One of the popular instruments of saving tax is the equity-linked saving scheme or ELSS. These are tax-saving mutual funds that allow you tax deduction benefits under section 80C of the income tax Act, within the overall limit of Rs1.5 lakh. Follow these steps before and after making tax investments to avail these benefits.
SIP or lump sum
Mint Money advises investing in an equity fund through a systematic investment plan (SIP). The same holds true for a tax-saving fund as well. Experts suggest that even though many investors enrol for annual SIPs in ELSS, and then keep renewing them every year, a better strategy is to enrol for a 2-3-year SIP so that you don’t need to remember to renew your SIPs.
However, if you are investing towards the end of the financial year, then you don’t have this choice. The only option available to you is to invest a lump sum amount.
A key mistake that many investors make, according to some financial advisers, is that people invest in a different tax-saving scheme every year. As a result of this, their portfolios have two or more tax-saving funds, which are not needed. In reality, just one ELSS is sufficient and if you have started a multi-year SIP, then your tax deduction investment needs are also taken care of.
