Why Are ELSS Funds So Popular?
Sometimes, a huge chunk of your investment income gets deducted through taxation. This restricts your investment growth. To avoid this, many investors opt for Equity Linked Savings Scheme.
An ELSS is a tax-saving investment scheme. It allows them to claim partial tax refunds. Through this scheme, investors save a considerable amount in taxes each year.
In recent times, ELSS Funds have gained significant popularity. This could be credited to its numerous advantages. Apart from tax savings, it offers a host of other perks. Here are some of them:
Lowest lock-in period
Compared to other Tax Saving Funds, ELSS has the lowest lock-in period. It is only three years instead of the usual five years. This allows investors to reap higher returns in a short lock-in period.
Tax on gains
Taxation on gains is also lower in ELSS Mutual Funds. Such funds offer a minimum investment period of three years. During this, any gains received from fund sales become long-term. Profits received above Rs. 1 lakh become taxable at a 10% rate. The present law has determined these rates.
This way, investors minimise their tax expenses considerably.
Compounding
Once you invest in a Mutual Fund, you usually intend on sustaining it. However, long lock-in periods and taxation affect your continuity. They increase your market risks. As a result, you opt out of the investment scheme.
ELSS Funds bring about discipline in your investment journey. They help you benefit from compounding. This ultimately facilitates the steady growth of your assets. Since the lock-in period in such funds is lower, it encourages you to contribute regularly.
High returns
In ELSS, funds are invested in equity schemes. This increases the returns more than other Tax Saving Funds. Moreover, profits from compounding combined with the gains on equity increase your returns considerably.
Generally, ELSS’ returns range in the 15-20% bracket. This range is also the highest amongst other tax saving options.
Redemption
Redemption is not compulsory in ELSS Funds. If you are happy with the returns, you may continue with the scheme. However, this applies only after the completion of three years. This period is the minimum investment duration.
Moreover, there is no maximum investment duration in such funds. This way, you decide how long you wish to invest.
SIP option
ELSS Funds provide investors with the Systematic Investment Plan option. They allow investors to invest through a fixed amount at regular intervals. This enables salaried individuals to invest from their savings easily. It also empowers them to start investing early.
Safety
Investing in an ELSS Fund is absolutely safe. The Security and Exchange Board of India supervises all Mutual Funds. This includes ELSS Funds, Money Market Funds, Liquid Funds, etc. Hence, it is one of the safest investment options for investors.