The last-minute tax-saving rush has begun. It's the time of the year when all lazy folks make their eleventh-hour efforts to save tax in the last quarter of the financial year 2023每24, which is set to end on March 31. And with a plethora of?tax-saving?investment options available, such as PPF, ELSS, Tax Saver Bank FD, Sukanya Samridhdhi Yojana, etc. choosing the right option is not a cakewalk.
So, if you are among those who are looking for the dual benefits of?tax savings and investment during this last-minute tax rush, here＊s why you should opt for tax-saving mutual funds, i.e., ELSS:
When compared to other tax-saving investment options like PPF (15 years), Tax-Saver Fixed Deposit, ULIP, and NSC (five years each), the ELSS has the shortest lock-in period〞just three years. Also, in contrast, National Pension Scheme (NPS) investments are locked in until retirement.?
As a result, ELSS offers its investors more liquidity because their investments are locked in for the shortest amount of time compared to those of its peers. This is because investors have three years after the lock-in period to redeem their investments for any reason.
Also Read:?PPF vs?ELSS?vs Tax Saver Bank FD
ELSS can comfortably outperform its peers, such as tax-saving bank FDs, PPF, etc., in terms of inflation-beating returns over the long term because its primary investment vehicle is equity and equity-related instruments. Even over longer investment horizons than five years, ELSS's post-tax returns typically outperform those of its competitors by a significant margin.
At present (as of January 9), PPF's rate of interest is 7.1% p.a. and tax-saving bank FDs are roughly offering up to 6%-7% p.a. On the other hand, ELSS'?rate of returns (as a category average) are 19%-41% (one year), 6%-49% (three years) and 2%-16% (five years).
Another noteworthy benefit of ELSS is that no capital gains tax is levied on gains of up to Rs 1 lakh in a financial year.?However, any long-term capital gain above Rs 1 lakh attracts LTCG tax @10%.?
For the uninitiated, gains made from equities redeemed after 1 year are long-term gains. As far as short-term capital gains are concerned, they are not applicable in the case of ELSS because it comes with a lock-in period of 3 years. (Short-term capital gains are levied on redemption done before 1 year of completing the investment.)
Also Read:?From PPF To Insurance-10 Popular Tax Saving Options Under Section 80C
Just like most mutual fund schemes, ELSS also gives you the option to invest through both lump sum mode and the SIP (Systematic Investment Plan) route. Given that ELSS, just like other equity schemes, is prone to be exposed to the volatility of equity markets, this risk can be mitigated by staying invested for the longer term and choosing the SIP route.
Why opt for SIPs you may ask??The reason is that SIPs, which use the rupee cost averaging concept to ensure regular investments, ensure financial discipline by helping to average out costs during market ups and downs. This eliminates the need for market timing and contributes to longer-term, higher returns.
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