Here’s why tax-conscious investors can consider ELSS to increase their wealth Last-minute investments made to save tax might help in the short term but neither provide appreciable returns nor help build a corpus for long-term financial goals
With only a month left to file income tax returns, investors are scouting for numerous ways to reduce their annual taxable income. Last-minute investments made to save tax might help in the short term but neither provide appreciable returns nor help build a corpus for long-term financial goals. Every year, the rush to invest lump sum amounts in as many products to submit investment proofs emphasises the need for better individual tax planning.The purpose of efficient tax planning is to maintain a balance between products that save tax and provide returns. However, not all products are able to provide both of these benefits. For example, term insurance offers tax rebates and is purely for insurance purposes. Similarly, investment in stocks reaps returns but is not tax-exempt. This is where schemes like ELSS come in that generate not only wealth and returns but also provide tax benefits.
ELSS, or Equity Linked Saving Schemes, are mutual funds that invest a major portion, a minimum of 80%, of the corpus into equity or equity-related instruments. Because ELSS funds offer tax exemption of up to Rs. 1,50,000 from your annual taxable income under Section 80C of the Income Tax Act, they are also called tax saving schemes. Thus they allow you to save tax while you invest for your long-term goals.
ET SpotlightAs a young working professional or millennial, ELSS allows you to dabble in equity investing and mutual funds while saving taxes. Additionally, while a certain amount of your salary goes into the fixed-income product of the Employee Provident Fund (EPF), investing in ELSS diversifies your portfolio and builds risk appetite. Besides these, there are several other reasons to invest in ELSS, such as: Shortest lock-in period:
With a lock-in period of three years, ELSS has the shortest among all tax-saving options. Usually, PPF has a 15-year maturity period, while other tax-saving fixed deposits come with a lock-in period of five years. Medium term ELSS come with greater liquidity.
Tax benefits:
If you invest in ELSS schemes, you can avail tax exemption of the invested amount up to a limit of Rs. 1,50,000. Further, the income earned under this scheme at the end of the three-year tenure is considered as Long Term Capital Gain (LTCG). LTCGs above Rs. 1 Lakh per financial year are liable to be taxed at 10% without indexation.
Diversification of portfolio:
As a rule of investing, you don’t put all your eggs in one basket. Most ELSS funds, like those offered by Stockholding, invest the corpus across a group of small-cap to large-cap companies and across various sectors and themes.
Potential for higher returns:
Investing in ELSS gets you better return potential than traditional options like PPF. Investment products like PPF and FDs offer a much lower rate of return, particularly post-tax. ELSS is also easy to understand and invest in. If you invest in ELSS through trusted partners like Stockholding, they ensure you make informed decisions.
Convenient regular investment through SIP:
While you can invest a lump sum amount in an ELSS scheme, investors usually prefer the SIP method because it allows them to invest in small amounts, avail tax benefits and get returns. You can enjoy the additional benefit of Rupee Cost Averaging. With this, you can buy units depending on the market situation.
Hassle-free investment:
ELSS can be bought by just filling out an online form or visiting any of its branches from its robust branch network spanning pan India. Also, when investing through entities trusted like Stockholding, a team of expert fund managers work to manage your portfolio to make them diverse and minimise risk.
Things to consider before investing in ELSS
Before deciding to invest in ELSS funds, there are certain factors you should keep in mind to ascertain which funds work the best for you. Some of these factors are as follows:
Investment goals:
You should consider your investment objectives when deciding to invest in ELSS Mutual Funds. People mostly invest in ELSS funds to save for retirement or long-term goals. So you should ensure that your chosen ELSS Mutual Funds align with your investment objectives. For example, you should go for ELSS funds with a lower risk profile and a longer investment period, if you are looking for a long-term investment,
SIP or lumpsum:
Many investors invest in ELSS in a rush to save taxes and end up investing a lump sum without much focus on the market trend, which can lead to losses. SIPs help to save taxes along with investments at average costs.
Risk appetite:
You should choose the ELSS funds that best suit your risk appetite. ELSS funds invest in equity and equity-linked products, so the risks are similar to those associated with investing in stocks, but this does not necessarily mean that all ELSS funds are high-risk schemes. Fund managers offer ELSS funds that suit a range of risk-takers. Additionally, it is recommended to stay invested in ELSS over the long term to mitigate the risk and gain greater rewards.
Once you have considered all factors and decided to invest in ELSS, you can reach out to Stockholding, a one-stop destination for all your financial needs. Trusted entities, like Stockholding, have a pan-India presence and robust branch network. Their wide range of products and a team of experts with deep domain knowledge ensure risk mitigation. To kick-start your investment journey in ELSS with Stockholding, click here.
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(This article is generated and published by ET Spotlight team. You can get in touch with them on [email protected])
This story originally appeared on: India Times - Author:Faqs of Insurances
