5 reasons to invest in Equity Linked Savings Schemes and also to save tax

Equity Linked Savings Schemes are essentially mutual funds which invest in equity. These funds are amongst the best options today that allow you to grow your capital while helping you save tax. 5 key reasons why you should opt for this scheme is as below:

  1. Tax Savings – ELSS investments allow you to claim deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. What’s more, both your principal and capital growth are exempt from tax. If you opt for a dividend plan, the dividends are also tax free. There are very few investment options today where both the principal and the returns are tax free.
  2. Low lock in period – When it comes to a tax saving investment, ELSS funds have among the lowest lock in periods as compared to all others. ELSS have a lock in period of 3 years, compared to 5 years for bank FDs or 15 years for Public Provident Funds (PPF).
  3. Growth opportunity – ELSS offers one of the best opportunities to grow your funds since the returns are linked to market performance. While it is true that it carries its fair share of risks and one cannot guarantee a return, historically ELSS funds have provided one of the best returns among other tax saving options for a horizon of 3 years and above.
  4. Flexible investments – If you are unwilling to invest your entire money at one go, you can choose to opt for Systematic Investment Plans (SIPs) where you pay a specified fixed amount every month over the period of investment.
  5. Option for regular income – If you invest in a dividend payout plan, you get an opportunity to earn regular income even when your investments are locked in. As mentioned earlier, since these are equity schemes, the dividend income is tax free in your hands.

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Tax Benefits subject to prevailing tax laws. The user/investor needs to verify all the facts and circumstances with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. Tax laws are subject to amendments from time to time.