ELSS funds, also known as Equity Linked Savings Schemes, are mutual funds that invest their assets primarily in stocks and other equity-related securities. Investors in ELSS funds are referred to as “tax saving schemes” because they are eligible for a tax exemption amounting to Rs. 1.5 lakhs from their yearly taxable income under the rules of Section 80C of Indian Income Tax Act. Here are reasons to invest in ELSS mutual funds-
1. Save tax and create wealth at the same time
For starters, ELSS funds are mutual funds that invest in stocks. The majority of them are multi-cap funds, which means that they invest in firms of all sizes – large, mid-sized, and tiny – and across all industries. Furthermore, because it is an equity collective investment scheme, it has the potential to generate income in the long term through the investment in shares.
However, another significant advantage of investing in ELSS mutual funds is indeed the fact that you can claim a tax deduction of up to Rs 1.5 lakh under Section 80C of Income Tax Act. There is really no other mutual fund that offers you this benefit. As a result, when you’re in the highest income tax category of 30 percent, you can save Rs 4,800, which includes a 4 percent income tax cess.
Why you must invest in the ELSS mutual funds
2. Short lock-in period
In contrast to other investments such as the Public Provident Fund, Employees Provident Fund, and National Savings Certificate, which have a lock-in duration of at least five years, once you invest in ELSS mutual funds, your money is locked in for a period of three years.
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3. Comparatively higher liquidity
When compared to other 80C investment choices, ELSS mutual funds offer the highest level of liquidity. PPF, for example, has a 15-year lock-in term and, as a result, has relatively restricted liquidity for the duration of the investment period. The minimum lock-in time for all 80C investments other than ELSS is five years.
The investment in ELSS mutual funds is restricted for a period of three years. Because of this, an investor’s cash is not locked up for lengthy periods of time when investing in ELSS, and they have the opportunity to redeem their investment in part or in full following the expiration of the lock-in period. In the event that an investor chooses to invest in ELSS using the SIP mode, it is vital to remember that every SIP is locked in for a period of three years. As a result, investors must carefully consider their ELSS investment through a systematic investment strategy.
4. Investing small through SIPs
It is simple to invest in ELSS mutual funds using a systematic investment plan (SIP), just as it is with any other mutual fund. You can establish a systematic investment plan (SIP) for an ELSS mutual fund with as little as Rs 500. And, like with other mutual funds, you may grow your investment amount by increasing your SIP contribution amount whenever your income improves.
And if you want to take advantage of the entire tax benefit available for investing in these funds, you may save time by investing Rs 12,500 per month instead of having to put in Rs 1.5 lakh all at once.
When compared to most other tax-saving investments, most others do not offer a systematic means to invest money on a regular basis.
5. Benefit of equity exposure
An additional advantage of investing in ELSS is that it gives accessibility to equity investments. By integrating an ELSS mutual funds investment into his or her portfolio, an investor can benefit from the stock market’s expansion cycle. Savings may yield around 6-8 percent returns; but investing in equities has the potential to yield larger returns, particularly during periods of favorable stock market returns.
Last but not least, the tax savings and the lock-in period are the primary differences here between ELSS as well as other equity mutual fund schemes. You should consider ELSS mutual funds if you really want to invest in equities funds while still saving money on your taxes. Before making an investment, you should analyze the fund’s financial objectives, risk-o-meter, relative size, proven record, previous performance, asset allocation, and growth potential, among other aspects of its investment strategy.