Equity Linked Saving Scheme Meaning & Reasons To Invest | Motilal Oswal
Equity Linked Saving Scheme Meaning & Reasons To Invest | Motilal Oswal

Equity Linked Saving Scheme Meaning & Reasons To Invest

This is the time of the year when we all plan our taxes, or rather, we plan on not paying them. When it comes to investing in mutual funds online, ELSS is a great tax saving plan popular among investors. So, what is ELSS funds? ELSS full form is Equity Linked Saving Scheme. It is a type of mutual fund which is mainly focused on tax saving. The scheme comes with a mandatory lock-in period of three years.

Why Should I Invest in ELSS?

·       Earn Tax Exemptions

ELSS mutual funds come with a tax exemption of ₹1.5Lakhs from your annual taxable income. If you follow the old tax regime, this would be applicable under section 80C of the income tax code. Under this section you can save up to ₹45,000.

·       Higher Returns

ELSS primarily invests your money in mutual funds and hence earn higher returns compared to fixed deposits or PPF. ELSS mutual funds will give you anywhere between 15-20% returns. This has been the case historically, and can be expected in the future. The returns on ELSS are also tax free, so there is no need to pay any tax on the returns you earn.

·       Shortest Lock-in Period

ELSS mutual funds also have the shortest lock-in period of only 3 years. When compared to other investments like PPF (15 years) and Fixed Deposits (5 Years), this is truly remarkable. This means that you won’t have to wait an extended period of time to see a return. Considering the short lock-in period, the option for diversification is also much higher.

·       Minimum Investment Amount

Investments in ELSS start as low as ₹500 and a maximum amount as high as you want it to be. It’s important to keep in mind that maximum tax benefit is for investments up to ₹1.5Lakhs. If you currently have other investments that are enjoying tax benefits under 80C, then you must factor those investments in your total permissible annual ₹1.5Lakhs limit.

·       Dividend Pay-outs

Under ELSS mutual funds, you can opt for dividend pay-outs if you wish to receive regular income or go with the growth option for capital appreciation. These dividends are complete tax-free and can be reinvested to add to the NAV (Net Asset Value). Under the circumstances when markets are favourable, reinvesting dividends is a prudent option.

·       No Entry or Exit Load

Unlike other tax saving schemes, ELSS do not have any entry or exit load. You can invest as much money as you like without paying any additional fee or charges.

ELSS is a great way to invest your money. As mentioned above, there are a number of ELSS benefits offered to investors. If you are new to the world of investments, ELSS is a great way to get started.

 

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