How do you invest in ELSS Tax Saving Mutual Funds to Save Tax

Though Tax planning can be challenging, it can also be rewarding if you choose the right mode of investment. If you are looking to save tax and long term risk-adjusted returns from your investments both, then maybe you may consider adding an ELSS tax saving mutual fund to your portfolio. The simplest thing to do would be to invest in an ELSS tax saving fund, which helps you build wealth and reduce your tax liability. How much tax is saved in the ELSS tax saving mutual fund?

If you are looking for a tax benefit of upto Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961, Equity Linked Savings Scheme (ELSS) is the answer offering you tax savings of upto Rs.46,800 for the highest tax bracket. 

How to invest in ELSS tax saving mutual fund?

You can easily invest in an ELSS scheme with a few clicks. If you have already selected a fund of your choice then you may visit the company’s website, select the fund and make an investment. If you are confused about which one to choose among the available funds, then you may choose to approach a distributor who can guide you on which fund to invest in.  

Let’s take a quick run on how you can save your hard-earned money by investing in an ELSS Tax Saving scheme.

Is an ELSS tax saver alone?

An ELSS (Equity Linked Saving Scheme) could become your best choice if you are looking for:

Deductions under section 80C of the Income Tax Act, 1961

Opportunity to invest in the equity markets

Long term capital appreciation

The shortest lock-in period of all the tax saving instruments under Section 80C

As per SEBI’s mutual fund categorization norms, ELSS tax saving mutual fund is an open-ended equity-oriented mutual fund scheme that needs to invest a minimum of 80% of its assets in equity & equity related instruments (in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance). 

Generally investment objective of an ELSS tax saving mutual fund is to achieve long-term capital appreciation by investing in equity instruments.

 A unique feature about ELSS tax saving mutual fund is that when compared to the other open-ended diversified equity mutual funds, investment in ELSS is subject to a mandatory lock-in period of three years. During this lock-in holding period, you cannot redeem your investments before the completion of three years from the date of the purchase of an investment. After the lock-in, if you decide to redeem the investment on the realized gain, as per the current tax rules, LTCG tax applies.

 There are various types of ELSS tax saving mutual funds in the financial markets each following a particular investment objective. Remember, though tax saving could be one of the key objectives behind investment in tax saving fund; it’s a general expectation that any investment should also deliver some return.

Hence, while evaluating your options for investment in ELSS scheme, you need to look at the return column as well as the qualitative aspects too. You need to remember that as an investor, you should know the risk and reward attached to investment before taking the plunge with your hard earning money.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.