Equity Linked Savings Scheme (ELSS) funds are a popular tax-saving option. This is a category of mutual funds that not only provides potential returns but even offers tax benefits under Section 80C of the Income Tax Act, 1961. These funds primarily invest in equity and equity-linked instruments, making them a unique tax-saving option.
The significance of ELSS lies not only in its tax-saving feature but also in its potential to build wealth over the long run. Check out the top reasons for considering an ELSS investment.
Reasons to invest in ELSS funds
- Potential for high returns
ELSS majorly invests in equities, which have historically provided higher returns over the long run than traditional tax-saving instruments like the National Savings Certificate (NSC) and Public Provident Fund (PPF). While equities come with considerable market risks, their potential to generate wealth is significant. In case you have a long-term investment horizon, then ELSS mutual fund’s returns can help beat inflation and assist you in attaining your long-term financial goals.
- Tax benefits
ELSS investments offer attractive tax benefits. As per Section 80C, ELSS investments qualify for tax deductions of up to Rs 1.5 lakh. This means you can lower your tax liability considerably by investing in ELSS. This benefit, however, is only available under the old tax regime so make sure to check under which regime you file your income tax returns. Moreover, long-term capital gains of up to Rs 1 lakh from equity investments like ELSS are free of tax, making them tax efficient.
- Lock-in period
ELSS comes with a mandatory lock-in of three years. This is the shortest lock-in period among all tax-saving instruments under Section 80C. This means that your funds are not tied for an extended time period and you can liquidate them easily post the expiration of the lock-in. This flexibility can be essential in times of financial exigencies.
- Systematic investment
ELSS funds permit you to invest via Systematic Investment Plans (SIPs), which allow regular and disciplined investments. SIPs are a great way to leverage the compounding effect and build wealth over the long term. By investing a fixed amount regularly, you can benefit from market volatility as well as considerably reduce your average buying cost.
- Professional fund management
ELSS funds are managed by experienced fund managers who invest on your behalf. These managers aim to enhance returns by carefully choosing and managing a diversified stock portfolio. This expertise can be advantageous, particularly if you do not have the time or knowledge to actively manage your investments.
Should you invest in ELSS funds?
ELSS funds not only offer tax benefits but even provide a high potential to create wealth through equity investments. Professional fund management, a short lock-in period, and the option to invest through SIP make ELSS an attractive investment choice for wealth-building and tax-saving.
So, as you look to plan out your investment and devise a tax-saving strategy, consider opting for ELSS investments alongside investing in other conventional tax-saving products to enhance your long-term capital gains. Note that the key to successful investing is to begin early, remain invested, and seek expert guidance whenever the need comes up. So, do not procrastinate and invest today!
