With the tax-saving season having begun, many people are thinking of investing in equity-linked saving schemes (ELSS), where they can get equity-like returns along with the benefit of tax saving.
Here is a look at some of the key characteristics and benefits of ELSS:
Benefit of tax saving: Tax Benefit under section 80c of the Income Tax Act can be availed through ELSS upto Rs 1.5 lakh per year by either SIP or Lumsum
Shortest lock-in period: ELSS has the lowest lock-in period of 3 years as compared to other investment avenues.
Discipline savings & potential of high returns: Besides giving tax benefits, ELSS also leads to ‘forced savings’ because of the lock-in. This allows investors to earn market-based benefits over a longer period of time. Returns are more likely to beat the inflation unlike some of the other tax-saving schemes.
Triple EEE benefit: ELSS schemes also enjoy the benefit of being Exempt, Exempt, Exempt (EEE). What this means is that investors get tax benefits when they invest in an ELSS; the dividends received are tax-free; and there are no capital gains at the time of redemption.
No minimum and maximum investments limit: ELSS funds have a lower threshold of Rs 500. Even a one-time investment of Rs 500 can be held till perpetuity. There is also no maximum limit specified for investing in ELSS. However, the tax savings are available on a maximum of Rs 1.5 lakh per year.
In a nutshell, for wealth enhancement and savings for tax exemptions, ELSS could be a preferred choice.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.