Do we generally plan our finances to save tax, or is it an incidental last-minute decision to make the most of the situation? Is it wise to pre-plan or is it more practical to invest as a whole during the end of the Financial Year?
Equity Linked Savings Scheme, popularly known as ELSS is an effective way to not just reduce taxes but also a top-notch investment option for long-term wealth creation. As per section 80-C of the Income Tax Act, any Resident Indian can save taxes up to Rs 46,800 by investing Rs 1.5L in ELSS in a financial year. ELSS is a special category in Mutual Funds having a mandatory three years lock-in period, which is the least amongst the numerous tax-saving instruments applicable under Section 80-C.
There are multiple ways in which ELSS can be invested. Here are some smart techniques which can be used to make sure there is no last-minute hassle:
- SIP in ELSS: SIP or Systematic Investment Plan is one of the most popular and favored methods of investing in Mutual Funds. It helps in averaging the ups and downs of the market and more importantly, aids in inculcating discipline by setting aside a monthly investment amount to meet the concerned goal. For example, if a person wants to invest Rs 1.5L in ELSS for a financial year, he/she can start so by doing Rs 12,500 every month to make sure he/she is fully covered by the end of the financial year. But one should be aware that, after every single installment of SIP or every single investment, each of them carry a 3 year lock-in period, making it a bit unsuitable for redemptions on maturity as the investors need to wait for each and every month for the lock-in period to end.
- Lumpsum in ELSS: Lumpsum is a method of investing in Mutual Funds which does not have any specific time interval or a set periodic date where an auto-debit happens. It can be done multiple times with varying amounts based on one’s liquidity. Investors will have the luxury to deploy their required funds at their convenience. But this technique is a double-edged sword, as markets can never be timed, with the inherent risk of volatility can be a gamechanger in the overall returns of the ELSS in the long term.
It is safe to say that starting early has more benefits than cons. There are multiple techniques through which one can complete their investment but it is of utmost importance to consult your financial planner or advisor before investing.