ELSS is an open-ended mutual fund investing into equities. These schemes help in saving tax under section 80C of Income Tax. An investor can claim a reduction of up to Rs. 1.5 Lacs per year. These schemes have a lock in period of three years. This means you can redeem only after 3 years. ELSS is one of the best investment options to deliver high returns with a shorter lock-in period as compared to other options under Section 80C.
4 Reasons why one should invest in ELSS:
- Tax Saving: ELSS investments can be used for Tax Deductions up to Rs. 1.5 Lacs under section 80C of Income Tax Act
- Shorter Lockin: ELSS has shorter lockin period as compared to other tax saving schemes which is 3 years. Lock in period for some instruments are PPF- 15 years, ULIP-5years FDs- 5 years.
- Diversification: Diversification is vital to minimise risk. ELSS Funds are essentially like Equity-FlexiCap Funds, which means they invest in large, mid, and small cap funds.
- Systematic Investment Plan (SIP): ELSS offers the option to start with a minimum amount of Rs. 500 as a monthly SIP to ensure that they do not bear the burden of paying lumpsum amounts at the end of the year.
2 Mistakes one should avoid while making ELSS Investments:
- Skipping SIPs: Continuing the SIPs regularly in ELSS will eliminate the risk of timing the market. Missing your ELSS SIPs will reduce the overall investments made, so you might fall short of your tax-saving investment goals.
- Making Lumpsum Investments: Many investors delay their tax saving investments till the end and then make a lumpsum investment. ELSS is an equity investment, so market conditions and timing will impact the investment hence staggering via SIPs is the best option.
ELSS is a 2-in-1 investment product. They provide tax benefits and have the potential to grow your wealth substantially if you stay invested for the long term. ELSS is necessary in your goal based financial planning.