No better investment than ELSS. Here are 5 reasons why!!!
ELSS or Equity Linked Savings Schemes are the current flavor of the season. They have been one of the most recommended financial products for the past couple of months and will continue to be so till the end of current financial year. Investors have been flocking for a share of this wonderful product. However, should you invest in it? If yes, what funds should you invest in? Here is an attempt to answer these questions and give you some insights on ELSS funds.
Why should you invest in ELSS Funds?
1. Tax savings of Rs. 46,350
ELSS allows a tax deduction of up to Rs. 1,50,000 under section 80C of IT act. If you are in the 10% tax bracket, you can save up to Rs. 15,450. If you fall under 20% tax bracket, you save up to Rs. 30,900 and if you are in the highest tax bracket i.e. 30%, you can save up to Rs. 46,350. For this very reason, it is considered to be one of the best tax saving products.
2. Growth through equity exposure
Tax saving is not the only fruit that ELSS funds produce. They give a boost to your portfolio by taking exposure to equity and thereby help it grow leaps and bounds. In terms of investment strategy, they are similar to any other equity fund and invest in stocks as per the discretion of the fund manager. However, the advantage of this particular set of funds is that the fund manager has enough information about the quantum of investments coming in viz-a-viz other equity oriented funds. Hence, the fund manager can plan the investments accordingly.
3. Lower lock-in
They have a lower lock-in period of 3 years compared with PPF which has a lock-in of 15 years, tax saving FDs – 5 years and NPS – until 60 years of age. This means greater liquidity for investors, who can exit the scheme anytime after 3 years from invested date. As we are aware, liquidity is an important aspect of any investment product.
4. Tax free returns
Being an equity oriented product, the maturity amount is completely tax free if held for at least 1 year. The advantage of better post tax returns puts ELSS a step ahead of other tax saving products. Scroll below to know the past performance of top performing ELSS funds. They have also been among the best performing mutual funds.
5. Dividend option
ELSS funds come with two options – Growth and Dividend. In case of dividend option, income can be earned even within the lock-in period of 3 years. Moreover, any dividend earned is tax free in the hands of investors. By opting for dividend option, you keep earning regular income irrespective of the lock-in.
Top Five ELSS Funds
Scheme Name 1. Axis LT Equity Fund(G) 2. Birla SL Tax Relief ’96(G) 3. HDFC TaxSaver(G) 4. ICICI Pru LT Equity Fund (Tax Saving)(G) and 5. SBI Magnum TaxGain’93-Reg(G)
Final Word
The dual benefits of tax saving and equity exposure make ELSS an attractive option for investment. Investors who have risk appetite for equity products can definitely plan to have exposure in ELSS funds as part of their overall portfolio. When invested for long term, risk is minimized in equity
.