What Makes Them The Best Tax-saving Investment Instrument

While most of the new investors, who search for the best mutual fund schemes, prefer equity or debt funds, increasing number of investors, especially working professionals, are considering ELSSs. An Equity-Linked Savings Scheme is a diversified mutual fund with the majority of the corpus invested in the equity segmented. Like many other investment options like PPF, NSC, etc. these funds too are eligible for tax exemptions. If you are confused with all the different mutual funds available in the market, we have five reasons that make these tax-saving funds an excellent choice for you. 1. Tax Savings Needless to say, the most important benefit of ELSS Funds is the tax savings they offer. These funds are qualified for tax exemptions as per the Income Tax Act, Section 80C. By investing in these funds, you get to deduct up to Rs. 1.5 lakhs from your taxable income to considerably reduce the tax liability. Moreover, even the returns that you earn from these funds are tax-free as they fall under long-term capital appreciation category. 2. Shorter Lock-in Unlike other tax saving instruments like the NSC and PPF, these funds have a shorter lock-in period. While PPFs require you to stay invested for 15 years, the tenure of NSC is 5 years. On the other hand, equity-linked saving schemes allow you to pull out after 3 years to get tax benefits. This means that you have to remain invested in the fund for at least 3 years to get tax exemption on the returns your investment generates. 3. Higher Growth Potential With the majority of the corpus invested in the equity markets, your investment has a better potential to grow with these funds. While equity markets are inherently risky, the experienced portfolio managers would actively manage the fund to offer best returns. So, with these funds, you don’t just get the tax benefits but are also able to earn excellent returns on your investment. 4. Makes you a Disciplined Investor Ask any experienced investor and he would agree that it is very important to regularly invest no matter how small the investment amount is, and be patient. With ELSS Funds, you get to achieve both these objectives. You can start a monthly SIP of just Rs. 500 and start investing in these funds, and as the funds are locked-in for 3 years, you’ll automatically remain invested for a long duration. Over time, these funds make you a better and disciplined investor. 5. Dividend Option With these tax-saving funds, you get to choose between growth and dividend option. While the growth option would lock your money away for 3 years, the dividend option is an excellent way to get some of the gains from the investment even during the lock-in period. This can be an ideal option for someone who wants to get some returns from the investment on a regular basis.

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