Mutual funds are one of the most popular investment options in India. They offer several benefits, including the potential for high returns, easy liquidity, and a wide range of investment options. When it comes to saving on taxes, ELSS Mutual Funds are a great option. They offer tax benefits under Section 80C of the Income Tax Act. ELSS mutual funds come with a lock-in period of 3 years. Thus, they give the dual benefits of capital appreciation and tax saving, making them ideal investments for salaried people.
What is ELSS Mutual Fund?
ELSS mutual funds are equity-linked savings schemes. These funds invest primarily in equity and equity-related instruments. This makes them suitable for investors with a high-risk appetite. However, since they are diversified across sectors and companies, they offer relatively lower risk than other equity mutual fund schemes.
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Benefits of ELSS Mutual Fund
Investing in ELSS funds is a great way to create wealth. There are several reasons why ELSS mutual funds are the best investment option for salaried people.
1. Save on income taxes
The investment in the ELSS mutual fund is eligible for deduction under Section 80C of the Income Tax Act. An ELSS investment qualifies for a deduction of up to Rs. 1.5 lakhs from the total income in a financial year. This deduction is available for both individual and corporate taxpayers. This deduction can help you save on taxes.
2. Shortest Lock-in Period among Tax Saving Options
ELSS funds have a lock-in period of 3 years, which is the shortest among all the tax-saving options under 80C. This means you can withdraw your money after 3 years if you need to, without paying any penalties.
3. Offer higher returns
ELSS mutual funds have the potential to offer high returns over the long term. This is because they invest in diversified equity portfolios, which have the potential to grow at a faster pace than other asset classes.
4. ELSS funds can help you diversify your portfolio
Investing in ELSS mutual funds can help you diversify your investment portfolio. This is because ELSS funds invest in a diversified basket of equity stocks.
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5. ELSS funds can help you save for your long-term goals
ELSS funds are ideal for investors looking to save for their long-term goals. This is because ELSS funds have a lock-in period of 3 years, which means you cannot withdraw your money before that. This can help you stay disciplined and systematic with your investments and reach your long-term goals.
6. ELSS offers flexible investment options
ELSS funds are one of the most flexible investment options, allowing you to make lump sum investments or invest via a systematic investment plan (SIP).
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What are the Capital Gain Tax on ELSS Mutual Fund?
The returns earned on ELSS mutual funds are subject to capital gain tax. Long-term capital gains above Rs 1 lakh are taxable at the rate of 10 per cent. Apart from this, cess and surcharge are also levied on it.
Conclusion
There are several other investment options available for salaried people, such as fixed deposit (FD), public provident fund (PPF), national saving certificates (NSC), etc. However, ELSS funds are superior to all these options regarding returns, flexibility, and tax-saving benefits. Thus, if you are a salaried person looking for the best investment option, the ELSS mutual fund is the way to balance out risk and return.