A mutual fund known as ELSS offers tax advantages under Section 80C of the Indian IT Act, but the bulk of its investment risks are in stocks. It is appropriate for investors who want to take advantage of tax benefits because it has a three-year lock-in period and the ability to generate wealth. But it could be wise to use an online sip calculator. Let’s now examine five compelling arguments in favor of investing in ELSS funds.
- Section 80C Tax Benefits
The tax advantages provided by section 80C of the Income Tax Act of 1961 are the main benefit of using ELSS funds. Indian nationals can invest up to Rs. 1.5 lakhs a year through ELSS funds, which lowers their tax liabilities. This results in substantial tax savings, which is very advantageous for investors in higher tax bands. Therefore, if you haven’t yet used up the Rs. 150,000 maximum outlined in Section 80C of the Income Tax Act, ELSS funds are a prudent choice.
- The possibility of increased profits through exposure to equities
ELSS must have equity exposure, meaning that at least 80% of the fund corpus is invested in shares and other similar instruments, in contrast to alternative tax-saving options and fixed income funds. Your investment may now take advantage of the long-term wealth-creation potential of stocks, which historically have produced returns of 12–15% yearly over inflation. Therefore, in addition to the return component in terms of capital appreciation, ELSS offers the additional benefit of tax savings.
- A comparatively brief lock-in period
Since ELSS funds have the shortest lock-in period—three years—of all the Section 80C investments, they offer the greatest flexibility. Other instruments, such PPF, NSC, and others, have lengthier lock-in periods that range from five to fifteen years. Investors benefit from this shortened lock-in time since it enables them to modify their assets when portfolio balance is needed or certain life goals are reached. ELSS is a good product for short- to medium-term objectives since historical returns show that stocks have produced decent returns over any three-year rolling period.
- Expert Counseling for Novice Equity Investing
For investors who would prefer to participate in an 80C-deductible mutual fund scheme over buying equities or trading directly in the equity markets, this is the ideal choice. Compared to direct stocks, they are more transparent and liquid, and they have skilled fund managers. Consequently, novice stock investors stand to gain a great deal from the expert handling of their money through ELSS funds.
- Using Compounding to Gradually Increase Wealth
Historically, stocks have been a great way to grow wealth over the extraordinarily long investing horizon of seven to ten years. As a result, astute investors utilize ELSS to expand their stock holdings and take advantage of compounding. Along with stock holdings and tax exemptions, years of consistent investing in ELSS funds can contribute to the development of a sizeable retirement fund.
In conclusion
The idea that ELSS mutual funds are an excellent option for ordinary investors who want to protect their future wealth through equity investments while trying to avoid taxes under the present income tax legislation encapsulates its significance. Every investor who wishes to benefit from the existing tax planning options should contribute a portion of their Section 80C investment to ELSS funds due to the overall benefits. Select tactics that have shown to be a reliable, long-term way to take use of the compound principle.
