ELSS Tax Saving Mutual Funds

Most of us search for savings options when the taxman knocks at our door. Most of the times, we tend to wittingly or unwittingly ignore ELSS. A diversified tax saving mutual fund, Equity Linked Savings Scheme (ELSS) is one where major chunk of the corpus is invested into the equity markets.

Now, you can start investing in ELSS schemes through the SIP route. However, you need to note that each investment will envisage a lock-in period of 3 years from the date of investment. ELSS funds provide you with two the growth and dividend options. Growth option gets you a lump-sum amount after the completion of lock-in period whereas the dividend option gets you dividend whenever a fund announces dividend, even if it is in the lock-in period.

ELSS funds are becoming an increasingly popular instrument, let’s find out why it could be a useful investment for you.

Get the benefit of tax savings and investment

ELSS provides you with the dual benefits. Moreover, owing to its market edge from equity exposure, it helps multiply your money faster while keeping your taxes under check through section 80C benefits. Therefore, ELSS is not just a plain vanilla savings instrument unlike PPF. ELSS opens the option of earning robust returns while saving your taxes.

Lower lock-in period compared with other tax savings options

ELSS has the lowest lock-in period of just three years compared with other popular instruments. These include PPF (15 years), NSC (6 years), and tax-savings FD (5 years). Therefore, ELSS enjoys the highest liquidity among other options.

Returns that are superior and tax-free

Out of all the options available under section 80C, returns from ELSS and PPF are tax-free. Moreover, ELSS provides you with the best returns simply owing to its market edge. Returns from NSC and FDs are taxable. Hence, ELSS gives you the best returns among all instruments.

Opensup equity investment

You may have reservations regarding investing in mutual funds. Moreover, if you have not invested either directly or indirectly into the equity markets, ELSS is the best way for you to commence your equity journey. If you invest in the markets either directly or indirectly, a small rise or fall in the markets can trigger a wrong selling decision. This is where ELSS becomes important. A lock-in period of 3 years in ELSS keeps you tied down and you can see clear returns over a period of three years. If you look at the last two decades, ELSS has provided the best returns compared with all the other under 80C.