Tax planning is an integral part of your overall financial planning. While most of the traditional tax saving avenues are for risk-averse investors and deliver fixed returns, they either have a longer lock-in period or may not provide market-linked return. How about looking at an investment option that can provide you with an opportunity to create wealth over the long-term along with tax savings?
Equity Linked Saving Schemes (ELSS) of mutual funds are diversified equity funds that have a lock-in period of three years and provide tax benefit. Since a major portion of the corpus is invested in equities / equity stock markets , the earning potential is higher (though at a higher risk) as compared to other tax saving investments. The 3-year lock-in allows the fund manager to take strategic long-term investment calls and not overly worry about short-term market volatility or early redemptions.
Investors can invest up to Rs. 1,50,000 in an ELSS fund and deduct the investment from their taxable income u/s 80C of Income Tax Act, thereby effectively reducing their tax liability. Long-term capital gains and dividends received on these investments are tax-free in the hands of the investor as per the current tax laws.