One of the non-validated facts of the present time is that the months after July fly by in the blink of an eye. Did you even notice how soon we arrived at the middle of September? No, right? And you won’t even notice how soon we would enter the new year and the tax season will again dawn upon us.
With a few months left between now and the start of the financial year when you will scramble for information to file in the Income Tax Return, chances are that you will regret not investing in any tax saving instrument sooner.
This article is for all those people who believe that is time that they start making investment in modes that would help them save tax at the start of the financial year. And it is also for those who have still not gotten over the regular tax saving platforms like Public Provident Fund and Rent Agreements.
In this article, we will help you get acquainted with an investment concept which would not just help you save a hefty amount in taxes but will also prove to be a much better investment option when it comes to returns – Systematic Investment Plans in ELSS.
But before we start, here is a short disclaimer – Not every SIP plan gets tax redemption within Section 80C of the Income Tax Act, 1961. In fact, only the equity based SIP in ELSS investment get to take advantage of the tax benefit.
Now even though the list of SIPs offering tax rebates are limited, their returns are still a lot more than the other form of tax saving investments.
Here are the reasons that make Systematic Investment Plans in ELSS the best form of Tax Saving Mechanism.
Why you should choose ELSS SIP as Your Tax Saving Investment
- Least Lock-in Period
Unlike the other form of tax saving investment which comes with a lock-in period of around five to fifteen years, the lock-in period for ELSS in SIP is only for three years. And even then, you get the option to take out money in case you find yourself in a financial crunch.
- Greater Rate of Returns
Now when it comes to rate of returns that one gets from the various investment options that are also tax saving, you will find that the return percentage usually lies in the range of 6% to 10%. The rate of return is a lot higher when you look into the returns of Equity Linked Savings Scheme (ELSS). SIPs like HDFC ELSS Plan and IDFC Tax Plans offers as much as 15% – 20% rate of return by the maturity date.
- Categorized Funds
Another benefit that the investor rarely ever gets from tax saving specific investments is the freedom to categorize their investment according to the goals they are planning to achieve. SIPs give the investors the option to choose from funds depending upon the kind of goal they are looking to achieve.
- Tax Free Redemption
The last and the most prevalent reason behind the choice of SIPs as the best mode of tax saving option is that a number of the tax saving modes calls for TDS deduction at time of redemption, which is not the case with ELSS SIP. Once you withdraw the amount after completing the three years lock-in period, you get full tax rebate if the amount earned is under Rs.1 lakh. If the amount earned through the ELSS is greater than Rs.1 lakh, it will be charged to tax at 10% under LTCG – Long Term Capital Gains, without the benefit of indexation.
Now that we have looked into the four main reasons that entice the modern day investor to invest into tax saving SIPs, it is time to look into a matter that you should be most concerned with – The Best Performing Tax Saving SIPs for 2018.
Well, here’s a list of the top tax saving SIP and best ELSS schemes of 2018:
- MotilalOswal Long Term Equity Fund
- L&T Tax Advantage Fund
- Axis Long-Term Equity Fund
- Aditya Birla Sun Life Tax Relief 96
All of the funds mentioned above are offering short-term returns between 4.52% and 18.14%, with Axis Mutual Fund offering the highest and MotilalOswal Long Term Equity Fund offering the lowest in the short-term but the highest in the mid-term (18.99%).
*We have curated this list upon study of mutual fund schemes on various parameters like – Mean rolling return, Downside risk, Outperformance, Performance Consistency, and the Asset Size.
Now that you know the reasons why you should choose Systematic Investment Plans for as your tax saving scheme and the most profitable Equity based SIPs for 2018, do not wait for the tax season to start. Contact our team of Mutual Fund Experts today and open your SIP Account!