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Most of us look for savings options when the taxman comes knocking at our door. Most of the times, we ignore ELSS knowingly or unknowingly. A diversified tax saving mutual fund, Equity Linked Savings Scheme (ELSS) is one where the major portion of the corpus is invested in the equity market.
Now you can start investing in ELSS schemes through SIP. However, you need to note that each investment will envisage a lock-in period of 3 years from the date of investment. ELSS funds provide you two growth and dividend options. The Growth option gives you a lump sum amount after the completion of the lock-in period while the Dividend option gives you dividends whenever a fund declares a dividend, irrespective of the lock-in period.
With ELSS funds becoming an increasingly popular instrument, let us find out why it can be a useful investment for you.
Get tax savings and investment benefits
ELSS offers you dual benefits. Also, due to market gains from equity exposure, it helps you grow your money faster while keeping your taxes under control through Section 80C benefits. Hence, unlike PPF, ELSS is not just a plain vanilla savings instrument. ELSS opens up the option of earning strong returns while saving your taxes.
Lower lock-in period as compared to other tax saving options
ELSS has the lowest lock-in period of only three years as compared to other popular instruments. These include PPF (15 years), NSC (6 years) and Tax Saving FD (5 years). Hence, ELSS enjoys the highest liquidity among other options.
Returns that are better and tax-free
Of all the options available under section 80C, returns from ELSS and PPF are tax free. Also, ELSS provides you the best returns due to its market leading edge. Returns from NSC and FD are taxable. Hence, ELSS gives you the best returns among all the instruments.
Opensup Equity Investments
You may have objections to investing in mutual funds, Also, if you have not invested in equity markets either directly or indirectly, then ELSS is the best way for you to start your equity journey. If you invest in the markets directly or indirectly, a small rise or fall in the markets can trigger a wrong selling decision. This is where ELSS becomes important. ELSS has a lock-in period of 3 years to lock you in and you can see clear returns over a period of three years. If you look at the last two decades, ELSS has provided the best returns under 80C as compared to all others.
Hence, invest in ELSS Tax Saving Funds through SIP to save tax and get better returns by averaging out your market risks.
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