If you want to save tax and get high returns on your investment, a Systematic Investment Plan is your go-to option. The investors who invest typically in tax-saving schemes are all praises about SIPs. If you are new to the ocean of investments, you should test the depth of the water first.

Before you select a plan, make sure it fulfills your insurance expectations. Now, you must be wondering how to ensure whether or not a plan is perfect to accomplish my investment goals.
Well, your concern is legit. You can know the returns of a plan in a jiffy using SIP calculator. It is a simple tool that can be used easily to know returns offered by a SIP.

While there are many investment options offered in the investment market, such as Public Provident Fund, term life insurance, mediclaim, they might not fit the bill for the purpose of tax savings. Systematic Investment Plans through Equity Linked Saving Schemes stand out when it comes to tax planning.

Equity Linked Saving Scheme, what’s that?
Equity Linked Saving Scheme (ELSS) is a diversified MF (mutual fund) equity plan that comes with a lock-in period of 3 years starting from the policy issuance.

Why Equity Linked Saving Scheme?
Equity Linked Saving Scheme or ELSS is known as tax-saving funds. It offers tax benefits as per Section 80C of the Income Tax Act, 1965. It enables an investor to claim a tax deduction up to 1, 50,000 Rupees.

For instance, if Ms. Richa invests 1, 50,000 Rupees in an Equity Linked Saving Scheme, she shall save 45,000 Rupees while filing her income tax under the 30% tax bracket.
The iInvestors earning more than 1 lakh Rupees annually as returns on investment will have to pay additional tax. If they invest in equity MF with 65% or more exposure to equity, they have to pay Long Term Capital Gains tax at the rate of 10 percent.

The Basic of Investing in Equity Linked Saving Scheme

• The Sooner, The Better.
Typically, various taxpayers walk down the ELSS investment road by the end of the financial year. Maybe because it’s high time for submitting proof of investment in order to save tax. As per the investment experts, this isn’t a wise tax-planning and investment move. Giving in to the pressure of proof submitting is the hallmark of an amateur investor.

The downside of this impulsive investment decision is that during such situations, the investor can face a cash crunch by the end of the financial year. Furthermore, by the end of the FY, the investors feel pressurized to invest lump sum amount in Equity Linked Saving Scheme. This exposes the team to the risk of market timing.
If the equity market is up, investors tend to buy the fund units at a high price. This affects their returns.

Rupee Cost Averaging
The investor ought to plan his/her tax-saving investments without any time constraints.
In order to enjoy the benefit of RCA i.e. rupee cost averaging, he/she should invest in SIP through ELSS.

• Think Above Beyond The Initial Lock-in Period
The best thing about ELSS is that it comes with the shortest lock-in period of 3 years. In other investment instruments, the initial lock-in period ranges from 5 years – 15 years. Typically, the investors make a common mistake by redeeming their investments in an ELSS plan moment after the end of the initial lock-in period. In doesn’t enable them to reap the maximum investment benefits of ELSS. To get the best of it, they ought to stay invested for a minimum period of 5 years- 7 years.
ELSS is much more than a tax-saving investment instrument. As compared to other asset classes, it offers three benefits:

• High Returns- It offers high returns on investment.

• Immunity against Inflation- It immunes the investor against inflation.

• Suits Various Investors- If fulfills various investment needs of different investors.
Betting on the Top Performing Funds
In regards to high returns over the horizon of last 1 year- 3 years, the top performing funds might not be the best option. Rather, the investors should shift their focus to the funds that have a good track record in terms of consistency.
You must be wondering “how should I select a fund that has been consistent?” Well, it is simple. There are two ways to skim through the funds.
Comparison is the Key

• Average Returns- You can compare the performance of the fund with the AR i.e. average returns yielded by the fund. You can compare AR for the last 5 to 7 years.

• Rolling Returns- You can compare the rolling returns of a fund. It’s an excellent measure to know the consistency of fund.
The Common Mistake
The common mistake investors make is they invest their money in a fresh ELSS fund on an annual basis. Here is the downside:
Over the period of 8 years to 10 years, they accumulate ELSS funds in a large number. It creates excessive diversification, which makes it too hard to monitor their portfolios.

In a Nutshell
If you are looking forward to tax saving but you’re not comfortable investing in equities, then maybe you should give equity a miss. While ELSS offers tax savings, it’s an excellent tax saving instrument for the investors who have a long investment horizon. It’s because they will then be able to understand market volatility. Additionally, they will be able to take risks.

The key to investing in ELSS through SIP is planning. The investors should plan the investments as early as they can in a fiscal year. Once they have invested, they should not make it a one-time thing. The best approach to invest on a regular basis is via SIP. That being said, the investors should plan their investments according to their investment horizons, respectively. Using SIP calculator, they can ensure that their investment and investment horizons are in sync.