Is ELSS Safe Option - Tax Saving Mutual Fund Investment

Among the various tax-saving investment options available in the market, one of the most popular ones is the ELSS or the Equity Linked Savings Scheme . ELSS is a type of equity mutual fund that invests primarily in the equity and other equity-related securities of the companies that have a strong growth potential and have a robust business model.Investments in ELSS is an excellent way to get tax benefits and reduce your tax liability for the financial year and at the same time get higher returns on the investment by leveraging the potential of the equity market. The investments in ELSS are subject to tax benefit to a maximum limit of Rs. 1.5 lakhs under Section 80C of the Indian Income Tax Act, 1961.While ELSS investments provide guaranteed tax benefits, the returns vary based on the market performance. If you are wondering isELSS safe, then you must know that historically the funds have yielded excellent returns in the long-run.

One of the significant benefits of ELSS is that amongst the host of savings schemes available, it has the shortest lock-in period of three years. Thus, it is an ideal investment for short-term needs and to earn valuable returns.Since the major percentage of the amount is invested in equity-oriented instruments, you can expect higher returns than the traditional investments like bank FD (Fixed Deposits) or RD (Recurring Deposits).
Another important benefit of ELSS is that it is an ideal investment option for beginners and small investors, you can start investment with as low as Rs. 500.The ELSS fund gives the flexibility to choose between dividend fund and growth funds to invest in. If you choose a dividend option, the fund house pays a fixed amount in instalments during the three-year lock-in period. Whereas, in growth option, after the completion of the lock-in period, the fund house pays a lump sum amount to the investors. Final Word Thus, with the above benefits, it is obvious that not only is ELSS safe but also an excellent investment option to have in your portfolio to get tax benefit as well as earn valuable returns.

Compared to other investment vehicles covered by Section 80C of the Income Tax Act of 1961, investing in ELSS funds effectively reduces taxes. A brief lock-in period and expert fund management offered by ELSS have the advantage of allowing for capital creation.Almost all fund firms in India provide ELSS mutual funds, which are managed by knowledgeable financial experts known as fund managers.Only ELSS mutual funds fall under the category of mutual funds that qualify for tax deductions. By investing in ELSS, you can reduce your yearly tax liability by up to Rs. 46,800 with maximum tax deductions of up to Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961. However, if you invest beyond this limit of Rs. 1.5 Lakh, then the additional amount will not be eligible for Section 80C tax benefits. You can still make more investments than this limit, though. The dividend distribution tax (DDT) and capital gains taxes are applied to ELSS (LTCG) returns.

ELSS funds can be broadly divided into growth and dividend funds.1) Growth Fund is a long-term platform for investors to build wealth, with full fund value realised at redemption.2) Dividend Payout and Dividend Reinvestment are the two sub-categories under Dividend funds. You will get dividends tax-free if you choose the Dividend Payout option. Your dividends will be reinvested as a new investment if you choose dividend reinvestment.

Experts rank ELSS as one of the best taxsaving investments despite the new tax law, which taxes long-term capital gains from ELSS. Your portfolio may benefit greatly from ELSS. These equity-linked investments are a great long-term investment option because they have the capacity to provide high returns. ELSS maintains its position despite taxing returns, offering better post-tax returns compared to other Section 80C investment options, including ULIPS and Public Provident Funds (PPFs).

Increased Returns on Investment (ROI)

Since ELSS invests largely in equity instruments, its returns outperform many investment options while providing long-term tax benefits. By doing this, you might reduce your tax liability and generate sizable gains.
For someone who is ready to invest for a medium to a long period of time, ELSS may be the best option. According to prior results, ELSS generates about 12% over ten years and beyond.

Small Investment Lock-In Term

For ELSS, the lock-in period is shorter. The PPF, NSC, and EPF all require a minimum lock-in time of five years, whereas ELSS only requires a three-year lock-in term.

ELSS is Adaptable

The returns from ULIPs can be comparable to ELSS. However, the flexibility of the ELSS is not offered by a ULIP. Since you are not required to sign a multi-year contract, you can change to another fund if you are unhappy with your ELSS fund. Only the funds that the ULIP offers can be changed if you are unhappy with the fund in the ULIP.

The Advantages of Combining ELSS with PPF

It has a clear advantage over its rivals because ELSS and PPF can be coupled for higher benefits. This combination can be used as a solid basis to find the stability offered by PPF and ELSS's earning potential. If you pay close attention, then you'll find that this structure also offers other advantages, such as a well-diversified portfolio with a combination of debt and equity, the security of assets backed by the government, and the opportunity to increase your wealth through stocks.

Protection Amid Tumultuous Times

ELSS mutual funds are typically the initial point of contact for investors when it comes to equity-linked investing. Before switching to equity mutual fund schemes, many equity investors start with equity-linked investments through these funds. Because you cannot touch the fund during the three-year lock-in period, it encourages discipline. These funds also act as a strong barrier against any potential volatility brought on by stock market activity. In addition to utilising market highs, the plan also includes strategies to lessen the effects of market lows.

• In an equity-linked savings plan, you are free to invest any amount. However, Section 80C of the Income Tax Act, 1961, only exempts investments up to Rs 1,50,000 annually.
• One of the greatest investment options, with the potential for higher returns and a short lock-in period, offers tax benefits (3 years).
• The dividend received by investors is tax-free, while long-term capital gains on ELSS are exempt from tax up to Rs. 1 Lakh.
• Even after the three-year lock-in period is up, you can keep making investments in this scheme.
• Comparing ELSS to a fixed deposit or PPF reveals that the risk is greater, but the potential rewards are larger.

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.