Is ELSS the right choice for investment?

If you are looking for investment alternatives that will help them create wealth, get regular returns, and avoid taxes, then ELSS becomes an attractive choice for an investment vehicle for you to consider. Many taxpayers have recently turned to ELSS schemes to take advantage of the available tax benefits.

What do you understand about the term ELSS?

The ELSS is an open-ended equity mutual fund that maintains a diverse investment portfolio. It can help you avoid paying taxes totaling up to Rs. 1.5 lakh, and at the same time, it can assist you in growing your money. Following Section 80C of the Indian Income Tax Act, it lawfully conducts its business. Typically, the fund can be held for up to three years, most of which is invested in the stock market.

Listed below are the top five reasons why you should invest in ELSS:

• Gains from ELSS

ELSS funds are considered to be long-term capital gains because the investments in ELSS are supposed to be held for three years (LTCG). Up to Rs 100,000 in annual capital gains are exempt from taxation under this provision (inclusive of all equity gains). Payments over Rs 1 lakh are subject to a 10% tax.

• A relatively higher degree of liquidity

ELSS offers a higher liquidity level than the other investment options available under Section 80C. An investor's cash is not held hostage for extended periods when invested in an ELSS. After the investment's lock-in term has passed, the investor can redeem a portion or all of their investment.

• Capital appreciation over the long term

An investor can maintain their position for extended periods to maximize the likelihood that their capital will continue to increase. Equity investments have a level of risk related to the market. Particularly throughout a more extended period, there is the potential for greater profits and an exemption from taxation.

• Encourages the development of a saving habit

Start-up costs for systematic investment plans (SIPs) are as low as Rs. 500 per month if an investor chooses to invest in an ELSS under the systematic investment mechanism. Because ELSS encourages investors to make consistent securities purchases, investors are more likely to put some of their funds into the market. Because the returns are not subject to taxation, the investor can keep a more significant portion of their gains.

• Advantages of having exposure to equities

By integrating ELSS investments in their portfolio, investors can position themselves to benefit from the growth cycle of stock prices. When the stock market is performing favorably, there is a reasonable probability that an equity investment will result in a higher return than the initial investment.

Wrapping Up

Investors can maximize their financial returns with investments made after conducting the necessary research. ELSS is an excellent investment option, particularly for people just starting in the world of finance, because it offers favorable tax breaks, the possibility of building wealth over the long term, and the convenience of making small monthly contributions.