In order to have a stable financial future, it is essential to have a plan in mind. When we talk about financial planning, it is basically the process of taking a comprehensive look at your current financial situation and then creating a plan to reach your goals. Apart from long-term planning, which we all do, even if you are planning a short-term financial plan or have a short-term goal in mind, one of the best ways to invest is in the best-performing mutual funds.
However, the prime question remains how one can save on taxes with mutual funds. Now, not many people know that taxes can be saved by investing in a mutual fund. Yes, you read that absolutely right. It might sound impossible, but certain tax saver mutual funds out there can help you save on tax.
Undoubtedly, the mutual funds you invest in today tend to create a diversified investment portfolio that ultimately helps you attain your goals.
How to save tax by investing in mutual funds?
A special category of mutual funds that is known as the Equity Linked Savings Scheme (ELSS) allows you to save tax by simply investing in them. So, basically, it is an open-ended tax saver mutual funds that invest in the stocks of various organizations or companies. Well, notably, it comes with a lock-in period of three years. So the longer you retain your investment in these funds, the higher your chances of making money.
So, to cut it down short and simple, if you wish to save tax, you’d have to invest in an ELSS, where your invested amount would remain locked for a period of three years.
What are exactly the tax benefits of investing in ELSS?
Factually, according to section 80C of the Income Tax Act, 1961, by investing in an ELSS, one gets to claim the investments they make in the fund in a financial year as deductions from their total income for that year.
I’ll share a small real-life example to make it easy for you to understand. Like I invested Rs 1 lakh in an ELSS during the 2021-22 financial year so that I can deduct the amount of Rs 1 lakh from my total income for that year. However, this section further states that the maximum amount one can claim as deductions in a year is around Rs 1.5 lakhs.
Not only this but the profits one gains at the end of the maturity of the ELSS are categorized as Long Term Capital Gains (LTCG), which are taxed at a flat rate of 10%. Now, the LTCG above Rs 1 lakh in a year is only liable for being taxed. So, if it is below it, there would be no tax.
So, apart from investing in the best performing mutual funds, one needs to keep an eye on how to save tax and play smart here. Being an amateur investor, I went on a search engine on my smartphone and just searched for the ‘best mutual fund to invest today‘.
However, we all know that it doesn’t work like this, and it takes proper planning to invest.
How to invest in ELSS?
I invested in the same via the Bajaj Finserv application, so I’ll share my personal experience. Here is a step-by-step guide –
- Download the Bajaj Finserv Application on your smartphone. It is available for both Android as well as iOS.
- Sign up with your credentials.
- On the home page, you’ll see a section for ‘Investment Bazaar.’
- Here, go on ELSS
- Select the plan that suits you, and you are good to go.
However, if you are also looking for a Systematic Investment Plan (SIP) to invest in, you can go for the best mutual funds for sip on this app as this also helps in tax saving.
Please don’t consider this write-up a promotional one, as I’m just sharing my personal experience. Readers are free to make their own choice regarding investment platforms.
