Who Should Invest in ELSS Funds? And for How Long?

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Although ELSS schemes have prime features to make a successful investment for tax savings, there is a possibility that they may not suit you the best. You must be having the concern that ELSS is specifically for tax saving purpose, but still advisors ask to stay invested in them for a long period. Would you like to know the reason behind? Let us help you in the same.

Before understanding the suitability and tenure of ELSS mutual funds, it is important to study a brief about it. ELSS, i.e., Equity Linked Savings Scheme is nothing but an equity-oriented mutual fund for which you are eligible to claim the tax benefits under Section 80C of the Income Tax Act, 1961. The fund manager of these schemes invests the money in the equity shares of multi-cap companies with an aim to provide capital appreciation in the long term. The scheme is approved by the Central Board of Direct Taxes (CBDT) to grant tax benefits. An investment made in ELSS qualifies for deduction up to an amount of Rs. 1.50 lakh in a financial year.

If we compare the scheme with other tax-saving instruments, it is the one which has the shortest lock-in period of three years. Furthermore, the returns offered by the schemes in this category are although subject to market risk, are highly considerable as per their past performance. Thus, it has gained a superior position in the market in comparison with other alternatives available such as LIC, PPF, NSC, etc.

Suitability of ELSS

1.  On the Basis of Risk Appetite - The schemes falling in this category have minimum 65% of the investments in the equity and equity-related securities due to which they are highly exposed towards the market fluctuations. However, it has certain investments in debt instruments as well to provide diversification and hence the security of the funds. Accordingly, the investors with aggressive or moderate risk profile should consider the ELSS schemes for their portfolio.
2. On the Basis of Investment Objective - ELSS funds are specifically designed to provide 80C deduction under the Income Tax Act and help in reducing the tax liability in a financial year. Hence, the investors having a tax liability and looking for the tax-saving solutions while earning capital growth should opt for the ELSS schemes for their portfolio.
3. On the Basis of Investment Tenure - Investment tenure is the time horizon for which the investor tends to stay invested in the fund. As we know that ELSS has a lock-in period of three years which is mandatory for the purpose of availing the benefits under Section 80C, the investors having a minimum investment horizon of three years or more should opt for this fund. ELSS has investments in the equity securities which provide long-term benefits to the investors, and thus ELSS is suitable for those having a long-term tenure.

What Should You Do?

As of now, you must have understood that the investments in best tax saving mutual funds provide the dual advantage of tax saving and capital growth. If you are among the investors who can bear high risk and can stay invested for a considerable period of three to five years, then you must have this fund in your portfolio. The reason being is that it will not only assist you in reducing your tax liability but also earn you riches in the long term.

We, at MySIPonline, provide online ELSS investment solutions to start your journey in a hassle-free manner. If you find the ELSS schemes suitable for your requirements, you must buy the best ELSS right away.