Driven by traditional family principlesand ambitious life goals, millennials are motivated to earn more and further invest their savings. This tech-savvy crowd has effortless access to information to be aware of the plenty of options available to them to make their disposable income work for them. Multiple surveys exhibit that unlike their parents, the young population has been choosing equity over gold or real estate. Among these, Equity Linked Savings Schemes, also known as ELSS, have become the go-to investment vehicle for a majority of the millennials.

What is ELSS?

ELSS funds are tax saving mutual funds that invest at least 80% of their portfolio in equities and equity-related instruments. Mutual fund investments in ELSS funds are subject to tax benefits of up to Rs1.5 lakh under section 80C of the IT Act, 1961. These funds are accompanied with a 3 year lock-in period. Although ELSS mutual funds are widely known for being tax saver mutual funds, these funds are a class apart. Here’s why:

  1. Lowest lock-in period
    Although there are various tax saving inevstments available in the market, ELSS funds enjoy the lowest lock-in period of 3 years. If you compare ELSS vs PPF or ELSS vs FD, they have a lock-in period of 15 years and 5 years respectively.
  2. Higher returns on investments (ROI)
    As ELSS funds invest predominantly in equity and equity-related securities, the returns are much higher than other tax-saving investment options, such as PPF or FD, etc. ELSS funds offer the dual benefit of wealth appreciation and tax saving attributes. ELSS funds have constantly yearned their reputation in the market by providing returns above 12% p.a. when invested for a long duration.
  3. Flexibility with ELSS funds
    Although Unit-Linked Insurance Plans (ULIP) have the potential to yield similar returns as ELSS funds, what these tax-saving haven does not offer is the flexibility to investors. ELSS mutual funds don’t make you bind to a particular mutual fund scheme. If you are unhappy with your inevstments, you have the flexibility to switch to different mutual fund schemes. However, the same is not the case with ULIPs. In case of a ULIP, if you are unsatisfied, you can only shift and invest in mutual funds offered by that ULIP.
  4. Investor friendly
    An investor can invest in ELSS funds with an amount as low as Rs500. Often investors decide to invest in ELSS via a Systematic Investment Plan (SIP) as it is quite convenient.

According to most experts, ELSS funds hold their special place as tax-saving investment havens. An investor can save up to Rs46,800 by investing in ELSS mutual funds. Before you decide the best tax-saving investment option for your portfolio, make sure you align your investments with your financial goals, risk profile, and investment duration. Your investments should help you reach your goals faster. Happy investing!

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