When you invest your hard-earned money in the equity market, there are chances that you might lose some of it. But if you choose your investment wisely and invest for the long term, you might be able to make some profits. If your investment objective is to save tax and try and earn some extra income over the long term, then you can consider investing in Equity Linked Saving Scheme (ELSS). ELSS is a mutual fund investment scheme that primarily invests in equity and equity-related instruments. There are a lot of other elements that make ELSS an option for anyone who wants to save tax and build a corpus in the long run.
Here are 5 reasons to opt for an ELSS scheme:
1. ELSS has tax benefits
As stated earlier, ELSS is a tax saving mutual fund scheme. As per Section 80C of the Indian Income Tax Act 1961, an investor can claim up to Rs. 1.5 lakhs* worth of deductions from their taxable income by investing in an ELSS scheme.
2. ELSS has a short lock-in period
ELSS investors cannot withdraw their funds for three years at least, that’s because ELSS comes with a minimum lock-in period of three years. Post completion of minimum lock-in period, you can hold your ELSS investment as long as the fund is performing well. Later, you can choose to continue with the fund or withdraw or sell your securities after completing the lock-in period.
3. The longer you hold your investments in ELSS, the better are your chances of creating wealth
Though ELSS comes with a minimum lock-in period of 3 years, in case the fund is performing better, you can stay invested for a longer time period instead of withdrawing. Historically, mutual funds have performed exquisitely when held for longer but investors should also bear in mind that mutual fund investments are subject to market volatility and past performance may or may not be sustained in future.
4. ELSS can inculcate the discipline of savings
Investing in ELSS is an ongoing process. Investors need to have some money put by as a reserve in order to invest. Thus, ELSS investments may result in one understanding of the importance of savings. That’s because the money that you save can be turned into an investment.
5. You may invest in ELSS via SIP
ELSS investments can be made in a systematic manner through a Systematic Investment Plan or SIP. With SIP, an investor can begin investing with an amount as low as Rs. 500 per month. Investors can instruct their respective banks to deduct a pre-determined amount every month and direct this amount to their ELSS investment. This way, through SIP investors, may continue investing in their ELSS scheme in a hassle-free way.
Like all investments, ELSS has its own pros and cons. An investor should try and align his/her investment goal with their risk appetite and investment horizon. Investments done with guidance and research may help investors attain some financial gains.
Now that you are aware of what ELSS is and how it functions, planning on some investment? Let us introduce you to Axis Long Term Equity Fund.
*As per the present tax laws, eligible investors (individual/HUF) are entitled to deduction from their gross income of the amount invested in Equity Linked Saving Scheme (ELSS) up to Rs.1.5 lakhs (along with other prescribed investments) under section 80C of the Income Tax Act, 1961. Tax savings of Rs. 46,800 mentioned above is calculated for the highest income tax slab. Investors are advised to consult his/her own Tax Consultant with respect to the specific amount of tax and other implications arising out of his/her participation in ELSS.
Disclaimer: Content Produced by Axis Mutual Fund