Elss: A Tax-Saving Mutual Fund Option For Indian Investors

Did you know that only 2.5% of the Indian population pays income tax? This startling statistic highlights the need for tax-saving investment options for Indian investors. One such option is Equity Linked Saving Scheme (ELSS), a type of mutual fund that not only provides capital appreciation but also offers tax benefits under section 80C of the Income Tax Act. With a lock-in period of just three years and the potential for higher returns compared to other tax-saving options, ELSS has become a popular investment option among Indian investors.

Let’s dive deeper into ELSS and explore its features, benefits, and how to invest in it:

What is ELSS?

ELSS is a type of mutual fund that invests in equity shares of companies across different market capitalizations. The primary objective of ELSS is to provide capital appreciation by investing in equity shares while also offering tax benefits to investors. ELSS is considered a tax-saving mutual fund as investments made in ELSS are eligible for tax deductions under section 80C of the Income Tax Act.

Features of ELSS:

1. Lock-in Period:

ELSS comes with a lock-in period of three years, which is the lowest among other tax-saving investment options such as Public Provident Fund (PPF), National Savings Certificate (NSC), and Unit Linked Insurance Plan (ULIP).

2. Diversification:

ELSS invests in equity shares across different market capitalizations, which provides investors with diversification benefits.

3. Tax benefits:

Investments made in ELSS are eligible for tax deductions up to Rs. 1.5 lakh under section 80C of the Income Tax Act.

4. Flexibility:

ELSS offers flexibility in terms of investment options such as lump sum or systematic investment plan (SIP).

5. Risk Factor:

ELSS is an equity-oriented investment, and therefore, it is subject to market risks. However, the long-term nature of investment can help in mitigating risks and generating higher returns.

Benefits of ELSS:

1. Tax Benefits:

ELSS is considered a tax-saving mutual fund as investments made in ELSS are eligible for tax deductions up to Rs. 1.5 lakh under section 80C of the Income Tax Act. This means that if you invest Rs. 1.5 lakh in ELSS, you can reduce your taxable income by the same amount.

2. Higher Returns:

ELSS has the potential to generate higher returns compared to other tax-saving investment options such as PPF and NSC, which offer fixed returns.

3. Low lock-in Period:

ELSS comes with a lock-in period of three years, which is the lowest among other tax-saving investment options such as PPF and NSC.

4. Diversification Benefits:

ELSS invests in equity shares across different market capitalizations, which provides investors with diversification benefits.

5. Systematic Investment:

ELSS offers the flexibility of investing through SIP, which helps in investing in a disciplined manner and reduces the impact of market volatility.

How to invest in ELSS:

Investing in ELSS is a simple process. You can invest in ELSS through various modes such as online investment platforms, mutual fund distributors, and asset management companies. Here are the steps to invest in ELSS:

– KYC compliance: Before investing in ELSS, you need to complete the KYC process, which involves submitting your identity proof, address proof, and PAN card details.

– Select the fund: You can select the ELSS fund based on your investment objective, risk appetite, and past performance.

– Choose the investment mode: You can invest in ELSS through lump sum or SIP mode.

– Submit the application form: After selecting the fund and investment mode, you need to fill out the application form and submit it along with the required documents.

Final Thoughts

ELSS is a tax-saving mutual fund option that provides investors with the benefits of capital appreciation and tax savings. ELSS has a low lock-in period of three years, which makes it an attractive option for investors who want to save taxes and grow their wealth in the long term. While investing in ELSS, it is important to keep in mind the risk factor associated with equity-oriented investments and choose the fund based on your investment objective, risk appetite, and past performance. With its diversification benefits, flexibility, and potential for higher returns, ELSS can be a valuable addition to your investment portfolio.

These tips are brought to you by expert Financial Planners at HappyWise Financial Services.

If you need any assistance with Insurance Planning or want to discuss your investment options, feel free to connect through Email or Whatsapp.