There are investments one can make to maximise returns, these may not be tax efficient. There are other investments that one can make to reduce their tax outflow, while these may not bring remarkable returns.
The Equity Linked Savings Scheme blends the best of both these goals. ELSS is the only kind of mutual fund that is eligible for tax deductions under Section 80C of the old tax regime.
"ELSS mutual fund is one of the best ways to save taxes, in case one has a minimum of three to five-year horizon. It will give exposure to equity and give that growth. From a taxation perspective also, its only 12.5%," said Vinit Iyer, managing director of Prudeno Wealth Advisors.
"One has to brace for volatility when enjoying these benefits. Another thing is the lock-in of three years. In SIP as well, every installment will get locked-in for four years. To withdraw in chunks, one will have to wait for 12-months plus three years," he said.
Investors can claim a tax rebate of up to Rs 1,50,000 under the old tax regime. These schemes have exposure to equity and fixed-income.
"Even in case of death, unlike other instruments, it does not break the lock in. Someone who does not have liquidity needs, even in case of death or emergencies, can consider this instrument. Also, look at the portfolio break-up before investing. Some may have high exposure to mid and small that may not be suitable for all. Ensure its balanced and diversified," he added.
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