The beginning of the financial year is always the
best time to start your tax planning exercise. The benefits are obvious. One,
you don't have to run around in the last minute to finalise your tax-saving
investments and make the investments in a hurry. Two, it will also impart
discipline to your financial life. Three, it is a great strategy to maximise wealth
if you are investing in Equity Linked Saving Schemes or ELSSs to save taxes
under Section 80C.
Investments in ELSS (or tax planning/saving mutual
fund schemes) qualify for tax deduction of up to Rs 1.5 lakh under Section 80C.
However, the trouble is that unlike the other traditional favourites like
Public Provident Fund (PPF), National Saving Certificate (NSC), etc. it is a
not a great idea to invest the entire money at one-go in March, just before the
end of the financial year.
This is very important because investing a lumpsum
in the stock market can be problematic. When you are committing the entire
money in the market, you are essentially buying at a certain level. This could
have a big impact on your return prospects, especially if you are entering the
market at a higher level. Sure, if you are lucky, you may also enter when the
market is at a lower level and make tonnes of money. But we won’t complain
about that, right?
To
cut the story short, this is the reason why we advocate staggering the
investments while investing in equity mutual funds. When you are investing
regularly at a fixed interval, you can avoid the trap of entering the market at
certain level. You can also average your purchase cost if there is volatility
in the market. Rupee cost averaging is a great strategy to maximise your wealth
from equity mutual fund investments. You can invest either through a
Systematic Investment Plan or Systematic Transfer Plan in an equity mutual
fund. If you want to keep the money in the bank, you can start a SIP to invest
regularly in an equity mutual fund scheme. Or you can park the money in a
liquid scheme and transfer a fixed amount regularly in an equity scheme via an
STP. 