Forgot to save taxes? Don’t panic. Here’s an investment option for you

We’re days away from the end of the financial year. There’s little time left to plan investments and save taxes. If you’ve clicked through to this article, it’s likely that you’ve fallen short on your tax-saving goals.

You’re probably looking for a quick fix. You need to make an investment, save your taxes under Section 80 C, generate handsome returns—and you need to do all this without getting out of bed.

Worry not. Here’s an option for you: buy some ELSS mutual funds.

Introduction
Equity Linked Savings Schemes – ELSS – are diversified equity mutual funds. Your capital is invested in a variety of equity options in the stock market, allowing you to earn market-linked returns on your investments.

Where To Buy
Mutual funds can be bought from fund house branches, bank branches, agents, and distributors. Since you’re looking for a quick way out of your quagmire, you should go online. In this, you have two options: buy funds directly from the fund house website, or buy them from an online distributor.

What To Buy
There’s a plethora of ELSS mutual funds, and it’s not easy to decide which one to pick. Most fund houses offer at least one ELSS fund. There are plenty of mutual fund research and analysis websites that offer data on ELSS funds. You can access this data, look at parameters such as long-term returns, research rankings, management fees, investment objectives, etc. Ideally, you should consult experts before making this investment.

How Much To Buy
Like all mutual funds, ELSS funds can be bought as SIPs or lump sums. Since you’re looking to do a one-time investment to urgently save tax, you should be aware of your investment shortfall and invest up to that limit. You’re allowed to invest to save up to Rs. 1.5 lakh under Section 80 C through one or many of the investment options available, including ELSS funds.

Risks
ELSS funds are equity investments. Which means that your investment is subject to market risks and you should read all scheme documents carefully before investing. As markets rise and fall, so will your investment value.

Returns
That said, over the long term, ELSS funds have out-performed most small savings scheme such as PPF. As per the CRISIL - AMFI ELSS Fund Performance Index in December 2016, the ELSS fund category as a whole has generated annual returns of 3.35% in the last year, 16.64% in the preceding three years, 17.71% in five years, and 10.61% in 10 years. In case you find the markets tanking, stay calm, remain invested, and reap long-term, tax-free returns.

Lock-In
ELSS funds have a lock-in of three years. It means you cannot redeem units whose tenure has been less than three years. This has one significant benefit, which is…

Taxation
Returns from ELSS funds are tax-free. ELSS funds are equity investments. Equity investments with a tenure longer than one year qualify as long-term investments, and therefore become exempt from capital gains tax. Since ELSS funds have a three-year lock-in, they are automatically tax-exempt.


(The writer is CEO, BankBazaar.com)