ELSS – A Way to Create Wealth and Save Taxes

Wealth creation and saving taxes are two crucial exercises of personal finance. While many financial instruments that help you do so, these traits are inter-woven in equity-linked savings scheme or ELSS. In other words, ELSS helps you create wealth and save taxes simultaneously.

ELSS mutual funds are equity-oriented funds, investing in which can help you compound your wealth in the long-term. This is because equity, as an asset class, has the potential to deliver inflation-indexed returns in the long term.Investing your money in equities, ELSS gives you the opportunity to enhance your riches in the long run. To put it otherwise, you can grow your money by investing in ELSS mutual funds.At the same time, investment in ELSS qualifies for tax deduction under section 80C of the Income Tax Act, 1961. Note that under this section, investments up to Rs. 1.5 lakhs are eligible for tax exemption. In case you haven’t invested in any other instrument as mentioned in this section, then you can claim tax exemption on investments up to Rs. 1.5 lakh by investing in ELSS.

While investment in ELSS can help you lower your tax liability and grow wealth over time, note that ELSS can give the desired returns only when you remain invested for the long haul. This is because equities are volatile in the short-term, and the returns are market-linked.With a long investment horizon, the possibilities of earning high returns go up. Also, note that ELSS has a lock-in period of three years, which means you can’t withdraw your money for three years from the date of investment.If you are investing through systematic investment plan (SIP), each SIP is locked-in for a period of three years. Redemption follows the first-in, first-out (FIFO) principle, which means that the SIP locked-in first will be redeemed first and so-on.However, note that if you are opting for the new tax regime, which has lower tax rates, then investments in ELSS will not qualify for tax exemption. Under the new tax regime, 70 odd-exemptions have been left out, and ELSS investment is one of them. To sum up As evident, investing in ELSS mutual funds can help you create wealth and lower your tax outgo. However, as with any mutual fund investment, make sure to opt for a fund with strong fundamentals with a consistent long-term track record.Find out how the fund has performed against its benchmark index and take into account long-term performance before investing. Also, don’t exit your investment following short-term volatility. Disciplined investments in ELSS mutual funds can help you accumulate a sizeable corpus for various life goals.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.