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8 Reasons To Choose ELSS Fund

Updated on December 1, 2017

An investor is always cautious about losing money in the stock market. But, if you are a smart investor, you will be more cautious about saving money and investing on a long-term basis. For such investors, ELSS or equity-linked savings scheme is the best option. Elss scheme helps the investors to save tax. It is a scheme where most of the amount is invested in equity or equity-related products.

Here are the eight reasons why you should invest in ELSS funds

Lock-in period

The ELSS funds are locked in for at least three years and that is the main benefit for them. This means that in ELSS funds, you are bound to stay invested for three years or more. This is needed to get tax exemption on returns. This helps the investors to stay invested for a longer time.

Long-term growth

Even though the lock-in period for ELSS is three years, the fund can be used for longer and continuous growth after three years also. And another important thing is that equity investments are subject to market risk. Since this money is invested in equity, there are better chances of higher returns with tax exemption.

Tax benefit

Saving tax is the primary benefit for ELSS funds. Under the section 80 c income tax act of 1961, the investments in ELSS are eligible for tax deduction. Any dividend or long-term capital gain that the investor receives is exempted. In simpler terms, whatever return you get from ELSS becomes tax-free.

Improves saving habit

In ELSS schemes you can invest from as low as Rs 500 per month. Whatever money is being saved you can make into your investment. It also helps in improving your savings habit. And the best part is that since the ELSS schemes have a lock-in period of three years if you start a SIP in ELSS scheme, the return in SIP amount will be generated every month after three years.

Invest while saving

Another benefit is that in ELSS, you can have the benefit of equity mutual funds for the growth cycle in ELSS. Savings give around 8 percent returns, while investing in equity provides even higher returns.

No maturity dates

Normally, all the tax-saving investments like a term deposit, PPF etc comes with a fixed maturity date. But the best part of ELSS fund is that it has no fixed maturity date or period. You can invest in ELSS if you can.

Dividend option

There are two options in ELSS funds- dividend and growth. In case of dividend option, the income can be earned within the lock-in period of three years itself. Also, the dividend is tax-free as well. When you choose dividend option, the investor can earn regular income even if it is in a lock-in system.

Returns that beat inflation

The ELSS funds are generally made to be invested at least 80 percent of its assets in equity and equity-oriented products. This means that it has the highest equity allocation among all tax-saving investment options. Even though there is risk involved as it belongs to the volatile asset class, the returns are as good as you can even beat inflation.

The ELSS fund comes with a huge set of benefits. But that doesn't mean that you should opt for it. There are several things to be considered before investing. You should be careful about the objective, the risk profile etc. After all, it all depends on how you want to secure your future.

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