Advantages of ELSS
1. Tax Savings: The amount of money invested in an ELSS fund is eligible for a tax deduction up to ₹150,000 for the current fiscal year under the provisions of section 80C of the Income Tax Act. This is the only method that enables investors to reduce taxes while generating substantial profits on stock fund investments.
2. Shortest Lock-in term Among Other Tax Saving Funds: ELSS has a 3-year lock-in term, compared to a minimum of 5-years among other tax-saving options. With respect to other tax-saving choices, such as fifteen years in a PPF or five years in a Fixed Deposit, this time is the shortest. As a result, ELSS offers larger returns with the shortest lock-in period.
3. Lower Capital Gains Tax: An ELSS fund invests for a minimum of three years. Profits from the selling of ELSS funds are so long-term in nature. Gains in excess of ₹100,000 are taxed at a rate of 10% under current law. Short-term capital gains, on the other hand, are taxed at a rate of 15%. As a result, ELSS funds automatically result in decreased tax expenses.
4. Advantages of Compounding: It is normally recommended to make investments in equity funds over an extended time horizon of 5-10 years. Because of the lock-in period, ELSS funds automatically result in a disciplined long-term investment. This technique allows investors to profit from the potential of compounding over time.
5. Optional Redemption: If the investors are pleased with the performance of the respective ELSS fund, they may decide to continue. After three years, redemption is not required. It is merely a minimum investment period; there is no maximum investment period.
6. Increased Profits: Because ELSS funds invest in equity schemes, their returns are larger (15-20%) than those of other tax-saving options (7-10%). Over a three-year period, the advantage of compounding combined with equity returns gives investors with larger returns. ELSS typically generates returns in the range of 15-20%. This is the highest among other tax-saving options, such as PPF and FD over 5 years.
7. SIP is an Option: Investors may use the SIP option when investing in ELSS. It enables the investor to make investments of a set amount on a regular/periodic basis. This enables employees to invest a particular amount from their savings on a regular basis, typically once a month.
8. Trustworthy and Open: Investment in a mutual fund is relatively straightforward. SEBI regulates all mutual fund businesses, and they must make all required disclosures.