Equity For Tax Savings: How ELSS Funds Stand Out

ELSS funds are equity-linked savings schemes and are one of the popular tax saving instruments in India. ELSS MF are those mutual funds that invest a major portion of their funds in equity. The remaining percentage is invested in fixed income and other types of instruments. 

ELSS funds carry a lock-in period of 3 years, meaning you can withdraw the amount only after 3 years. Premature withdrawal is not possible. ELSS funds also give investors tax benefits up to Rs 1.50 lakhs under section 80C. As they are market-linked they can even beat inflation. 

How ELSS Funds Stand Out? 

There are many other tax-saving instruments available in the market. However, ELSS funds stand out as they offer some unique benefits. Let’s understand this in detail: - 

1.Higher Returns 

A majority portion of the ELSS funds is invested in equity instruments. Due to this, they can give very high returns as compared to other tax savings instruments. You get a dual returns advantage. Firstly, you save taxes and secondly, you earn higher gains due to exposure to markets. 

2. Shorter Lock-In Period 

In general, tax savings instruments like Tax saving FDs, PPF, NSC, etc have a 5-year or more lock-in period. Whereas the lock-in period of ELSS funds is only 3 years. This is not just lesser than traditional instruments but also the shortest lock-in period among tax savings instruments. 

3. Professional Management 

ELSS funds are managed by professional fund managers. They use their knowledge and expertise and invest money to give you maximum returns. This type of benefit is not available in other tax savings instruments. 

4. Flexibility with ELSS 

If your ELSS fund is not rewarding you, you can take an exit and invest in another fund. In this sense, they offer good flexibility to investors. 

5. Can be combined with PPF 

One of the most interesting advantages that ELSS funds have is that they can be clubbed with PFF. This gives dual advantages i.e. stability of PPF and earning potential of ELSS. 

This also helps you to get your portfolio well diversified which has a mix of equity and debt. You get government backing for the investment too. 

6. Long-term Growth  

Many investors start their investment in equity with ELSS funds. Hence, they prove to be the first kind of investment for many equity investors. 

It helps them to develop discipline as you can’t withdraw the money before three years. As the funds remain in the scheme for a minimum of three years, they can beat the volatility factor.

If you are planning to invest in MF and want to go for the equity option, then ELSS funds are a very good option. They offer high returns as well as tax benefits. They also can develop good discipline in you as they carry the lock-in period of 3 years. So, you can’t withdraw the funds before 3 years. To start investing in this instrument, consider Dhan.