Mutual fund investment has gained a lot of popularity, and for all the right reasons. Among the several variants of mutual funds available, equity-linked savings schemes, or ELSS, stand as an exceptional and great option. Why should ELSS mutual funds be on the investment radar, and how do they help you achieve your financial goals? Let’s dig in.
- What are ELSS Mutual Funds?
ELSS is a unique genre of equity-orientated funds offering tax benefits in terms of Section 80C of the Income Tax Act. The fund investment is largely held in equity and equity-related instruments with a view to generating long-term capital appreciation. What sets ELSS apart from other mutual funds is the mandatory lock-in position of three years, which compels the investor to hold on to the fund until full tenure, where higher returns are likely to accrue.
- Tax benefit of ELSS
Tax is another key feature of getting invested in mutual funds, which is ELSS. As per the Income Tax Act, under Section 80C, investments made under Rs. 1.5 lakh per financial year in ELSS funds are eligible for tax exemption. The above feature is also one of the most prominent about investing in ELSS. It makes it attractive to those investors who want to save taxes as well as increase their wealth. What actually distinguishes ELSS funds is its tax savings angle, so that it can perhaps prove to be one of the best investment options for SIP investors with multiple goals—to save taxes and invest regularly simultaneously.
- Scope for Greater Returns
Primarily equity market-based investments, ELSS, as mentioned above, has historically provided higher returns compared to many other classes of assets over the long term. Past performance not being a promise of future results, the direction that ELSS funds have toward equities situates them well for growth.
- Shortest Lock-in Period Among Tax-Saving Instruments
Of the numerous tax-saving investment options, ELSS mutual funds benefit from the lowest lock-in period of a mere three years. This is significantly shorter than the prevailing lock-in periods for other popular tax-saving instruments like the Public Provident Fund or National Savings Certificate. The relatively short lock-in period provides greater flexibility and liquidity to investors than in the case of other tax-saving options.
- Investment Flexibility
ELSS mutual funds provide great flexibility in investments. You can invest in such funds either as a lump sum or through an SIP. SIPs are extremely popular as they allow you to invest a certain amount regularly; ELSS, therefore, is one of best mutual funds for SIP. This helps bring down the volatility impact on investment effectively through rupee cost averaging.
Conclusion
ELSS mutual funds, therefore, have the unique advantage of both tax benefits, high potential returns, and flexibility that makes it one of the investment products many become increasingly attracted to. For seasoned investors or for new investors just beginning, keeping ELSS funds as a part of their portfolio can be quite wise. Remember, all equity investments carry market risks; so, based on your risk-taking capacity and investment goal, invest wisely.
