Six reasons ELSS should be your tax-saving mantra

It is December again. Investments and tax-saving are playing on your mind. As the time nears to submit that investment proof, don’t let the long list of options confuse you into making a wrong choice. It may be time to visit a financial planner. My financial planner guided me to equity-linked savings schemes (ELSS), rather than conventional options that just save your money and don’t grow it. It was good that I heeded the advice, as my investment has multiplied many times over the years. Here’s why you too should look at ELSS funds:

1.Two-in-one

With ELSS funds, it is two birds in one stone compared with other schemes in Section 80C of the Income Tax Act. Investing small amounts in every scheme will help you save on taxes, but no more. Conventional savings schemes will only save your money and pay you an interest when you withdraw your money. Invest a small amount every month in ELSS funds through a systematic investment plan (SIP) and watch your money grow regularly. Simultaneously, you will be able to reduce your tax bill by Rs. 15,450, Rs. 30,900, or 46,350, depending whether you are in the 10%, 20% and 30% tax slab, respectively.

2.Lowest lock-in period

When you make any investment, the next thought is how and when you will be able to redeem it. With the lowest lock-in period of three years, ELSS funds do better than fixed deposits (FDs), public provident fund or national savings certificates that have a lock-in period of 5-15 years.

3.Tax-free returns

As seen earlier, conventional savings schemes just save your money and pay you some interest at the end of the tenure. What’s more, you have to pay tax on this interest you earn. With ELSS funds, be tax-free. When you redeem ELSS fund, the money is all yours. All investments in equity are tax-free if you hold on to them for a year. And an ELSS fund holds your money for three years.

4.Growth or dividend?

As ELSS funds invest most of your money in the equity market, they earn inflation-beating returns in the long term. There are two options in ELSS schemes growth and dividend. In the latter, you earn a dividend, but the net asset value (NAV) of your fund drops. Instead, win steadily through the growth option that re-invests the gains you make and keeps on compounding your wealth.

5.Investing is easy

In my early days, I stayed away from ELSS funds as I thought I would need huge money. So untrue! You can start investing in an ELSS with as little as Rs. 500 via a systematic investment plan (SIP) that will deduct a fixed amount from your bank account every month.

6.Invest as per your risk appetite

Risk comes with every investment. ELSS funds allow you to invest as per your risk appetite. For starters, you may want to choose stable large-cap funds than the relatively riskier mid- and small-cap funds. You can decide which funds you want to invest in depending on how much risk you are willing to stomach.

Yes, there aren’t any guaranteed returns in ELSS as they’re linked to the stock market, but if you’re looking to pay less tax and grow your money as well, ELSS is the right choice for you! So what are you waiting for? Invest now