When it comes to tax saving investments, investors search for liquidity and high returns. An Equity-Linked Saving fund (ELSS) could be a category of mutual fund that serves both functions. A tax saver open-end fund is eligible for deduction underneath Section 80C of the income tax Act, 1961.
This article lists many alternative reasons why ELSS funds are getting popular among investors:
- Lowest lock-in period – ELSS funds have all-time low lock-in period of 3 years as compared to different tax saving instruments like Public Provident Fund, long-term deposits, etc. The ELSS investment becomes liquid once the lock-in period is over.
- Higher Returns – Since ELSS funds invest in equity schemes, they provide higher returns (15% to 20%) as against other tax saving mutual funds (usually, 7% to 10%). Over 3 years, the high returns including the advantage of compounding makes ELSS one of the most effective bets to park your money.
- Option available for Systematic Investment Plan (SIP) – When you invest in ELSS, you’ll be able to choose between 2 investment choices – SIP or lump sum. SIPs permit you to invest a fixed amount at periodic intervals. It may be monthly, quarterly or semi-annually. this feature instils the habit of saving in a salaried individual. you’ll be able to put aside a fixed sum from your pay every month to pay towards SIP. This conjointly ensures your tax planning becomes a more disciplined process.
- Advantages of Compounding – Most mutual fund advisors advise investors to invest in equity funds for the long term – 5 to 10 years. Since ELSS funds have a lock-in period of 3 years, they result in disciplined long-term investment by default. Thus, you’ll be able to profit immensely from the ability of compounding within the long-term.
- Simple to Invest – Investing in ELSS is easy. You need to fill in a one-time KYC document. If you register a SIP, the contribution process gets into auto mode. The fixed amount is subtracted from your account as per specific intervals set by you.
- No would like for observation – ELSS fund is associate automobile wealth-creator wherever you’ll be able to keep passive within the investment method. you are doing not got to place in an endeavor to observe the market’s movements perpetually. Mainly, once you invest through SIP, your cash is cover a amount of your time. Thus, solely components of your investment area unit subject to the market’s volatility.
- Ideal for first-time investors – ELSS is a wonderful entry purpose to equity participation for budding investors who don’t have a lot of expertise within the investment firm market. If you’re unsure regarding equity funds, you’ll be able to begin by investment in ELSS and later move to promising equities.
- No restrictions on investments – When it involves investment in ELSS funds, there are not any restrictions on the quantum of investment, unlike alternative tax saving options like PPF. If you find associate ELSS activity well, you’ll be able to invest beyond Rs. 1.5 lakh in one financial year.
Some factors to stay in mind before investment in ELSS
- A blanket exemption of Rs. 1.5 large integer underneath Section 80C includes alternative contributions like PPF, insurance premiums, tuition fees, long-run deposits, etc.
- ELSS includes a obligatory lock-in amount of 3 years. Hence, you cannot liquidate your funds before maturity. Premature withdrawal may lead to a loss from the tax protect because the exemption gets additional back to your nonexempt financial gain.
Conclusion – ELSS has emerged as an important means of wealth creation and tax saving for investors. For anyone who desires to achieve good returns while saving taxes, ELSS mutual funds are worth considering.