December 12, 2024

Finance

Know The Benefits Of Investing In ELSS Fund

by Micheal Donna0407

Get the number of benefits of investing in ELSS Funds. Not just that you will also be knowing about the types of ELSS and more.

In a journey of investing everyone is looking to maximize their wealth. To increase the return and maximize your wealth, you need to choose the option which not just gives a good return but also reduces the burden of a tax. ELSS is the one such best thing which you can go with. In this article, we will learn about the benefits you can get after putting your money in ELSS, the types of ELSS, and how to invest in ELSS.

All About ELSS Funds

Before moving anywhere let us know more about ELSS Funds. ELSS is an equity linked saving scheme that is an equity-based mutual fund. ELSS has three-year-lock-in-period and as the name indicates, ELSS consists of 80% of its total assets in equity and equity-related instruments. ELSS is one of the best instruments through which you can save your taxes in the Income Tax Act under section 80C. You can get a maximum deduction of Rs 1,50,000 in a year.

Three years of lock-in period is mandatory in ELSS. If you choose to invest through SIP mode then you will have to wait for three years and the same applies to lump sum investment. 

Examples of Some Best ELSS to Invest as of July 2022 :

  • Axis Long Term Equity Fund
  • Quant Tax Plan Direct-Growth
  • Mirae Asset Tax Saver Fund
  • Invesco India Tax Plan Fund
  • Canara Robeco Equity Tax Saver Fund
  • DSP Tax Saver Fund

Note – It is advisable to do your research and analysis before investing your money in any of the above funds.

Benefits of investing in ELSS Funds :

  1. Low Taxability – Due to low taxability, ELSS is one of the most common investment options of all. Gain from ELSS Fund is long-term in nature as the minimum lock-in period is 3 years. Currently, the long-term capital gains are taxable at the rate of 10%, whereas the short-term capital gain is 15%. Therefore ELSS funds lead to low taxes.
  2. Lock-in-period is lower compared to other tax savings funds -ELSS has lower lock-in-period comparable to other tax savings investment options. PPF has a lock-in-period of 15 years, whereas the fixed deposit option has 5 years.
  3. Higher Return – As the majority of the fund of ELSS is invested into equities of the market, it generates a higher return of 12% to 15% compared to other tax saving options which generally give 5% to 8%.
  4. Availability of SIP – One of the important benefits of the ELSS fund is SIP. Even the salaried class of investors has the power to invest in ELSS through SIP.
  5. Tax Saving – ELSS funds are also known as tax-saving mutual funds. It allows investors to save up to Rs 1,50,000 in tax every year. With an earning of over 12% to 15%, you can also save taxes in ELSS.
  6. Compounding Benefits – ELSS gives us the benefit of compounding. As per the experienced investors of the market, we need to invest in ELSS for a long time horizon of 5 to 10 years. Long term horizon will help the investors to generate more compounding returns.
  7. Increases the Saving Habit – ELSS inculcates the habit of saving among all their investors. Here, you can start with as low as Rs 500 through Systematic Investment Plan (SIP).
  8. Safe, Secure, and Transparent – Investing in ELSS funds provides safety, security as well as transparency to its investor. As all the mutual funds’ companies come under the preview of SEBI (Securities and Exchange Board of India)

Types of ELSS :

If you are an investor of ELSS or you will be in the near future. You must aware of these two types of ELSS :

  1. Dividend Payout ELSS – In the case of dividend payout you get two options one is dividend reinvestment and the other is a payout of dividends. You will receive the tax-free dividend in case of dividend payout, whereas in the case of dividend reinvestment  your dividend will be reinvested further.
  2. Growth Fund – Growth funds are long-term in nature which creates wealth for their investors and where the full value is realized at the time of withdrawal.

How to Invest in ELSS?

Investing in ELSS is the same way that you invest in any mutual fund. The most efficient and easiest way to invest is through an Online Investment Services Account. You can invest in ELSS through SIP or you can also invest by way of a lump sum amount. The way of identifying the ELSS is lock-in-period which is 3 years. 

In conclusion, ELSS provides you with a dual benefit of both tax savings and higher returns. But before investing in any type of instrument in a market do your proper analysis and research.