Mutual funds are looked upon as a favourable investment avenue by many. They give you attractive returns, diversify your risks over a vast portfolio, suit the risk preference of all types of investors and also let you invest affordably through SIPs (Systematic Investment Plans). Though there are different types of mutual fund schemes, ELSS mutual funds are very popular among investors. Let’s understand why –
What is an ELSS mutual fund?
An ELSS mutual fund is an equity-oriented mutual fund scheme which has at least 65% equity exposure in its portfolio. The scheme allows you tax benefits while creating an attractive corpus for your financial needs. The fund has a lock-in period of 3 years after which it can be redeemed fully or partially.
ELSS benefits
There are many ELSS benefits which make ELSS investments very popular and favoured among investors. These benefits are as follows –
- Easy to invest
You can invest in an ELSS fund easily either online or offline. You can also invest in a lump sum or in monthly instalments through Systematic Investment Plans (SIPs). The investments are affordable and you can start investing in the ELSS mutual fund with as little as INR 500. Such affordable investments allow even small investors to save and create a substantial corpus over time. If you choose SIPs, you can save regularly and get the advantage of rupee cost averaging. You, therefore, don’t have to time the market movements. Moreover, SIPs also give you the benefit of compounding and help you earn good returns over a long period of time.
- Attractive returns
Since ELSS mutual funds are equity-oriented schemes, they offer good returns. If numbers are to be believed, one of the best ELSS fund, Axis Long Term Equity Fund has given an annual return of 28.7% and a CAGR of 17.01% over a 3-year period as on 19th February 2020. Such high returns help you to maximize your investments and build up a substantial corpus over time. Since returns dominate your preference of an investment avenue, ELSS funds sure top the chart.
- Disciplined investment
ELSS mutual funds have a lock-in period of 3 years and you cannot redeem your investments before the lock-in period is over. This creates a disciplined approach to savings and you can remain invested in the scheme for a good enough tenure to generate returns. Thus, ELSS funds help you avoid the temptation of early withdrawals or redeeming your investments for any short term financial need making you disciplined towards investing. This disciplined investment grows your corpus, gives good returns and creates a corpus for your financial needs.
- Tax benefits
Last but not the least, ELSS investments give you tax benefits and this is one of the primary reason why the investment is favoured by investors. The money that you invest into the ELSS scheme is allowed as a deduction under Section 80C up to INR 1.5 lakhs. Through this deduction, you can lower your taxable income and reduce your tax liability. In fact, through ELSS investments you can save up to INR 45,000 in taxes if you are in the 30% tax bracket. Even in case of returns generated from the scheme you get tax benefits. Returns up to INR 1 lakh are completely tax-free in your hands. Excess returns are, however, taxed but the tax rate is 10% which is not very high. Thus, ELSS investments are tax-efficient and beneficial.
With these benefits ELSS mutual funds become a favourable investment avenue. So, choose from a list of the best ELSS funds for investments and tax planning and create a corpus to meet your financial goals.
