Tax Saver SIP Plans

Tax-saving SIPs offer the dual benefit of potentially high returns and tax efficiency. By investing in Equity Linked Savings Schemes (ELSS), you can grow your wealth while reducing your taxable income, taking advantage of Section 80C deductions.
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How to start SIP to save tax on your income
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11-December-2024

Systematic Investment Plans (SIPs) offer a compelling way to save on taxes while growing your wealth. By investing in Equity Linked Saving Schemes (ELSS) through SIPs, you can take advantage of Section 80(C) of the Income Tax Act, 1961. This allows you to deduct up to Rs. 1.5 lakh from your taxable income, potentially saving you significant tax depending on your tax bracket. For example, someone in the highest tax bracket (30%) could save around Rs. 45,000 per year through SIP investments in ELSS.

Beyond tax benefits, SIPs promote disciplined investing by automating your contributions. This helps you manage your monthly cash flow effectively and build a consistent investment habit.

What is tax-saving SIP?

Tax-saving SIPs offer a means to save taxes while investing, presenting one of the many advantages of SIP investments. Although not all SIPs are tax-free, they serve as effective tools for tax-saving purposes, yielding substantial returns on investments. Among the various investment options for tax-saving, Equity Linked Savings Scheme (ELSS) stands out as a popular choice. ELSS funds, characterised by a mandatory lock-in period of three years, are tax-saving equity funds. Investing in ELSS provides the dual advantage of wealth accumulation and tax savings, with a significant portion of the funds allocated to equity or equity-related instruments.

Characteristics of tax-saving SIPs

Tax-saving SIPs are primarily invested in Equity-Linked Savings Schemes (ELSS), a type of mutual fund focused on equity investments. These plans offer a mandatory three-year lock-in period, making them suitable for disciplined, long-term investors. They provide dual advantages—higher returns compared to traditional tax-saving instruments and significant wealth creation opportunities—while also offering tax benefits. One of the most attractive features of these SIPs is the flexibility to invest small amounts regularly.

  • Equity-focused investment: These SIPs channel funds into Equity-Linked Savings Schemes (ELSS), which have the potential to deliver higher returns than conventional tax-saving options.
  • Mandatory lock-in period: Every SIP contribution is subject to a three-year lock-in, promoting a long-term investment approach.
  • Tax benefits: Investments qualify for tax deductions under Section 80C of the Income Tax Act, up to Rs. 1.5 lakh annually.
  • Wealth creation: By focusing on equity investments, these plans enable investors to build wealth over time, alongside benefiting from tax savings.
  • Flexibility: The option to invest small, regular amounts makes these SIPs accessible and convenient, encouraging disciplined saving habits.

How SIPs can help you save tax

You can lose a substantial amount of your income in paying taxes which means you lose out on your savings. SIPs can be one of the best tax-saving instruments with high returns on your investments.

You can claim a deduction of up to Rs. 1.5 lakh from your taxable income for investing in ELSS through SIPs under Section 80(C) of The Income Tax Act, 1961. With the highest tax slab of 30%, you can save up to Rs. 45,000 in a year.

Along with inculcating a habit of disciplined investment and ensuring auto-investment management, early tax planning through systematic investment will also enable you to plan your monthly cash balance in a better way.

The SIP calculator helps you look at your total investment amount, total maturity amount and your income on your investment.

How to save through SIP in ELSS

Apart from being one of the best tax saving schemes, ELSS scores high on almost every parameter to ensure maximum returns on your investments. Moreover, they are transparent, with high liquidity and low charges, and give better returns than most other investment tools.

When compared with other tax-saving investments like Public Provident Fund or a 5-year fixed deposit, ELSS promises higher returns along with a low lock-in period of three years. You can start a SIP in ELSS mutual funds as low as Rs. 500 per month.

SIP Tax Benefits

Effective tax planning is essential, and without it, one risks losing a significant portion of money to taxes. SIP falls under the EEE (Exempt, Exempt, Exempt) category for Equity Linked Saving Schemes (ELSS). The amount invested, the amount received at maturity, and the amount of the withdrawal are all tax-free. One may deduct up to Rs. 1,50,000 annually using SIP in an ELSS fund.

Start your tax planning early

The ideal way to start your tax planning is to begin in the month of April itself through a SIP in ELSS rather than waiting till the end of the financial year. It saves you from the bunch of frantic investments made at the end of the year to save taxes and accumulate your wealth with higher returns.

