You are here

Why should you invest in ELSS Funds?

Investing in Mutual Funds is an excellent method to grow your money over time. However, when it comes to such investments, you get confused about which fund to invest in. Your Mutual Fund Investments should get done as per your investment tenure to build a large corpus to meet your objectives over time.

Let us understand how it is beneficial to consider one of the most talked-about funds – Equity-Linked Savings Scheme.

Save on taxes and make money

To begin with, ELSS Funds are Mutual Funds that invest in Equity Mutual Funds. Multi-Cap Funds invest in firms of all sizes – large, mid, and small across all industries. Equity Mutual Funds generates wealth through Equities over time.

However, the best part about investing in these Tax Saving Funds is that you can claim a tax deduction of up to Rs. 1.5 lakh under Section 80C. This advantage is unavailable from any other Mutual Funds. If you are in the highest income tax category of 30%, you save Rs. 46,800, which includes the 4% income tax cess.

Shorter lock-in period

ELSS earns an extra point for its lock-in duration of three years compared to other tax-saving investing alternatives. Public Provident Fund has a 15-year lock-in time, Unit-Linked Insurance Policies has a five-year lock-in period, Tax-Saving Fixed Deposits come with a five-year lock-in period, and National Savings Certificate has a five or 10-year lock-in period.

Start small

Like all other Mutual Funds, ELSS also uses the Systematic Investment Plan method. For as little as Rs. 500, you can invest in ELSS Mutual Funds. Like other Mutual Funds, you can increase your investment amount through SIP top-up as your income rises. If you want to gain a full tax deduction for investing in these funds, do so by investing Rs. 12,500 monthly than putting in Rs. 1.5 lakh at once.

Most alternative tax-saving investment solutions do not allow you to invest money regularly. For this purpose, you have the Mutual Fund apps.

Save more

Three years is the minimum lock-in period for ELSS Funds. Then, the Long-Term Capital Gains of up to Rs. 1 lakh yearly from ELSS Mutual Funds become tax-free. LTCG over Rs. 1 lakh, on the other hand, gets taxed at 10%. When you compare ELSS to a PPF, you may think that the advantage of investing in ELSS is less. However, note that PPFs have a lengthy lock-in period, and such investments are not suitable for achieving short- or mid-term objectives