible investment options: ELSS funds allow you to invest small amounts monthly via SIPs, promoting disciplined financial planning.
- Diversification: These funds provide exposure to a diversified portfolio of stocks, reducing risk while optimizing returns.
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How to Invest in ELSS Mutual Funds
Investing in ELSS is straightforward:
- Choose a Reputed Fund: Research and select a fund based on not just historical performance but also on fund manager track record, and investment strategy.
- Decide on SIP or Lump-Sum Investment: Depending on your financial situation, opt for SIPs for regular investments or a lump-sum contribution.
- Invest Online or Offline: Most platforms like InCred Premier provide seamless online options to invest in ELSS mutual funds.
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Which Tax savings Fund to Invest in?
You may choose to invest in these tax saving mutual funds
Link: https://www.incredpremier.com/investment-services/invest-mutual-funds/
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Things to Keep in Mind When Investing in ELSS
1. Market Risks: As ELSS funds are equity-based, their returns are subject to market fluctuations. Consider your risk appetite before investing.
2. Long-Term Approach: Though the lock-in period is 3 years, staying invested longer can yield better returns.
3. Fund Selection: Not all ELSS funds perform equally. Evaluate the fund’s past performance, expense ratio, and portfolio diversification. In case you require assistance in selecting funds, you may reach out to us at 8047593769.
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Final Thoughts
Saving taxes and growing your wealth doesn’t have to be mutually exclusive. ELSS mutual funds provide an ideal solution, offering both tax-saving benefits and the potential for long-term financial growth. As with any investment, it’s essential to assess your risk appetite and financial goals before diving in. Start your tax-saving journey with ELSS mutual funds and enjoy the dual benefits of lower taxes and higher returns.
If you need any further assistance you may reach out to us at 8047593769 or open your account, and we can help you start your investment journey.
Securities are subject to market risks, please read all your scheme/securities-related documents carefully before investing.
Start your investment journey with InCred Premier today