Last Minutes Tax Saving Tips

The tax season is already here and most of us like always will wait till last day to invest and save taxes. If you are one of us, here is the best last minute investment option for you which can save you from 2 big monsters first is Taxes and 2nd is over insurance . Both of them take away the valuable money from us which if invested some where else can generate better returns for us.

Now let’s talk about our last minute saviour from taxes i.e. ELSS.

Equity linked savings schemes are mutual funds which can save taxed upto Rs.1,50,000 under section 80 (c) of income tax act.

How can you select the best ELSS?

Past Performance and Age of the fund: Past performance speaks tremendous about one’s ability and likelihood for success. Definitely past performance can’t guarantee future returns , but it gives you indication of how the fund manager was able to generate returns during ups and downs of market cycle, You can get a clear picture about the returns generate were because of bull market run or the strategies used by the fund manager.

However it is only possible with the funds which has track record of more than 5 years where a full market cycle get covered, new funds can only be judged based on the objective of the fund as well as fund allocation.

Consistency: This is very important for the people who have an investment time horizon of medium or long term, a fund can’t be judged based on its 1 year or 6 months returns.For example, a fund which is consistently giving 12% returns is better than a fund occasionally giving 20% returns. While selecting a fund, higher return should be the criteria but consistency of return should be equally important.

Market Cap allocation: ELSS funds are free to choose their allocation in equities; however you should also give certain weightage while selecting a fund basis your risk profile. A fund, having higher exposure towards large cap will take care of a moderate client’s risk profile, similarly, one should see what kind of allocation the fund has given to mid and small cap to assess the risk return trade off.

XIRR of the fund: XIRR helps in calculating the internal rate of return for scheduled cash flows. Many of us don’t have lump sum amount to invest hence choose to invest periodically. By calculating the XIRR we can further filter best funds.

So this tax season don’t repeat your past mistakes, choose the best tax saving option and start early investments.