Did you know the benefits of ELSS mutual funds?

Mutual funds India are available in a variety of options in the market, and they are classified based on liquidity or asset class of investment. Investors need to make a wise decision from this range of options, based on the purpose they wish to fulfil, their risk capacity, investment tenure, etc.

Different investors have different kinds of goals when they choose a mutual fund and if the purpose is to save taxes, while creating wealth, keep reading this article for more.

It is always advisable that one should think of ways to save taxes, not evade them. One of the best ways to do so is invest in ELSS or equity linked savings scheme. You may ask ‘what are these funds? Let us discuss further in order to have a clearer picture.

ELSS funds are open-ended equity mutual fund schemes that invests primarily in equities as well as equity-oriented securities. They are a prominent category among mutual funds that qualify for tax deductions under Section 80C of the Income Tax Act, 1961. This is why they are popularly known also as tax saving mutual funds.

ELSS Funds are diversified equity funds which primarily invest in stocks of listed companies in a specific proportion based on the investment objective of the fund. The stocks are chosen from across market capitalisation (Large Caps, mid Cap and Small Cap) and across industry sectors. The fund manager invests in stocks after doing a thorough market research in order to deliver superior risk-adjusted returns. These funds aim to generate good capital appreciation over the long run. Investments of up to 1.50 Lakhs in a financial year is eligible for tax deduction under section 80C. 

What are the benefits of ELSS funds?

Moving further into the topic of ESS, let us take a look at a few benefits of ELSS funds -

Shortest Lock-in period – Among other tax saving options in the market, ELSS offers the shortest lock in period of 3 years to its investors. This is shorter than the 15 years of lock in offered by PPF and the minimum 5 years in a tax saving fixed deposit. Hence, ELSS offers highest liquidity.

Power of Compounding - As stated above, ELSS funds helps in wealth creation, coupled with tax savings. The former takes place due to the magic of power of compounding that helps in exponential growth of one’s investment. In such a case, investors need to be a patient over a long period of time for gaining benefits.

Higher returns - ELSS funds invest in equities, hence their returns tend to be higher as compared to other assured tax saving options that offer returns between 7-8% per annum. ELSS Funds have given over 13% and 15% returns in the last 5- and 10-years period respectively (ELSS Category average return. Source: www.advisorkhoj.com)   

SIP Option - Instead of a one-time investment in ELSS, investors can choose to make periodic investments as well, with the help of SIP. This helps salaried investors can allot a part of their income each month for the purpose of investment which helps them save tax too.

ELSS Funds are one of the most popular options offered by mutual funds India when it comes to tax savings. As stated above, it comes with a variety of benefits that can help investors grow and save tax at the same time.

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