Nobody likes the extra money paid out from their pockets – paying tax is no exception. As a result, investors are often on the lookout for appropriate tax saving investment options for their portfolio. Right from ELSS funds to tax-saving fixed deposits (FD) to ULIPs (unit-linked insurance plan) to SCSS (senior citizens savings scheme), to NPS (national pension scheme) etc. an investor cannot fall short of options to save tax. However, ELSS funds tend to stand out from the other tax-saving investments on several aspects. Let’s understand why investing in ELSS may be considered as an ideal choice for your investment.
What are ELSS funds?
ELSS funds are equity-based mutual funds that invest at least 80% of their investment in equity-related securities of several companies. ELSS mutual funds have a mandatory lock-in period of three years. According to the Income Tax Act, 1961 ELSS funds fall under Section 80C investments, they are eligible for a tax deduction of up to Rs 1.5 lac per annum. These funds have several features that make them stand out from other tax-saving investments. Let’s understand this.
What makes ELSS funds stand out?
Here are a few reasons why ELSS tax saving mutual funds are a class apart:
- Shortest lock-in duration
ELSS funds offer the shortest lock-in period of three years as compared to other tax-saving investments. Other Section 80C investments such as Public Provident Fund (PPF), FDs, SCSS have a comparatively prolonged lock-in duration at 15 years, 5 years, and 5 years respectively. - Dual benefits
One of the reasons why ELSS mutual fund tax saver is highly preferred over other tax-saving investments is that they provide dual benefits to investors. With ELSS mutual funds, an investor enjoys higher chances of significant returns on their ELSS investments as well as tax-saving benefits. - Professional fund management
Since ELSS funds are a type of mutual funds, they enjoy professional fund management offered by highly skilled and knowledgeable experts known as fund managers. These fund managers help investors with certain investment decisions and invest in ELSS on behalf of the investors. - Flexibility to investors
ELSS funds are highly flexible in nature. ELSS funds do not require investors to stay committed to a multi-year mutual fundsinvestment plan and permit investors to move to another fund if they are unhappy with their ELSS investments. However, the same flexibility is not offered by certain other section 80C investments such as ULIPs that only allow investors to move to fund provided by that particular ULIP, in case an investor is unhappy with their ELSS investments.
ELSS funds are an excellent investment choice if you wish to invest in equities and grow your capital. Additionally, as an investor is mandated to stay invested for a minimum duration of three years, it ensures financial discipline among investors. Though you can exit ELSS mutual fund schemes after a period of three years, experts recommend staying invested for a prolonged duration to allow the equities to grow at their maximum potential. You may also consider linking your ELSS mutual fund investments with long-term goals to ensure that you stay invested even during times of volatility. Happy investing!
