Come March, and investors all over begin their hunt for the perfect tax-saving avenues. A lot of these investors are yet to set up their tax planning for the financial year. That’s because either they were unaware of the tax rules or confused between the wide variety of options offered to them or perhaps just plain lazy. Traditionally, tax planning in India has been often associated with a yearly exercise where the employer notifies employees about a date for the submission of tax investment proofs. While ideally, the tax planning process works best when aligned with an investor’s long-term objectives and financial goals, very often last-minute tax-saving efforts lead to investing in instruments that offer less than optimum wealth appreciation. However, there is one investment option that provides the dual benefits of wealth creation as well as tax saving to investors – ELSS tax saving funds.
Equity Linked Savings Scheme or ELSS is one of the most sought-after mutual fund investments in the Indian financial market. It is steadily emerging as the preferred investment choice for mutual funds. ELSS funds are mutual funds that invest at least 80% of their assets in equity and equity-related securities. Among all 80C investment options, ELSS funds offer the shortest lock-in period of 3 years. There are two m to invest in mutual funds – SIP and lumpsum. Though SIP has it’s own benefits, lumpsum offers a handful of benefits to its investors as well.
Why should you consider investing in ELSS via lumpsum mode?
When you devote a lump sum amount in ELSS mutual funds, you purchase units worth the investment amount at the then prevailing price. The earnings you make would rely on the appreciation of the NAV or Net Asset Value of your fund.
Investing a lump sum amount is advisable only in markets with low price volatility as the prices are somewhat steady and cost averaging becomes irrelevant. As the entire amount is invested during the whole duration, the returns are significantly higher. Following are some of the benefits of investing in ELSS via lumpsum mode.
- If you are a business owner who has seasonal revenues, you might consider investing via a lump sum mode. Or else, you can consider combining SIP and lump sum – based on your monthly cash flows. This ensures there is no financial distress among investors while investing.
- Investing the entire section 80C tax benefit amount at the start of the financial year is recommended if you have the lumpsum investment amount at disposal. This allows your money to earn higher returns because of long-term investing.
You can also use a lumpsum calculator to gauge the returns earned on your investments. Whatever mode of financing you choose, make sure it aligns with your goals and risk profile. Happy investing!