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Making wise investment choices is now important in the rapid financial world of today. ELSS Mutual Funds are among the best options for building up wealth and reducing taxes. ELSS, sometimes referred to as Equity Linked Savings Schemes, are a well liked investment option for financial-conscious people, particularly those who want to combine tax advantages with market access.
What is an ELSS mutual fund, though, and why is it known to be one of the top tax saving mutual funds out present?
What are ELSS Mutual Funds?
Equity oriented mutual funds that focus mostly on stock market investments are known as ELSS mutual funds. The tax saving benefit provided by Section 80C of the Income Tax Act sets them apart from other equity funds. Depending on your tax slab, investors can save up to ₹46,800 in taxes each year by claiming a tax break of up to ₹1.5 lakh.
Key Features of ELSS Mutual Funds
1. Tax Benefits
As stated before, investments in ELSS are accepted as Section 80C tax deductions. In comparison to more typical offerings like PPF and NSC, this makes them one of the most effective tax-saving mutual funds.
2. ELSS Lock-in Period
ELSS Mutual Funds have the shortest needed secure period of any 80C option, at three years. There is no way to remove the deposit during this period. Since long-term investing is important in equity markets, this ELSS It Period is both a limitation and an advantage.
3. Higher Growth Potential
Because these funds invest in equity markets, they have the potential to offer much higher returns than fixed-income tax-saving options. Over a long-term horizon, ELSS can deliver significantly better wealth creation.
4. Diversification
ELSS funds invest across a range of sectors and companies, giving investors exposure to a diversified portfolio and helping to mitigate risk.
5. Systematic Investment Option (SIP)
You don’t need a lump sum to start investing. ELSS allows investors to invest through SIPs, starting as low as ₹500 per month. This makes it suitable for salaried individuals and young professionals.
Why ELSS is a Smart Tax-Saving Investment
- Shorter Secure time: The 3-year ELSS being locked in time offers greater flexibility than PPF (15 years) or NSC (5 years).
- Potentially Higher Returns: According to historical data, ELSS has frequently done better than traditional tax saving measures.
- Market Exposure: For young investors with a medium to high tolerance for risk, ELSS provides an opportunity to take part in the expansion of the stock market.
Risks Associated with ELSS Mutual Funds
Despite the many advantages, ELSS Mutual Funds carry market-related risks since they are equity-based. Their returns are not guaranteed and the performance depends on market conditions. Hence, it’s important to evaluate your risk appetite and investment horizon before choosing ELSS.
Who Should Invest in ELSS?
- First-Time Investors looking to start their mutual fund journey with tax-saving benefits.
- Young Professionals with a long investment horizon and the ability to withstand short-term market fluctuations.
- Taxpayers aiming to reduce their taxable income legally under Section 80C.
- Salaried Individuals who want to create a disciplined saving habit through SIPs.
How to Invest in ELSS Mutual Funds?
- Choose a Fund House or Platform: Select from reputed fund houses offering ELSS.
- Select Lump Sum or SIP: Decide if you want to invest all at once or via monthly SIPs.
- KYC Compliance: Ensure your KYC is completed before investing.
- Start Investing: Choose your amount and mode of investment and get started.
Performance of ELSS vs Other 80C Options
| Instrument | Lock-in Period | Average Return (5-10 yrs) | Market-Linked |
| ELSS Mutual Fund | 3 Years | 10–15% | Yes |
| PPF | 15 Years | 7–8% | No |
| NSC | 5 Years | 6.8–7% | No |
| Fixed Deposit | 5 Years | 5.5–6.5% | No |
Tips for Maximizing ELSS Investments
- Start Early in the Financial Year: Don’t wait until March to invest.
- Use SIP for Discipline: Invest monthly instead of lump sum to average out market volatility.
- Review Performance Annually: While ELSS is locked for 3 years, it’s smart to track fund performance annually.
- Diversify: Don’t rely only on ELSS for your tax planning; diversify with PPF or insurance as well.
FAQs on ELSS Mutual Funds
Q1. What is the ELSS lock-in period?
The ELSS Lock-in Period is 3 years, the shortest among all tax-saving instruments under Section 80C.
Q2. Can I withdraw my ELSS investment before 3 years?
No. ELSS Mutual Funds have a mandatory lock-in of 3 years. You cannot withdraw or switch funds before that.
Q3. Are ELSS Mutual Funds risky?
Yes, since ELSS is equity-based, it carries market risk. However, over the long term, it has the potential to generate higher returns.
Q4. Is SIP allowed in ELSS?
Yes, you can invest in ELSS via SIPs. Each SIP installment will have its own 3-year lock-in.
Q5. How much tax can I save with ELSS?
You can claim up to ₹1.5 lakh under Section 80C, which could save up to ₹46,800 annually, depending on your income slab.
Conclusion
If you’re looking for a tax-saving investment that also has the potential to grow your wealth, ELSS Mutual Funds are worth considering. With a short ELSS Lock-in Period or systematic investment options and the potential for high returns, ELSS stands out among other Tax Saving Mutual Funds. However, always match your risk profile and financial goals before making any investment.
I am a digital marketing executive as well as content writer in the mutual funds related blogs. My goal is to provide simple, interesting and reliable information to readers through my articles so that they always stay updated with the world of mutual funds.
