About Mutual Fund Schemes
As the month of February arrives, you see some frantic activity for “Tax Savings”. The reason is when the financial year is coming to its end the tax person comes at your door to collect his dues.
To cut down your tax liability as much as possible, some people end up with making hasty investment decisions, sometimes with long term repercussions. 
It is true for most of people who leave the Tax Saving Instruments for the last few weeks. However, it is necessary that one carefully plans and executes the investments well in advance.
Therefore, it is very necessary to have adequate knowledge about th various tax saving provisions under the Income Tax Act and also to learn about the different tax saving instruments that can offer you benefits from these provisions.
Section 80C at a Glance
One of the sections under which a person can Save Tax is the Section 80/C of the Income Tax Act in India. According to this section, investments up to Rs. 1 Lakh per annum are qualified for the deduction from your taxable income. One should plan to use this section to the best by investing in tax saving instruments based on your financial needs and goals etc. 
Introduction to Equity Linked Savings Scheme (ELSS)
Equity Linked Saving Scheme is the mutual fund that allows you to save tax. It also offers an opportunity for long term capital appreciation. An ELSS fund manager invests in equity and equity related instruments that involve high risk and provide high returns. As it is an equity fund, the returns from this scheme are market defined.
| National Saving Certificate | 5 Year Fixed Deposit |
| Equity Linked Saving Schemes | Provident Fund and Voluntary Provident Fund |
| Life Insurance Premiums | Public Provident Fund |
Tax Saving Instruments – 80/C
Features of ELSS Funds
- Three-year lock-in period
- Tax-saving
- Offers dividend as well as growth options
- Can be held even after the completion of three years
- Tax Saving instrument
Tax Treatment
The returns that you get from ELSS are tax free. Also, the long term capital gains are tax free in your hands. The reason is that no tax is charged on equities held more than a year. Since an ELSS comes under Section 80C, you can claim up to Rs. 1 Lakh from your investment as a reduction from your gross total income.
Benefits of ELSS over other tax saving schemes
- Systematic Savings: You don’t have to worry about getting fast last-minute lump-sum investments for saving tax. One can think effectively and invest in ELSS through the SIP (Systematic Investments Plans) program.
- Opportunity for Long Term Capital Gains: ELSS has the power to provide loan term capital gains as compared to other passively managed asset classes because it is managed by an expert fund manager.
- Lower Lock-in Period: This plan comes with lower lock in the period as compared to other tax saving instruments like FDs and NCS. In case of Tax saving Fixed Deposits need to be locked in for 5 years and a NCS for 6 years. Public Provident Funds comes with highest lock-in-period of 15 years.
Challenges
Remember!!! The returns you get from ELSS depend on the performance of the equity market.
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