Tax Saving with SIP in ELSS Schemes

 Tax Saving Benefits through SIP

SIP is an abbreviation for Systematic Investment Plan. It’s a type of investment where you invest a certain sum of money every month in mutual funds. You can start of with an investment in SIP with as low as Rs. 100 every month. SIP provides the flexibility for selecting the date of the month you want to invest, also whether you want to increase the SIP amount after a certain interval of time as well as it also  gives the flexibility to choose the time for which you intend to invest through SIP, it can be in months/years or perpetual too. Apart from these benefits, through SIP, you can also save taxes.

Tax Saving through SIP in ELSS:

Equity Linked Saving Schemes (ELSS) aims to provide superior returns considering it’s a closed-ended product with 3 – year lock-in, hence giving the Fund Managers the flexibility to invest in stocks which may yield better returns as per the investment time frame. Tax benefit under section 80C can be availed through SIP into ELSS, upto a maximum investment amount of Rs. 1.5 lakh under section 80C. Also, while investing through SIP in ELSS, you get the benefit of Rupee cost averaging i.e. the average cost of purchase is optimal as you accrue more no. of units when the prices are low and vice versa. Investment in ELSS can be done through simple ECS mandate and as compared to lump-sum investment, SIP gives you the advantage of purchasing units in the mutual fund schemes at various time intervals.  Another option to invest in ELSS although only applicable to the first time investors is Rajiv Gandhi Equity Savings Scheme (RGESS). A SIP can be opted for RGESS and the monthly investment made over 12 months in the financial year will qualify for tax exemptions under Section 80C. Apart from ELSS schemes there aren’t any other product which provides tax exemptions, however investing in debt mutual fund schemes provides tax benefits when indexation benefit is applied. For debt mutual fund Long term capital gain is 10% without indexation & 20% with Indexation, where as short term (less than one year) capital gain is taxed as per tax slab. So, an investor remaining invested for at least three years will benefit of lower tax on long-term capital gains. 

Benefits of ELSS:

• Fund managers takes a long term view and thus they can diversify the investment across sectors. 

• Investors have potential to earn more.

• Though ELSS tax saver investment require 3 years of lock-in period, but this is really helpful as it is a long term investment.

• Investors stay with the Fund for longer duration thus helping the fund manager in making long term research calls thus “Churning” is lower in this case.