FOR THE BEGINNERS

In a tizzy over tax-saving documents? Read this to make your life simpler

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Rohit shifted base to Chennai from Mumbai in November 2016. He had way too many things on his mind at the time. He had been working at the same company for the past two years. But moving to an unfamiliar city with added responsibilities meant a lot to him. He put all his effort into his job.

The pressure at work was so high that he neglected everything else. Owing to a lack of time, he failed to invest enough during the year to reduce his taxable income. He realized this only when his company slashed his pay in the month of January. He found himself running from pillar to post looking for the right tax-saving option.

Some of his colleagues were in the same boat. One chose an insurance plan in a hurry to get tax benefits under Section 80C of the Income Tax Act. Another chose to invest in the Public Provident Fund (PPF), with a lock-in period of 15 years. Both these seemed like viable options to Rohit. But Rohit was confused and wanted a second opinion.

He went to his mentor Anand Gopalan. Anand did not seem worried about saving taxes in the last quarter of the financial year. To make the most of the tax benefits, Anand had invested in an Equity-Linked Savings Scheme (ELSS). He had done so right at the beginning of the financial year through a Systematic Investment Plan (SIP).

(Unlike PPF, investments in Mutual Funds are subject to market risks) 

Where ELSS scores over other tax-saving instruments

Anand explained that an ELSS was unlike any other tax-saving instrument. An ELSS has the shortest lock-in period of three years. Besides, it is an equity-linked mutual fund. So, it also provides the benefit of capital appreciation in the long run.

How to choose the right ELSS

Anand knew all about ELSS options. He did not wait until the end of the year to invest in one. He knew that investing a lump sum at the end of the year would create a cash flow problem for him. So, he invested right at the beginning of the year through an SIPChoose a trusted brand

Anand told Rohit that he did not base his choice on the ELSS funds that had the highest yearly returns. Instead, he chose Birla Sun Life Tax Relief 96. He emphasized that he had chosen Birla Sun Life Mutual Fund (BSLMF) as it was one of the most trusted names in the fund industry.

Common mistakes while investing in an ELSS

Anand also spoke about a common mistake that people make when investing in an ELSS. They redeem their units after the lock-in period of the scheme is over. This is a cardinal mistake as the underlying asset class of an ELSS is in equities. To benefit from equities, one must remain invested for a period of at least five years or more. He planned to continue investing in the same ELSS each year.

Not so taxing: The ELSS way of life

Anand knew that Rohit was disturbed about moving away from his hometown. The impact of demonetization had also coincided with his shift to a new place. He knew that Rohit needed a safe sanctuary to invest in. He could do without the hassle of having to run from pillar to post with his tax-saving documents.

Based on his own experience of investing in and benefitting from an ELSS, Anand gave him some advice. He suggested that Rohit uses his performance bonus to invest in an ELSS. But he cautioned Rohit to invest in an ELSS after careful consideration of his own risk appetite. He must also assess the performance track record of the fund.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully

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