Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund, which is qualified for deduction of ₹ 1, 50,000 under section 80C of the Income Tax Act. ELSS tax saving fund has the shortest lock-in period to compare with other investment products like Public Provident Fund (PPF), National Savings Certificate (NSC). Dividend declared in ELSS funds is tax-free and no tax levied on the long-term capital gains.
You can make a lump-sum or one-time investment in an ELSS fund or using the SIP route.
Start a SIP
A Systematic Investment Plan (SIP) can create wealth by investing small sums of money every month over a period of time. The biggest advantage of a SIP is that the investor doesn’t have to time the market. When an investor times the market, he usually misses out on the rally or enters the market at the wrong time, either the valuations have peaked or the markets are on the verge of declining. Investing every month ensures that one is invested during the highs and the lows.
Moreover, SIPs also have the advantage of compounding, one must start investing at an early age as the longer the investment horizon, bigger the benefits. If you start early, equity funds should constitute 80% of your portfolio as this asset class has been found to be the best bet for growing money over the long term. SIPs can be an ideal way to accumulate money for retirement. After retirement, one can withdraw the money through a systematic withdrawal plan.
Equity investment is a higher risk over the short term. However, for investment periods of three to five years or longer, the risk on equity investments is considerably lower. In fact, when you take inflation into account, it is bank FDs and similar deposits that are suboptimal for the retiree because of inflation.
Like all equity investments, the best way of investing in ELSS funds is through monthly SIPs throughout the year. That’s also the way to avoid any last minute rush. At the beginning of every year, estimate the amount you have left over from the R1.5 lakh limit after statutory deductions, divide it by 12 and start an SIP.
Best ELSS Tax Saving Mutual Funds to Invest in 2017
Here is the list of best 10 ELSS tax saving mutual funds you can invest in 2017
Reliance Tax Saver
DSP-BlackRock Tax Saver Fund
Tata India Tax Savings Fund
Birla Sun Life Tax Plan
Birla Sun Life Tax Relief 96
Invesco India Tax Plan
IDBI Equity Advantage Fund
Franklin India Taxshield Fund
HDFC Long Term Advantage Fund