Although most new investors prefer debt or equity funds when searching for the best mutual funds, a growing number of investors, particularly working professionals, are looking into ELSSs. An Equity-Linked Savings Scheme (ELSS) is a mutual fund that invests the majority of its corpus in equity segments. Similar to other investment options such as NSC and PPF, an Equity-Linked Savings Scheme is a diversified mutual fund. These funds are also eligible for tax exemptions.
We have five reasons why these tax-saving mutual funds are a great choice for those who are overwhelmed by all the options available on the market.
1. Tax savings
It is obvious that the greatest benefit of ELSS Funds are the tax savings. These funds qualify for tax exemptions under Section 80C of the Income Tax Act. You can deduct Rs. To reduce your tax liability, you can deduct up to Rs. 1.5 lakhs from the amount of your taxable income. You don’t have to pay tax on the income you make from these funds, as long-term capital appreciation is an option.
2. Shorter Lock-in
These funds are less tax-saving instruments than the NSC or PPF. They also have a shorter lock in period. PPFs have a 15-year lock-in period, while NSC only requires you to keep your investments for 5 years. Equity-linked savings schemes, on the other hand allow you to withdraw after three years in order to receive tax benefits. To get tax exempt on the investment returns you generate, you must remain in the fund for at most 3 years.
3. Greater Growth Potential
Your investment is more likely to grow if the equity markets are where the majority of your corpus is invested. Although equity markets can be risky, experienced portfolio managers will actively manage the fund to maximize returns. These funds not only offer tax benefits, but also allow you to make excellent returns on your investment.
4. You are a disciplined investor
Ask any experienced investor, and they will agree that it is important to invest regularly, no matter what investment amount, and to be patient. These are the two main goals of ELSS Funds. A monthly SIP can be started for as low as Rs. You can start investing in these funds by setting up a monthly SIP of Rs. 500. The funds are locked-in for three years so you will always be invested. These funds will make you a more disciplined and competent investor over time.
5. Dividend Option
These tax-saving funds allow you to choose between a growth or dividend option. The growth option will lock your money away for three years, but the dividend option allows you to still get some of the benefits from the investment. This option is ideal for anyone who wants to see regular returns on their investment.
