Why Is ELSS A Popular Choice Among Investors?

By | February 15, 2019

Are you planning to invest in the Equity-Linked Savings Scheme (ELSS)? We’ll tell you why it’s a great choice for an investment avenue. 

All of us have aspirations in life. Whether it involves visiting an international destination, adopting as many four-legged furry friends as you can, sending your kids to a business school of global repute or buying a house of your own, it all begins with a good hard look at your finances. Unfortunately, most of us are not confident about investing our wealth.

Real financial wellness arises not only out of having an intensive savings regime in place. Instead, it involves smart investing of your savings into rewarding instruments that help you multiply your money and build wealth over time.

Additional Reading: Optimising Your Investments 101

If you’ve just been employed, it’s the perfect time to consider parking your savings in ELSS. Confused? We’ll tell you why.

Tax efficient

If tax-saving investments are on your mind, you should definitely consider ELSS. Besides serving as an efficient fund management system, ELSS also allows tax benefits.

Claiming tax benefits on your investments in ELSS funds is super easy. Under Section 80C of the Income Tax Act, an individual can claim a tax deduction of up to a maximum of Rs. 1,50,000 per year. All you need is to hand in a copy of your ELSS account statement to your employer as a proof of your investment.

And, it doesn’t end here. Even the dividends declared in ELSS are tax-free. In addition, no tax is levied on long-term capital gains generated through investment in ELSS schemes.

Additional Reading: How To Claim Tax Break On An ELSS SIP While Switching Jobs

Early-bird benefits

If you’ve just started enjoying a steady paycheck every month, it’s quite natural to feel that you can put off long-term financial decisions such as investments for later. However, here’s something that’ll change the way you look at your finances.

Stepping into the shoes of a serious and diligent investor may seem quite daunting at first. But when you look closely, or get the hang of things, you’d be surprised to see how easy it really is. Starting your journey as an investor in your 20s or 30s is a great way to lay a strong foundation for future growth.

Starting early means having more time to accumulate wealth. For instance, if you start early, your funds will have a longer period to grow. Moreover, by reinvesting the returns that your ELSS investment generates, you can stay invested for a longer period of time.

Additional Reading: How Is ELSS Different From A Mutual Fund?

Long-term wealth creation

ELSS schemes usually come with lock-in periods of 3 years during which the investor cannot access the funds, thereby securing his/her savings. To enjoy higher returns, it is recommended to remain invested in ELSS funds for a period of at least 5 years or longer.

What we often tend to miss is that the mandatory lock-in period instills a certain financial discipline. In the long run, such financial practices paves the way for a well-planned financial portfolio including a substantial retirement corpus and a contingency fund.

Additional Reading: Why You Shouldn’t Rush Out Of ELSS After The Lock-In Period Is Over

Option to avail monthly SIP

First things first, what is an SIP? The Systematic Investment Plan is a flexible method of investment in which an investor can invest a predetermined sum of money at regular intervals. The investment can be made on an annual, half-yearly, quarterly, monthly or weekly basis.

This systematic and convenient mode of investment goes a step further in making things simple for investors. Why, you ask? It enables investors to decide on the automatic deduction of a specified sum from their account in a way in which their monthly budget doesn’t go for a toss.

Additional Reading: The Layman’s Guide To Investing In ELSS

Low-cost investment

The required amount for the initial investment is low and starts from Rs. 500. This makes ELSS a sound investment option for individuals who are at an early stage in their careers. Individuals who want to invest in financial products that carry a relatively low risk can consider ELSS.

The flexibility that ELSS offers in terms of having a low-cost entry point works wonders for early and inexperienced investors with a low risk appetite and limited risk tolerance. So, investing in ELSS is a good option for an investor who is not uncomfortable with taking a certain degree of risk with his/her investments.

Additional Reading: 8 Huge Mistakes To Avoid While Investing In ELSS

If you’re still wondering how investing in ELSS will be useful, here’s something to consider. Staying invested in a scheme such as this performs three functions. Firstly, it is a great way to grow your wealth. Secondly, the returns help you generate considerable income. Thirdly, and most importantly, this is a great way to ensure capital protection.

If you’re on the lookout for more such investment schemes, we’ve got plenty of options you can consider. These include Mutual Funds and Fixed Deposits, among others. Check out our website and take your pick as per your needs!

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