4 Benefits of Investing in Tax Saving Funds via SIP

Tax saving season has just ended, and we hope that you have completed your tax saving investments for financial year 2018–19.

In our previous blog, we wrote about the importance of linking goals to your tax-saving plans. With the onset of new financial year, 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 now 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 the smartest way to grow your wealth while saving tax. ELSS also has the advantage of the shortest lock-in period compared to other traditional 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.

Benefits of ELSS funds through SIP

1. 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.

2. 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 (for more on this topic read our earlier blog).

3. 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 an 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.

4. 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.

With Paytm Tax Saver Investment Packs, you won’t even need to spend time in shortlisting the right funds as this is a customized basket of ELSS funds designed by our advisory team to serve your tax saving needs.

If you wish to explore more funds on the app, you can check out curated list of ELSS funds in one of the Investment Ideas named ‘Invest to Save Tax’ or search for other direct tax saving funds from over 38 AMCs which will help you save commissions as well taxes.