Benefits of investing in Equity Linked Savings Schemes

ELSS is one of the most popular strategies to invest and benefit from a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.

When looking for tax-saving instruments, you will see that there are several alternatives available, such as life insurance (including Unit Linked Insurance Plans), Public Provident Fund (PPF), Equity Linked Saving Schemes (ELSS), tax-saving Fixed Deposits (FD), and so on. 

Are you pondering which is the greatest strategy to increase your money while receiving a tax deduction? Well, ELSS is your answer. ELSS is one of the most often advised methods of claiming a deduction under Section 80C of the Income Tax Act. In this post, we will look at why you should use ELSS as your preferred tax-saving vehicle.

Creating wealth and saving tax simultaneously

ELSS funds are equity mutual funds that appear to be comparable to flexi-cap funds. This implies that ELSS funds, like flexi-cap funds, can invest in businesses with no market capitalisation constraints. Because it is a diversified equity fund, it has a high potential for long-term wealth creation. On the other hand, another advantage of investing in ELSS is that you can claim a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.

The lowest lock-in period

When you invest in tax-saving instruments, you are subject to a lock-in period. The lock-in period is simply the initial time of investment during which you are unable to withdraw your funds. In this regard, ELSS outperforms other existing solutions. This is because the lock-in time for PPF is 15 years, the lock-in period for ULIP and tax-saving FDs is 5 years, and the National Saving Certificate (NSC) has either a 5-year or a 10-year lock-in period. When compared to ELSS, the lock-in time for ELSS is merely three years. This indicates that ELSS is considerably better than other alternative options in terms of liquidity.

Option of investing systematically

ELSS, like other mutual funds, provides the opportunity to invest methodically through a Systematic Investment Plan (SIP). SIPs in an ELSS can begin at as little as Rs 500. For example, if you want to claim a tax deduction of Rs 1.5 lakh, you may easily start a SIP of Rs 12,500 each month and maintain it till you wish to avail tax benefit. Most other tax-advantaged investment products do not offer a systematic and automated manner of investing money regularly.