Oct 01, 2016 3 min read

What Makes ELSS an Effective Tool to Save Tax?

Among the various tax planning solutions, we recommend you to opt for the ELSS Fund. To know why and what makes it a preferable choice, read this blog in full.
Simply putting money into any investment strategy and earning yields should not be the goal of an investor. The way we behave rationally while purchasing commodities from the market, we must behave in the same manner while purchasing a mutual fund scheme as well. We must opt for the plan which can offer maximum possible benefits and can fulfil our investment goals.

Apart from many other financial concerns, tax planning is a vital one. It may seem like a tedious exercise requiring a lot of efforts that may make an ordinary investor nervous at first glance. But, Equity Linked Savings Scheme (ELSS) offers a simple way to get tax benefits along with an opportunity to gain from the potential of Indian equity markets.

Under Indian tax regime, individuals have a complete range of tax-saving solutions available to them. But still, they often take sub-optimal investment decisions with their tax-saving investments. Whether it gets deposited with long lock-ins that hardly pay anything more than inflation; insurance schemes that eat away a lot of the gains in agent commissions or Equity Linked Savings Schemes (ELSS) of mutual funds chosen with meagre regard to performance and track-records.[I could not understand it, ma’am pls Correct it...]

But why does it happen at all? One of the most common reasons is the confusion of goals between saving taxes and making investments. One takes such decisions in March under the pressure of the deadline for filing returns. With this, maximum time the decision taken is proved to be sub-optimal and investors console themselves by saying that at least they got tax exemption from their investment. But is it really what we should do? When we have the option of availing the dual benefits of earning a corpus and saving money on taxes, then why not make the most of it? So, let us make you understand how to avail the benefits from the best investment solution.

Equity Linked Saving Scheme, which is popularly known as ELSS, is a solution to save tax in the year of investment along with creating tax-free wealth in the long run. The primary purpose of every ELSS investment is to achieve a future financial goal, and saving taxes in the year of investment is an incidental benefit. It makes investments in the equity and equity-related instruments to avail tax benefit under section 80C of Income Tax Act, which provides exemption up to Rs.1.5 lac.

There are various reasons why we recommend investment in the ELSS Fund to get tax savings, but the foremost ones are:

  • Superiority in Returns: The schemes falling under this category make investments in the equity and equity-related instruments. Henceforth, they assure yielding of higher returns and offer capital growth in the long run. In addition, by providing diversification, they ensure minimised exposure towards risk appetite.
  • Lowest Lock-In Period: The lock-in period in the case of ELSS plans is three years only which is very less if compared with many other tax-savings programmes. Accordingly, one gets the benefit of redeeming the funds just after three years of investment after availing the tax benefits for the same in the relevant financial year.
  • Benefit of EEE Model: There are various models in the Income Tax Act, which provide the exemptions of different amounts. In the case of ELSS fund, the amount being invested, the returns earned and the capital gain at the time of redemption, all are fully exempted from tax. Thenceforth, one gets benefited for a long-term duration and makes a proper tax management plan.
  • Availability of Dividend Options: Apart from earning a corpus in the future, the investors may choose the ‘Dividend Investment Plan’ as well in order to avail some regular earnings along with long-term capital appreciation. Thus, one can achieve financial stability by investing the funds in this programme.
  • Investment Through SIP: This is another major benefit of opting for the ELSS Fund. One can invest in its scheme using the Systematic Investment Plan(SIP) as well. Accordingly, by making easy instalments, one can become part of an efficient investment strategy.

So, here we end up by saying ELSS is the best strategy to make an investment in the equity funds, as it holds manifold benefits that would add to the worth of your investment value.

If you want to buy a scheme of ELSS, then you can opt for the online purchase mode available at My SIP Online. We are always ready to help you make a wise investment for the future.