It’s that time of the year when taxpayers look for various investment options to reduce their tax liability. For those choosing the old regime, it is a no-brainer to max out your deductions under section 80C for which ELSS mutual fund is a very good option.
Investing in ELSS funds can be a smart move for those looking to save on taxes while also building their wealth over the long term. Here are some of the top benefits of investing in these funds:
1. Tax Saving
One of the most significant advantages of ELSS funds is that they offer tax savings under Section 80C of the Income Tax Act, which allows you to deduct up to INR 1.5 lakh from your taxable income each year. This means that if you invest up to INR 1.5 lakh in an ELSS fund, you can reduce your taxable income by that amount and save on taxes.
2. Long-Term Investing
Another benefit of investing in ELSS funds is that they are designed for long-term investment horizons, typically three years or more. This means that investors who hold onto their investments for longer periods may see higher returns as compared to short-term investments which is what wealth creation is all about
3. Diversification
By investing in an ELSS fund, investors get exposure to a diversified portfolio of stocks across various sectors and market capitalizations, which helps spread out risk and minimize losses during market downturns.
4. EEE Investment
Unlike other tax-saving instruments where only the initial investment qualifies for deduction but interest earned is taxable at maturity; In the case of Equity Linked Savings Scheme (ELSS) mutual funds all three stages i.e., the investment made into it, gains earned on it & withdrawal made after lock-in period are exempted from taxation making it a truly EEE (exempt-exempt-exempt) instrument
5. Flexibility
Investors have flexibility with respect to how much they want to invest as there is no cap limit, unlike other traditional tax saving schemes such as PPF. Also, there is high flexibility in terms of the frequency of investments in ELSS.
In conclusion, investing in ELSS funds has several benefits including tax savings, diversification, long-term growth potential and exemption from taxation at all three stages- making them a popular choice among Indian investors looking for a reliable way to build wealth while reducing their tax burden. The key lies in not just choosing any random scheme but selecting one based on past performance, expenses ratio charged by the fund house & overall suitability based on individual financial goals, risk appetite etc.
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