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EQUITY LINKED SAVING SCHEME (ELSS) MUTUAL FUNDS & ITS TAX BENEFITS
Tax is a word that scares many out there – probably because of the misconceptions surrounding it. In India, everyone worries about the tax that they have to pay; right from the saving of money, calculation of the amount to the filling up of the form – the entire process is misconceived as a hectic one. There are many ways in which you can save your tax but the top ones are - taking loans namely, education and housing or investing in the stock market. But, did you know that your mutual funds can also help you save tax?
Under Section 80C of the Income Tax Act, an individual can a maximum reduction of Rs. 1,50,000. So investments have to be planned carefully to avail this benefit. And, one of the mutual funds that help you gain tax benefits is the “Equity Linked Saving Scheme” or the ELSS. Though many are aware of the Equity Linked Saving Scheme or the ELSS mutual funds, there are new taxpayers on the block who may not have that much of an idea. So, to understand what ELSS is and how it works, here’s a blog for you –
Equity Linked Saving Scheme – An Overview
Equity Linked Saving Scheme or the ELSS is the best mutual fund option, which provides a long-term capital appreciation and allows its investors to save tax. It helps you invest in diversified portfolios comprising of equity and its related subjects that can deliver high returns. ELSS is an equity fund and hence its returns are determined as per the market fluctuations.
Types of ELSS Mutual Funds
For investing in ELSS mutual funds, you have three options, namely
In a dividend scheme, the investors will get an extra amount based on the dividend and these are not subjected to tax or lock-in periods. This equity scheme allows you to withdraw and reinvest in the fund and make it eligible for the tax benefits.
Dividend Reinvestment Scheme
The dividend reinvestment scheme of ELSS works well when the market witnesses an upswing and is expected to remain the same way. Here, you can reinvest the earned dividends to add to the net asset value (NAV). It is said that a good number of mutual fund investors opt for the dividend reinvestment scheme for a lock-in period of 3 years.
In the growth scheme of equity-linked mutual funds, account holders are not subjected to any benefits via dividends. The benefits are given to the investors only when the ELSS mutual fund tenure is completed. The benefits received at the end of the tenure increases the NAV while multiplying the profits. However, the profits earned by the investor depends on the market conditions.
The benefits given to the investors in the dividend ELSS schemes are the major reasons why most people opt for dividend schemes of the Equity Linked Saving Scheme rather than the growth schemes. However, in either of the three ways, you will gain good profits; choose the best equity- linked saving schemes per your convenience.
ADVANTAGES OF THE EQUITY LINKED SAVING SCHEME
Lower Lock-In Period
ELSS mutual funds offer you a lock-in period of 3 years after completion of which you can withdraw and continue to hold your account, unlike other mutual fund investments that have a higher lock-in period. This is why equity-linked mutual funds are one of the best ways to invest if you are planning on investing for a lower duration.
Another advantage of investing in the best ELSS funds is that it is not necessary to create your ELSS account with a large amount of money. You can create by depositing merely Rs. 500 with no upper limit, giving you the upper hand of investing as per your convenience.
Mutual funds or any other type of investment is done to get good returns along with attractive benefits. And, ELSS being an equity scheme saver, can provide and build long term gains and high returns, irrespective of its lock-in period.
No Hasty Last-Minute Investment
Yet another amazing advantage of the Equity Linked Saving Scheme is that you don’t have to worry about any last-minute amount for the investment. The ELSS fund provides you with the benefit of planning and investing in the fund in a systematic and hassle-free manner.
Other than these advantages, another add-on benefit is that under ELSS, during the investment period, the dividends declared are tax-free.
This is the meaning of the Equity Linked Saving Scheme and what ELSS is all about. A simple and sorted way of tax saving through a mutual fund. Today, a lot of banking and non-banking financial companies (NBFCs) offer ELSS mutual funds with attractive features. Investing in ELSS mutual fund with such top-rated banking and non-banking financial corporations will fetch maximum tax benefits while ensuring that you have an easy and hassle-free mutual funds service with them