It is apparent that ELSS funds are an effective way to save taxes as compared to that of all the other investment options available under Section 80C of the Income Tax Act. Coupled with wealth creation, you get the benefit of a shorter lock-in period and professional fund management.
A quick Understanding of Equity Linked Saving Schemes
It is better to have a clear understanding of what Equity-linked saving scheme (ELSS) mean. You know these are funds that get managed by experienced finance professionals and are catered by fund houses. It means that your investment gets handled by fund managers having the benefit of tax savings. You can think of ELSS mutual funds once you know what these are and can do for you.
ELSS has been one type of investment providing tax benefits under Section 80C of the Income Tax Act. In this realm one can invest up to INR 1.5 lakh in one financial year. You are free to invest more than this chosen amount, but the extra over INR 1.5 lakh shall not qualify you to avail the tax benefits under the Section 80C.
With the announcement of the budget, it was revealed that the return produced from ELSS shall become taxable with the bonus distribution tax and taxes on Long-Term Capital Gains (LTCG). Despite this switch of scenarios, ELSS goes on to dominate as the favoured option for all other 80C investment.
Kinds of ELSS
There are two main categories of funds in the realm of ELSS; dividend fund and growth fund.
This fund is long-term wealth creation platform for investors wherein the full value of the fund gets realized at the time of redemption.
It has further two categories of Dividend Payout and Dividend Reinvestment. Under the Dividend Payout option, you shall get the dividend tax-free. In the instance of Dividend Reinvestment, your investment shall be reinvested as a fresh investment.
Why ELSS is better than all other types of 80C Investments
Despite the fresh tax regime that calls for taxation of Long-Term Capital Gains from ELSS, these funds, in the opinion of professionals still hold their place as one of the finest tax saving options. You must not let go of ELSS as these play an important role in your portfolio. These pure equity-based instruments perform the potential for higher returns and are a perfect choice of investment for the long term. ELSS holds its ground, even with that of its returns getting taxed, with better post-tax returns than other 80C investment options such as Public Provident Funds and ULIPs.
Better Returns on Investment (ROI)
Talking about the investments in ELSS are made in the equity markets, the returns are a lot more higher than most of the investment options with tax saving benefits in the longer run. This serves two drives; Apart from saving you taxes, these funds even produce higher profits for you. It is a better option for you than any other type of 80C investment option in case you are willing to invest for a medium to long duration.
Thus, you can think of ELSS investment if you have long term things in mind and want to attain some tax exemption.