Are you interested in mutual funds investment? Do you know what is elss funds? ELSS funds or equity linked saving schemes are mutual funds that allow you to save on paying taxes on your earnings through your investments. Taxes can erode your returns from investments and you should protect your earnings from the same. Furthermore, ELSS schemes can assist you to form a retirement fund as well.
Here is a look at how ELSS investments can help you save taxes, while also aiding you to save money for retirement.
- Encourages you to save
Rather than keeping your money in a savings account, investing in ELSS will help you earn, while also keeping your funds safe from annual income tax deductions. Under section 80C of the Income Tax Act, you are liable for a tax exemption of up to Rs. 1,50,000 from your total taxable income.
- Shorter lock-in period
Since ELSS funds have a limited lock-in period of 3 years, you are free to use the invested sum as you wish. Therefore, ELSS schemes have an open-ended nature, which further encourages investment and tax saving. However, it is better not to redeem the returns as soon as the lock-in period ends, as you would get better returns if you stay invested for longer tenures.
- The chances of good returns are higher
ELSS schemes invest your money into equities, which is risky. However, with great risks come even greater returns. The higher returns will help you accumulate a sizable wealth by your retirement age, even if you start investing in your mid-30s. Therefore, young professionals can secure their retired life with ELSS investments, if they are willing to ride out the volatile equity markets.
- Tax saving leads to greater returns
With the money you save on taxes, you can start another ELSS investment, leading to even greater returns. Furthermore, with ELSS investments, you have access to the benefits of equities.
- Sector funds investment
Unlike other mutual funds schemes, an ELSS investment offers you the opportunity to pick a sector where you want to invest in. For instance, if you think that the banking or the infrastructure sector will perform well in the future, you can choose to invest in the equities from these sectors. These are known as sector funds. However, ensure that you know about the various sector funds before investing, to ensure maximum returns.
Therefore, equity-linked saving schemes have a lot to offer other than being a simple tax savings tool. You can easily build your own retirement fund from such investments.
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