One of the most prominent investment tools, mutual fund schemes are known for offering both long-term wealth generation and the convenience of investing. However, just selecting a scheme is not enough. You need to select the right variants as there are various types of mutual funds that are available for you as an investment option. Even though all the variants involve AMCs allocating funds to the mutual fund scheme, it is the destination of investment that changes with each type of mutual fund. One of the various variants of mutual funds is equity-linked savings schemes.
What is ELSS?
These schemes allocate funds primarily to equity assets. But these plans are known for their alluring feature, which is tax deductions. The said deductions can be enjoyed in accordance with Section 80C of the Indian Income Tax Act, 1961. Investors can claim a tax rebate of nearly ₹1,50,000 by opting to allocate funds in ELSS., One gets to save up to ₹46,800 a year in taxes through this claim.
How do they work?
By the name equity-linked savings scheme, fund allocation in this type of mutual fund is mostly directed towards equities. Through this action, your funds are allocated to things like listed shares. Other than listed shares, a small exposure to fixed-income securities may also be possibly involved. However, before deciding to opt for this fund, you need to remember that these schemes have a lock-in period of three years.
What are the merits associated with ELSS?
Listed here are the numerous benefits associated with an equity-linked savings scheme:
- ELSS are known for coming with tax benefits:
One of the primary reasons why people opt for ELSS is that they are known for allowing investors to enjoy tax deductions. Investors of these schemes get to enjoy tax deductions thanks to The Indian Income Tax Act, 1961 (Section 80C). If your funds were invested in ELSS, you may get to enjoy a tax deduction of approximately ₹1,50,000 a year.
- They help you in acquiring wealth in the long-term:
While they come with a lock-in period of three years. However, if you can, try not to redeem your ELSS after the end of the lock-in period. Instead, keep the funds invested. Through this action, one can meet their financial goal i.e., there may be enough wealth at your disposal at the time of retirement.
- There are no upper limits to investments:
Another major benefit of ELSS is that you are free to invest any sum in the investment scheme. While there is no upper capping on investments, the minimum amount for investments in ELSS is known for being different among different AMCs. Therefore, while signing up for ELSS, don’t forget to check what is the minimum amount of investment for the scheme offered by a firm.
- They are known for offering revenue that may beat inflation:
Other than their tax-saving features, another popular feature of ELSS schemes is that they are equipped with the potential of offering inflation-beating revenue. Thus, in case someone opted for an ELSS plan to invest for 30 years, and, supposedly, after three decades the market is experiencing inflation, there is no need to worry. Thanks to the feature, the income generated through the scheme may not be impacted by the conditions of the market.
Though many investors primarily opt for ELSS funds to save taxes, it is possible to use them to reach the investors’ long-term goals. Due to the multi-cap investment strategy, an investor can continue holding on to their ELSS scheme in case it is performing well.