/Only three days left to invest in ELSS to claim 80C benefit for FY 19-20

Only three days left to invest in ELSS to claim 80C benefit for FY 19-20

Most taxpayers remember March 31 as the last day to make tax-saving investments to claim benefits under Section 80C, 80D, 80G and so on. However, this year is different. Due to the disruptions caused by the pandemic in the lives of ordinary individuals, the government has extended the last date to make tax-saving investments to claim tax benefits for the last financial year FY 2019-20.

Last month, the central government extended the deadline once again to July 31 from June 30. That means you hardly have two days left to finish your investments.

Well, if you have streamlined your finances and ready to make those investments, let us move forward. What if you are still not sure about your finances and thinking of letting go of the tax benefits for the last financial year, here is a way out. Do you have any investments in tax-saving mutual funds (or ELSS funds – short for Equity Linked Saving Scheme)? Check whether they are out of the mandatory lock-in period?

Note, if you have invested through a Systematic Investment Plan or SIP, you should remember that every SIP instalment will have a three-year lock-in period. All tax-saving investments allowed under Section 80C come with a mandatory lock-in period. The mandatory lock-in period is three years for ELSS funds.

Coming back to the issue at hand, are those ELSS funds completed the mandatory lock-in period? If yes, you can sell those investments and invest the money again in a good ELSS funds to claim tax benefits under Section 80C for the last financial year.

Note, this is not a strategy or easy way out for you to follow every financial year. Under normal circumstances, this is a huge mistake. Following this strategy would result in recycling of your own tax-saving investments and it would have a big impact on your wealth creation plans. When you do not make any fresh investments, obviously you would end up with a smaller corpus over a long period.

If you are not sure about where to invest to claim taxes under Section 80C, here are a few quick pointers for you. As said earlier, all tax-saving investments come with mandatory lock-in period. For example, tax-saving bank deposits come with a mandatory lock-in period of five years. Public Provident Fund is a 15-year product, though it allows loans (after three years) and partial withdrawals (after seven years).

This is a great place to start your selection process. Choose a product that is in line with your investment horizon. ELSS has the shortest mandatory lock-in period of three years, but do not invest in them with that in ind. You should invest in equity schemes, including ELSS funds, only if you have an investment horizon of five to seven years.

Next point to focus is the risk element in these products. Most tax-saving investments like PPF, NSC, bank FD, and so on, come with government backing. They assure returns and are generally considered risk-free. If you are a conservative investor looking for safety and assured returns, you should stick to these schemes.

If you are ready to take extra risk for some extra returns, you may consider investing in ELSS funds. These funds invest in stocks. They do not guarantee any returns, but equity has the potential to offer superior returns over a long period. That is why it is extremely important to invest in these schemes with a long investment horizon. Always try to link your ELSS investments to a long-term financial goal like retirement, child’s education, and so on. This will help you to keep focused on your investments without bothering about the daily movements in the stock market.

If you are ready to invest in ELSS funds, here are our recommended tax-saving schemes: Best ELSS funds to invest in 2020

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