Equity Linked Saving Scheme (ELSS) has emerged as an excellent means of saving tax and creating long-term wealth for investors. These funds invest much of their corpus in equity or equity-related instruments.
ELSS funds combine the best of tax-saving and equity expose to provide superior returns to investors. In 2018, ELSS mutual funds offered 9.58 per cent returns, regarded as excellent compared to other investment avenues. As tax saving mutual funds, ELSS help investors save tax up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961.
Apart from being efficient tax-saving investments, there are many more reasons why investors should opt for ELSS funds. Here are some of their main benefits:
- Higher returns
Since ELSS funds invest in a portfolio of equity instruments, they have the potential to offer significantly higher returns compared to other investment avenues. Historically, long-term ELSS funds have offered yields ranging between 14 and 16 per cent per annum with excellent capital appreciation. Thus, they can be viewed as ideal instruments to help you build wealth in the long run.
- Tax benefit
A compelling reason to invest in ELSS funds is its tax-saving feature. These funds are also termed as a mutual fund tax saver because investing in them qualifies for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. It is vital to note that, with effect from 1st April 2018, long-term capital gains exceeding Rs.1 lakh arising from the sale of ELSS funds are now taxable at 10%.
- Shortest lock-in period
The lock-in period for ELSS funds is just 3 years, which is the shortest of all Section 80C investments. Through this, you get the liquidity and flexibility of withdrawing your funds in a shorter timeframe. However, you can also choose to remain invested after 3 years. It can grow your portfolio with the opportunity of reaping long-term benefits.
- Habit of saving
ELSS is considered an ideal investment vehicle for investors eager to invest, but are short of funds. The scheme allows investors to invest systematically with an amount as low as Rs.500 per month. This inculcates the habit of saving and continuous investing. You can invest a small amount every month with discipline.
- Ease of investment
Investing in ELSS is simple. You can invest via online and offline methods. The documents required for investing are simple, such as KYC documents (Aadhaar card, PAN card, etc.), post-dated cheque, bank mandate form, etc. Depending on your choice, you can invest in ELSS via a lump sum amount or a systematic investment plan (SIP). Besides, you can quickly sell your investments online and receive the amount in your account within 3 to 4 business days.
ELSS mutual funds can be an ideal choice for investors having a higher risk tolerance and long-term financial planning. If you aim to save taxes, you can consider investing in these tax saver mutual funds. Moreover, when you invest in ELSS funds, you can also be assured of stable returns.