Investors most often look for opportunities in investment that can help them in generating wealth, get regular returns and if possible, save taxes. While there are many investment schemes available to look at, majority of them offer returns which are taxable and/or TDS is done on the returns earned.
This is where ELSS mutual funds step in. Also known as ELSS or tax saving mutual funds, these schemes offer a simple way to get tax benefits under Section 80C. ELSS comes with dual benefits for investors looking to expand their portfolio horizon and enjoy both wealth creation as well as tax savings. People often complaint about taxation and how a good chunk of their income goes in paying taxes. But, if one is smart about it, taxes can be saved, instead of avoiding and long term wealth can also be created in the process. This is possible due to ELSS mutual funds. Let us explore more on the concept.
What is ELSS Fund?
As the name suggests, ELSS are equity-oriented mutual fund schemes with a mandatory lock-in period of 3 years. In the recent times, a major section of the taxpayers have turned to ELSS schemes to avail the much needed tax benefits. If you invest in ELSS mutual funds, then you can avail tax exemption of the invested amount of up to a limit of Rs. 150,000 in a financial year. Further, the gains made, if you redeem the ELSS units, after the mandatory lock-in period of 3 years, will be considered as long term capital gains. For equity mutual fund schemes, the gains made upto Rs 1 lakh in a year, is totally tax free and taxed at only 10% thereafter.
Benefits of tax planning
One of the most important parts of a sound financial plan is tax planning which the investors need to understand very well. Tax saving mutual funds like ELSS can be of great help here.
- Tax savings – You saves taxes on your ELSS investments under section 80C of the income Tax Act 1961. Saving taxes also means higher overall savings on your earnings.
- Wealth creation in the long term – Tax savings investments if chosen wisely have significant wealth creation potential in the long term. Tax saving mutual funds invest in a diversified portfolio of stocks across different industry sectors and market cap segments. This helps get better returns over the assured return schemes like PPF or NSC or tax savers fixed deposits.
Who should invest in ELSS mutual funds?
ELSS mutual funds are suitable for aggressive investors who are looking to explore wealth creation opportunities over the long run by investing in equities. Since these mutual funds have a compulsory lock-in period of 3 years, one should be ready to stay invested for minimum 3 years or even more and account that in their financial plans accordingly. You may invest in ELSS Funds to accumulate wealth for your retirement years, child’s marriage or education planning or any other financial goals.
In this article, we focused on how tax planning and ELSS mutual fund investment can help investors in the long run. When planned in a structured and meticulous manner, one can take huge benefits out of tax saving mutual funds.