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When it comes to tax saving investment options, people look for high returns and liquidity. Do you know which tax saving investment option has given more than double the returns PPF gave? The answer is ELSS mutual funds.
ELSS (Equity Linked Saving Scheme) is a category mutual fund that gives one tax benefits under section 80C upto 1.5 lac of investments. The other investment options under Section 80C are PPF, 5-year FD, Life Insurance etc.
A higher return isn’t the only benefit offered by ELSS funds. Let’s look at some other key reasons that make ELSS funds a popular choice.
Reasons Why ELSS is an Attractive Option
- Lowest lock–in period among other tax saving funds: ELSS has a lock-in period of only 3 years. This period is the lowest in comparison to other tax saving options such as 15 years in a PPF or 5 years in a fixed deposit option.
- Higher Returns: Since ELSS funds invest in equity schemes, the returns are higher (15-20%) compared to other tax saving options (generally, 7-10%). Over a 3 year period, the benefit of compounding coupled with returns from equity provides higher returns for investors. This is highest among other tax saving options such as PPF, FD over 5 years, among others. Some of the top performing ELSS mutual funds have been able to give even higher returns. Obviously, there is a risk attached here. ELSS mutual funds invest in equity markets and therefore, ELSS funds’ returns are subject to market risks.
- Easy to Invest: Investing in ELSS is paperless. The investments can be done from the mobile app or websites. The payments can be done through netbanking or debit cards. One can track, redeem or invest more from the comfort of their homes.
- The Benefit of Compounding: It is generally advised to invest in equity funds for a long term, spanning 5-10 years. ELSS funds by virtue of the lock-in period bring about a disciplined long-term investment by default. In this process, it helps the investors benefit from the power of compounding in the long-run.
- Redemption not Compulsory After 3 Years: If the investors are happy with the returns from their ELSS fund investment, they may choose to continue. Redemption is not compulsory after a period of 3 years. It is only a minimum investment duration. There is no maximum investment duration.
- SIP Option Available: While investing in ELSS, investors may choose to go with the SIP option. It allows the investor to invest a fixed amount at regular/ periodic intervals. This allows the salaried class to invest a fixed sum from their savings periodically, generally each month.
- Safe and transparent: Investing in mutual funds is very transparent. All mutual funds companies come under the purview of SEBI and they need to make necessary disclosures.
Over the past 15 years, good ELSS mutual funds have outperformed returns given by all other tax saving options. The best part is that Such online options allow you to not only invest but also track, and withdraw from your ELSS investment.
For anyone who wishes to save taxes while still gaining good returns, ELSS mutual funds are worth considering.