What are ELSS Funds?
ELSS Mutual Funds, or Equity Linked Savings Scheme Mutual Funds, are tax-saving mutual funds in India. These funds, categorized as equity funds, primarily allocate their assets to equity or equity-related products. Recognized as tax-saving plans, ELSS funds offer a significant advantage by allowing a tax deduction of up to Rs.1.5L from your annual taxable income under Section 80C of the Income Tax Act. For the amount above 1.5L are taxable at 10%, and there is no benefit of indexation provided.
Choosing ELSS funds not only serves as a means to save taxes but also represents an equity-oriented investment strategy. The three-year lock-in period emphasizes a commitment to a mid-term investment horizon, contributing to the overall appeal of ELSS funds as a tax-efficient and growth-oriented financial instrument.
Features of ELSS Mutual Funds
1. ELSS investments don't come with a fixed tenure requirement.
2. ELSS Funds are the best-performing investment platform in the tax-saving sector, with long-term returns of between 10 to 12 per cent. But similar to any equity investment, there is some risk associated with ELSS as well.
3. You gain from both tax savings and capital appreciation on ELSS investments.
4. Investors have the flexibility to choose between receiving regular income through dividend payouts or opting for the growth option that emphasizes capital appreciation.
5. Among all tax-saving options, they have the shortest mandatory lock-in period of three years.
6. Fund managers diversify investments across various stocks and sectors, reducing the risk associated with a concentrated portfolio.
7. Investors can choose to invest through SIPs, allowing them to contribute small amounts at regular intervals, promoting disciplined and systematic investing.
What are the factors to consider before investing in ELSS?
Three major things to consider before investing in ELSS are;
Investment Duration: Consider investing in ELSS funds if you plan to keep your money invested for more than five years. The nature of ELSS funds, being linked to the stock market, benefits from a longer investment period to manage fluctuations in market conditions.
Returns: ELSS funds don't guarantee fixed returns since they depend on how well the underlying securities perform. However, if you're willing to invest for more than 5 years, ELSS has the potential to offer higher returns compared to other tax-saving options.
Lock-in Period: Once you invest in ELSS mutual funds, your money is locked in for three years. During this time, you cannot withdraw or sell your holdings. It's essential to be aware of this mandatory lock-in period before choosing ELSS as an investment option.
What is the best time to invest in ELSS Mutual Funds?
A better way to make the most of ELSS funds is to adopt a long-term perspective. Instead of rushing at the end of the year, plan your investments at the beginning of the year and consider using Systematic Investment Plans (SIPs). By investing consistently throughout the year, you can minimize the impact of market ups and downs, potentially building more wealth over time.
In an effort to reduce taxes, a lot of investors place money into Equity Linked Savings Scheme funds toward the end of the fiscal year. This might not be regarded as an appropriate plan of action. Saving money on taxes is unquestionably a factor to take into account when investing in these products.
Who Can Invest in ELSS Funds
If you're someone who has recently begun earning.
If your sole preference is to be at low-risk investments, then this is your secure investment platform.
If you're an investor trying to reduce the burden of taxes and diversify the assets you own.
ELSS Mutual Funds are accessible to investors of all ages. Investing in three or four top-performing ELSS funds is advised by market professionals.
Conclusion
An inevitable investment plan for every beginner or an individual is ELSS. You can open a demat account in India to simplify investing and management. So sign up a Demat account and start the initial stages of your long and profitable investment adventure.
