How Are ELSS Mutual Funds Better Than Other Tax-saving Instruments?

An 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.

Top 5 benefits of ELSS

• Equity exposure

  ELSS funds are equity-oriented hybrid funds with most of the corpus invested in 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.

• Shortest lock-in period

  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 is for 15 years and NSC is for five years. Compared to these, ELSS funds have the shortest lock-in period of 3 years.
  While this means that you can 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.

• Better flexibility

  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 different AMC without getting into a deal that lasts for multiple years.

• SIP option

  Most of the popular tax saving options under 80C require you to invest a lump-sum amount. But with ELSS funds, you get an SIP option with which you can start investing 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.

• Online investment

  Another ELSS tax saving fund benefit is the ease of initiating 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 investments are easy and quick. Moreover, after investing you can also easily track your portfolio performance online.