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Table of Content
1. Why are ELSS funds the most advantageous for tax savings?
3. What are the features of ELSS Mutual Funds?
4. What are the tax benefits offered by ELSS Mutual Funds?
6. Who should invest in the ELSS fund?
7. Factors to consider before investing in ELSS funds
8. Why should you invest in ELSS tax-saving mutual funds?
10. What should be the mode— SIP or lumpsum?
11. ELSS vs other tax-saving instruments
12. Other investment options to save tax
13. Conclusion
Mutual funds these days have become a popular choice of investment plan among investors who prefer a professionally managed financial mechanism that can fetch them bigger returns from the market. However, with growing wealth comes a higher need for tax savings to enjoy better returns from the investment. This is where the Equity Linked Savings Scheme (ELSS) can do wonders. More precisely, this is the only mutual fund scheme that comes with tax benefits.
Are you someone looking to invest in market-linked funds to grow your wealth, yet stay cautious about tax savings as you move ahead on your investment path? ELSS can be an answer to your searches as it combines the scope of wealth generation with tax deductions. But of course, before you choose to invest in it, make sure you have clarity of what is ELSS, its features, benefits and how the fund operates to minimize the risks of losing the capital. This in turn will ensure a satisfying investment journey.
While you learn what is ELSS fund, it’s crucial to understand why it is considered the most advantageous for tax savings. The following are the reasons behind this consideration.
As the name suggests, ELSS is an equity-based mutual fund scheme. A stock fund by nature, ELSS invests your money majorly in equities or related instruments that generate higher returns over a longer tenure, yet with the shortest possible lock-in period of just 3 years. Typically, it contains equities as a minimum of 80% of the portfolio that couples high returns with high risks and the rest being majorly fixed income assets to offset the market fluctuations. It is also the only mutual fund that enables wealth creation with tax benefits. So, if you are a risk-taker, investing in an ELSS fund can turn out to be a good choice, helping you to grow your wealth while saving taxes. It can be a useful tax saving investment as per the applicable income tax slab rate for you.
Knowing what is ELSS mutual fund is not all. Understanding the features can help you make an informed choice of investment. Here’s a list.
As the only mutual fund scheme with tax benefits, ELSS mutual funds offer deductions in your taxable income under the provisions of the Income Tax Act, 1961. The benefits are as follows:
Investing in ELSS follows a similar process of investment in mutual funds. You can easily check, compare and pick a fund and make an online payment through an Online Investment Services Account. There is no upper limit for ELSS investments, though tax exemptions are available till the point of Rs 1.5 lakh per year. Invest in ELSS on a regular schedule via a systematic investment plan (SIP) or in a lump sum if you have a fund ready. However, SIP offers you reduced risk, enabling you to invest as little as Rs 500 in a regular schedule and yet enjoy tax benefits.
An ELSS fund allows you to enjoy tax benefits while growing your money. Thus, if an individual is looking to accumulate wealth through market returns and save on taxes alongside, they should invest in an ELSS fund. Based on the features of the fund, the following are the people for whom ELSS investment can be an ideal choice.
Before you take the final call to invest in an ELSS fund, here’s a checklist of factors that you need to consider.
A tax-saving financial instrument with wealth creation opportunities through an equity-based fund, ELSS is increasingly becoming a popular choice among investors. But it’s important to know why you should invest in ELSS funds before you take your pick. Here’s a set of benefits that make ELSS investment a worthy choice.
Following are the tax benefits you can enjoy through your ELSS investment.
ELSS funds allow you to invest in two ways— either in a lump sum or in small amounts for a regular schedule through SIP. However, SIP is a preferred choice for many as it allows you to invest in small amounts, reducing the overall risk of losing capital. Moreover, affording a small amount for the ELSS fund every month doesn’t tug at your pocket.
Known to be the only mutual fund with tax benefits, where does ELSS stand in comparison with other tax-saving instruments? Look at the table below to get a clear understanding.
Investment |
Lock-in period |
Returns |
Tax on returns |
5-year FD |
5 years |
4-6% |
Yes |
PPF |
15 years |
7-8% |
No |
NPS |
Up to retirement |
8-10% |
Partially taxable |
NSC |
5 years |
7-8% |
Yes |
ELSS |
3 years |
15-18% |
Partially taxable |
If you are looking to build wealth and as well as secure your financial future with a life cover then you can consider ULIPs as an investment option. ULIPs provide tax benefits on the investment amount. The tax benefits under Section 80C of the Income Tax Act of 1961 allow you to invest and grow your money while minimising your tax burden.
In ULIP Plan, the investment risks in the investment portfolio is borne by the policyholder.
By now, you have surely gained sufficient knowledge to invest in an ELSS fund. However, carefully consider your budget, risk appetite and financial goals to ensure an optimized return from your investment. Once they align with your investment, earning high returns from your ELSS fund won’t be that difficult.
Ans. As suggested by the name itself, ELSS is an equity-major fund that earns high returns at high risk. Moreover, it’s the only mutual fund that offers tax benefits under section 80C of the Income Tax Act, 1961. This fund allocates a minimum of 80% of the corpus into equities and related instruments and the rest in fixed-income assets. It thus reduces risk and protects your capital while helping you save up to Rs 46,800 a year through tax rebates. With the shortest lock-in period of 3 years under 80C, it can fetch higher returns in the long run.
Ans. The lock-in period in the ELSS mutual fund is 3 years. This is the shortest lock-in period under the provisions of section 80C of the Income Tax Act, 1961.
Ans. Yes, if you invest the total amount in a lump sum. Thus, you invest only once and the lock-in period of 3 years gets over on the same day for all the units of the corpus. Post that day, you are allowed to withdraw all the money from ELSS.
Ans. No, the ELSS mutual fund can’t be redeemed at any random time. These funds have a lock-in period of 3 years, and you have to wait for it to get over before you can redeem your fund.
Ans. Calculate ELSS returns in these easy and simple steps:
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This Article has been prepared for information purposes only, should not be relied on for Investment advice. You are requested to seek advice from your personal advisor.