What are ELSS funds? Here are 4 benefits of investing in ELSS via SIPs?

Posted by swarali chavan on April 21st, 2019

Mutual funds investment offers different options to the investors, depending on their needs. You can choose between equity, debt, and hybrid funds. Each of these types has a sub-type. One of the most popular sub-type of equity funds is ELSS funds.

What is ELSS funds? It is a fund that invests 80 per cent of its assets in equity and equity-related instruments. ELSS funds hold a lock-in period of 3 years. They also qualify for tax deduction up to INR 1.5 lakh under section 80C of Income Tax Act, 1961. Besides, the returns from ELSS funds are subject to long-term capital gains tax at 10 per cent. However, long term capital gains up to INR 1 lakh are exempted from taxes.

How do ELSS funds scores over other tax saving instruments?

  • Among other instruments, ELSS funds have a minimum lock-in period. On the other hand, tax-saving FDs have a 5-year lock-in period. PPF has a lock-in time of 15 years, NSC has it for 5 years, and NPS till the retirement age.
  • Returns are superior considering they are market-linked investment instrument.
  • ELSS funds are tax deductible just like the other tax-saving options. Nevertheless, the returns generated from ELSS and NPS are partially taxable, unlike the other tax-saving instruments.
  • The best part about ELSS funds is you can invest in them through the SIP method. You can invest a minimum amount at regular intervals, which begins at INR 500.

What are the benefits of SIPs in ELSS funds?

  • Rupee cost average: Lump sum investment allows you to invest only in one level of the market. However, SIPs enable you to invest at different levels. The equity markets will be at different levels at the time of your monthly SIP investment, averaging your acquisition cost. So, when the market is low, you get more units and vice versa.
  • Discipline: Equity funds are tricky as they are highly susceptible to the volatile market. Investors do not show much interest in equity funds as it experiences fluctuations. But they offer higher returns due to this. It has proven to be the best-performing asset class in the last 10-15 years. For experiencing the best of ELSS funds, you must invest regularly via SIPs and stick through it.
  • Small investment and high gains: SIPs allow you to invest a minimum amount ranging between INR 500 to INR 1,000. This small saving can lead to higher returns in the long run. Regular investment means large corpus.
  • Convenient: Professional fund managers manage ELSS funds. You do not have to pick shares to invest in. The fund managers work with experienced researchers and analysts. They help you with them. Unlike the exchange-traded funds, you do not have to open a Demat and trading account for the same. Furthermore, you can auto-schedule your SIP investments in ELSS funds through ECS system.
swarali chavan

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swarali chavan
Joined: April 21st, 2019
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