ELSS stands for Equity Linked Savings Scheme making it a self-explanatory term. In simple words, it is a mutual fund that helps to avail tax deductions for a potential investor. So, if you’re looking to invest in tax-saving mutual funds, it is advisable to understand the benefits and drawbacks of investing in ELSS online.
1. Tax Saving:
Equity-Linked Savings Schemes are the only equity funds eligible for tax deductions for an investor. Under section 80C of the income tax act, you can avail a tax deduction of up to Rs 1.5 lakh in a financial year.
2. Lock-in period:
ELSS funds come with a lock-in period of just three years, which is considerably less when compared to other mutual funds. It is not only in sharp contrast with other tax saving options under section 80C, it also instills a good habit to stay invested early on in life.
3. High returns:
Given the link to the equity markets, ELSS funds can offer payouts that are higher than a basic savings plan. Over a period of 10 years, you will notice that ELSS fund returns can be compared to certain mutual fund investments and can give substantially higher returns than other tax saving schemes.
1. Risks
It's a known fact that any investment in the equity market would generally attract high risks, hence ELSS are subject to greater risks. Additionally, there are no fixed returns as well when compared to other tax-saving schemes such as fixed deposit or PPF.
2. Limited benefits
If you invest a certain sum of money in ELSS, you will get a tax benefit only limited to Rs 1.5 lakh under section 80Cof the income tax act irrespective of how much is the total investment. Also, with ELSS the total benefits incurred are based on other benefits under section 80C such as insurance premium, public provident fund, etc. So, if the total deductions already amount to a total of Rs 1.5 lakh, then there will be no benefit to the investor on the ELSS investment.
3. Withdrawing funds
A three-year lock-in is in effect with ELSS, so the money cannot be withdrawn prior to that time even in the unfortunate case of an emergency. Unlike other investment options such as fixed deposits or PPF that can be withdrawn or broken prematurely, ELSS schemes cannot be withdrawn prior to completion of the predetermined lock-in period
Conclusion:
As we have seen, ELSS funds can be very profitable and help save taxes but there are a few limitations that investors must keep in mind before starting their investment journey in ELSS. As we've seen, ELSS funds can be extremely successful while also helping to reduce taxes. However, keep in mind that ELSS funds are susceptible to market risk and that there is no assurance of returns. If you want a safer investment with assured returns, you should think about PPF. Even if the returns are not as high as ELSS funds, you can explore a PPF calculator to see how much your investment will grow over time. If you wish to invest in ELSS online, visit the Motilal Oswal website and start the process right away!
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