There are various instruments that can avail the benefits of Section 80C, like, Public Provident Funds (PPF), National Savings Certificates (NSC), Fixed Deposits (FD) and the latest, fast-growing Equity Linked Saving Schemes (ELSS). Among all these investments the ELSS has the shortest lock-in period of 3 years and, even though they carry higher risk, can reward the investor handsomely.

3. Inculcate Financial Discipline Through SIP:

Like all other mutual funds, it is easy to invest in ELSS through a SIP. You can start a SIP for an ELSS mutual fund at the start of the financial year. And like other mutual funds, as and when your income increases you can increase your investment amount through SIP top-up.

And if you want to get the full tax deduction for investing in these funds, you have the convenience of investing approximately Rs 12,500 every month instead of putting Rs 1.5 lakh in one go.

Most other tax-saving investment products do not provide a systematic way of investing money on a monthly basis.

4. Mutual funds taxation help you save more

ELSS funds have a minimum lock-in period of three years. And after three years, the long-term capital gains (LTCG) of up to Rs 1 lakh a year from ELSS mutual funds are exempt from income tax. However, the LTCG above Rs 1 lakh is taxed at 10%.

Now, in terms of the taxation policy, if you compare ELSS with PPF (which falls under Exempt and hence, the maturity amount is not taxed) you might feel that the benefit for investing in ELSS is less. However, a point that needs to be mentioned here is that PPF has a very long-term lock-in period, and such investments are not fit for fulfilling short-term or mid-term goals.

So, if you compare it with a 5-year FD, then investing in ELSS is much more beneficial in terms of their taxation policy. The returns from FDs are taxed as per one’s tax bracket. And if you fall under the 30% tax bracket, then your FD returns will be taxed at 30%.