Systematic Investment Plans (SIPs) have emerged as a preferred route for retail investors to participate in the equity markets in India. As the name suggests, a SIP allows you to invest a fixed, predetermined amount regularly in a mutual fund scheme. This helps bring discipline to investing and rides out volatility in the market. Going a step further, Tax Saver SIPs have the added benefit of saving tax under Section 80C of the Income Tax Act, 1961.
What are Tax Saver SIPs?
Tax Saver SIP plans are SIPs in Equity Linked Savings Schemes (ELSS) that offer the dual benefit of wealth creation and tax savings:
- Wealth Creation through Equity Exposure: An ELSS invests at least 80% of its corpus in equities. So, it carries risks but has the potential to deliver higher returns over the long run when compared to traditional tax-saving options like PPF, NSC, etc.
- Tax Benefits under Sec 80C: You can claim a tax deduction of up to Rs 1.5 lakhs in a financial year on eligible ELSS investments. This helps reduce your overall tax outgo.
Benefits of Investing in Tax Saver SIPs
Here are some key benefits of investing regularly through Tax Saver SIPs:
- Gain Equity Exposure in a Gradual Manner: Investing a fixed amount every month through SIPs allows you to build exposure to equities slowly. This is better than investing a large lumpsum in one go since equity markets are prone to volatility.
- Power of Compounding: Investing early and staying invested for the long term may let your money grow through compounding.
- Enjoy Convenience through Automated Investments: SIPs bring discipline and convenience to investing through automated deductions of predefined amounts from your specified bank account on a set date every month. This removes the need to invest lumpsum amounts manually at regular intervals.
- Reduce Market Timing Risks: Since SIPs allow staggered investments through the ups and downs of the market, you may potentially get to benefit from rupee cost averaging. So you need not time the markets for investing.
- Tax Savings under Section 80C: Section 80C allows tax deduction on eligible mutual funds of up to Rs 1.5 lakhs in a financial year. So, regular investments through Tax Saver SIP plans in ELSS funds may potentially help reduce your overall tax liability.
- Wealth Creation and Tax Planning Go Hand-in-Hand: SIP investments in tax-saver instruments such as ELSS may help obtain the dual goal of wealth creation and tax saving. Tax Saver SIPs help achieve both objectives seamlessly.
How to Evaluate and Choose the Right ELSS Fund?
Here are some parameters to assess before choosing an ELSS fund for your Tax Saver SIP:
- Performance Track Record
- Risk-Adjusted Returns
- Portfolio Composition and Style
- Downside Protection Ability
- Fund Manager’s Experience and Credentials
Bandhan ELSS Tax Saver Fund is an open-ended Equity Linked Savings Scheme suitable for investors looking for tax savings and long-term wealth creation. As an ELSS fund, it carries very high risk but may potentially deliver inflation-beating returns over 5 years or more long SIP investment horizons.
Conclusion
In conclusion, Tax Saver SIPs in ELSS funds like Bandhan Tax Saver Fund may offer a potential opportunity to save tax under Section 80C along with wealth creation through equity exposure.
A disciplined and long-term SIP investment approach helps negate market volatility and maximises returns through the power of compounding. So don’t let the tax-saving season pass by without making the most of Tax Saver SIPs to save tax and multiply your money effortlessly. Consult your financial advisor today to get started!
