Investing in market-linked instruments means you must be cautious about the ups and downs in the market. A smart way to invest money is to look for opportunities where you can save money on tax payments while also incurring good returns. ELSS or Equity Linked Saving Scheme is one such opportunity with which you can sail over the continuous tides of market fluctuations. Irrespective of your age or profession, you can include ELSS investments in your portfolio.
Before you plan to invest in ELSS funds, you must understand this investment instrument thoroughly.
What are ELSS Mutual Funds?
ELSS funds are open-ended, equity-oriented funds through which you can grow your money while also saving it in terms of taxes. Being ‘open-ended’ means there is no constraint on the number of units that can be traded. At the same time, the term ‘equity-oriented’ implies that they primarily invest in the shares/stocks of companies from various backgrounds.
Unlike other equity funds, ELSS mutual funds come with a tax benefit. Your ELSS investments can help you save tax of up to Rs. 1.5 Lakh. As per the Income Tax Act, this deduction comes under Section 80C.
Comparison Between ELSS and Other Ways to Save Tax
There area plethora of investment schemes that you can choose from, to create wealth over a long tenure, including Fixed Deposit and Public Provident Funds (PPF). But the returns you earn from your investment in these schemes are considered your income and are thus, taxed. It is where opting for ELSS investment stands out.
Investing in ELSS schemes gives you comparatively higher returns than a 5-year fixed deposit in a bank or PPF. About taxation on returns from ELSS investment, you must know that returns were not taxable until Mar 31, 2018.After that, returns from ELSS investments became taxable at the concessional rate of 10% if the gains cross Rs. 1 Lakh.Since a significant part of your investments goes towards equities, the possibility of receiving good returns is also quite high.
Frequently Asked Questions About ELSS Investments
- Why Should I Invest in ELSS funds?
By investing through ELSS funds, you get more benefits than investing in many other tax-saving options, like FD. The lock-in period of ELSS is three years, which is not as binding as in the case of PPF or National Savings Certificate (NSC).
- Who Should Invest in ELSS funds?
Any Indian taxpayer who wants to earn good returns while also reducing his/her income tax liability can make ELSS investment, along with choosing other 80C tax-saving schemes. Furthermore, it is yet another way to invest in equities. Hence, if you are open to risk and can invest for a longer term, ELSS funds can make you reap considerable benefits.
- Lump sum or SIP – Which one is better for making ELSS investments?
You can invest in ELSS mutual funds in either lump sum or SIP mode. It is up to you to decide which way to go. In the lump sum investment option, you make a one-time bulk investment in the funds of your choice while a SIP allows you to invest a specific amount periodically.
If a bulk investment is not a viable option for you, choose SIP and invest a small amount every month. Investing all through the year in ELSS funds ensures that you do not end up paying more than you should for each unit.
- Should I Hire a Financial Advisor Before Investing in ELSS funds?
Hiring renowned financial advisors like FinEdge can help you understand the nitty-gritty of investing in ELSS. They can help you plan the investment decisions in a way that you avail maximum tax benefit every year. Alongside this, you can also ask them about the process of making ELSS investments in detail.
