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Elss Mutual Funds Simplified: The Right Mix of Tax Saving And Wealth Creation

When compared to other investment tools available under Section (80C) of the Income Tax Act of 1961, investing in ELSS mutual funds is an economical approach to saving taxes. ELSS has a shorter lock-in period and expert fund management, which can result in wealth accumulation. This article will teach you more about the various characteristics of ELSS funds.

What are Equity-Linked Savings Schemes?

The best ELSS mutual funds are managed by skilled finance experts known as fund managers and are available through nearly all investment houses in India. ELSS mutual funds are the only type of mutual funds that qualify for tax breaks. Investing in ELSS will save you up to Rs 46,800 (annual tax deductions of up to Rs 1,50,000) per year in taxes. You can, however, invest more than the specified amount, but any excess over Rs 1.5 lakh would not qualify you for tax benefits under Section 80C. The returns earned by ELSS are subject to capital gains tax (LTCG).


The Union Budget 2018-19 reinstated the tax on long-term capital gains (LTCG). Despite the adjustment, ELSS has remained a popular investment option among all Section 80C investment alternatives.


Why is ELSS preferable to all other 80C investments?

Despite the new tax regime, which includes a tax on Long-Term Capital Gains from ELSS, experts believe that these funds remain one of the best tax-saving solutions. ELSS might be a valuable addition to your portfolio. These equity-linked securities have the potential to provide good returns and are an excellent long-term investment option. Even after taxation, ELSS outperforms other Section 80C investment options like Public Provident Funds (PPFs) and ULIPs (Unit-linked Insurance Plans), with better post-tax returns.


Increased Returns on Investment (ROI)

Given that ELSS investments are primarily made in equity instruments, the long-term returns are significantly better than those of most other investment options with tax advantages. This serves two purposes: you save taxes while simultaneously generating significant returns/profits. ELSS can be a good option for someone looking to invest for the medium to long term. 


Shorter Investment Lock-in Period

The lock-in period for ELSS is shorter. Unlike the PPF, NSC, and EPF, which all need a minimum of five years of lock-in, ELSS is a far better option with only three years of lock-in.


Flexibility

It is likely that your ULIPs, which were sold to you at a low cost directly by insurance companies, would provide returns similar to an ELSS in the long run. Although, a ULIP lacks the flexibility of an ELSS. If you are dissatisfied with your ELSS fund, you can switch to another fund because you are not obligated to commit to a multi-year arrangement. If you are dissatisfied with a fund in a ULIP, you can only switch and invest in funds offered by that ULIP.


Security in Tough Times

Many equity investors begin their equity-linked investments with these funds and later progress to equity mutual fund schemes. Given that you cannot touch the fund for three years, it aids in the development of the discipline. These funds also provide a significant buffer against the volatility that might accompany stock market trading. The scheme not only benefits from market highs, but it also includes provisions to mitigate the impact of market lows.


What You Should Know About ELSS Before Investing

  • You can put as much money as you like into an Equity-Linked Savings Scheme. However, only investments up to Rs 1,50,000 per year are tax-free under Section 80C.

  • It is one of the greatest investment options since it provides tax advantages, possibly higher returns, and a short lock-in time (3 years).

  • Long-Term Capital Gains on ELSS are exempt from tax up to Rs 1 lakh, and dividends are tax-free.

  • You can continue investing in this scheme even after the three-year lock-in period is up.

  • When compared to traditional instruments like fixed deposits or PPF, the risk associated with ELSS is higher, but the potential profits are larger.


Before investing, you must read all the scheme-related documents carefully, as mutual funds are subject to market risks. 


Mutual fund investments are subject to market risk, please read the scheme related documents carefully.
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