April 12, 2024

Business Bib

Business & Finance Blog

ELSS fund: Top reasons to invest in one

3 min read

Managing and investing money wisely is not a rocket science and does not have to be a complicated process. Basic knowledge about the funds, some patience to stay invested irrespective of market fluctuations, and wise counsel is all it requires to make investments grow exponentially over lifetime.

There are investors who are more cautious about losing money in the market, while on the other hand there are smart investors who are cautious about investing money while saving taxes and investing with a longer term perspective.

ELSS funds or tax savings mutual funds are perfect investment solution for investors who are looking to save taxes while investing for long term wealth creation.

ELSS funds invests majority of its corpus in equity or equity related instruments. Since ELSS funds, like other equity mutual funds, also invest in large and mid-cap stocks, it is important to build a good long term investment strategy to get the maximum benefits.

Investor should decide on their priorities before investing in ELSS funds. However, investors should remember that wealth creation requires medium tolongterm commitments in investment and a suitable fund that matches your goal.

Here are some top reasons to invest in ELSS funds –

  • Qualify for Tax Exemptions

What makesELSS fund unique from the regular diversified equity mutual fund is the tax exemptionallowed.ELSS fund or Equity linked saving schemes are covered under Section 80C of the Income Tax Act 1961 and the investors can claim a tax deduction of up to Rs.1.5 Lakhs in a financial year under Section 80C.

  • Option of investing with least amount & SIP

Investment in ELSS fund can be made with an amount as low as 500 Rupee per month. ELSS is beneficial for investors who don’t have lump sum amount or don’t intend to invest a bulk amount in one go can start with a small amount either by investing in lump sum or through SIP.

The availability of SIP option reduces the burden of investing a large amount in one go and also, benefits the investor through rupee cost averaging over a period of time. Investors can use the systematic investment option to automatically transfer the amount from their bank account to the ELSS fund andthus making it a hassle free investing process.

  • Shortest lock-in period

All major investments require a mandatory lock-in period under Section 80C. Public Provident Fund (PPF) and National Savings Certificate (NSC) come with longer lock-in period of 15-year and 5 years respectively. However, ELSS fundhas an advantage over other schemes, since these funds have a lock-in period of only 3 years. Unlike other open ended mutual funds, the lock-in-period of 3 years in ELSS funds gives enough confidence to the fund manager to invest for the longer term without worrying about liquidity.

  • Protects from Inflation:

Public Provident Fund (PPF), NSC and Fixed Depositsetc. offer a fixed rate of return irrespective of inflation. Therefore, the real return (real return = fixed rate – inflation) in these schemes are quite low. However, return of ELSS fund is market linked and historically market linked returns have been much higher than that of fixed return bearing instruments.

  • Possibility of gaining higher returns

ELSS fund is an ideal investment tool to meet long-term goals. Even though the lock-in-period in ELSS fund is only 3 years, investor can remain invested for the long term as they can benefit from power of compounding from an investment which is predominantly investing in equity and equity linked instruments. Investors can think of linking their long term goals with their ELSS Fund investments and therefore, can achieve two objectives with one investment – tax savings as well as meeting long term financial goals.

Conclusion

ELSS fund could be a great option to build your financial corpus while saving taxes.As the ELSS funds invest in equity and equity related instruments, it enhances the chance to create long-term wealth through power of compounding. Therefore, by investing in ELSS funds, investors can achieve two investment objectives – tax saving and long term wealth creation for meeting various investment goals.

Investing a small part of your salary in ELSS funds by way of systematic investing ensures that you can save a small amount bit by bit while saving taxes and remaining a disciplined investor.

Undoubtedly, ELSS funds could be your best tax saving option.