Tax Saving: The financial year 2024-25 is approaching its conclusion in less than three months. While it is generally recommended to strategize at the start of the financial year for tax savings, if you have yet to take action, it is crucial to do so without further delay.
For those seeking both tax benefits and favorable investment returns, allocating funds to an Equity Linked Savings Scheme (ELSS Mutual Fund) is advisable. Notably, certain ELSS mutual funds have yielded returns as high as 49% over the past year. The lock-in period for ELSS is only three years, which is shorter compared to other tax-saving instruments, such as fixed deposits that require a five-year commitment and the Public Provident Fund, which locks in funds for 15 years.
ELSS funds
Investments of up to Rs 1.5 lakh in ELSS qualify for tax deductions under Section 80C. Financial advisors recommend that if an ELSS fund is performing well, investors should consider maintaining their investment for a longer duration to maximize returns. Investors have the option to make a lump sum investment or contribute through a Systematic Investment Plan (SIP).
ELSS funds primarily invest in equities or equity-related products, typically offering higher returns than traditional bank fixed deposits. However, it is important to note that investments in ELSS are subject to market risks, and funds are locked in for three years, which is a significant advantage. Consistent, long-term investing can leverage the benefits of compounding, aiding in wealth accumulation.
The conclusion of the three-year lock-in does not necessitate exiting the fund; investors can choose to continue their investment. Some ELSS funds have demonstrated impressive performance, such as the Motilal Oswal ELSS Tax Saver Fund, which achieved a 49% return in one year, an average of 28% over three years, and 25.98% over five years. Similarly, the SBI Long Term Equity Fund reported an average return of 28.78% in one year, 24.78% in three years, and 25% in five years. The ITI ELSS Tax Saver Fund recorded returns of 25.82% in the last year, 21.65% over three years, and 20.17% over five years.
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