Equity Fund investors often lose their funds in the market as they are unaware of the taxation rules. It significantly lowers their investable income. When you have less investable income, your returns get affected. For avoiding this, most investors opt for an Equity-Linked Saving Scheme. ELSS falls under Equities. It invests most of the funds in equity-related products. It is ideal for those who wish to avoid paying taxes.
Besides tax benefits, ELSS offers other benefits too:
Lock-in duration
Usually, good Mutual Fund portfolios are better for long-term investments. But they do not come with lock-in periods. This affects your investment growth considerably. Under the ELSS Mutual Funds, your funds are secured for at least three years. It even lets you continue investing for more than that. For example, say you invested Rs. 500 and got 50 units on March 31, 2022. In this case, your lock-in period will end on March 30, 2025.
Moreover, your investments get exempted from taxes during this period. This lets you maintain healthy investment behaviour.
Long-term value
The lock-in period extends beyond three years for ELSS Funds. Investors can continue their investment growth for a long time. They can also redeem them if need be. Since this scheme offers tax exemption, you may reap better returns.
Saving discipline
The minimum amount under ELSS is as low as Rs. 500. It is also accessible to those who have just started earning. This empowers them to turn their savings into investments. Over time, they develop a healthy financial habit.
New investors
A Mutual Fund Investment may sound intimidating to new investors. But since they have little market knowledge, they need a not-too-complex scheme. For such investors, ELSS is ideal. It provides the freedom to invest without needing to bear taxes. Also, it lets them invest in both Equity and Debt Funds.
Higher returns
ELSS generates higher returns. It may boost your investments significantly within lesser time. Unlike other investment schemes, it does not allow partial withdrawals. This facilitates the growth of investments. It will enable it to increase with time. Also, the returns in an ELSS are tax-free. So, you automatically reap higher returns.
Upper limit
Here, the investor could invest as much as they want. There are no maximum limits for investing. This broadens your accessibility to big investors.
Options
ELSS comes in different forms: growth, dividend, and dividend reinvestment. Under the growth scheme, the investor gets gains only during redemptions. Under a dividend scheme, the investor indeed receives timely dividends. Under the dividend reinvestment scheme, investors could reinvest dividends. Depending on your financial situation, you could choose between these three and invest offline or through the Mutual Funds app.
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