3 Reasons That Makes ELSS A Smart Investment Choice

Sat, 26 Mar 2022 09:51:18 +0000

The Buyt Desk

Equity-linked Saving Schemes(ELSS) are suited for investors who do not hesitate to take risks for better returns. This is a kind of mutual fund which gives an exposure to equity(share market) with the benefit of tax saving. Therefore, it is called an equity-linked saving scheme.

If you are looking for reasons to invest in ELSS, we give you many. However, the main reason one should invest in ELSS is that this scheme has the potential to pay higher returns as compared to other traditional investments. This scheme invests corpus in stock and offers better returns in the long term.

It has a three-year mandatory lock-in period. However, compared to other options, it is the shortest time. Let’s check other benefits you get by investing in ELSS.

It Gives Tax Benefits – ELSS investment get a tax deduction under section 80C of Income Tax Act. If you invest in ELSS, it will reduce your tax liability by up to Rs 1,50,000. You can invest any amount in ELSS and enjoy great returns, however, 1,50,000 will be tax-free. On the maturity of ELSS, gains upto Rs 1 Lakhs is tax exempted.

You Invest In Equity With Saving – If the stock market has not been in your mind or you are hesitant about investing in it, then ELSS is the right way take the first step. Instead of investing in PPF, ULIP or any other plan that gives a return in the range of 7-8 %, use ELSS for a better post-tax return.Create a diversified portfolio with high-performing companies. Then, give it some time to grow. This way, equity will yield you higher returns.

Develop Investment Habits – You can reap benefits in ELSS when you invest in the scheme for the long term. So, when you are coming to ELSS, get in with a long term aim. If you do not want to invest in a lump sum, start with a small amount and invest in ELSS via SIP. You can start investing in ELSS via SIP with a minimum of Rs 500. Indeed, ELSS has a lock-in period, but that also has benefits to offer. By investing in ELSS for three years every month, eventually, you develop a habit of saving. After three years, ELSS will give you a return every month, and if you acquire a habit of saving from this, it will be a bonus for you.

How To Invest ELSS?

To invest in ELSS, the investor has to be mutual fund KYC compliant. One can choose to invest money online or offline. There are three methods present to invest in ELSS.

Visit the website of the mutual fund company.
Visit the RTA website. (Registrar and transfer agent)
Visit the online mutual fund platform.

One can select any of the options on the website. On any of the above-mentioned websites enter primary details like phone number, email ID and PAN number. The PAN number will automatically confirm whether the investor mutual fund is KYC compliant or not.

For mutual fund KYC complaint investors, the process is simple. One has to select the scheme and payment option based on need. There are two options present to invest, lump sum and SIP.

After entering the required details, pay online using various options.

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All About Equity Linked Saving Scheme (ELSS )

Fri, 19 Mar 2021 12:36:21 +0000

The Buyt Desk

Investing without a well-thought financial goal forfeits the very purpose of investment. More than often we have seen people investing a big lump sum amount at the time of filing their income tax return just to save their tax. If you do have a big amount to invest and you are eyeing tax benefit then Equity Linked Saving Scheme (ELSS) would be an ideal investment product. ELSS is a type of mutual fund that invests in equity markets.

Features of ELSS

ELSS is a tax-saving instrument that provides high returns. It enjoys a tax deduction of up to Rs.1.5 lakhs under Section 80C of the Income Tax Act.
Your money is locked for 3-years in ELSS. If you intend to invest through monthly SIP contribution then do keep in mind that each contribution will have a lock-in cycle of 3 years. A contribution made in April 2021 will be locked in till April 2024. So every Sip will be maturing after 3 years. So overall the lock-in extends for around 5-6 years. But if you invest lump sum then the lock-in cycle would be shorter.
There is no investment limit in the case of ELSS. Moreover, the minimum investment amount can be as low as Rs.500.
The returns from ELSS are not taxed according to your income tax slab. Long-term Capital Gains Tax (LTCG) of 10% applies to the returns of ELSS. The returns up to Rs.1 lakh in a financial year are exempt from taxation.
As with any type of mutual fund, an expert fund manager invests the money for you. Investment can be a lump sum amount or regular payment through a Systematic Investment Plan (SIP). ELSS provides two investment options: growth and dividend. The dividend option gives you a payout at regular intervals. While the fund manager re-invests the returns in the case of the growth option.
The fund manager invests money in diverse shares ranging from Small-Cap companies to Large-Cap companies. Diversification of the portfolio also includes investing in shares of companies from different sectors such as automobile, pharmaceutical, cement, etc.

Advantages of ELSS

ELSS is a great tax-saving instrument. It is eligible under Section 80C of the IT Act. The returns up to Rs.1lakh in a financial year are exempt from taxation. Further, only a 10% LTCG tax applies instead of income tax on the returns.
Among all the tax-saving instruments, ELSS has the lowest lock-in period.
In addition to saving tax, ELSS has the potential to provide high returns with a high investment horizon because it is linked to the equity market.
It offers portfolio diversification and is managed by an expert professional.

Disadvantages of ELSS

As ELSS is an equity fund, the returns vary with market fluctuation. The risk is averaged out by staying invested for more than 5 years. There are tax-saving instruments that give guaranteed returns, for example, tax-saving FD.
The returns from ELSS are not tax-free. A tax-saving instrument like PPF provides tax-free income.
There is no way to prevent or reduce exposure to the equity market in ELSS. A tax-saving instrument like ULIP offers flexibility to switch the investment between equity or debt funds.
Understand the lock-in period of an ELSS before investing in it. The policy of first in first out applies to the SIP contribution. Evey SIP will follow a three-year cycle of lock-in.

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