Reasons to Invest in Tax-Saving Mutual Funds

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Equity Linked Savings Schemes are tax-saving mutual funds that can be a great way to save tax and multiply your wealth. Here are 8 reasons why you should consider investing in them.  

Mutual funds are diversified investments that can help generate inflation-beating returns. A particular category of mutual funds, called Equity Linked Savings Schemes (ELSS), can help you grow your money and be used to save tax.

When you invest in ELSS, you can claim up to Rs. 1,50,000 as tax deductions under Section 80C of the Income Tax Act. So, if you are looking for an investment option that helps with wealth generation and tax savings, then this is an ideal option.

8 Reasons to Invest in ELSS

  1. ELSS investments can be claimed as tax deductions for up to Rs. 1,50,000 in a year.
  2. They have the shortest lock-in period compared to all other tax-saving investments. Investments in ELSS have to be held for a minimum of three years to reap tax benefits. In comparison, other investments like tax-saving fixed deposits and National Savings Scheme have lock-in periods of 5 years, while Public Provident Funds have a lock-in period of 15 years.
  3. ELSS funds have historically provided better returns than other tax-saving instruments, in majority of the occasions over long-term.
  4. ELSS are flexible investment options. You can choose to invest in them through a lump sum amount or through Systematic Investment Plans. However, it is important to note that in the case of SIP, each instalment (/investment) is subject to 3 years lock-in.
  5. ELSS funds gives low cost diversification across sectors and securities.
  6. While there is a cap on the tax deductions you can claim on ELSS investments, there is no cap on the amount or number of investments you can make. When compared to an instrument like PPFs, which have a maximum limit of Rs. 1,50,000 in a year, this can be beneficial to your overall financial plan.
  7. ELSS funds are professionally managed and are transparent.
  8. Being an equity-oriented investment, they provide you with an opportunity to participate in the growth of the Indian economy.

ELSS investments provide the dual benefit of wealth appreciation and tax savings. As illustrated above, they have numerous benefits and making a place for them in your investment portfolio would be a wise move.

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