There are lots of investment instruments to help you create wealth, including FD (Fixed Deposit), PPF (Public Provident Fund) and equities, to name only a few. Yet these investment instruments are taxable. That is where ELSS or Equity Linked Savings Scheme stands out for its dual gain – typically, the returns are higher & partly taxable.
An ELSS investment is similar to investing through any other mutual fund scheme. It mainly invests in the stock market. The only downside is that an ELSS comes with a three-year lock-in, so you cannot sell your investment until the lock-in period is over.
Every instalment is locked in for a period of 3 years in the case of an ELSS SIP. Choosing the right ELSS funds can be confusing. However, you can ask advice from experienced financial advisory firms like FinEdge to get the right guidance about ELSS investment.
If you want to make ELSS investment, here are some of its benefits that you should know about:
- Tax Benefits
ELSS investment’s tax benefit has made it one of the best financial instruments among various other mutual funds. Other than that, ELSS’s investing target is equivalent to other private equity funds. Under section 80C, you can ask for a tax deduction by investing in ELSS.
Regarding taxes on returns from investments in ELSS, you must know that ELSS investment was not taxable until Mar 31, 2018. However, after 2018, it was said that if the earnings exceed Rs. 1 Lakh, income from ELSS investment is taxable at a concessional rate of 10 per cent.
- Lowest Lock-in
Historically, investments that save tax have long lock-in periods. According to current laws, ELSS investment comes with the shortest 3-year lock-in duration among the other tax saver investments available in India. It means you can plan to fulfil your short-term financial goals with the help of an ELSS investment along with saving taxes.
- Inflation Beating Returns
ELSS are diversified stock funds related to the economy, which give them an advantage over fixed-income investments providing tax advantages. Also, being linked to the market, these tax saver mutual funds can provide potentially higher returns, which can beat the adverse long-term impact of inflation. It is the primary reason why a lot of investors switch from old school alternatives to mutual funds to ELSS investment.
- Ease of Investment
It is easy to invest in an ELSS. You can spend your money either in a structured investment strategy (SIP) or as a lump sum. After the 3-year lock-in, you can start owning your ELSS investment units. However, in case you want to check them, you have the ease of doing it online in just a few clicks. The funds are credited in 3-4 business days to your bank account.
- Dividend and Growth Option
ELSS investment portfolio consists of a conservative allocation of different asset groups, including equity and debt securities. In comparison, various funds frequently diversify within the share group, allocating investments to big caps, mid-cap, small-cap stocks. Through ELSS investment, the total portfolio can be efficiently diversified, and the market risk can be mitigated effectively.
Investing your money smartly means searching for ways where you can save on tax while still producing good returns. It is where the ELSS investment option comes into play. Irrespective of your age, you should invest in ELSS for tax saving to receive substantial returns.
Make sure you read about ways to invest in ELSS funds before making any final decision. If you are still baffled, then seek advice from reputable financial advisory firms to help you understand and plan your investment decisions in the best way possible.