Elss Funds: The Tax-Saving Investment Option You Need To Know About
The difference between ELSS mutual funds and other diversified equities mutual funds is that ELSS has a 3-year lock-in period and a tax benefit.
The difference between ELSS mutual funds and other diversified equities mutual funds is that ELSS has a 3-year lock-in period and a tax benefit. A Systematic Investment Plan, or SIP, is another way to invest in an ELSS fund.
One of the most well-liked categories of mutual funds among investors is ELSS. They not only provide portfolio diversification through a single fund, but they also have an additional tax benefit. All new investors are encouraged to consider ELSS mutual funds because of their potential for significant returns and their dual tax benefits.
Key features of ELSS:
- Lock-in period- The mandatory lock-in time for all ELSS programs is three years. You cannot withdraw the money you invested until your fund reaches maturity. Each installment will be locked in for three years if you choose the SIP option and will mature as planned.
- Taxation on ELSS- There are two tax advantages to ELSS. The 10% tax rate applies to long-term capital gains above Rs. 1 lakh in all equity-oriented schemes. ELSS mutual funds also enable you to offset your taxable income against your investments.
- Investment options- You have the choice to invest in various ELSS types depending on your tastes and needs.
- Dividend- You have the option to select regular dividend payments made from your investment. You can get the rewards on your investment as regular payments as time goes on.
- Growth- You can benefit from the compounding gains at the end of the maturity period by investing the proceeds from the initial investment in more stocks.
Advantages of ELSS:
- Investment limit- If you choose a SIP, you can begin investing in this form of funds with as little as Rs. 500. Although there is no maximum investment amount, you can only deduct up to 1.5 lakh from your taxable income annually.
- Short lock-in period- ELSS funds have a shorter lock-in time than other tax-saving investments under Section 80C of the Income Tax Act. PPF investments have a 15-year lock-in period, and FDs have a 5-year lock-in period to earn tax benefits. But ELSS only has a 3-year lock-in time to earn tax benefits.
- Dual tax benefit- ELSS mutual fund is a significant tax-saving tool. It is an excellent option for investors who want to pursue long-term capital creation while also avoiding tax burden.
Higher returns potential:
ELSS mutual funds are renowned for having larger return potential when compared to other tax-saving investments. It has a high potential for returns for the following reasons:
- Equity exposure- All ELSS funds are required to maintain at least 65% of their assets in equity because they are equity-oriented funds. While this raises their risk level, it may also enable them to produce higher returns than those offered by traditional tax-saving strategies.
- Diversification- These funds are diversified to reduce risk. Changes in the market constantly impact mutual funds. Spreading money among various investment alternatives is the practice of diversification. This guarantees that the investment is not constrained if one asset is underperforming.
- Professional fund management- Qualified fund managers manage mutual funds for ELSS. They are knowledgeable about market conditions and make planned, methodical investments to get the best possible profits. This kind of fund is fantastic for first-time investors who wish to lower their tax obligations.
How to invest in ELSS?
These funds are available for investment both online and offline:
- Online- You can invest in these programs online if you have an online trading account. You must register for a Mutual Fund Utilities account. MFU is a portal that collects all the programs provided by various asset management firms.
- Offline- You can apply for these types of funds offline by completing an application form that can be obtained from any distributor or AMC office. All entrance fees are eliminated. However, you can still be required to pay a service fee if you use a distributor.
ELSS funds carry a certain amount of risk in exchange for their high return potential because they are equity-linked. The SIP option enables systematic installment investing while maintaining the tax advantages of this type of fund. You don’t need a one-time commitment of a large sum of money. This choice also lowers the price of entry for various schemes.