Benefits Of Investing In ELSS
Equity’s potential in getting returns
Equities give the benefit of long-term high returns, potentially higher than the other tax-saving instruments available in the market. Since the fund has a lock-in of three years, so neither you nor the fund manager has to worry about redemption pressures and therefore, fund managers can more effectively and efficiently construct a portfolio with a long-term perspective.
As per the asset allocation, ELSS mutual funds are classified under equity funds and any return received from equity funds after the end of 1 year is absolutely tax-free. We all know that ELSS funds come with a lock-in period of 3 years. So, returns, dividends, and the capital gains from such funds also become tax-free.
One of the primary reasons to invest in ELSS is to save tax. Investments in ELSS qualify for tax deduction under section 80C of the income tax act. You can invest into ELSS and deduct upto Rs. 1,50,000 from your taxable income to effectively reduce your tax liability.
In the market, many tax-saving avenues are available such as Public Provident Fund, National Saving Certificate, Fixed Deposits etc, which are by origin debt funds. Thus, if you want to save money and earn a higher return of approximately 15% or more, then you must invest some amount in ELSS funds. However, unlike other debt avenues, ELSS funds are market linked where returns are not guaranteed by the AMC.
Financial goal planning
These funds are also the best for your long-term financial goals. The inflation-beating returns help you achieve your goals like a house purchase, wedding planning, child education goal, etc. However, it is not so simple as you need to regularly review the funds and its performance under the proper guidance of a financial adviser.
Lock in period
Pertaining to the performance of the mutual funds, good mutual fund portfolios are constructed for long term investments, however, they are not bound with the lock in periods. But in case of ELSS, the funds are locked in for at least 3 years. This forcefully embeds a good habit to stay invested for a longer period.