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Consider ELSS a part of your tax-saving strategy

Driven by pioneering life goals and old family values, millennials today are inspired to make more and further invest their reserves. These investors are often on the lookout for the best tax-saving investment available to them that can lower their tax outgo. Among these tax-saving investments, Equity Linked Savings Schemes (ELSS) have become the go-to investment option for most investors. This article will explain why investors should consider including ELSS mutual funds as a part of their tax-saving strategy.

What is ELSS?

ELSS are tax saving mutual funds that invest a minimum of 80% of their assets in equities and equity-related instruments. Investments in ELSS funds are subject to tax benefits of up to Rs 1.5 lac under section 80C of the IT Act, 1961. As an investor, you can save up to Rs 46,800 by investing in ELSS tax saving mutual funds. These mutual funds have a lock-in period of three years. ELSS mutual funds are a class apart. Here’s why:

  1. Lowest lock-in period
    Although there are several tax saving investments available to investors, ELSS funds enjoy the lowest lock-in tenure of just three years. On the contrary, other tax-saving investments such as bank fixed deposits (FDs) and PPF (Public Provident Fund) have a lock-in period of five and fifteen years respectively.
  2. Higher returns on investments (ROI)
    As ELSS funds largely invest in equity and equity-related securities, the returns are relatively higher than other tax-saving investments. These tax-saver mutual funds offer the dual benefit of capital appreciation and tax saving qualities. ELSS funds have historically offered annual returns around 12 to 14% p.a.
  3. Flexibility with ELSS funds
    Similar to ELSS tax-saving mutual funds, ULIPs (Unit-Linked Investment Plan) offer significant returns. However, these tax-saving investments do not offer the much-needed flexibility to investors. ELSS funds do not make an investor stick to a particular scheme. If an investor is unhappy with their investments, they have the liberty to shift to another mutual fund scheme. However, in case of a ULIP, if you are unsatisfied in your investments, you can only switch and invest in mutual funds provided by that specific ULIP.
  4. Investor friendly
    An investor can invest in ELSS mutual funds via a Systematic Investment Plan (SIP) with an amount as low as Rs 100 per month. Often investors decide to invest in ELSS via SIP as it is quite opportune to investors and provides them with much needed discipline to manage their investments.

According to most mutual fund experts, ELSS mutual funds hold a special place among investors as an ideal tax-saving investment. Before you decide the right tax-saving investment for your investment portfolio, make sure to align your investments with your risk appetite, financial goals, and investment horizon. Remember, your investments should aid to you reach your objectives and goals faster. Happy investing!

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