There are several investment options available to an investor today that not only help them create wealth but also help save tax. One such widely popular choice is ELSS tax-saving mutual funds. Let’s understand these ELSS tax saving funds in detail.

Most experts would advise to invest in mutual funds through equity-linked savings schemes (ELSS). They believe that these mutual funds are ideal for new investors who wish to begin their investment journey in equity funds and create wealth in the long-term. These mutual fund investments dedicate at least 80% of their corpus in equity and equity-related instruments.

What’s more, investments in ELSS also qualify for tax deductionunder Section 80C of the IT Act, 1961. ELSS tax exemption allows an investor to save taxes up to Rs1.5 lac each year. If you are in the highest tax bracket, i.e. 30%, you can save up to Rs46,800 (inclusive of cess) per year by investing in ELSS funds. The investments you make in ELSS mutual funds get deducted from your taxable income as investments under Section 80C. This helps you lower the tax you are liable to pay in a given financial year.

What makes ELSS an ideal mutual fund for new investors?

Apart from the usual wealth creation perquisites offered by different types of mutual funds, ELSS mutual funds hold an edge on several counts. They are:

  1. ELSS tax exemption on your mutual fund investments
    The primary objective of ELSS funds is to help taxpayers save money. As mentioned above, an investor can claim tax benefits up to Rs46,800 each year by investing in ELSS mutual funds with an annual investment of up to Rs1.5 lac.
  2. Short lock-in period
    At just three years, ELSS tax saving funds enjoy the shortest lock-in period among different types of tax-saving financial instruments. An investor is obligated to stay invested for just three years to get exempt from paying taxes applicable on capital gains upto Rs1 lac.
  3. Opportunity to invest in equity while saving
    ELSS mutual funds offer one the benefit of investing in equity to ride the growth cycle of the stocks in your portfolio. While bank FDs usually give 8% returns at the most, investing in equity might provide higher returns around 12-15% in favourable market conditions.
  4. Instils a habit of saving
    ELSS mutual funds permit you to invest as low as Rs100 via SIP (systematic investment plan) at predefined intervals. This is how your savings turn into investments. This instils a habit of regular investing.
  5. Easy to invest
    Investing your money in ELSS tax-saving funds is a hassle-free process. As an investor, you can invest your money inlumpsum or via SIP. Additionally, all this will take the click of a few buttons.

ELSS funds can serve as a stepping stone to the world of equity funds for several investors, especially new investors. If you have a high-risk appetite and long-term financial goals, you should consider to invest in ELSS. Start investing in ELSS funds today and yearn the dual benefits from them. Happy Investing!