What is ELSS and What are the Advantages of Investing in ELSS?

Today, in times of rising cost of commodities, meticulous financial planning is of utmost importance to manage your daily expenses and save for the future. No matter how much you earn, it is paramount that you have a good investment portfolio that allows you to accomplish your financial goals. One of the best investment tools that allows you to both save taxes and grow your wealth is the ELSS (Equity Linked Savings Scheme).

 

ELSS allows you to save taxes up to Rs. 1.5 lakhs under Section 80C of the Indian Income Tax Act, 1969. Among other investment schemes that are eligible for tax deduction under Section 80C, a lot of people prefer investing in ELSS scheme because of its high growth potential. One of the important things to know about this tax-saving mutual fund scheme is that it comes with a 3-year mandatory lock-in period. And although there is no maximum cap on amount you can invest in a year, you can get a tax deduction only up to 1.5 lakhs.

 

Benefits of Investing in ELSS

While ELSS tax benefit is probably its most significant advantage, the funds also offer a host of other valuable benefits such as:

 

Higher Return Potential

As mentioned above, ELSS funds are equity-oriented diversified funds with the majority of the investment done in equity. The equity markets are known for their higher return potential compared to almost every other investment class in the long run. So, ELSS investment is also a wise option if you are aiming for long-term capital growth along with tax savings.

 

●Growth and Dividend Options

When you invest in an ELSS fund, you get two options - growth and dividend. In the growth option, the dividends are reinvested in the fund to deliver higher returns in the longer run. But in dividend option, the investor receives the dividend as announced by the fund house. Once the dividend is paid, the NAV (Net Asset Value) of the scheme is adjusted to make up for the dividend paid. 

 

●Shorter Lock-in Period

As compared to all the other 80C investments like PPF and NSC, ELSS mutual funds also have the shortest lock-in period of just three years. Even tax-saving FDs generally have a minimum tenure of 5 years. To claim the deduction, you must remain invested until the lock-in period. This makes ELSS a more flexible investment option. 

 

●Investment Flexibility 

One of the significant ELSS advantages is the fact that you can either invest a lump sum or you can start a SIP (Systematic Investment Plan). With SIP, you can start investing in the fund of your choice with as little as Rs. 1,000 per month. However, do note that every individual SIP investment will have a lock-in of 3 years. 

 

Save Taxes and Generate Higher Returns with ELSS

ELSS funds are currently one of the best ways to save tax. Start looking for the best tax saving mutual funds to reduce your income tax burden and generate handsome returns in the process. 

However, as ELSS funds are equity-oriented, do consider your risk appetite and investment objective before investing. 

Apply Now