I will receive a lump sum of Rs 25 lakh. Where should I invest it to save income tax?

Any investment you make should be based on your investment profile, and that includes your current income, expenditures, risk profile, and financial goals. Depending on your affordability, you can choose to invest through a regular SIP or lump sum in one shot. ELSS (Equity Linked Savings Scheme) is the only mutual fund that can help you save taxes (as per Section 80C). ELSS has outperformed comparable products by a wide margin.

These schemes have a lock-in period of three years from date of units allotment. After the lock-in period is over, the units are free to be redeemed or switched. ELSS offer both growth and dividend options. Investors can also invest through Systematic Investment Plans (SIP), and investments up to Rs 1.5 lakhs, made in a financial year are eligible for tax deduction.

Selecting the right ELSS may not be an easy task. Some ELSS may have more exposure to large-caps, while some may be more exposed to mid-cap stocks, or multi-caps. It's better to diversify across not more than 2-3 ELSS and make sure they have allocation into different industries and market capitalization.

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