As working individuals, it is amicable if you think about savings, as this entity usually proves helpful in times of need or for future needs as well. According to some experts among the tax-saving options available equity-linked savings schemes or ELSS is that type of mutual fund which tends to offer an outstanding combination of a good return, short lock-in period as well as highly flexible scheme.
As a matter of fact, this type of mutual fund forms the top choice for investors.
What is ELSS?
The mutual fund scheme that is diversified in nature and enables dual tax saving, due to the growth potential of equities, is termed as ELSS. This mutual fund scheme basically invests in stocks, but it differs from other tax-saving options in the sense that a shorter lock-in period of 3 years is associated with it.
If you are a first-time investor then equity-linked saving is an excellent option to opt for because it provided two major benefits namely, tax saving and wealth creation.
Point to remember- If you decide to invest in ELSS, then you must have knowledge about a very important mandate associated with it. As per Section 80C of the Income Tax Act, if you make an investment up to ₹1.5 lakh per annum in ELSS, then you are eligible for income deduction.
This further implies that you can subtract the amount you decide to invest in ELSS from your all-over income, so as to reduce your taxable income. This ultimately leads to a reduction in the tax amount you need to pay.
Example- Let us elaborate on the concept of ELSS with a real-life example. Consider a person named Ankita who works as a chartered accountant in a reputed firm and earns a taxable income of ₹18 lakh per annum. This puts her into Tax bracket of 30%. Further, she decides to invest ₹1.5 lakh in the ELSS fund.
Now, as per Section 80C of the Income Tax Act, she is left with a taxable income of ₹16.5 lakh and on the other, she will also be saving the money she decided to invest in the ELSS fund.
Advantages of investing in ELSS fund-
- It offers a shorter lock-in period of 3 years.
- It is a perfect tool for wealth creation because it invests in inequities.
- There is no upper limit as to how much you can invest in this fund.
- Provides better-tax returns.
- Investing in ELSS comes with no complications and is very simple.