Everyone loves to save taxes. Most of the people are not aware about various options to save tax. There are numerous numbers of tax saving schemes such as the Public Provident Fund, NSC, Mediclaim and Term life insurance. But as an investor, one should always look for investment options that not only helps you save tax but also generate tax free income.
Equity Linked Saving Scheme (ELSS) are mainly diversified equity mutual fund scheme with two distinguish features- investment amount in them qualifies for tax benefits under section 80c of the Income Tax Act, 1961 up to a limit of RS 1.5 lakh a year and secondly, the amount invested has a lowest lock-in-period of 3 years. It mainly invests a large chunk of your money in equity related securities. The fund manager looks for securities of companies which have a strong growth potential and a sound business model.
Investor unlike any other mutual fund collect a large pool of investor’s money and then invest them in stocks and equity related instruments. ELSS funds can be linked to multi-cap funds. Like multi-cap funds, they invest in companies of all market capitalizations. This helps in ELSS funds to be very dynamic while investing. Most of the investor unlike others tend to start investing in ELSS funds only at the end of the financial year. This is one of the bad investments and tax planning strategy. Investing at the end of the year forces the investor to put a lump sum amount in ELSS. This, in turn, creates the risk of missing perfect market timing. In case, if the equity markets are up, the investor ends up purchasing the fund’s unit at a higher rate, which have an impact on the returns. Investor should always plan their tax related investment in advance and invest through SIP route in ELSS to get various benefits such as
Since most of the ELSS Funds invest in the equity market, the chances of getting higher returns are quite higher compared to other.
Lowest Lock in period:
ELSS provides the lowest lock in period of three years. In case, of other tax saving scheme the lowest lock-in period is 5 years.
Investment through minimum amount:
ELSS provides investor to invest through SIP. So, any investor can start investing in these funds at a lower investment of Rs 500. It allows an investor to invest a fixed amount at periodic/regular interval.
Safe and transparent:
Investment in mutual fund is very transparent. All the mutual fund companies come under the purview of SEBI, they need to make a disclosure at time to time.
It is one of the ideal schemes for an investor, who wanted to stay invested for a longer period, understand volatility and wants to ride through them. Any investor who wants to invest in these funds, it’s better to plan it earlier. Once you have carefully chosen an ELSS fund, then start investing regularly in these funds through SIP for a long duration of time.
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.