The best option for those just starting off with saving on taxes and amassing wealth is through Equity-Linked Savings Schemes, or ELSS. The ELSS funds are one of the most popular tax-saving investment options in India because of a unique combination of tax benefits, equity exposure, and flexibility. Here are five main reasons why ELSS funds are ideal for new investors.
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1. Tax Benefits Under Section 80C
The main attraction of ELSS funds is the considerable savings in taxes it provides. If you invest ₹1.5 lakh in ELSS, it gives you a direct tax deduction from Section 80C of the Income Tax Act of 1961. You may save up to ₹46,800 in taxes.
Unlike other tax-saving options, like PPF or NSC, ELSS also comes with the added benefit of wealth creation via equity exposure.
2. Shortest Lock-In Period Under 80C Investments
ELSS funds carry a mandatory lock-in of just three years and thus have to stand out as the most liquid of bets under section 80C. For comparison: Lock-in period in PPF is 15 years & Lock-in period in NSC is 5 years.
This shorter lock-in period allows beginners to be flexible and have the opportunity to access funds sooner while still reaping tax savings.
3. High Returns
ELSS funds primarily invest in equity and equity-related instruments, which have the potential to generate higher returns compared to traditional tax-saving options like fixed deposits or PPF. Returns are not guaranteed, but history shows that ELSS funds deliver inflation-beating returns over the long term.
For beginners who aspire to increase wealth, ELSS funds offer great returns for low risk if held for more than three years from opening.
4. Facility to invest with SIP
Starting small is a significant advantage for individuals, especially beginners who do not like to part with a high amount of savings at one time. ELSS funds ease such concerns as SIPs begin at just Rs 100 for the month and so allow this to be achievable easily.
Build the habit of disciplined investment. Invest in multiple market cycles, which helps reduce the impact of volatility in the market (rupee cost averaging). The best way for beginners to gradually build a robust investment portfolio is to start with SIPs in ELSS funds.
5. Dual Benefits of Wealth Creation and Tax Savings
ELSS funds uniquely combine two critical financial goals: tax saving and wealth creation. By investing in a diversified portfolio of equities, ELSS funds offer the potential for substantial long-term returns, while simultaneously reducing your taxable income.
This dual advantage makes ELSS funds an attractive option for beginners who want to achieve both short-term tax savings and long-term financial growth.
Conclusion
ELSS funds are an ideal way to start the investment journey for beginners. They provide unmatched tax benefits, a short lock-in period, and the opportunity to earn high returns through equity exposure. Moreover, the flexibility to start small with SIPs makes them accessible to everyone, regardless of their financial standing.
If you’re new to investing, consider adding ELSS funds to your portfolio. Not only will you save taxes, but you’ll also set yourself up for long-term wealth creation. Start today and take your first step toward a secure financial future!
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