ELSS Mutual Funds are hence part of the growth asset class. The difference in returns, along with the power of compounding over the long-term results in a huge amount. So, start an SIP in tax-saving ELSS by providing an ECS mandate to deduct a fixed amount from your bank account every month to invest in mutual funds.

Calculate your EMI through Income Tax Calculator. Bajaj Finserv brings you pre-approved offers for personal loans, home loan, business loans and a host of other financial products. Not only does this simplify the process of availing of financing, but it also helps you save on time.

List of mutual funds for SIP in 2024

  1. HDFC Mid-Cap Opportunities Fund
  2. Parag Parikh Flexi Cap Fund
  3. ICICI Pru Bluechip Fund
  4. HDFC Flexi Cap Fund
  5. Nippon India Small Cap Fund

Importance of tax-saving investments

Tax-saving investments play a vital role in helping individuals manage their finances effectively. They allow you to lower your tax burden while also growing your wealth over time. Options like Tax Saving SIPs offer a great way to achieve long-term financial goals and enjoy tax benefits under Section 80C of the Income Tax Act. By carefully selecting the right tax-saving investments, you can boost your overall returns and stay compliant with tax laws.

Who should invest in tax saving funds through SIP

Tax Saving SIPs are a great option for various types of investors. They are especially suitable for individuals who:

  • Aim to reduce their tax burden: These SIPs offer tax deductions under Section 80C, making them ideal for those looking to save on taxes effectively.
  • Plan for long-term financial goals: The mandatory three-year lock-in period ensures disciplined investing, aligning well with objectives like retirement planning or wealth accumulation.
  • Are comfortable with market fluctuations: Investors who understand and are willing to accept the risks and rewards of equity markets can benefit from the higher growth potential these plans offer.
  • Prefer affordable investments: Tax saving SIPs allow you to start with small monthly contributions, making them accessible for individuals who want to invest on a budget.
  • Wish to build a habit of regular saving: These plans encourage consistent investing, fostering financial discipline over time.
  • Are looking for a diversified approach: By investing in Equity-Linked Savings Schemes (ELSS), you gain exposure to a mix of equity and related securities, helping diversify your portfolio.
  • Want a simple investment option: These SIPs are straightforward to manage and require minimal effort, making them appealing for investors seeking convenience.

Tax Saving SIPs are a smart choice for anyone aiming to save taxes, grow wealth, and establish a disciplined investment routine.

Top reasons why you should invest in tax saving mutual fund SIPs

  1. Systematic investment: Tax-saving mutual fund systematic investment plans (SIPs) enable systematic investment, promoting financial discipline.
  2. Power of compounding: These SIPs allow investors to benefit from the power of compounding, which enhances wealth over time through regular investment and reinvestment of returns.
  3. Tax benefits: Investors can avail tax deductions under Section 80C of the Income Tax Act by investing in tax-saving mutual fund SIPs, making them advantageous for tax planning purposes.
  4. Flexibility: Tax-saving mutual fund SIPs offer flexibility in terms of investment amounts and tenures, accommodating diverse financial goals and preferences.

Capital gains tax on SIP

When assessing the capital gains tax on SIP, several factors come into play, including the nature of the underlying fund and the duration of the investment. Equity and debt funds are subject to different capital gains tax calculations. For SIPs invested in equity funds, excluding ELSS, held for over a year, Long Term Capital Gain (LTCG) tax is imposed, while those held for less than a year incur Short Term Capital Gain (STCG) tax. Conversely, SIPs invested in debt and other category funds, when held for more than three years, are subject to Long Term Capital Gain (LTCG) tax, and if held for less than three years, Short Term Capital Gain (STCG) tax applies. It's important to note that for SIPs, each purchase tranche is considered individually for tax assessment purposes.

Platforms for online tax-saving SIP investment

Several platforms make it easy to invest in tax saving SIPs online. Here are some popular options:

  • Mutual fund company websites: You can invest directly in tax saving SIPs through the official websites of mutual fund providers. This option often comes with lower fees and a wide range of fund choices.
  • Online brokerage platforms: These platforms serve as a one-stop solution for investing in mutual funds, including tax saving SIPs. They offer tools to compare funds and track your portfolio, making it convenient to manage your investments.
  • Mobile investment apps: Many apps allow you to start, manage, and monitor tax saving SIPs directly from your smartphone, offering a user-friendly and hassle-free experience.
  • Robo-advisors: Automated investment platforms suggest tax saving SIPs based on your financial goals, risk preferences, and time horizon. They simplify the process by offering personalised recommendations and portfolio management.

These platforms make it easier than ever to invest in tax saving SIPs, helping you save on taxes and grow your wealth conveniently.

