- Date : 01/08/2022
- Read: 2 mins
You can attain higher returns with ELSS than other forms of investments. This is because these schemes do investment in stocks and they have a tax-saving feature.
As per Section 80C of the IT Act, you can save income tax by investing in ELSS or tax saving mutual funds. In ELSS (Equity Linked Savings Schemes), investors can invest a maximum amount of INR 1.5 lac and claim tax deductions. These deductions can be claimed on investments with every financial year. However, before you become tempted and invest in these, familiarize yourself first with this issue.
With tax saving mutual funds or ELSS, the investment takes place in stocks. As such, investing in these options involves significant risk. One must be well aware of this risk before deciding to invest. Caution becomes even greater if you are a first-time investor without any experience. Another point to keep in mind is that, unlike Provident Fund investment, there is no guarantee of returns with ELSS. If the market is a bad one, you are likely to suffer losses. Do not fall prey to these 7 myths about ELSS mutual funds
Now, having pointed out all the possible cons, you may be wondering why you should invest in ELSS at all? Well, for one, you can attain higher returns with ELSS than other forms of investments. The reason is simple; these schemes do investment in stocks. In stocks, the rate of return is higher over the long term compared to any other form of investment. Moreover, the returns become even more enhanced due to the tax-saving feature of ELSS. Consider this; over a period of 10 years, an average return of around 15% has been offered by the ELSS category.
Let us discuss the tax-saving quality of ELSS. An important thing to remember is that; the shorter the lock-in period, the more the tax-saving. Now, ELSS is an investment option that is characterized with the shortest lock-in period (3 years) when compared to other tax-saving investments. In contrast, the majority of investment options under the 80C basket are government scheme options. Such options are characterized by longer lock-in periods. As such, ELSS is a great tax-saving option.
For the year 2022, we have presented a list of the best tax saving mutual funds or ELSS below:
Related: Exit strategies for ELSS
Disclaimer: This article is meant for general financial purpose information only. It may be a big mistake to take it as any form of legal or taxation or investment or insurance advice. You must seek separate advice independently when indulging in any matter pertaining to financial decision-making.