They say that you should make the most of your youth so that you don’t feel that you missed out anything when you turned old. this free shouldn’t be restricted to enjoying life forest for the swan young also should be taken into consideration while financial planning and deciding how to build a copper so that you are able to remain financially independent when you retire. a lot of young investors do not give importance to Tax planning as they feel that it is too complex. However, they should understand that as your passes and there in their annual income increases, they end up paying more and more attached to the government something which they could observe saved by investing in a financial scheme in AP finance in a tax saving scheme.
What is ELSS?
In the recent past taxpayers have shifted from traditional tax paying tools to modern tax paying schemes like ELSS. Equity linked savings scheme is an open-ended Mutual fund scheme that comes with a tax benefit. ELSS is the only mutual fund scheme that gives investors an opportunity to save tax and at the same time generate capital appreciation by investing in equity and equity related instruments. Since it is an equity-oriented scheme, ELSS carries a high volatile risk rewards ratio. This means that this tax saver fund holds the potential to generate capital gains over the long term but at the same time one can also continue to save taxes by investing in ELSS.
Here’s an example to help you understand how ELSS works:
Sujit Mishra, a chemical engineer earns Rs. 12.5 lakhs per annum. This makes him fall under the 30 per cent tax slab. Sujit learns about ELSS and decides to invest in this tax saving scheme. According to Section 80C of the Indian Income Tax Act, 1961 you can invest Rs. 1.5 lakhs per fiscal in an ELSS scheme and claim tax deductions for the same. By investing in ELSS Sujit has brought down his tax liability and he will now be taxed Rs. 11 lakhs only.
What makes ELSS a good investment option?
There is no upper limit on ELSS investments. You may invest more than Rs. 1.5 lakhs depending on your investment objective and risk appetite. However, you cannot claim tax deductions for investments exceeding Rs. 1.5 lakhs.
Usually there are two investment options for ELSS funds – you can either make a lump sum investment or you can opt for SIP. If you have surplus cash parked which you think is sitting ideal and feel that it can be put to better use, you may opt for lumpsum investment. One good thing about lumpsum investment is that you are allotted a greater number of mutual fund units in proportion to the investment amount and depending on the fund’s existing net asset value or NAVs. However, if you wish to give your ELSS investments a systematic approach, you may consider investing in this tax saving scheme via SIP.
Systematic Investment Plan (SIP) may be considered by those who seek long term capital gains and wish to remain invested in ELSS funds for a longer time period. With SIP, one may continue investing regularly till their investment objective is achieved. Also, because you invest a small amount every month, only that much amount (and not the entire investment amount) is exposed to market volatilities. Also, mutual fund holders are allotted units depending on the fund’s existing NAV, thus allowing them to benefit from rupee cost averaging. Since ELSS comes with a predetermined lock-in period of 36 months, gains derived from ELSS investments are eligible for long term capital gains tax (LTCG). Gains over Rs. 1 lakh from ELSS redeemed after the lock-in period are eligible for 10 per cent tax deductions without indexation benefits. ELSS gains that are lesser than Rs. 1 lakh are tax free.
Investors are expected to consult a financial advisor before investing in an ELSS fund. They can also refer to an online SIP calculator to determine how much money they need to invest on a monthly basis in order to achieve their long-term financial goal.