.gif)
.webp)
.svg)
Tax Benefits
ELSS are diversified equity mutual funds that offer tax benefits to investors under section 80C of the Income Tax Act, 1961. As per section 80C, investments in ELSS are subject to a tax deduction of up to Rs. 1.5 lakh per financial year.Moreover, since ELSS funds are equity-oriented, units of the fund shall be subject to a short-term capital gain (STCG) tax of 15%. However, long-term capital gains (LTCG) on ELSS up to Rs 1 lakh per financial year are exempt, and exceeding Rs. 1 lakh are taxable at the rate of 10%. Therefore, if in any financial year your LTCG amounts to Rs. 3 lakh, 1 lakh shall be exempt from tax and the balance 2 lakh shall be charged to tax at the rate of 10%.
Higher Returns
Most tax-saving options in India are debt-oriented. While they are some of the safest investment avenues in the market, the returns on such investments tend to be quite low. ELSS has a much better potential of earning higher returns than other tax-saving schemes..If you are looking to save your tax burden while reaping the benefits of capital appreciation through equity exposure, you must consider investing in an Equity Linked Savings Scheme (ELSS).
Shorter Lock-in Period
Investments in ELSS funds are subject to a lock-in period of 3 years. This makes the lock-in period of ELSS investments one of the lowest in the tax-saving investment segment. For instance, the Public Provident Fund (PPF) has a lock-in period of 15 years or Bank Fixed Deposits get locked in for 5 years.
Benefit of SIP
Most tax-saving instruments require investors to fork out the entire amount as a lump sum. However, an ELSS fund allows investors to make fixed, periodic investments throughout the year. This can be achieved through Systematic Investment Plans (SIPs). Being an equity investment, ELSS funds are exposed to market volatility, and investing regularly through SIP shall help investors to achieve rupee-cost averaging.
Redemption Not Compulsory
During the lock-in period, the investor can neither redeem nor transfer his or her ELSS investment. At the end of this lock-in period, the investor is free to either stay invested or redeem his or her units, unlike other tax saving schemes where maturity would imply redemption.It is advisable for investors to review essential factors such as returns, volatility, taxability, etc. when they plan their exit from ELSS and do not just redeem because their lock-in period has ended.As can be seen, ELSS funds have a host of benefits to offer to their investors. That being said, investors must assess their risk appetite and other essential factors before choosing to invest in ELSS.
DISCLAIMER
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.
