Equity Linked Saving Scheme or ELSS, a type of mutual fund, has emerged as one of the most popular investment avenues for tax savings.
Equity Linked Saving Scheme or ELSS, a type of mutual fund, has emerged as one of the most popular investment avenues for tax savings. The investments made in ELSS are eligible for tax benefits under section 80C of the Income Tax Act. One can claim deductions of as much as Rs 1.5 lakh through contributions to the ELSS Funds.
In addition to this, there are other benefits too which makes it an deal investment choice, say experts.
Here are some of them:
Low Lock-In Period
One of the advantages of ELSS funds is that it has the lowest lock-in period i.e. three years. This is helpful for somebody who doesn't wish to invest for longer. It must be noted that other tax-saving options such as Public Provident Fund (PPF) have a lock-in period of 15 years whereas NSC or fixed deposit has a lock-in period of 5 years.
Easy Mode Of Investment
In ELSS, an investor also has the option to invest through a Systematic Investment Plan (SIP).
"This is a boon for a salaried class as it allows them to invest a small amount at periodic intervals," says Abhinav Angirish, founder, Investonline.in.
Through SIP, one can invest as little as Rs 500 per month.
Diversified Equity Investments
ELSS provides the benefit of diversified equity investments that allows one to earn better returns, says Yashpal Sharma, vice president, Taurus Mutual fund.
In ELSS, investments are done in a wide array of companies across market capitalization, keeping in mind the long-term growth of companies.
Like any other equity scheme, they have the capability of generating good tax-efficient returns if the scheme performs well (in the long term).
ELSS offers flexibility to redeem or remain invested with their full/partial investment after the mandatory lock-in period of 3 years.
"If the investors are happy with the returns, they can redeem investments after three years. If investors have a long term horizon, they can benefit from the power of compounding and achieve their financial goals," explains Mohit Bhatia, head, sales and marketing, Canara Robeco Mutual Fund.
Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
First Published: IST