You don’t give up on your big dreams just because they need large amount of money. Be it quality higher education for your child or a secure and enjoyable retirement, every aspiration is priceless. Contrary to what it may seem, steep financial targets can be easily reached provided you invest regularly and start doing so early in life.
Ensure tax saving investments make a difference to your future Among the few simple and easy things that can help you to reduce the stress of pursuing steep financial targets is to make your tax saving investments smartly. Since most of us have to make these investments every year, it is a smart idea to ensure that we opt for tax-efficient investments with possibly no tax on investment amount, returns from itand maturity proceeds.
Seek to make tax saving investments grow faster than inflation For many people, tax saving investments typically constitute a significant portion of overall investments. Thus, it is crucial for these investments to grow at a rate faster than inflation. Over the long term, inflation ensures that you need progressively higher amounts to meet the same need. For instance if the annual inflation is 6% and cost of organising a wedding today is Rs 15 lakh, this cost would rise to Rs 48.10 lakh in 20 years for your child.
Of course, you need to try and save as much as possible. You also need to make sure that the amount of your savings goes up with your pay hikes even as you enhance your living expenses and other expenses for inflation. Here, even small things can make a big difference. For instance, you need to ensure idle cash is not lying at home or in accounts. You would have realized these things in the recent past with the government’s demonetization moves. However, since there is only so much you can save from your incomefor your important future needs, you need to ensure that all your investments, especially tax saving investments, go the extra mile.
How ELSS fits the bill For your investments, especially tax saving investments, to do all that we have listed so far, you need to look no further than equity linked savings scheme (ELSS) from mutual funds. ELSS is like any equity fund that invests in equities. This means that like all investments in the equity asset class, it would also provide reasonable return compared to other asset classes. This return might also be typically much more than the inflation rate provided you remain invested for the long term i.e. 8-10 years or more. Also, like equity funds, capital gains made on investments older than a year is termed as long term capital gains and are free of tax.
However, ELSS has two distinct features. Annual investments upto Rs 1.5 lakh are permissible as tax deduction under Section 80C. Further, ELSS investments have a mandatory lock-in of three years from the date of allotment.
How SIP in ELSS makes tax saving even less taxing Given that ELSS combines growth investing with tax savings so well, you can enhance your convenience even further by investing in ELSS through a systematic investment plans (SIP). This will make tax saving investment less taxing for you.
SIP helps you regularly invest and takes timing of your investment completely out of the picture. With the same monthly investment, you buy fewer units when the market is at a high and more when the market is at a low. As a result, in the long run the average cost of buying a unit remains low and as the value of your investments typically increase, you intend to gain. The beauty of SIP is that once you have started investing in it, you need not follow the fortunes of the market you know that you have a chance of earning in the long term.
While the case for investing in ELSS through a SIP is very strong, that still leaves you with the issue of choosing an ELSS. Birla Sun Life Tax Relief’ 96 is an open ended equity linked savings scheme (ELSS) with a lock in period of 3 years.
How Birla Sun Life Tax Relief’ 96 scores on track record Assuming a SIP of Rs10,000 every month in Birla Sun Life Tax Relief’96 starting from April 1, 2008 and up to October 2016, or an investment of Rs 10.3 lakh in 103 months could have grown to Rs 22.15 lakh*. This amount is also tax free with the money having enjoyed an annual growth rate of 17.25%. So, in this scheme you not only have a tax saving investment but also give an option for long term capital growth.
With SIPs, you can start small with an amount as small as Rs 500 and keep increasing it over time. You can also have a separate SIP each for each important requirement. This way you could benefit from ELSS without feeling taxed about making tax-saving investments. Last but not the least; you get to ensure that you don’t have to compromise on any of your dreams.
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Tax saving of Rs. 53,303 is calculated assuming qualifying amount of deduction is Rs. 1.50 Lakh and the investor falls in the top income slab of 30% and includes the applicable cess. 12% surcharge is also taken into account which is applicable if the income of the investor is over Rs. 1 Crore.
Investors are advised to consult their tax advisor in view of individual nature of tax benefits. Investors are requested to note that fiscal laws may change from time to time and there can be no guarantee that the current tax position may continue in the future.
Note: The comparison of ELSS Vs other traditional savings instruments has been given for the purpose of the general information only. Investment in ELSS carry higher risk, does not guarantee returns and any investment decision needs to be taken only after consulting the Tax Consultant or Financial Advisor. Birla Sun Life Mutual Fund / Birla Sun Life Asset Management Company Limited will not accept any liability/ responsibility/loss incurred on any investment decision taken on the basis of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully