The tax-saving season of the year is here. With the deadline for submitting investment proofs for tax-saving purposes fast approaching, individuals falling in the taxable income bracket have started scouting for options to invest and save tax in different tax-saving instruments like life insurance, PPF, ELSS mutual funds, NSC, pension fund, 5 years bank fixed deposits and 5 years post office deposits.

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We spoke to Pranav Uppal, Product Head at Bonanza Mutual Funds on how to save tax under Sec 80c:

While every instrument listed above have their own advantages and disadvantages, ELSS offers some unique advantages (listed below) as compared to other instruments.

• Shortest lock-in period

Compared to all other investments under Sec 80C, ELSS has the shortest lock-in period of 3 years. While tax-saving bank fixed deposits and post-office deposits have a lock-in period of 5 years, NSC has a lock-in period of 5 years. The same is the case with PPF.

As life insurance is a long-term product, the policy benefits can be availed only after the maturity of the policy. Surrendering the policy pre-maturely in most cases is likely to result in a loss.

• Potential to generate high returns

Equity as an asset class has beaten the returns generated by all other assets consistently over the last several decades. As ELSS is an equity-linked investment scheme, the potential for returns is very high.

• Ideal for investors who are risk-averse

Ideal for investors who are not comfortable with direct equity investing ELSS is an ideal investment instrument for investors who wish to invest in equity but are not comfortable with market volatility associated with direct equity investing.

Although all equity investments are subject to market risks, the risk factor in ELSS is lesser as compared to direct equity investing as the investments are managed by professional fund managers who employ different risk management strategies while investing.

• Better post-tax returns

Long Term Capital Gains (LTCG) arising from ELSS investments are tax-free up to a limit of Rs. 1 lakh. Any gains over Rs. 1 lakh are taxable at the rate of 10% Gains.

Thus due to lower tax rates and higher returns over the long term ELSS offers the best post-tax returns.

• The convenience of investing systematically

When one invests in ELSS, apart from one-time investment, investors have the option to invest regularly through SIP mode, thus spreading out the investments every month/week/daily/quarter etc... This way one can not only invest in tranches but also benefit from cost-averaging due to fluctuations in the equity markets.

• Redemption not mandatory after 3 years

After a lock-in period of 3 Years, investors may choose to continue to stay invested in the scheme and reap the benefits.

Bottom line

Equity has the power to compound your wealth at a faster pace as compared to all other investment options available in the market.

At the same time, market volatility poses a significant challenge for generating consistent returns for most investors. ELSS offers a less-risky alternative to equity investing as your investments are managed by professional fund managers.

Besides the tax-saving element associated with ELSS, it can also be an ideal investment for taking care of your financial goals.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)