7 Reasons why ELSS is the Best Tax Saving Investment
August 22, 2018
Were you searching for some investment options to save tax and stumbled across ELSS? Maybe you have heard about ELSS from your friend who described it as the best investment, but you are still not convinced and are still skeptical about it. Or perhaps you have never heard about it and want to understand the functioning of this tax saving instrument. In any case, this article is tailor-made for you to know why ELSS is among the most popular option among people who want to save tax. I am pretty sure that by the end of this article, you’ll not have second thoughts on whether to invest in it or not. So let’s get started!
What is ELSS?
ELSS or Equity-linked Saving Scheme is a type of mutual fund which provides tax benefits under Section 80C of Income Tax Act, 1961
Why invest in ELSS?
This is one of the primary reasons to choose ELSS for investment. Investments in ELSS are eligible for tax deduction under Section 80C as mentioned above. Anyone who invests in this scheme can claim a deduction of ₹1,50,000 from his total taxable income.
If an individual is falling under 30% tax bracket, he can save up to ₹45,000 in taxes and up to ₹30,000 if he falls in 20% tax bracket.
ELSS has given much better returns historically as compared to other tax saving instruments like PPF, EPF, NSC, etc. Many ELSS funds have generated more than 20% CAGR returns in the last five years.
Only Returns are Taxable
As per the Budget 2018-19, only returns obtained from ELSS investments will be taxed at 10% on long-term capital gains (LTCG) over ₹1,00,000. Even after the LTCG tax, has a really high potential in generating much greater profits as it is purely equity-based.
Shortest lock-in period
ELSS has a lock-in period of 3 years, which means one has to stay invested for 3 years to be eligible for tax exemption. It has the shortest lock-in period, for FD, it is 5 years whereas the lock-in period of PPF is 15 years.
Option to stay invested for as long as you want
Though one needs to buy for at least 3 years to be eligible for tax benefits, there is no upper limit. In other words, one can stay invested for as long as he wants.
Ingrains a habit of saving
ELSS funds provide you with an opportunity to invest systematically regardless of being short on cash. Many ELSS funds would start with monthly investments of as low as ₹500. Thus being able to reap the benefits of this scheme even on smaller investments.
Gives you a flavor of stock market
ELSS funds have a majority of its corpus invested in equities. Thus one can get a taste of participating in the stock market by monitoring the portfolio of the fund he has chosen.