What are the characteristics of a sound investment? Usually, a good investment plan yields profits, has the potential to tackle inflation, can explore the true power of compounding interest and diversifies your invested money. An equity mutual fund is one such investment that can display all these traits.
What if, along with being a sound investment, equity mutual funds could also help you save taxes? Now, that would be an icing on the cake! However, you don’t have to look around hard. Equity-Linked Savings Scheme (ELSS), a type of equity fund which can provide that icing.
An ELSS is a diversified equity mutual fund with a majority of its investments in equities. Thus, like an equity mutual fund, there is no Long-Term Capital Gains (LTCG) tax for an ELSS.
ELSS funds have a lock-in period of three years. The amount you receive after three years is tax-free. ELSS helps you claim tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961. Notably, this proviso is not applicable to other types of equity funds.
How ELSS Trumps Other Investments?
National Savings Certificate (NSC) and Public Provident Fund (PPF) can be considered as ELSS’ direct rivals when it comes to tax-saving options. Let’s see how ELSS fares against these two tax-saving funds.
• ELSS: 3 years
• PPF: 15 years (option of partial withdrawal after 6 years)
• NSC: 5 years
• ELSS: 16.48%*
• PPF: 8%
• NSC: 8%
• ELSS: Related to equity performance
• PPF: Considered safe; different asset class
• NSC: Considered safe; different asset class
• ELSS: Systematic investment plan
• PPF: Available (deposits can be made in 12 installments)
• NSC: One-time deposit
Tax on returns
• ELSS: Returns and dividends are tax-free, but only after the first year
• PPF: Returns are tax-free.
• NSC: Not available
The low downs on the three tax-saving funds show that ELSS can provide the highest returns. It also scores well on its liquidity quotient when compared to the other two options.
Additionally, by investing in ELSS through the Systematic Investment Plan (SIP) route, you get a chance to explore the power of rupee cost averaging.
ELSS: Your Doorway To Wealth Creation
In a country of 132 crore population, almost 5.5 crore people invest in mutual funds. According to another report, most states have less than 5% registered stock market investors. Thus, it is assumed that Indians don’t like to invest in equities. But, ELSS could help change your views. With ELSS, you can save taxes and simultaneously enter the world of wealth creation.
ELSS is much more liquid, tackles inflation better and can also provide high returns. To top it, ELSS is managed by a professional fund manager, hence, you don’t need to worry about revisiting your investment portfolio.
To Sum Up
There are numerous options available for you to save taxes. However, very few options can help you save taxes and generate high returns as well. ELSS can be that option. So, do not waste your time and invest in an ELSS today!
Read more here: ELSS E-book