Invest & Save Tax With This Mutual Fund, Know What Is ELSS, Check Benefits Here

Indians are becoming more aware of financial planning and the importance of investing for long-term goals. Among several options of investment, mutual funds have become popular in recent years. The MF market offers a wide range of funds catering to different investment goals, risk appetites, and time horizons. Investors can find a fund that aligns with their specific financial needs.

Among different categories of mutual funds, there is a type of fund that offers income tax benefits as well.

ELSS Mutual Funds

An Equity Linked Savings Scheme (ELSS) is a type of mutual fund that primarily invests in equity and equity-related instruments. ELSS funds offer tax benefits under Section 80C of the Income Tax Act.

Here’s how ELSS funds work and how they can help you save taxes:

• Investment in Equity Markets: ELSS funds invest primarily in equities, which carry higher risk but also have the potential for higher returns compared to other asset classes like debt or fixed deposits.
• Lock-in Period: ELSS funds have a lock-in period of three years, which means you cannot redeem your investment before the completion of three years. This lock-in period is shorter compared to other tax-saving instruments like the Public Provident Fund (PPF) or National Savings Certificate (NSC).
• ELSS Mutual Funds Tax Benefits: Investments made in ELSS funds are eligible for a tax deduction of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. This deduction reduces your taxable income, thus lowering your tax liability.
• Long-Term Wealth Creation: While ELSS funds offer tax benefits, they are also ideal for long-term wealth creation. Since they primarily invest in equities, they have the potential to generate higher returns over the long term, provided you stay invested for a longer duration.
• Systematic Investment Plan (SIP): Many ELSS funds allow investors to invest through SIPs, which enables them to invest small amounts regularly over time. This helps in averaging out the investment cost and reduces the impact of market volatility.
• Risk Factor: As with any equity investment, ELSS funds carry market risk. The returns are not guaranteed, and the value of your investment can fluctuate based on market conditions.

There are many different ELSS funds available, each with its investment strategy and risk profile. It’s important to do your research and choose an ELSS fund that is right for you.