Haven't Done Your Tax Saving For This Financial Year Yet? Here Are 5 Benefits Of Investing In ELSS

All of us work hard every day to earn money and live a comfortable life with our loved ones, right? And handling the hard-earned money through financial planning is no less a task.

But when it comes to tax saving and wealth creation, we often end up prioritizing one over another instead of enjoying the dual benefits of both.

And with a plethora of tax-saving investment options available, such as PPF, ELSS, Tax Saver Bank FD, Post Office Term Deposits, Sukanya Samridhdhi Yojana, etc taxpayers are not always able to choose the most suitable option.

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But what if we told you that amongst these, tax saving mutual funds, i.e. ELSS (Equity linked savings scheme) outperforms most of its peers? Curious to know how?

Let us explain to you the benefits of ELSS and how it comes out as a winner when compared to other tax-saving investment options, especially the ones available under Section 80C:

1. Higher liquidity via the shortest lock-in period

The ELSS mutual funds involve the lowest lock-in period of just 3 years, when compared to other tax saving investment options, such as PPF (15 years), Tax-saver Fixed Deposit, ULIP and NSC (5 years each). Whereas, investment in National Pension Scheme (NPS) remains locked-in until retirement.

So, with their investments getting locked in for the shortest period amongst its peers, ELSS allows a higher degree of liquidity to its investors in case they need to redeem their investments due to various reasons during post lock-in tenure of 3 years.

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Also Read: How To Invest In Real Estate 'Without' Actually Buying A Property

2. Higher returns and wealth creation potential

Since ELSS primarily invests in equity and equity-related instruments, it¡¯s able to comfortably outscore its peers like ULIPs, tax saver FDs, PPF, etc., in terms of inflation-beating returns over the long term. The post-tax returns of ELSS are still usually higher than its peers by a wide margin, especially over the long-term investment horizons of above five years.

As a category, ELSS have returns of 7.29% for 1 year, 19.06% for 3 years and 12.47% for 5 years period (category average), as per value research data dated 07.12.2022.

3. Tax Benefits Under Section 80C

Just like other tax saving options under the wide umbrella of Section 80C, ELSS too offers the benefit of claiming tax deductions of up to Rs 1.5 lakh per financial year under it.

4. Tax-Free Returns Till Rs 1 lakh

No capital gains tax is levied on gains of upto Rs 1 lakh in a financial year.

However, any long-term capital gain above Rs 1 lakh attracts LTCG tax @10%.

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For the uninitiated, gains made from equities redeemed after 1 year are long-term gains. As far as short-term capital gains are concerned, they are not applicable in the case of ELSS because it comes with a lock-in period of 3 years. (Short-term capital gains are levied on redemption done before 1 year of completing the investment.)

5. Option To Invest Through SIP Mode

Also, there is an option to invest through lump sum mode or the SIP (Systematic Investment Plan) route for ELSS. As ELSS, just like other equity schemes, is prone to be exposed to the volatility of equity markets, this risk can be mitigated by staying invested for the longer term and choosing the SIP route for investing in ELSS.

Why SIPs you may ask? It's because SIPs ensure financial discipline through regular investments periodically, which helps in averaging out the cost during market ups and downs through the rupee cost averaging concept. This helps to generate higher returns, especially over the long term, without the need for market timing.

Also Read: PPF vs ELSS vs Tax Saver Bank FD

Comparing ELSS With Some Other Tax Saving Options

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Also Read: Govt May Increase Mandatory EPF Contribution Limit To Rs 21,000

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