5 Reasons to Invest in ELSS

Most of the people start thinking about saving tax in the month of January. As there are plenty of tax saving instruments available in the market, here we would tell you why Equity Linked Savings Scheme (ELSS) or tax saving/planning mutual fund schemes are the best tax saving option for you. Let’s Understand the top 5 reasons to invest in ELSS.
Equity-linked savings schemes, commonly known as ELSS, are mutual funds that primarily invest in equities. ELSS offer higher returns due to investments in the equity market, along with dual tax benefits under Section 80C of the Income Tax Act.

Tax Benefits:

Under Section 80C of the Income Tax Act, 1961, you can invest up to Rs. 1,50,000 in ELSS to claim deductions on Income Tax.
Apart from this, you get tax-free capital gains and dividends up to Rs1,00,000 annually (as proposed in Budget FY19) for investments held over a year. For long-term capital gains (LTCG) over Rs1-lakh, you need to pay 10% tax.
If you fall in the 20-30% tax slab, you can end up saving a good amount every year by investing in ELSS.

Lock-in Period:

All tax saving investments typically come with a mandatory lock-in period. When you compare the lock-in of instruments under Section 80C, you’ll see that the popular PPF has a lock-in of 15 years, NPS is locked-in until you’re 60, others have lock-ins of 5+ years, but ELSS has a lock-in of just 3 years!

Read: ELSS vs. PPF vs. ULIP: Which is a better tax Saving Instrument for 2019?

Returns:

ELSS or tax-saving mutual funds invest primarily in the equity markets and thus have the potential to deliver market linked returns. ELSS has proved to give returns of 14-16% annually, especially on long-term investments. This would help one achieve their financial goals and create wealth at the same time.

Minimum Investment:

You can start investing in ELSS funds with a minimum amount of Rs. 500. There is no maximum limit. This way you can invest in smaller amounts while gaining the benefits of ELSS. SIPs (Systematic Investment Plans) help invest pre-decided amounts every month with discipline. Since there’s a lock-in period of 3 years, if you start a SIP in Equity Linked Saving Schemes, the returns for your SIP amounts will be generated every month after 3 years of the first investment.

Availability of different options:

The mutual fund universe is large. There are many ELSS funds to choose from, each offering a diverse portfolio of stocks. You are not limited by just one scheme or plan.