7 Reasons why you should opt for ELSS mutual funds for tax saving

Are you looking for some tax saving options? Among the many instruments available for in the market, equity-linked savings scheme (ELSS) are one of the preferred options. If you invest Rs 1.5 lakh, which is the maximum allowed for tax deduction under Section 80C of Income Tax Act, you can save tax up to Rs 46,350 if you are falling into the highest tax bracket. However, there is no limit to making investments under ELSS.

Here are 7 reasons why you should opt to invest in ELSS schemes:

Capital appreciation: One can create wealth by linking their ELSS fund to their long-term financial goal. By choosing growth option, one can gain from compounding and create the desired corpus.

Tax saving: Investment for up to Rs 1.5 lakh can be claimed for deduction under section 80C of Income Tax Act. One can save a maximum of Rs 46,350 if falling under 30% tax bracket. If one is falling under 20% bracket can save tax for up to Rs 30,900.

Minimum lock-in period: The scheme falling under such category has the least lock-in period. When compared to other tax saving avenues like PPF which has a lock-in period of 15 years, ELSS has only a 3 year lock-in period.

Categorised funds availability: As per one's risk-taking capacity, AMC’s design their scheme on the basis of large-cap, mid-cap and small-cap and accordingly their risk and returns varies. Therefore, the schemes provide you flexibility in taking the risk while investing. However, you cannot ignore the element of risk as all the schemes are equity-based and market linked.

Availability of SIP option: If you cannot invest in one go, that is through lump-sum mode, then you can go for monthly investment mode through systematic investment plan (SIP). This process can reduce your burden of investing a huge amount in a month and also, it can benefit you through rupee cost averaging over a period of time. Minimum amount to be invested is Rs 5,000 a year.

Maturity proceeds are tax-free: Most of the tax savings instruments attracts TDS while making a redemption. However, investing money through ELSS scheme makes your return totally tax free if withdrawn after completing the 3-year lock-in cycle. You can also redeem your money after a year through the exchange in the secondary market.

High Return Possibility: Schemes under ELSS category have given remarkably higher returns in past when compared to any other tax saving instrument present in the financial market. Some of them are mentioned below. However, returns are market-linked and they are not guaranteed. Nevertheless, you should invest in these fund over a period of time for at least 5 to 7 years and gain a high compounded return on your investment. But before investing, you should take help from a certified financial planner or consult your adviser for the same.