How to start an SIP on the Bajaj Finserv platform to save tax on your income

Initiating a Systematic Investment Plan (SIP) on the Bajaj Finserv platform for tax-saving purposes is a straightforward process. Firstly, log in to the Bajaj Finserv website or app and navigate to the Mutual Funds section. Next, select the Tax Saving Mutual Fund that aligns with your financial goals. Then, input the desired SIP amount and choose the frequency of your SIP. Once these details are entered, proceed to complete the KYC process if not done previously. Finally, authorise your bank to debit the SIP amount at regular intervals. Starting an SIP on the Bajaj Finserv platform not only facilitates tax savings but also offers a seamless and user-friendly investment experience.

Conclusion

In conclusion, Tax Saving SIPs are a smart financial choice for investors seeking high returns while reducing their tax liabilities. These instruments offer a wide range of benefits, including the potential for long-term wealth creation, low investment thresholds, and the added benefit of tax-saving under Section 80C of the Income Tax Act. By investing in Tax Saving SIPs, investors can take advantage of opportunities to grow their wealth while minimising their tax burdens - making it an ideal investment avenue for new and seasoned investors alike. With the right investment strategy and careful planning, Tax Saving SIPs can provide a secure and lucrative investment option for financial goals ranging from short-term savings to long-term investment plans.

Essential tools for all mutual fund investors

Mutual Fund Calculator

Lumpsum Calculator

Step Up SIP Calculator

 SBI SIP Calculator
HDFC SIP Calculator Axis Bank SIP Calculator

ICICI SIP Calculator

Tata SIP Calculator

Nippon India SIP Calculator

ABSL SIP Calculator

Motilal Oswal Mutual Fund SIP Calculator

Kotak Bank SIP Calculator

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Frequently asked questions

Which SIP can save tax?

SIPs that save tax typically invest in Equity-Linked Savings Schemes (ELSS), offering tax benefits under Section 80C. With a three-year lock-in, ELSS combines tax efficiency with market-linked growth. Funds like Canara Robeco Equity Tax Saver and Mirae Asset Tax Saver Fund are popular choices for their consistent performance.

Is tax saving SIP good?

Tax-saving SIPs can be a beneficial investment for tax planning if aligned with your financial goals and risk tolerance.

Which is better SIP or ELSS?

ELSS (Equity Linked Saving Scheme) and SIP (Systematic Investment Plan) serve different purposes. ELSS is a tax-saving mutual fund, while SIP is an investment method used in various types of mutual funds, including ELSS.

Is SIP returns tax-free?

SIP returns are not entirely tax-free; they may be subject to capital gains tax, depending on the holding period and the type of mutual fund.

What is ELSS SIP?

ELSS SIP is a type of Systematic Investment Plan that invests the money in Equity Linked Saving Schemes. ELSS investments come with a lock-in period of three years, and investors can claim tax deductions under Section 80C of the Income Tax Act.

Which SIP is tax-free under 80C?

Equity-Linked Saving Scheme (ELSS) SIPs are eligible for tax savings under Section 80C of the Income Tax Act. An investor can claim a tax deduction up to Rs. 1.5 lakhs by investing in an ELSS SIP.

Which type of SIP gives the highest return?

The type of SIP that gives the highest returns depends on the market and economic conditions. Equity mutual funds have the potential to provide the highest returns in the long term, but they also have higher market risks than other investments. Debt mutual funds, on the other hand, offer lower returns but are comparatively safer.

Is the monthly SIP tax-free?

Taxes are levied on the redemption of mutual fund investments rather than on the investment mode itself. Capital gains from mutual funds are categorized as either short-term or long-term, and the applicable taxes are assessed accordingly. Equity Linked Savings Schemes (ELSS) offer tax-free capital gains on up to Rs. 1.50,000 invested in them.

What is SIP full form?

SIP stands for Systematic Investment Plan. It is a method for investing a fixed amount in a mutual fund at regular intervals, like monthly.

What happens if I invest Rs. 15,000 a month in SIP for 15 years?

This is a simplified example, and actual returns may vary. Assuming 10% annual return, you could potentially have around Rs. 29,70,000 after 15 years, factoring in compounding growth.

What is the difference between SIP and mutual fund?

A mutual fund is an investment pool managed by professionals. SIP is a way to regularly invest a fixed amount into a mutual fund.

What is ELSS full form?

ELSS stands for Equity Linked Saving Scheme. It is a type of mutual fund that invests in stocks and qualifies for tax deductions in India.

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