Increasing number of working professionals now prefer ELSS funds for tax saving over other 80C investment options. But what benefits do these funds offer apart from the tax benefits that make them the preferred choice for many investors? Read this post to find out.
While equity and debt funds are already very popular, a lot of investors, especially working professionals, are now interested in ELSS (Equity-Linked Saving Scheme) funds for their tax saving benefit. These funds are now quickly replacing traditionally popular tax saving options like PPF, NSC, ULIPs, and tax-saving FDs.
But do these funds offer any other benefits apart from the tax saving? Yes, there are many important ELSS benefits that you should know when browsing through all the different tax saving options. Five of the most significant benefits are discussed below.
ELSS funds are equity-oriented hybrid funds with most of the investment done in the equity and equity-related products. You might already know the potential of the stock market and how it can help you generate excellent returns on a long-term basis.
Apart from ELSS funds, no other tax saving instrument under 80C offers such high exposure in equity. Thus, with an ELSS fund, the chances of capital appreciation are higher.
All the different tax saving options have their own lock-in periods. For instance, tax-saving FDs have a lock-in period of 5 years, PPF with 15 years and NSC with five years. As compared to all these options, ELSS funds have the shortest lock-in period of 3 years.
While this means that you could redeem your fund after 3 years, it is generally recommended that you should remain invested for as long as possible for long-term capital growth.
As compared to other tax saving investment options like ULIP, you get better flexibility with ELSS funds. For instance, a lot of investors after investing in a ULIP fund are unhappy with the fund performance. In such cases, the only option they have is to invest in other funds offered by that particular ULIP.
But with ELSS funds, you have the flexibility to move to the ELSS scheme of any other AMC or even other funds of the same or other AMC without getting into a deal that would last for multiple years.
Most of the popular tax saving options under 80C require you to invest a lump-sum amount. But with ELSS funds, you get a SIP option with which you can start investing from as little as Rs. 500 per month.
In a financial year, you can invest up to Rs. 1.5 lakhs in ELSS funds to gain the 80C tax benefit. So, you can break this amount into a monthly SIP of Rs. 12,500 for a year to gain the tax benefit without investing a lump sum amount.
Another ELSS tax saving fund benefit is the ease of starting the investment. Most of the AMCs now have online portals from where you can begin investing within minutes.
Unlike other tax saving options which involve complex paperwork, ELSS online investment is easy and quick. Moreover, after investing you can also easily track your portfolio performance online.
If you're looking for the best tax saving option under 80C, understand the benefits mentioned above thoroughly and the decision would definitely be easier. Before investing, make sure that you first try to understand how ELSS funds work and the risks involved to avoid any problems in the future. Always spend ample time to read the offer documents before you do the transaction or sign on the dotted line.