Equity investors are usually a lot more cautious about losing money in the market. Smart investors, on the other hand, are cautious about saving money and investing with a longer term perspective. Equity linked saving scheme (ELSS) is ideal for the investors who wish to save tax. ELSS is precisely, a kind of mutual fund scheme that invests majority of its corpus in equity or equity related products. It’s February already! You might be looking forward to learn or know more about ELSS. Let’s learn 5 key reasons to choose an ELSS funds.
1. Tax Benefit
One of the primary reasons to invest in ELSS is to save tax. Investments in ELSS qualify for tax deduction under section 80C of the income tax act of 1961. But any dividend or long term capital gain earned by the investor is exempted from income tax. Simply, your returns from ELSS become tax free. Government of India also provides tax rebate for equity linked saving schemes (ELSS) u/s 80C of Income Tax Act 1961. You can invest into ELSS and deduct upto Rs. 1,50,000/- from your taxable income to effectively reduce your tax liability.
2. Lock in period
Pertaining to the performance of the mutual funds, good mutual fund portfolios are constructed for long term investments, however, they are not bound with the lock in periods. But in case of ELSS, the funds are locked in for at least 3 years. Which means, in ELSS fund you are obligated to stay invested for 3 years or more to exempt from taxes applicable on returns. This forcefully embeds a good habit to stay invested for a longer period.