Equity-Linked Savings Scheme, popularly termed as ELSS have found their places in the investment portfolio of several investors for the large number of benefits it offers to investors. ELSS funds are a type of mutual funds that aids investors to save tax on their investments in an effortless. If you are an investor who has not yet stumbled across ELSS investments, this article can serve as your perfect guide to ELSS investment guide. In this article, we will understand what elss mutual funds are and the benefits of investing in ELSS tax saving mutual funds.
What are ELSS funds?
ELSS mutual funds are type of diversified equity funds that invest predominantly in equity securities. The mutual funds regulator of India – AMFI (Association of Mutual Funds in India) has mandated ELSS funds to invest a minimum of 80% of their securities in equities and equity-related instruments. ELSS funds provide investors with a tax deduction of up to Rs 1,50,000 per annum.These funds are the only class of mutual funds that offer tax deduction under Section 80C. ELSS funds are accompanied with a lock-in duration of three years.
Why should you invest in ELSS?
Here are a few reasons why you might consider allotting a part of your assets to ELSS and invest in ELSS funds:
- To save tax
One of the primary benefits of ELSS investments is the tax benefits it offers to investors. An investor can save up to Rs 46,800 every year by investing in tax-saving investments such as ELSS tax-saving mutual funds given that they belong to the highest tax slabs.
- Capital appreciation
As ELSS funds are mandated to invest majority of their assets in equity-related instruments, they have the potential to offer substantial returns to investors over a prolonged period. These mutual funds have historically offered investors with substantial returns, sometimes even double-digit returns when invested for a long period of time.
- Dual benefits
ELSS funds enjoy dual benefits of tax-saving attributes and wealth creation opportunities. These tax-saver mutual funds are the only of mutual funds that allow individuals to save tax on their investments as per Section 80C of the Income Tax Act, 1961.
- Lowest lock-in period
ELSS funds enjoy the status of lowest lock-in period among Section 80C investments of just three years. On the other hand, other tax-saving investments such as Public Provident Fund (PPF), bank fixed deposits (FD), National Savings Certificate have a lock-in duration of 15 years, 5 years, and 5 years respectively.
- Better post-tax returns
As ELSS funds are a type of equity funds, an investor is exempt from paying any tax on long-term capital gains for up to Rs 1 lac per annum. Any gains exceeding above Rs 1 lac are taxed at 10% per annum.
An investor can also opt to receive dividends on their ELSS investments if they wish to. This can help an investor to generate income even during the lock-in duration.
Though ELSS funds have a lock-in period of just three years, experts often advise their clients to stay invested for a longer duration to ensure optimum usage of ELSS mutual funds. It may help if you link your long-term financial goals with your ELSS investments. This will ensure that you do not exit the markets at slightest volatility. Happy investing!