Although taxpayers are aware that an ELSS fund gives them tax benefits under the Income tax Act, many of them still invest in it for only the tax saving benefits. The larger implications of how these mutual funds India could help them in their investment journey is often lost on the investors. Today let us understand how an ELSS fund can prove more than just a tax saving investment.
What is an ELSS fund?
ELSS or Equity linked Saving Scheme is an equity oriented mutual funds India scheme. Under the Old Regime of Taxation, investors in an ELSS fund are eligible for a tax deduction of maximum 1.5 lakhs in a financial year from their taxable income under the Section 80C of the Income Tax Act 1961. This means that when the investors buy an ELSS fund, they can claim that invested amount as a deduction. Although the maximum deduction allowed under the section is Rs 1.5 lakhs, there is no cap on the amount that an individual can invest in this mutual fund India.
There are other investment options specified under Section 80C, that together make up for the maximum deductible tax of Rs 1.5 lakhs in a financial year, but ELSS is the only market linked investment option that enjoys this benefit. The other tax saving options provide only fixed returns. There is a 3-year lock in period in an ELSS fund which applies from the date of purchase. So now that you know what ELSS actually is, let us take a look at the benefits that investing in an ELSS fund can give you.
How can you benefit from investing in an ELSS fund?
- The first obvious point is the tax benefit. The Rs 1.5 lakhs of deduction from your taxable income will translate to Rs 46,800 as tax saving, for investors in the highest tax bracket.
- The funds that you have invested will be invested in Equity and related securities by the ELSS fund. As mentioned before, no other investment option specified under Section 80C gives you equity exposure while saving on taxes.
- The 3-year lock in period is the lowest lock in period on any of the tax saving instruments like PPF, NSC etc. under Section 80C.
- The 3-year lock in period does not mean that you will have to take out your money after the said 3 years. You can remain invested and let the money grow in your ELSS fund.
- For investing Rs 1.5 lakhs per year you can start an SIP of Rs 12,500/- per month. Example - Over a period of 10 years, you can reap the returns of long-term equity growth and accumulate close to Rs 29.5 lakhs.
As you can see, investing in ELSS gives you tax benefits as well as equity market exposure that can help you to accumulate a large corpus. Therefore, you can consider investing in the same. There are ELSS schemes offered by many mutual fund India houses. Contact a mutual fund distributor or your financial planner to understand which ELSS fund is going to be best suited to you and start on your tax saving cum wealth building journey.
