ELSS funds (Equity Linked Saving Schemes) are a type of mutual funds that are meant for tax saving purposes. ELSS funds invest predominantly in equity and equity-related instruments, making them a high-risk investment option. However, ELSS funds offer tax benefits under section 80C of the Income Tax Act, making them an attractive option for anyone looking to minimize their tax liabilities.
Investing in ELSS mutual funds has become an increasingly popular choice for savvy investors. As per the data from AMFI, the total assets under management (AUM) of ELSS funds stood at INR 1.07 lakh crore as of January 2021. The popularity of ELSS funds is primarily due to the tax benefits they offer, making it a cost-efficient investment option for most investors.
Investing in ELSS funds requires a thorough understanding of the market and the various schemes available. It is important to note that ELSS funds come with a mandatory lock-in period of three years. This means that the investor cannot withdraw their investment before the completion of three years. Moreover, the returns on ELSS funds are subject to market risks and fluctuations. Hence, investors must gauge all the pros and cons of trading in the Indian financial market before investing in ELSS funds.
One of the main advantages of investing in ELSS funds is the tax benefits it offers. As per the Income Tax Act, an individual can claim a tax deduction of up to INR 1.5 lakh under section 80C of the Income Tax Act by investing in ELSS funds. This means that an individual can reduce their taxable income by up to INR 1.5 lakh by investing in ELSS funds. Moreover, the returns earned on ELSS funds after three years are tax-free.
Suppose an individual invests INR 1.5 lakh in ELSS funds in a financial year. In that case, they can claim a tax deduction of INR 1.5 lakh, which effectively reduces their taxable income. For instance, if the individual earns INR 10 lakh per annum and invests INR 1.5 lakh in ELSS funds, their taxable income would reduce to INR 8.5 lakh per annum. This would result in a significant reduction in their tax liability.
In conclusion, investing in ELSS funds is a smart choice for anyone looking to minimize their tax liabilities while also making a high-risk investment. However, investors must understand the market risks and fluctuations before investing in ELSS funds. It is important to consult a financial advisor and do thorough research to invest wisely in the Indian financial market.
