The advantages of savings and investment merge together in the case of mutual funds. Equity investments allow you to invest in the market through a resource that carries relatively low risk. One such type of resource is the ELSS scheme that can help you save taxes with smart investment.
What are tax saving funds?
Tax saving mutual funds are oriented towards equity investment for a long- term horizon. The investors are required to lock their investment for three years, which allows them to gain returns that don’t come under the tax payment regulations. This is how these types of funds blend in the benefits of savings and wealth creation together.
How do these tax saving plans work?
The Income Tax Act of India has qualified ELSS investment as tax-free under the Section 80 C. With this regulation, any investment in this category of up to Rs. 1.5 Lakh becomes tax-free for a year when you file your annual returns.
Along with that, the ELSS funds also allow you to get tax-free dividends on your investment.
How to leverage tax saving plans?
In order to extract max gains out of your mutual funds and make it a smart investment, you need to be aware of a few key things. Here are these key pointers to know –
1. Select SIP to spread risks
For investors with a low-risk appetite, getting into an ELSS funds can be daunting. Hence it is best to opt for Systematic Investment Plan (SIP) as a mode of investment. This way, the investor can be protected from sharp fluctuations in the market and continue building wealth over the long term.
2. Lock-in for a suitable period
To save tax, you are required to lock-in your investments for at least 3 years. However, you can choose longer periods if it suits your needs. The longer lock-in periods tend to offer better returns. The stocks grow in a long time and your investment obtains higher income. However, the performance of the fund depends on the source you choose to invest with.
3. Get dividend option
The lock-in period doesn’t stop you from getting regular returns from your investments. You can gain regular dividends without paying any taxes on them. This proves to be a great option when you desire regular returns and save tax at the same time.
4. Diversify your investment
The diversification of your mutual fund is the key to stay in profit all the time. You need a well-diversified investment plan to minimize the risks and gain maximum returns. That is the whole point of mutual funds. That is why the investment expertise and the resources matter. You need experienced investment service providers who have a successful history of providing a quality performance of their plans.
Lastly, when you get your money back, it comes with incredible returns. And those returns don’t require you to pay any taxes on them. That is the beauty of tax saving mutual funds.
So, now you have all the information to make your investment protected from taxes. Leverage the given tips to improve your investment strategies.