While investing in mutual fund schemes, you must make note of one fact. The fact that you need to remember is that mutual funds are not a monolith. You will find numerous variants of mutual fund schemes. Each of these types of mutual fund schemes is known for coming with its facilities. These various types of mutual funds are known for catering to the needs of different types of investors. While the final goal of all investors is the same, i.e., to acquire wealth for the future, the sum of wealth will be different for different investors. One of the variants of mutual funds is equity-linked savings schemes (ELSS).
What are equity-linked savings schemes?
These schemes are known for directing investments toward securities such as equities and related instruments. While most of the time, these schemes are known amongst investors for their tax-saving facilities, ELSS can also help you with things like long-term wealth accumulation and beating inflation. Known for coming with a lock-in period of three years, these tax-saving schemes are one of the different variants of equity mutual funds. You can enjoy tax benefits with these schemes under Section 80C of The Indian Income Tax Act, 1961. As is the case for mutual funds in general, you can invest in ELSS through the SIP mode.
How do these schemes work?
One of the salient features of these schemes is that you can claim a tax rebate of roughly ₹1,50,000. Fund allocation in ELSS is mostly directed towards equity-linked securities and equities. Thus, in case you have opted to allocate funds to ELSS, you can invest in things like listed shares. And, other than listed shares, a small exposure to fixed-income securities might also be involved. However, before opting for the ELSS scheme, you need to make note of the fact that these funds come with a lock-in period of just three years. Supposedly, three years is the shortest among all Section 80C investments.
Are there any reasons for you to invest in ELSS?
Here are some of the reasons for you to consider investing your money in equity-linked savings schemes:
- More than one investment option is available:
There is a misconception amongst people that for investing in mutual funds, you need to make a one-time lump-sum investment. However, you can opt for a less financially stressful option in case you don’t have access to the required investment amount. The other option is systematic investment plans or SIP. By opting for SIPs, you can make monthly investments in ELSS.
- ELSS are known for coming with the shortest lock-in period among Section 80C investments:
As stated before, equity-linked savings schemes are known for having a lock-in period of three years. But, after the end of the lock-in period, instead of redeeming your scheme, you could decide to keep your funds invested. If you were to keep your funds invested, the decision may result in the acquisition of long-term wealth.
- They are exposed to equities:
As the name equity-linked savings schemes are known for allocating funds primarily towards equities. Investing in equity-linked savings schemes is regarded to be a good way to expose your funds to the equity market. Opting for ELSS is regarded by many to be the first step toward building equity as an asset class in your portfolio.
- ELSS are known for coming with tax benefits:
Tax advantages are one of the major reasons why a lot of investors are known for opting for these schemes. By opting for ELSS, you could get a chance to enjoy a tax deduction of approximately ₹1,50,000 annually. The said facility can be availed thanks to Section 80C, which is a part of the Indian Income Tax Act, 1961. If it is a tax-efficient scheme that you are seeking, you don’t need to look further than equity-linked saving schemes.