People invest in the market for a singular reason. The reason is to acquire enough wealth so that they can take care of their day-to-day expenditures after retirement. While there was a time when the monthly savings from full-time employment was enough after retirement, nowadays that’s not the case and the same might be applicable in the future also. That’s because inflation in recent years has been high and it doesn’t look like it might recede in the future. So, you must have a financial plan if you want to take care of day-to-day expenditures.
To invest in the market, you need to select an investment scheme. One of these options is mutual funds and their different variants. One of the different variants is the equity-linked savings scheme (ELSS).
What is ELSS?
This type of mutual fund is known for allocating funds to financial securities such as equities and other equity-related instruments. Primarily known amongst investors for their tax-saving facilities, these funds also are known for coming with the potential to help you with achieving goals such asbeating inflation and long-term wealth accumulation. Known for having a lock-in period of three years, the tax benefits offered by thistype of equity mutual fund scheme can be enjoyed under Section 80C of The Indian Income Tax Act, 1961. Just like in the case of any other type of mutual fund scheme, you can opt to pay for ELSS investments through the SIP mode, in which you can chooseto invest at regular intervals instead of making a one-time lump-sum investment.
How does ELSS work?
By opting for equity-linked savings schemesyou can get a chance to claim a tax rebate of approximately ₹1,50,000. Fund allocation in ELSS isgenerallydirectedtoward equity-linked securities and even equities. Hence, in case you have decided to sign upfor ELSS, you can allocate funds to securities like listed shares. Apart from listed shares, a small, it might also be a case that limited exposure to fixed-income securities can be involved. But before you decide to go ahead and opt for the scheme, please make note of the fact that these funds come with a lock-in period of just three years. Theoretically, three years is the shortest among all Section 80C investments.
What are the key advantages associated with ELSS?
Listed below are some of the salient features that are associated with opting for equity-linked savings schemes:
- ELSS are known for coming with tax advantages:
A primary reason why people generally opt to sign up for ELSS is that they are known foroffering investors tax deductions. Investors get a chance to enjoy tax deductions because of the provisions of the Indian Income Tax Act, 1961, Section 80C. So, in case you were to sign up for ELSS, you may get to enjoy a tax deduction of approximately ₹1,50,000.
- Inflation may not directly affect the income generated through ELSS:
Another reason why you should consider signing up for ELSS is that they are also known for coming with the potential of offering inflation-beating revenue. Hence, if you were to opt for an ELSS plan for 40 years, and supposedly after four decades, there is inflation in the market, you don’t need to worry. That’s because the revenue generated through the ELSS scheme may not be impacted by the conditions of the market.
- ELSS schemes help acquirelong-term wealth:
As mentionedbefore, ELSS is an equity mutual fund scheme that is known for having a lock-in period of three years. However, instead of withdrawing after the end of the lock-in period, you can opt to keep the funds invested. By making this choice, you can achieve your financial goal, which, in this case, will be to have enough balance at your disposal at the time of retirement.