The ELSS offers avenues for wealth creation while saving taxes and offering high liquidity.
At the end of every financial year, you run around to make last minute investments and save taxes. You might invest a lump sum amount in your PPF account, or buy a new insurance policy, or even start a new investment.
Instead of waiting till the last minute, you can create a nifty investment option for yourself by checking out the ELSS fund.
What is an ELSS?
The ELSS is an abbreviation of the term ‘Equity Linked Savings Scheme’. The ELSS fund is often purchased for two reasons:
- Excellent growth prospects
- Lowest lock-in period of just 3 years, across all market linked options in India
The ELSS is a tax saving mutual fund that offers a high rate of diversification in the investment while also ensuring high growth by largely investing in equities. It has a higher factor of risk owing to its higher exposure to equity securities. But it also shows a correspondingly higher rate of return as compared to other options.
You can choose to stay invested in this tax saving mutual fund beyond three years – in fact, treating it like a long-term mutual fund assures you of higher appreciation on the investment. The ELSS fund shows a higher propensity to ride out short term volatility as well. New investors looking for high growth must particularly invest in this fund.
Why the ELSS is great for you
The ELSS fund offers many benefits that both novice and experienced investors can take advantage of to create wealth. Consider the following benefits –
* Superb tax saving prospects: The ELSS fund is highly recommended for tax saving purposes. In fact, it is known as a tax saving mutual fund: you get exemption up to Rs 1,50,000 investment under Sec 80C of the Income Tax Act, 1961. Thus, it is the best long-term mutual fund for those with a higher capacity for risk but with an eye on higher gains.
* Higher liquidity:Though it is recommended that the ELSS fund must be invested in for a longer time, the short lock-in period assures higher liquidity than other options like the ULIPs (10 years), PPF (15 years), insurance (till maturity), NPS (till retirement), etc.
* Better returns compared to other options:With the maximum exposure to equities, the ELSS fund offers more returns than other options. The best performing ELSS funds offer bumper returns in the range of 15% and above, thus making it the ideal long-term investment plan. Since you also save money on taxes, you can estimate the gross returns to be up to 18%. This is a higher rate of return than other options.