What are ELSS Funds?
Equity-linked Saving Scheme (ELSS) is a subset of the Mutual Funds scheme that has been brought into action by the Government of India. The purpose of its introduction was to urge citizens to invest in equities, which were not seeing a lot of participation prior to its initiation.
The investors, in return, get savings and even financial benefits, through investments that are tax-exempted. The major and broad investment done through ELSS is in equity-linked securities (and seldom, in debt securities).
Though the lump-sum approach has always been the most favourable path, yet SIP poses some additional benefits over it. Since SIP accounts for a 12-month cost average, you will get the best possible price over the tenure of a year. This might not hold in the case of lump-sum strategy.
Having a long-term investment methodology, the ELSS offers a lock-in period of three years. The investor cannot liquidate his units throughout the duration.
According to experts, one should stay in the market for long, for better profits. ELSS brings you the possibility of generating great financial benefits through the 3-year timeline.
The duration is quite less when compared with other instruments like the National Savings Certificate (NSC) or Public Provident Fund (PPF).
Why Invest in ELSS Tax Saving Funds?
One should invest in ELSS mutual funds because-
- Under Section 80C of Income Tax Act, 1960, as proposed by the Government of India, the ELSS offers tax savings from your gross income up to Rs. 1,50,000.
- Not only are your ELSS investments exempted from income tax, but also the dividends and capital gains from ELSS are tax-free.
- As compared to other tax-saving options in our country like Fixed Deposit, PPF, NSC, National Pension System, the ELSS offers the best returns on investment near to 15%.
- The lock-in period of ELSS is far less than the aforementioned financial schemes.
- Mutual Funds are precisely crafted to perform well in the long run. In the case of ELSS, the 3-year period that may seem long to some people is actually the most adequate period that needs to be dedicated in the market for a fruitful return.
- When going for SIP in ELSS, you can begin with investment as low as INR 500 per month. This could be a great option for medium-income employees to make their monthly savings into profit-making investments.
Equity investment is profitable but often considered as a risky game. The ELSS makes sure you get the profits associated with equities. Also, since ELSS is composite in nature, it reduces the risk linked with equity investment through an enormous amount, thereby giving you a stress-free financial life.
The investor also gets access to the growth cycle of stocks, and hence they can expand their securities portfolio with well-performing equities to gain monetary benefits from it.