Equity Linked Savings Schemes are indeed a type of tax-saving mutual fund that is focused on equities and offers the possibility for capital growth. They qualify as tax-saving investments under Section 80C of the Internal Revenue Code. In addition to these two advantages, they also have a shorter lock-in time of three years, which would be the shortest lock-in period you can receive for a tax-saving product.
By virtue of the fact that it is an equity-oriented Mutual Fund, ELSS provides a small number of additional advantages. Here are a few reasons to invest in the top ELSS funds in India.
Tax Benefits
ELSS is one of the investment alternatives that a taxpayer has access to under Section 80C of the Income Tax Act. This provision enables the taxpayer to receive a tax advantage of up to 1.50 lakhs rupees over the course of a single fiscal year. The total ceiling limit of Rs. 1.50 lakhs must be considered for any and all eligible payments or investments taken together in order to qualify for the tax benefit, which is equivalent to the amount invested throughout the period. To take advantage of the tax benefits offered by top ELSS funds, one can make their investment in either a flat payment or through a systematic investment plan.
Capital appreciation over the long term
Even though the lock-in period for ELSS is three years, an investor may choose to maintain their position for a longer amount of time in order to maximize the likelihood that their capital will continue to increase in value. Despite the fact that all these funds invest in equities, there is the potential for better returns in addition to being free from paying taxes, particularly over the course of the long term. Equity investments are susceptible to market risk.
Short locked-in period
Top ELSS funds come out ahead when compared to other tax-saving investment alternatives in terms of the duration of the asset holding period; therefore, it earns a point in that category. The PPF has a lock-in term of 15 years, FDs also come with a lock-in period of 5 years, and the NSC must have either a lock-in period of 5 years or perhaps a lock-in period of 10 years. All of these are examples of popular tax-saving investment products. This makes the top ELSS funds the best option for investors.
Advantages of having exposure to equities
An additional advantage offered by top ELSS funds to investors is the opportunity to participate in equity investing. By integrating ELSS investments into their portfolio, investors can position themselves to benefit from the growth phase of stock prices. It is possible to earn returns of approximately 6–8% through savings, but there is a possibility of earning higher returns via equities investment, particularly during times when the performance of the stock market is positive.
Convenience and flexibility
Top ELSS funds provide investors the comfort of investing through SIP mode, which enables them to invest fixed amounts at regular intervals (or at any other frequency) for the purpose of reducing their taxable income. A systematic investment plan (SIP) not only assists investors in maintaining their discipline but also assists them in achieving higher returns through the process of rupee cost averaging. ELSS SIPs provide a great deal of latitude for customization. In the event that a payment is missed on such an ELSS SIP, there will not be any fines or a suspension of the policy, as is the case with PPF or life insurance policies. Your SIPs can be stopped and restarted at any moment that you choose.
Conclusion
Top ELSS funds not only assist you in saving money on taxes but also generate wealth for investors who are willing to take on greater levels of risk. When the SIP method is taken into consideration, ELSS also represents the most liquid, most efficient investing option available under Section 80C.
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