Invest in Tax Saving Funds and Get Rid of Taxes

There are several tax saving opportunities and to make your way around the tax trap and enjoy the maximum savings possible. Most of us do tax planning on a last minute affair. It is a normal tendency to start planning only when the financial year is near its end. But the problem with this attitude is that this does not allow us to do a prudent investment planning. Better approach is to start investing early in the financial year. That will give you time to properly plan best tax saving investment options
Many times investors choose an investment for availing tax benefits only and forget their other requirements. There should be a proper balance of tax saving, returns, low cost of investment, and lock in period.
Investors should also know about section 80C of income tax act. Most of the tax saving instruments are under the section 80C of the Income Tax Act. As per this section, the deduction towards tax saving investments is tax deductible like ELSS (Equity Linked Saving Scheme), Fixed Deposits, Life Insurance, Public Provident Fund, National Savings Scheme and Tax Saving Bonds. This deduction allows an upper limit of Rs 1 lakh. You may invest in one or more of the above investments. One of the best category in terms of returns and lock in period is ELSS.

ELSS Mutual Funds

Equity Linked Saving Scheme (ELSS) is a category of Mutual Funds that are specially designed for tax saving. These are market linked products and hence have high risk, but they also offer the potential for high returns. Their main benefits are –
1. Shortest Lock in period: Other than ULIP, ELSS is the only tax saving instrument that is equity based and offers the shortest lock in period of 3 years
2. SIP Benefit: Investors can invest in ELSS through a SIP (Systematic Investment Plan) in which a small fixed amount of money is invested every month instead of paying a heavier sum at one time. An ELSS fund where one invests through a SIP makes the overall process of investment very easy and affordable. A SIP offers benefits of compounding of money and of rupee averaging.