Growing wealth is a fundamental need for an investor. They need to earn enough returns to beat inflation and see their money increase in value. While many investment instruments can help investors earn inflation-beating returns, few can double up as tax-savers. This is whyEquity Linked Savings Scheme (ELSS) has caught the fancy of investors – it can help them earn returns and save on tax.
But what are ELSS funds? ELSS fundsare equity-oriented schemes where investments are subject to a lock-in period of three years. More importantly, ELSS funds offer tax benefits under Section 80C of the Income Tax Act. This feature has made ELSS funds a favorite among investors.
Read on to explore further what anELSS mutual fund is, its tax-saving benefits, features, and other related aspects.
Taxation on ELSS
ELSS funds are also known as tax saver mutual funds. Under Section 80C of the Income Tax Act, 1961, investors can claim a deduction of up to Rs. 1.5 lakhs. This means an investor can save up to Rs 46,800 annually through tax deductions.
Also, since ELSS funds invest in equity, they have the potential to earn high returns over the long term. However, it is essential to note that ELSS mutual funds are also subject to market risk, so investors should carefully consider their risk appetite before investing.
Short lock-in period
ELSS funds have a shorter lock-in period than other tax-saving investment options under Section 80C of the Income Tax Act. For instance, ULIPs (Unit Linked Insurance Plans) have a lock-in period of five years, and a Public Provident Fund (PPF) account has a lock-in period of 15 years. In comparison, ELSS funds come withalock-in duration of only three years.
Investment starts at ₹500
Like all other mutual funds, you can invest in ELSS through a systematic investment plan (SIP). You don’t need a lot of money to invest in ELSS; SIPs can start with ₹500 as well. With small and regular investments, your wealth will grow and help you become financially secure. You can also use a SIP calculator to calculate your potential returns on your SIP investments.
Diversification in your portfolio
ELSS funds help diversify your investment portfolio by investing across various sectors and companies, from small-cap to large-cap. It diversifies your investment portfolio, along with minimising risk and maximising returns.
Managed by expert fund managers
ELSS mutual funds are managed by professional fund managers who have extensive experience in financial portfolio management. They have an impeccable track record of delivering returns. They make decisions after thorough research and careful analysis, and before executing a decision, they weigh the pros and cons. Thus, investors can be confident that they will receive the best possible returns on their investment.
From the meaning of anELSS fund meaning to its tax-saving benefits, this comprehensive guide explains some crucial things you need to know about this investment option. Investing in ELSS funds can be a smart way to save for your future while reducing your tax liability. Moreover, you can use these funds to achieve your long-term goals like retirement and child education and even beat inflation by a considerable margin.