For an average worker, tax savings can be a tedious task. We explore different options so that we can save the tax as much as possible. People look for PPF, NSC, FDs to save tax but how effective are they? Equity-linked saving scheme or ELSS is one such unexplored option that has enormous potential to save your tax. Investing in ELSS can be beneficial for you in future if you acquire its basic understanding. So, without further ado let us see why ELSS is the one of the best tax saving fund.
- Short lock-in period
Having a short lock-in period enables the investor to withdraw the money in a shorter span. When compared to FDs, NSC or PPF having a lock-in period of 5, 6, and 15 years, ELSS has a lock-in period of three years. That means an investor can withdraw the money after the lock-in period whenever the need arises. A short lock-in period gives assurance to an average investor of withdrawing in a short span.
- Investment option
The investor gets two investment options under ELSS- growth option and dividend option. Under the dividend option, the investor receives a dividend when the fund declares it. On the contrary, the investor does not get dividend under growth option instead it is paid a lump sum after completion of the lock-in period.
- Tax benefits
Of course, there are tax benefits for ELSS as it comes under section 80C of the Indian Income Tax Act. The investment up to Rs. 1.5 lakh in the financial year is liable to tax benefits. It should be noted that the capital gains through ELSS are tax-free which means there will not be any tax on any earning through ELSS. That is the reason the financial experts advise investors to invest in ELSS.
- High return yields
As the name suggests, ELLS invests in equity which means we can expect higher returns when compared to other investment options. The investor should have a medium to long-term investment to reap higher benefits. As its record suggests, ELSS has returns generated with 12% compared to PPF with 8%. Remember, the longer you stay, higher will be the returns.
- Disciplined investment
Having discipline in investment is always beneficial, and it can be achieved in ELSS through SIP. In a systematic investment plan, a certain amount is debited automatically on a pre-determined date either monthly or weekly. You can start at Rs. 500 if you cannot go for the lump sum payment. This is an excellent option as it will lessen the stress there will be a disciplined investment.
Apart from tax saving ELSS, it has several other benefits which one should not miss. It is safe, convenient, and has healthy returns albeit one needs to be patient to get it. That being said, ELSS is perhaps the best investment option when it comes to tax saving.