Equity investors adopt a cautious approach in terms of losing money. On the other hand, smart investors invest money with a long term saving perspective. ELSS is a fund primarily investing in equity related funds. The main reasons why ELSS funds have soared in popularity is because of the following reasons
The main reason to invest in ELSS is tax rebate under section 80 C of the Income tax act of 1961. Any long term capital gain or dividend is exempt from tax. You can make an investment in ELSS funds and obtain tax rebate to the section of 1, 50,000. Though this is the maximum amount of rebate you are entitled to claim.
Lock in period
In relation to the performance of mutual funds, for their better performance, the long term investment horizon is the key. ELSS mutual fund lock in period is for 3 years. This means that you are obliged to stay invested for a period of 3 years to be entitled any form of tax rebate. It culminates a habit to be forcefully invested for a reasonable period of time.
Cash in on the long term growth value
Though the lock-in period is for 3 years, you can continue to be invested for a longer period of time to cash in on the growth value. A point to consider is equity funds are subject to market risks. As the funds make an investment in equity, there does exist a possibility of tax exemption with higher returns.
Develops a habit of saving
With ELSS it develops a habit of saving with an amount as low as Rs 500 to begin with. In due course, savings churn into investments as it fosters a habit of regular saving. There is a lock-in period of 3 years which means there is an interest generated on these funds after 3 years. In addition, any returns obtained would be exempt from taxes.
You can invest in equity and save at the same time
By investing in ELSS fund related schemes you can cash in on the power of equity related schemes. Typically savings can provide you with a rate of return of around 8 % when it is an ELSS scheme you can earning returns at a substantial level. For a rising economy like India, a portfolio with higher stocks would work wonders in the long run.
Why it is the norm to invest in ELSS?
In comparison to conventional instruments like FD or NPS ELSS possess a definite benefit. The lock period is the lowest and the returns are relatively higher compared to the various other tax saving instruments.
For anyone who is considering tax rebate under section 80 C of the Income tax act, they can invest in ELSS funds. This is a fund for all those who are prone to risk-taking and wanted to stay invested for a longer period of time to reap in the benefits.
Basically, these are funds that concentrate on the shares of prominent companies.