Equity Linked Saving Scheme or ELSS is a scheme offered under mutual funds. It is one of the most widely used schemes under Section 80C of the Income Tax Act, 1961, to receive tax deductions. The section allows upto Rs. 1.5 lakh on tax saving in every financial year. It is the best scheme for long-term investors because of its lock-in period of 3 years. This instils discipline in the investors to invest long-term to gain more returns.
ELSS is becoming more popular among investors. These are some of the reasons that make the scheme popular:
1. Tax benefit
ELSS tax benefit is incorporated under Section 80C of the Income Tax Act,1961 which gives deductions upto Rs. 1.5 lakh per annum. This is the most valuable scheme that allows the most tax benefit to investors. It offers dual benefits to the investors in terms of capital returns and tax benefits. It is the only scheme with the lowest lock-in period but with equal tax deduction as any other scheme under Section 80C of the Act. If the ELSS is performing up to your requirements, then you can invest beyond Rs. 1.5 lakhs as well.
2. Shorter lock-in period
Unlike other schemes, the ELSS offers the shortest lock-in period of 3 years only. Other tax-saving instruments such as ULIPs, NSC, PPF, etc. offer longer lock-in periods for long-term investment and deposits. Investing long-term in ELSS can get you better returns since the dealing is in equity shares. The investor has the choice to withdraw 100% of the money after the end of the 3 year period, or continue with the scheme.
3. Suitable for newcomers
Equity Linked Saving Scheme is one of the easiest schemes to invest in for newcomers. Since the ELSS investments are in the equity market, most of us would not know how to invest and where to invest. For this matter, the mutual funds manager is the one who shall take care of all the capital invested. On top of this, the portfolio where the capital is invested is kept transparent for all the investors. This gives you the authority to decide for yourself as to where you want to invest.
4. No maximum investment limit
One of the most characteristic features of ELSS is that one can continue investing even if their tax limit has exhausted. Unlike other schemes, this scheme offers the investor full freedom to continue investing as much as they want to, without the tax limit stopping them. However, more investment will not stretch out the tax benefit that you are receiving under Section 80C of Income Tax Act.
These are some of the benefits of investing in ELSS and the reasons that have made it more popular in today’s time. It provides benefits to its investors unlike any other investment platform, which makes it more sellable in the market and hence, popular among investors.