Why You Must Invest In Tax Saver Funds Through SIP?

Come March and we all rush to make last-minute investments to save tax. These investments are mostly guided by the urge to save tax than to make the best use of the invested sum. We hardly take our tax investments as anything worthwhile than solving the basic purpose of claiming tax exemption. It is not surprising that those investments remain neglected thereafter and see some attention only when they are due to be redeemed or reused. 

But do you know that a little planning can make your investments do wonders. The key is not to wait till the last moment but to act as soon as the financial year begins - i.e. April. Again, you need not to invest everything at one go. Equity Linked Savings Schemes (ELSS), an eligible investment product under Section 80C, does away with the need to invest at one-go. These funds offer Systematic investment plan (SIP) option to let investors invest monthly in small portions. 

Let’s see what are all the benefits associated with SIP in a tax saver plan. 

1) Rupee-cost averaging - Investing through SIP comes with the benefit of rupee-cost averaging, meaning, you accumulate more units when the prices are low and vice-versa. This way of investing certainly favours your acquisition cost compared to one-time investments. 

2) Meeting your goals - It is worthy to reiterate that your tax investments can do more than just meeting your tax saving goals. You might be aware that the investments under tax saver funds are locked-in for a period of three years. Hence, these investments can be earmarked towards meeting your mid-term financial goals like buying a car or a foreign vacation. 

3) Added benefit of life insurance - Do you know that your monthly investments or sip can get you insurance benefit as well. Mutual funds have launched SIP schemes that give dual  advantage of tax saving as well as life insurance coverage. For instance, Birla mutual fund has introduced ‘Century SIP’, applicable on all of its tax plans, that combines tax saving with life insurance benefit at no extra cost. The minimum amount of SIP to qualify under this scheme is Rs 1,000 with no upper band applicable. Here are finer details of the scheme. 

	Insurance Cover	Example SIP Amount	Applicable Insurance Cover
Year 1	10 times the monthly SIP	5000	50000
Year 2	50 times the monthly SIP	5000	250000
Year 3	100 times the monthly SIP	5000	500000

Max Cover* 20 Lac

Max Age* Upto 55 Yrs

The insurance benefit comes along with the potential for your investments to earn higher returns. This factor alone makes SIP investments stand out from term plans or other conventional insurance plans. Also, the plan has an upper hand over unit-linked insurance plans (ULIPS), which have higher costs associated with them. 

4) Tax free returns - Another key advantage of investing in tax saver funds is that being equity-oriented, these funds enjoy tax-free returns. Let’s look at the average returns delivered by tax saver funds over the last few years. 

Tax Saver Funds	1-Year	3-Year	5-Year
	18% -24%	18%-20%	19%-22%

*Source - www.valueresearchonline.com

The stellar returns generated by these funds are unparalleled and cannot be compared with other tax saving options with scanty returns.

These points should be good enough for anyone to kick-start their tax planning right away rather than waiting for the financial year to end. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.