Sunday 25 July 2021
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The primary reasons to choose an ELSS fund

Equity investors adopt a cautious approach as far as losing money in stock market is concerned. Smart investors are cautious and invest with a long term perspective in mind. For investors looking to save tax ELSS seems to be a perfect option. Basically it is a type of mutual fund where a major chunk of corpus is invested in equity related products. It is April already! You would be looking to explore option of how to invest in ELSS. The main reasons to choose ELSS funds are as follows

Tax benefit

The main reason to invest in ELSS is tax savings. Any investment made in ELSS falls under section 80 C of the Income tax act. Long term capital or dividend earned by an investor is exempt from tax. Simply putting things into perspective, returns from ELSS are tax free. Government of India also advocates investing in ELSS. Just invest in ELSS and save up to 1, 50,000 from your deductible income to cut down on tax liability.

Lock in

In relation to the performance of mutual funds, superior ones advocate a longer lock in period, but you are not bound by the same. Whereas   in the case of ELSS there is a lock in period of 3 years. This means when you invest in ELSS you are obliged to stay or even more for tax returns. Forcefully a good habit of investing for a longer period of time is developed.

Formulate a saving habit

With ELSS schemes you are able to invest in a systematic manner which can be as low as Rs 500 per month. The savings would turn into investments and fosters a habit of regular investing. As there is a lock in period of 3 years you can even start with a SIP. The returns for SIP amounts are going to be generated after 3 years from the first investment. In addition the investments would be exempted from taxes.

Cash in on the long term growth value

Though a standard protocol is that the lock in period of ELSS is 3 years, it is possible to redeem or even allow your funds to grow even after 3 years. Though any form of equity investment is subject to market risk. Since ELSS invests on equity the chances of earning higher returns are at a substantially higher level.

While saving you can invest in equity

While investing in ELSS you can cash in on the benefits of direct mutual fund app schemes. In your portfolio you can empower the value of stocks. Normally in savings you are entitled to 8 % earnings on savings, but investing in security may empower you with higher returns.  Once again this would depend upon the favourable conditions present in the stock market. In a developing economy like India an equity based portfolio with a number of stocks explores the possibility of higher returns.

To conclude before making any investment it is better to conduct a proper research. Deductions could vary from an investor to another.

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