In your road towards wealth building, a well crafted investment strategy is highly crucial. Generally speaking, there are three major kinds of asset classes in which you may invest: high-risk investments like stocks, low-risk investments like fixed deposits or government bonds, and lastly, tax-efficient mutual funds. The Equity-linked Savings Scheme (ELSS) or tax-saving mutual funds are now two of India's most popular investing options.
Statistics pertaining to ELSS funds in India:
The Association of Mutual Funds in India (AMFI) said that the value of ELSS mutual funds was Rs 1,986 crore in 2018. In 2019 and 2020, the net inflows were Rs 1,244 crore and Rs 931 crore, respectively.
Experts in the market speculate that the lower net inflows may have been caused by the ELSS funds' recent ordinary performance, which contrasts with their prior greater returns.
What is ELSS?
An equity-based mutual fund called Equity Linked Savings Scheme offers you tax advantages under Section 80C of the Income Tax Act. The minimum lock-in period for ELSS mutual funds is three years.
Who should invest in ELSS?
- If you have recently begun to generate money
- If you simply want to make secure, low-risk investments
- If you're a high-risk investor seeking to diversify your holdings while reducing your tax burden.
- ELSS Mutual Funds are open to investors of all ages. Market analysts advise purchasing three to four high-performing ELSS funds.
Advantages of ELSS Mutual Funds:
The benefits of these monies are as follows:
Tax Savings: Only ELSS funds are eligible for tax savings of around Rs 1.5 lakh per year by contributing to the programme. Tax deductions on these monies are permitted under Section 80C of the Income Tax Act.
Even with the new tax law, which makes long-term capital gains from ELSS over Rs 1 lakh taxable, these funds remain one of the greatest ways to reduce your tax burden. Compared to alternative investment options like Unit Linked Insurance Plans (ULIPs) or Public Provident Fund, these provide better post-tax returns (PPF).
Short lock-in period: Unlike other investments like Public Provident Fund, Employees Provident Fund, and National Savings Certificates, which have a minimum lock-in term of five years, ELSS funds have a three-year lock-in period once you make a purchase.
Can provide long-term return: By keeping the funds invested after the three-year lock-in period, they can increase. Over time, significant wealth can be generated as a result of these funds' investments in shares.
TInculcates the habit of saving: he minimum monthly investment amount for ELSS programmes, often referred to as the Systematic Investment Plan, is Rs 500. (SIP). Thus, you may see your money increase by making the least contributions each month.
Higher returns: These funds see better market returns since they invest in stocks. Your returns from ELSS funds may be twice as high as those from a straightforward savings plan. According to statistics, ELSS produces, on average, 12% returns over a 10-year period. Compared to programmes like PPF, which yield about 8%, this is a huge boost.
Types of ELSS:
You must be familiar with the different ELSS fund kinds as an investor. Which are:
Growth Fund: Investors may use this platform to build long-term wealth since when money is withdrawn, its full worth is realised.
Dividend payout: Dividend payment and dividend reinvestment are your two choices in this situation. If you receive a dividend payment, you will get a tax-free dividend; if you receive a dividend reinvestment, your dividends will be reinvested.
Conclusion
The best investing alternatives, with greater returns and a short lock-in period, are ELSS mutual funds. The tax savings provided by the plan are its strongest feature.
ELSS is a crucial piece of equipment for any portfolio. You may register a demat account in India to make investing and maintaining your financial portfolio easier. One of the advantages of demat accounts is the ability to view your entire portfolio at once. Therefore, start your long and successful investing journey by opening a Demat account.
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