“Save taxes with mutual funds?”, my friend Ajay had a look of curiosity on his face as he heard this. “How is it possible?”
“Yes, it is. There are mutual fund schemes specifically created for this purpose. They are known as Equity Linked Savings Schemes or ELSS or Tax saving mutual funds.
I am sure you are aware that under Section 80C of the Income Tax Act, you can invest upto Rs. 1.5 lacs in various eligible investment options and claim deduction of income tax. Simply put, when you invest in those specified options you do not have to pay any tax on that portion of the income.
ELSS funds are eligible for such investment.” I took a pause.
“So these ELSS funds invest in stocks?” Ajay was excited.
“Yes, these funds invest most of their monies in stocks.”
Ajay looked happy. “Isn’t that a wonderful combination – save taxes as well as get benefit of equity investing?”
I nodded in agreement and said, “The popular idiom to describe such a benefit is to kill two birds with one stone. In Hindi, that would be ek teer se do shikaar.”
“Are there any restrictions that apply to this investment?” he enquired further.