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4 Benefits of Investing in Tax Saving Funds via SIP

January 14, 2020

4 Benefits of Investing in Tax Saving Funds via SIP

Tax saving season is here, and we hope that you have given tax saving a serious thought!

In our previous blog, we wrote about the importance of linking goals to your tax-saving plans. We want you to think about tax saving differently keeping long term goals in mind, be it aspirational or need based. Start planning your tax saving early to avoid last minute hassles at year-end. Here we have highlighted the advantages of early & disciplined investing in ELSS (Equity Linked Savings Schemes) via SIP.

If you are new to tax planning, you must explore Tax Saving funds (ELSS), as it is one of the smartest ways to grow your wealth while saving tax. ELSS also has the advantage of the shortest lock-in period compared to other market linked tax saving options. Under section 80C of the Income Tax Act, you can save up to ₹46,800 in taxes annually if you invest ₹1,50,000 (maximum) in ELSS Mutual Funds.

Investing in ELSS through SIP

ELSS is a market linked product. By taking the SIP route, you can take advantage of the following benefits

Brings financial discipline:

In the words of legendary investor Warren Buffett, “Do not save what is left after spending, but spend what is left after saving”. A monthly SIP in ELSS funds will ensure that you invest a part of your salary without fail to save tax. Thus, it inculcates the habit of investing on a regular basis and makes sure that your money works for you.

Cost averaging:

ELSS, being an equity investment, is volatile in the short run. If you leave it till the end of the year, you might end up investing a lump sum amount when the markets are at a high. Monthly SIP ensures that you invest at regular intervals, irrespective of market levels. This helps in cost averaging over time.

No cash flow problems:

If you leave tax planning for the year-end, you may have to arrange for investment amount as high as Rs.1,50,000 at one go. However, with SIP it is much easier to invest Rs.12,500 each month and take complete advantage of Rs.1,50,000 for the year. Hence, SIP is a great tool for salaried individuals to solve cash flow problems.

Better investment decisions:

For all investors, it is important to invest based on your goals and hence you need time rather than making last minute decisions. More so, if you are a new investor and unsure about various tax saving instruments, it is very likely that you may end up investing in the wrong product at the end of the financial year as the 31st March deadline comes close. To avoid this, start investing from April itself through SIP. This will also give you adequate time to do your research and shortlist the right funds.

To help in your investment decision making, Paytm Money has created a curated list of best ELSS funds under the Investment Ideas section named “Invest to Save Tax“.  Start now and make every tax saving season count!