Invest your hard-earned money wisely not only helps you achieve financial goals but also offers tax- saving benefits. Equity Linked Saving Scheme (ELSS) is a popular investment option in India that allows enjoying tax benefits while harnessing the potential of equity market. ELSS is a subcategory of equity mutual funds that is eligible for deduction from total income of up to Rs 1.50 lakhs in financial year under section 80C of the Income tax act of 1961. It combines the benefits of tax-saving and long-term capital appreciation. ELSS funds are regulated by the Securities and Exchange Board of India (SEBI) and offer a lock-in period of three years.
Features of ELSS investment:
- Investing throughout the market cycle get benefitted to the investor
- In the long run, it has the potential to inflation beating return.
- It provides investor a dual benefit of wealth creation and tax saving as well
- The lock-in term ensure that you will remain invested for at least three years.
- As compared to other saving schemes like PPF and ULIP this is more advantageous to investor
- It provides an element of equity in your investing portfolio.
- ELSS do not have entry and exit load
- You can continue to invest in this scheme even after the completion of lock in period of three years.
- The interest you receive on the amount at maturity is completely tax-free.
Long-term returns on good ELSS Funds are in the 10-12 percent range, which is among the greatest in the tax-saving category of products. However, like with other equity investments, ELSS carries certain risk.
ELSS fund option provides the Systematic Investment Plan (SIP) allowing you to invest a fixed amount at regular intervals. SIPs are beneficial because they create discipline, minimize the need for market timing, and mitigate the effects of market volatility.
Investing through SIPs enables you to spread your investments over time, benefiting from the power of rupee-cost averaging. ELSS funds invest in a diversified portfolio of equities across various sectors and market capitalizations. ELSS funds are managed by experienced fund managers who conduct in-depth research and make informed investment decisions on your behalf.
Risk and return in ELSS fund
ELSS investments offer the potential for higher returns, it also carry some risk. Since ELSS funds primarily invest in equities, they are subject to market fluctuations. This diversification helps mitigate risks associated with individual stocks, as the performance of one company or sector does not significantly impact the overall fund. However, the historical data suggests that over the long term, equities have delivered superior returns compared to other asset classes.
How to invest in ELSS
You can invest in ELSS exactly in same manner that you would any other Mutual Fund. The most convenient method is to open an Online Investment Services Account. You can invest either as a lump sum or through the SIP (systematic investment plan) route.
You can invest as low as INR 500 in an ELSS fund. You can claim an tax benefit more than 1.5 lakh you can invest as much as you like.
As can be shown, ELSS funds out perform other tax-saving products, with the shortest lock-in time (3 years) and with higher returns. They are also tax effective.
ELSS funds are equity funds with a diverse portfolio. These funds Primarily invest in equities of publicly traded firms in a predetermined proportion based on the fund's investment goal. The stocks are drawn from a variety of market capitalizations (Large Caps, Mid Caps, and Small Caps) and industrial sectors. These funds seek to maximize long-term wealth appreciation.
If you're looking for a tax-efficient investing option, ELSS Mutual Funds are a tremendous alternative.
Individuals and households are encouraged to invest and safeguard their financial futures by the government with tax deduction under Section 80C of the Income Tax Act of 1961. ELSS and FD are two of the several 80C investments available to you as a tax payer.
ELSS is a tax-saving investment option with a lock in period of three years that offers potential for higher return. By investing in equities through ELSS funds, investors can potentially earn higher returns compared to traditional tax-saving options. With a lock-in period of just three years, ELSS funds provide liquidity and flexibility to investors. It is always recommended to consult with a financial advisor or tax professional to understand the suitability of ELSS funds in your specific financial situation and to make informed investment decisions.
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