How to Save up on Taxes?

We present two ways to save up on taxes by investing in long term mutual funds.

Mutual funds are a sensible and guaranteed option to create future wealth. However, most people who are still not exposed to the dense mutual fund universe, are not aware of another key benefit of investing in long term mutual funds – there is a tax benefit per year on the investment.

We present two such long term investment plans that offer the advantages of wealth creation with low risk, and also tax benefit on the mutual funds:

* ELSS (Equity Linked Saving Scheme).

The ELSS is one of the most preferred investment options in India today, and not just because it offers a high propensity for wealth creation. Its primary benefits are:

• Its lock-in period of 3 years is the lowest among all long-term mutual funds in India. You can withdraw from the scheme after 3 years, or you can reinvest for higher gains if you don’t need the scheme corpus right away.
• They invest primarily in high grade equities. This puts them at one major disadvantage, in that you cannot predict the outcome of the fund. The performance of this tax saving mutual fund is completely dependent on the performance of the equity markets. However, the growth of this long-term investment plan is assured over a wider time frame.
• You can opt for a dividend or growth option on the ELSS. The growth option helps you stay invested and save up more money for a long-term milestone. Meanwhile, the dividend option is better if you want regular income on maturity of the scheme. However, the latter option attracts a 10% dividend distribution tax from the year 2017.
• You can invest in different long-term mutual funds under the ELSS asset class, based on fund performance, your investment strategy and NAVs.
• You can save up to Rs 1.5 lakh per year against investments in the ELSS.

* ULIPs.

• Another tax saving mutual fund and life protection instrument is the ULIP, or the Unit Linked Insurance Plan.
• The ULIP is a long-term investment plan offering the dual benefit of life coverage as well as market-linked returns.
• It offers stable returns over a longer time horizon.
• Investments in this long-term investment plan are tax deductible under Sec 80C of the Income Tax Act, 1961.
• It has a lock-in period of 5 years, after which you can continue the investment for more gains, or withdraw the accrued corpus.
• In case of the policy holder’s untimely death while the tax saving mutual fund is still active, the accrued monies on the plan are paid to their beneficiary family members.

About This Author

Shaheen Shaikh http://www.adrclinic.co.uk Joined: April 29th, 2018