As an equity investor, you adopt a cautious approach to losing money in the market. Smart investors, on the other hand, are more concerned about long term savings and putting that money into a viable investment option. For an investor who is looking for the best tax saving ELSS is a lucrative option. This is a form of fund where the majority of corpus funds are embedded on the equity-linked funds. This is the perfect tax saving time and you might be seriously thinking about investing in an ELSS fund. With an ELSS fund there are plenty of benefits
Tax benefit
The main reason why investor ends up investing in ELSS funds is for tax save. The investment in such funds falls under the preview of section 80 C of the Income-tax act. The long term capital or dividend that is earned from such fund is exempt from tax. At the same time, the returns under ELSS are known to become tax-free. The government of India is known to provide rebate under section 80 C of the Income-tax act. Just for investment in ELSS up to the tune of 1, 50,000 from the taxable income so as to claim tax relief.
Lock-in period
In relation to the performance of mutual funds, a good mutual fund is constructed keeping in mind a long term wealth creation. At the same time they are not bound by any Lock-in periods. When it is the case of ELSS the funds are locked for 3 years. This means that you are obligated to stay invested for 3 years so that you are applicable for tax rebates. This culminates into a habit of staying invested for a longer period of time.
Formulates the habit of saving
With an ELSS you can develop a habit of saving with as low as Rs 500 a month. In due course of time the savings turn into investments. This develops into a habit of recurring investing. As there is a Lock-in period of 3 years, you can make a foray into equity related funds. Once you make an investment in such schemes the returns would be generated after every month once you cross 3 years. In addition the returns would be exempt from tax.
Cash in on the long term value growth
Though the Lock-in period is for 3 years, you can continue with the fund for more than the desired period. Ideally you should keep your funds for a long period of time to reap in the benefits, though equity investments are driven by market risks. Since the money is invested in equity based funds the chances of returns are higher with viable tax exemption.
ELSS funds have growth and dividend options
Just as an equity option ELSS funds possess dividend and growth options. In a growth scheme an investor avails an expiry period of 3 years. When it is a dividend scheme an investor can avail regular dividend pay outs. This is taking into consideration the fact whether any dividend is declared by the company during the Lock-in period.
A striking feature is for tax purposes interest from ELSS funds are tax-free. But before you are planning to invest in ELSS funds you need to undertake proper research. Just consider the long term performance of the fund before you are planning to invest in the fund.
Be careful to figure out the expectations of the fund manager and the investment strategy they are likely to follow.
To sum it an investment in ELSS does have its own share of risks and everything is not a bed of roses. Since such funds are known to invest in stocks any risk in relation to stocks pertains to ELSS funds. If you are averse to risk it is better to put off ELSS funds. Another major drawback of ELSS funds is that you cannot withdraw the funds before the maturity date. In case of other investments like PF or fixed deposits allow you to withdraw funds but with some restrictions.
The superior inflow of ELSS funds would once again be dependent upon the performance of a stock market at a generic level.
