Along with the primary tax benefits under section 80C, ELSS mutual funds offer a variety of helpful investment benefits.
With the financial year coming to end, every working individual has one thing on mind: ‘how to save tax on my hard-earned money?’ Luckily, you have several tax-saving options available under section 80C of the Income Tax Act (1961) like NPS, PPF, 5-year tax-saving FD or NSCs, however, you can benefit more by investing in ELSS (Equity Linked Savings Scheme).
Here is a list of reasons why ELSS can be the ideal tax-saving option for you:
- Better Tax Benefits under section 80C
You can apply for tax exemption up to INR 1.5 lakh under section 80C with your ELSS investment. Further, any long-term capital gains earned up to INR 1 lakh in financial year are tax-free. You will have to pay 10% tax for the long-term capital gains (LTCG) over the limit of INR 1 lakh. However, even with the introduction of this new 10% tax on LTCG rule, ELSS can fetch better post-tax returns as compared to other traditional tax-saving options like PPF, FDs or NSCs.
- Highest Returns on Investment
ELSS is designed specifically as a tax-saving mutual fund that chiefly invests in equities. While equities can be of volatile nature in the short-term, they provide superlative capital appreciation over the long term. In other words, for the price of a moderate calculated risk, you save money on tax as well as reap higher returns on investment. Long-term investments in ELSS can fetch you returns in the range of 12 to 16% annually, which can easily help you achieve your financial objectives, develop an alternate source of income, and grow wealth for a comfortable lifestyle.
Some people argue that ULIPs can also deliver similar returns to ELSS. However, due to higher fund management and other expense costs, they do not make as good an investment option as ELSS.
- Shortest Lock-in Period
You must keep in mind that all tax-saving investment options come with a mandatory lock-in period. For example, any investment you make in the NPS (National Pension Scheme) stays locked-in until your retirement, PPF comes with a lock-in period of 15 years, NSC with a lock-in period of 5 years, FDs with a lock-in period of 5 years, and even ULIP, which is the closest competitor of ELSS in terms of ROI, comes with a lock-in period of 5 years. ELSS is the only option that offers the lowest lock-in period of just 3 years.
- Equity Exposure
ELSS gives you the benefit of choosing a mixture of quality stocks to create a diverse portfolio. Thus, with the help of a good fund manager and a suitable portfolio, you can easily earn higher returns with the benefit of tax exemption on your ELSS investment. Besides, unlike other investment options, there is no fixed maturity period for an ELSS mutual fund; so you are free to hold on to your investments as long as you wish to.
- Better Flexibility
ELSS offers you the option to use SIP (Systematic Investment Plan), where you can invest small amounts every month. This is beneficial as it allows you to invest even if you are short on funds initially. In fact, you can start with as low as INR 500. Besides this, a regular and small monthly investment reduces the stress on liquidity at the end of financial year allowing you to average your investment strategy during the market downtime.
In conclusion, ELSS mutual funds offer better tax-saving and investment benefits in comparison to any other instrument available under section 80C. In case you need further guidance to invest in ELSS or plan your tax strategy, visit 5nance.com.