On the fence about putting your money in ELSS funds on a yearly basis? Read on to know why choosing this investment instrument is a good idea.
Ever wondered why financial experts pitch Equity-Linked Saving Scheme (ELSS) as the go-to- investment tool? It is an excellent avenue for wealth creation and saving taxes. But the best part about the ELSS category is that it fits all budgets, has a reasonable lock-in period and provides exposure to equity investing. If you are still sceptical about investing in ELSS funds, here are five reasons that will tilt the scales in its favour.
- Eligible for Tax Deduction:
ELSS is a viable option for those exploring tax saving realms. Investments in ELSS funds (up to Rs.1.5 lakhs) are exempted from tax Under Section 80C of the Income Tax Act. People in the 30% tax bracket can save up to Rs.45000 every year. Further, ELSS investment doesn’t attract tax on long term capital gains (LTCG) on redemption provided it is less than Rs.1 lakh in the financial year.
- Potential for High Return:
Besides being an excellent tax saving vehicle, the ELSS category has the potential to earn incredibly higher returns over an extended period of time. Given that a significant chunk of its net assets is invested in equities, ELSS funds are known to deliver superior returns. Hence, the odds of capital appreciation (compounded return) on your investment, especially in the long run (5-7 years) are fairly bright.
- Shortest Lock-in Period:
Unlike regular tax saving instruments in the financial market that come with a lock-in period of 5 to 15 years, the ELSS is subject to the lowest term of just 3 years. This means the money parked in the funds can be pulled out after three years from the date of investment. The shorter period offers you the flexibility to shift to another avenue if the selected option is a dud and not performing as expected.
- No Maturity Date:
One big plus of ELSS funds is that they don’t have a maturity date. In other words, you can continue investing in them after the expiration of the lock-in period of three years with or without any further contributions. Bear in mind that there is no short-cut to growing one’s wealth and only long-term investment delivers superior compounding benefit.
- Disciplined Investing via SIP Option:
Can’t invest the entire money at one go? No worries! Those unable to park a lump-sum amount can do so via systematic investment plan (SIP) mode with just Rs.500. Besides, easing the burden of putting in a huge chunk, the process teaches disciplined investing.
Moreover, the pre-decided amount gets transferred automatically from your bank to the chosen scheme, thereby saving you the trouble of doing it manually every month. Not to mention, SIPs provide the benefit of rupee-cost averaging. It’s however important to remember that each SIP investments will get locked-in for three years.
As you can see investment in ELSS schemes is a smart move that comes with multiple benefits. It has the potential to generate higher returns, save on taxes and inculcate the habit of disciplined investment through SIPs. That’s not all! The avenue has no maturity date, comes with a short lock-in period and offers the flexibility of switching underperformers with more lucrative funds. With so much on the platter, what are you waiting for? Go ahead and start investing through the ELSS category for the next financial year.