ELSS edges over most other tax saving instruments in India, along with several beneficial features that enhance the value of your investments portfolio.
The close of every financial year witnesses a mad scramble to make new investments to save on taxes. The sector to benefit the most from this last-minute rush is often the mutual fund industry. You may decide to open a new SIP or invest in a ULIP. However, tax saving options must be explored well in advance so that your investments portfolio gains from them.
Now that the first quarter of a new financial year is gone, it is time to restructure your portfolio to include more tax savings options. This could be the year that you choose - if you already haven't - one of the most effective tax saving schemes in India. It is known as the ELSS fund/ELSS mutual fund.
What is an ELSS fund?
The ELSS is an abbreviation for the term 'Equity Linked Savings Scheme'. The ELSS mutual fund is an option that offers diversified investment in high performing equity funds. Your payment towards the fund is invested largely in equities. The ELSS fund has a natural propensity for risk, however it also shows a high potential for wealth creation despite short term market upheavals.
The investment horizon for an ELSS mutual fund is typically three years, but you may choose to reinvest or stay invested for longer if you so wish. The fund bides over short term volatility in the markets to offer excellent returns on your investment.
Why the ELSS is a good option to consider this year
The ELSS offers many benefits that both novice and experienced investors can take advantage of to create short term wealth. Consider these benefits -
* Tax saving option: You get tax exemption of up to Rs 1,50,000 for your ELSS fund under Sec 80C of the Income Tax Act, 1961. An experienced investment expert will tell you that the ELSS is the best tax saving option for those with a higher propensity for risk and who are focussed on securing good gains.
* Shortest lock-in period: ELSS mutual funds have a lock-in period of just three years, as compared to other tax saving options like FDs (five years), ULIPs (10 years), PPF (15 years), insurance (till maturity), NPS (till retirement), etc.
* Better returns over the long run: When you stay invested in the ELSS fund beyond the lock-in period, the returns from the fund are measurably much higher than those from other options. The fund provides higher flexibility for diversification while providing about 15% returns annually. To this, you may count savings from the lower tax outgo, so that your annual returns may even be up to 18%. Besides, you can invest once in the ELSS and still get your money back, which does not happen with options like insurance.