While investing, it is very important to make note of one fact. The fact that you need to keep in mind is that mutual funds are not a monolith. There are numerous variants of mutual fund schemes, in which each type of scheme comes with its own facilities. The various types of mutual funds are known for catering to different types of investor needs. Yes, while the ultimate goal of all investors is the same, which is to acquire wealth for the future, the sum of wealth will differ for different investors. One of the several types of mutual funds is equity-linked savings schemes (ELSS).
What is the definition of equity-linked savings schemes?
This type of mutual fund is known for allocating funds to things such as equities and related instruments. While these schemes are known amongst investors for their tax-saving facilities, these schemes can also help you with things like long-term wealth accumulation and beat inflation. Coming with a lock-in period of three years, these tax-saving schemes are one of the types of equity mutual funds. It is possible to enjoy tax benefits under these schemes under Section 80C of The Indian Income Tax Act, 1961. Just like it’s the case for any other type of mutual fund, it is possible for you to invest in ELSS through the SIP mode.
How do they work?
With the help of this scheme, it is possible for you to claim a tax rebate of roughly ₹1,50,000 and save up to ₹46,800 annually. Fund allocation in ELSS is mostly geared towards equity-linked securities and equity. Hence, in case you have allocated funds to ELSS, it is possible for you to invest in things like listed shares. Apart from listed shares, a small exposure to fixed-income securities can be involved as well. However, before opting for the scheme, please remember that these funds come with a lock-in period of just three years, which is supposedly the shortest among all Section 80C investments.
What are the reasons to invest in ELSS?
Listed here are the five reasons to invest your money in equity-linked savings schemes:
- You could opt for the convenient investment options:
People have a misconception that for investing, you need to make a one-time lump-sum investment. However, it is possible for you to opt for a less financially stressful option, which is systematic investment plans or SIP. Through SIPs, you can make monthly investments to the ELSS.
- ELSS are known for coming with a three-year lock-in period:
Equity-linked savings schemes are known for coming with a lock-in period of three years. However, after the approach of the lock-in period, instead of redeeming your scheme, you could choose to keep your funds invested. If you were to keep your funds invested, you may end up acquiring wealth in the long term.
- They are exposed to equities:
As stated earlier, ELSS allocated funds primarily to equities. Investing in equity-linked savings schemes is a good way to expose your funds to the equity market. Opting for ELSS is regarded to be the first step to building equity as an asset class in your portfolio.
- There are no caps on their investments:
Unlike other mutual fund investment options, which may have an upper limit on their investments, in ELSS, you have the choice to invest any amount of your choice in the scheme and there is no upper capping. But that does not mean that the minimum amount needed to be invested in ELSS may vary between different AMCs. Therefore, before signing up for the scheme offered by an investment firm, please make sure to check the minimum amount of investment for the ELSS offered by the firm.
- They have provisions for tax deduction:
A major reason why people opt for equity-linked savings schemes is, that they come with numerous tax benefits. With the help of ELSS, you could get a chance to enjoy a deduction of approximately ₹1,50,000 annually. The said facility is thanks to Section 80C, which is a part of the Indian Income Tax Act, 1961. If you are someone who is looking for tax-efficient schemes, you don’t need to look further than equity-linked saving schemes.
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