Most of us look for savings options when the taxman knocks on our door. Most of the time, we tend to ignore ELSS knowingly or unintentionally. A diversified tax savings mutual fund, the Equity Linked Savings Scheme (ELSS) is one where most of the corpus is invested in the equity markets.
Now, you can start investing in ELSS schemes through the SIP route. However, you should note that each investment will consider a lock-up period of 3 years from the date of the investment. ELSS funds give you two options for growth and dividends. The growth option gives you a lump sum amount after the lock-up period is complete, while the dividend option gives you dividends whenever a fund announces dividends, even if it’s in the lock-up period.
ELSS funds are becoming an increasingly popular instrument, let’s find out why it could be a worthwhile investment for you.
Get the benefit of tax savings and investment
ELSS gives you dual benefits. Plus, because of its market advantage due to stock exposure, it helps multiply your money faster while keeping your taxes in check through section 80C benefits. So ELSS is not just a simple vanilla saving instrument unlike PPF. ELSS opens up the option of earning solid returns while saving your taxes.
Lower lockup period compared to other tax-saving options
ELSS has the lowest lockup period of just three years compared to other popular instruments. These include PPF (15 years), NSC (6 years), and FD tax savings (5 years). Therefore, ELSS enjoys the highest liquidity among other options.
Premium, Tax-Free Returns
Of all the options available under section 80C, ELSS and PPF returns are tax free. Also, ELSS gives you the best returns simply because of its advantage in the market. NSC and FD returns are subject to tax. Therefore, ELSS gives you the best returns among all instruments.
Capital investment opening
You may have reservations about investing in mutual funds. Also, if you have not directly or indirectly invested in the stock markets, ELSS is the best way to start your stock journey. If you invest in the markets, either directly or indirectly, a small rise or fall in the markets can trigger a wrong selling decision. This is where ELSS becomes important. A 3-year lock-in period on ELSS keeps you on the leash and you can see clear returns over a three-year period. If you look at the last two decades, ELSS has provided the best returns compared to all others below 80C.
So invest in ELSS tax savings funds through SIP to save taxes and earn superior returns while averaging your market risks.