Jun 16, 2017 3 min read

Why ELSS is Better than the Other Tax Saving Instruments?

Know why ELSS is considered to be the best among various tax-saving instruments.
Dealing with financial matters is not everyone’s cup of tea. Income tax is one of the typical financial attributes which is not so easy to manage. People want to save their taxes but fail due to lack of knowledge. There is an easier way to save your taxable income which allows you to reduce the tax burden while earning money.

A tax-saving investment plan has certain objectives other than providing relief from the tax load. These instruments include Equity Linked Saving Schemes (ELSS), National Saving Certificate (NSC), Fixed Deposits (FD), Unit Linked Insurance Plan (ULIP), Public Provident Funds (PPF) and National Pension Scheme (NPS).

ELSS is Known to Be the Top Tax Saving Fund - Why?

Following are some of the reasons why ELSS is recommended as the best tax saver in India:

1. Least Lock-In Period: In comparison with other tax-saving instruments, ELSS schemes have the shortest lock-in period of just three years. While in the case of NSC & ULIP, it is of 5 years and that of PPF and NPS is 15 years and more respectively. The short lock-in period is convenient because you have faster access to your funds for your planned expenses. All investors want their funds to be liquid in nature so that they can use them as and when required.

2. High Rate of Returns: The Equity Linked Savings Scheme yields higher returns on investment as it primarily invests in the equity market with asset allocation of around 91.01 percent in them. ELSS generates around 15-20 percent returns on the investments which are higher than any other tax-saving scheme. The other instruments such as NSC, ULIP, NPS, etc., provide returns in the range from 8 to 10 percent, which is simply half of what ELSS offers. That is why it is considered among the best ones.

3. Tax Benefits: It is provided under Section 80C of Income Tax Act, 1961, that a person can claim deduction on the taxable income of up to Rs. 1,50,000 in each financial year. ELSS offers tax benefits at different stages of investment which include the following:

  1. At the time of investment, the invested capital is allowed to be claimed as deduction under section 80C up to an amount equivalent to Rs.1,50,000.
  2. Dividend received is exempted from tax under Section 10(34) of the IT Act.
  3. The long-term capital gain is also exempted from tax under Section 10(38) of the Act.

4. Equity Exposure: One more benefit an investor can avail by investing in ELSS is the equity exposure. These funds invest a bulk part of the total assets in equity-related securities to provide high returns to the investors. With this, it fulfils two objectives of the investors, viz., tax savings and capital appreciation.

5. Inculcate Saving Habits: Investments in ELSS Mutual Funds can also be made through Systematic Investment Plan (SIP) with a minimum amount of Rs. 500. If you invest in ELSS via SIP, it will inculcate the habit of regular savings in you while reducing tax burden.

Furthermore, it is suitable for all types of investors having different risk profiles. Investments can be started at any time, but starting early is the best to achieve maximum benefits. If you have just started your career, then it is the best time for you to step into the world of investment, because you will be able to attain higher returns in the long term. We, at MySIPonline, provide the best schemes of different AMCs which aim to fulfil various needs of all the investors. You can also avail the advantages of our services and attain your financial goal of creating wealth while saving taxes.