Equity Linked Savings Scheme or ELSSis often viewed as a mutual fund that allows you to hit two birds with one stone – save tax as well as build wealth. However, there are several other reasons that make it a smart investment choice.
Here are fivesuch reasons why you should invest inan ELSS:
- Tax efficiency:ELSS is a tax-saving mutual fund that lets you reduce your taxable income by up to Rs 1.5 lakh annually. This is allowed under Section 80C of the Income Tax Act, 1961. You can claim the deduction even if you make investments in instalments through a Systematic Investment Plan (SIP). It is worthwhile to know that Rs 1.5 lakh is the tax deduction limit and not the upper limit for investing in ELSS. You can invest as much as you want.
- Wealth creation:ELSS is a diversified equity mutual fund that invests in equity and equity-related securities across market capitalisations, sectors, and themes. Typically, equities are affected by market fluctuations in the short-run but are known for generating significant returns in the long run. Thus, ELSS has the potential to deliver inflation-beating returns over the longterm, setting off theassociated short-term volatility.This may not only help you build wealth over time but may also helpyou meet long-term financial goals such as funding your child’s higher education or building a retirement fund.
- Liquidity:ELSS has the shortest lock-in period of three years as compared to other 80C instruments. On the other hand, investments like Public Provident Fund (PPF), Unit Linked Insurance Plan (ULIP), and 5-year Fixed Deposit (FD)mature after 15 years, 5 years and 5 years, respectively. With ELSS Mutual Funds, you can withdraw your money anytime after 36 months. Thus, your money is locked in for a shorter period and you can, in turn, enjoy more liquidity.
- Financial discipline: ELSS allows you to invest through SIPs in parts.When you start an SIP, you allow the fund house to deduct a fixed, pre-determined amount from your bank account at regular intervals and invest the same in the scheme of your choice. SIPs can be monthly, weekly, or even daily. With this mode of investment, you can, thus, develop a habit of saving and investing regularly. This is likely to make you financially disciplined over time.
- Light on the pocket:With ELSS, you do not feel the pinch since you don’t need a large sum at once to invest. Thanks to SIPs, you can begin investingwith an amount as low as Rs 500. Also, there are different types of SIPs to suit your needs. For example, flexi-SIPs allow you to change your SIP amount. You can, thus, increase the amount with an increase in your income or improvement in your financial state, and make the most of the 80C exemption.
ELSS offers several benefits. Apart from the ones mentioned above, investing in such funds brings otheradvantages. For example, there is ahigher level of transparency since all mutual funds are regulated by SEBI that has laid down strict guidelines to protect the interest of investors. Moreover, with regular and long-term investments, you can allow your money to grow through the power of compounding.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.