Although many Tax saving options are available u/s 80C including PPF, Life Insurance, NSC, ELSS, Pension Plans and Infrastructure Bonds, Tax saver mutual funds or Equity Linked Saving Schemes (ELSS) are the preferred choice for many, as the Lock-in period is only three years unlike other tax saving options which normally carries a Lock-in has 5-15 years.

Tax savers would help you to save taxes up to Rs.1,50,000 by way of deduction from taxable income in India.

Do you know that the tax saver funds would help you to create your wealth apart from reducing your tax burden?

Where do ELSS Funds invest?

As per SEBI guidelines, ELSS funds would have to invest 80% or more of their assets in equities or in simple different company shares across varied sectors. If an SIP is done in ELSS Funds, then each investment will be locked in for three years from the investment date.

How much returns could be expected from ELSS Funds?

Returns from ELSS funds are market-linked, so are there are no assured returns. Historically, ELSS funds have generated healthy returns of 12-15% p.a. over the long-term, say around 7-10 years.

Can I systematically invest even in ELSS funds?

Yes. Investment in ELSS funds via a Systematic Investment plan/monthly investments would help you to reduce market risk and increase the chances of a higher return. Investments in ELSS funds should be done with a long-term view of 5–10 years for achieving the best of both worlds (i.e. Capital appreciation and Wealth creation).

How much can I invest in ELSS Funds?

You could start with as minimum as Rs.500 either in lumpsum or Systematic investment plan in any tax saver mutual fund. As you can never time the market, you be better off investing on a monthly basis so that you can average out your costs in the ELSS funds.

What are all the other available options to invest to avail the deductions under Sec 80 C other than tax saver mutual funds?

1. Public Provident Fund (PPF)

PPF is a small savings scheme offered by the government of India either through Post office or through banks. Investments made in PPF have a lock-in of 15 years and give a fixed return according to the interest rate published by the Ministry of Finance every quarter.

2. Employee Provident Fund (EPF)

EPF is a deduction that the employer makes from your salary, this contribution forms part of section 80C.

3. Children Tuition Fees

Fees paid towards full-time education of your children can be claimed u/s 80C deduction. This includes fees paid to an educational institution, college or school. The deduction can be availed for a maximum of 2 children and not for your own education or your spouse’s education.

4. Repayments of Home Loan Principal

Principal amount repayments on your housing loan are deducted under 80C.

5. Life Insurance Premium

Life insurance premium paid in the year can be claimed as deduction. Premium paid for yourself, your spouse or your children can be claimed under section 80C. Premiums paid for multiple life insurance policies will also qualify for deduction the section.

6. Tax Saving Fixed Deposits

Tax-saving Fixed deposits are a special category of FDs which have a 5-year lock-in period. Unlike regular FDs, premature withdrawals are possible from Tax-saving FDs. They qualify for deduction under section 80C and thus investments up to Rs. 1,50,000 p.a. are exempt from income tax. However, the interest on these FDs remains taxable as per your income at marginal income tax rate. TDS of 10% shall be applicable for the interest.

7. Unit Linked Insurance Plans (ULIPs)

ULIPs are a variant of a traditional endowment plan. ULIPs have a high premium and offer investment in mutual funds and insurance. The charges on ULIPs are funds allocation charges, fund management fee, policy administration fee, fund switching charges, and agent fees.