Why ELSS mutual funds is a good investment option

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Written By Berry Mathew

Investors start the process of investing in order to create a corpus over the long term. But, are you an investor who wants to go beyond just investing? If you are someone who is looking to explore the dual benefits of tax saving along with wealth creation, over the long term, then there is a mutual fund for you to invest in. 

ELSS mutual funds or equity linked savings scheme is a mutual fund scheme that offers tax benefits to investors under Section 80C of the Income Tax Act, 1961. It has a lock-in period of three years. When investors want to experience both growth as well as tax saving, then investing in ELSS is the ideal choice for them. Here are some benefits of this scheme:

Shortest Lock in – As compared to other tax saving instruments in the market such as PPF and NPS, ELSS or tax saving mutual funds have the shortest lock in period.

Potentially higher returns – Since ELSS goes through the power of compounding over time, the investments compound into giving the investor a higher corpus for meeting future goals. 

Ease of investing – Investing in ELSS mutual funds is a simple, transparent and user friendly process. One can do this online through the AMC website or through offline methods in order to initiate the process. 

Low minimum investment – Investors can start investing in these tax saving mutual fund schemes with as less as Rs. 500. This is helpful as it ensures that new investors can set foot in this space without having a large corpus in hand. 

Tax Savings You can get deduction upto ₹ 1.5 lakhs a year from your taxable income by investing in ELSS, which is covered under Section 80C of the Income Tax Act, 1961.

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When you want to plan for long term goals, you should also stay invested in ELSS mutual funds for a longer period of time. Though the minimum period is 3 years due to the mandatory lock-in, investors can continue beyond this to meet their different life goals in the long term period.

As stated above, there are numerous benefits of investing in ELSS mutual funds for investors. One can invest in it via the lumpsum method or through an SIP (Systematic investment plan), which makes staggered investing possible. Let us understand how one can invest in ELSS –

Lumpsum – It is a one-time investment where there is no upper limit to the number of investments but it must be made in multiples of Rs. 500. 

SIP – One can participate in ELSS mutual funds by investing through SIP mode as well. In such a case, he/she needs to decide the amount and frequency of investing. Based on that, the specific amount is deducted from the investor’s bank account on the given date. Minimum investment here can be as less as Rs. 500/month. 

In this read, we explored, in detail, about the best tax saving option under Section 80C, i.e. ELSS mutual funds. It is highly beneficial for those investors who wish to grow their money in the long term, while saving taxes also. 

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