The season of tax-saving is here and many investors are wondering whether it would be worth the risk to invest in ELSS. The bleak economic scenario, coupled with the uncertain market outlook, is prompting many investors to take a closer look at the tax saving options. However, investing in ELSS mutual funds provides the benefit of tax exemption on depositing above Rs 1.5 lakh under section 80C of the Income Tax Act.
The tax-saving opportunity has been a promising aspect of ELSS that attracts a large number of investors. However, with the changing market scenario, the investors are taking a more cautious move and are eager about how investing in ELSS mutual fund will be beneficial for them in this fiscal year to save taxes. So here are some reasons given below that will help you in having a better perspective to make your investment in ELSS mutual fund to get tax benefits.
Table of Contents
5 Reasons To Invest in ELSS Mutual Funds in the Current Fiscal Year to Save Taxes
Income Tax Benefit
If you are planning to invest in mutual funds to save taxes, then Equity Linked Saving Schemes (ELSS) funds can prove beneficial for you. ELSS is well known for its tax-saving benefits. Investing in ELSS mutual funds can benefit you in two ways. Firstly, saving taxes and secondly, by helping in gaining a higher return on investment. In this way opting for ELSS mutual fund will not only make your investment more productive in the current fiscal year but will also pave the way for gaining a higher return in the future.
In addition to the tax benefit, the investors can also enjoy tax-free dividends under ELSS mutual fund. This dividend is being paid to investors on a regular basis. So, if you invest in an equity-linked savings scheme, the dividend that you will receive is entirely tax-free. The best part about this scheme is that there is no upper limit on the dividend amount for exemption. Therefore, the additional benefit will be one of the driving factors to opt for ELSS in the current fiscal year to save taxes.
Lower Lock-in Period
The benefit on any investment always depends upon how the investor is capitalising their investment. To make your investment productive, opting for ELSS mutual funds could prove fruitful as the lock-in period is only three years. This is comparatively lower than other types of mutual funds like EPF and PPF. The lower lock-in period makes the ELSS mutual funds more flexible provided, the investor has the financial stability to sustain the investment for three years. Moreover, since it provides a higher return on investment funding in ELSS, mutual funds in the current fiscal year will prove to be productive in the future during the time of maturity.
Higher Return on Investment
One of the significant factors that make ELSS more attractive to investors is that it provides a higher return on investment. Investors with good financial stability always aim for investment schemes that can prove productive in the long term. Most mutual fund schemes provide an average return of 7 – 8%. In comparison to which, investing in ELSS mutual fund will yield you anywhere between 10 – 15% per annum. In some cases, investors can earn more than the average interest rate. Therefore, investing in ELSS in the current fiscal year will yield you with a higher return.
No Maturity Date
In ELSS, there is no maturity date as you can reinvest the principal amount on equity shares. Therefore, opting for the ELSS mutual funds in the current fiscal year will not only help you to save taxes for the present term but also for your future. Moreover, choosing an ELSS mutual funds will give you the option of holding your investment as long as you wish.
Opting for ELSS mutual fund will give greater flexibility to the investors. The investor can diversify their scheme if they are not satisfied with their present tax saving scheme. This does not cost the investor any loss, and in the process, it only benefits the investors to earn a higher return while saving the taxes.
The Bottom Line
Investors should avoid an isolated approach while evaluating the benefits of investing in ELSS mutual funds to avail the tax-saving benefits in the current fiscal year. An effective decision is always a major part of financial planning. Moreover, the excellent combination of lower lock-ins, greater flexibility and market-linked return have made ELSS a suitable investment option to save taxes in the current fiscal year.