Many investors consider various parameters while selecting the right financial instruments. While some of them only look at the expected returns, others also seek the related tax benefits. If you have been investing money for some time, you might have heard about ELSS or Equity Linked Savings Scheme.

Have you ever pondered upon why ELSS investment is known as one of the best tax-saving instrument?

ELSS is a long-term investment instrument with a minimum lock-in period of three years. It is a popular investment plan for both experienced investors as well as newcomers as it offers the EET (Exempt-Exempt-Tax) benefit. There are many reasons which make it a compelling investment option for long-term investors looking for ways to create wealth.

An attribute that makes ELSS investment score over other long-term investments such as Unit Related Investment Plan (ULIP) and National Pension Scheme (NPS) is that it produces high returns under unforeseeable conditions related to the stock market. Before you start investing in ELSS, you must look at the current status of mutual funds in India. There are reputed financial advisors such as FinEdge who can help you plan for ELSS investment the right way.

Benefits of investing in ELSS Mutual Funds

Let's discuss the benefits of ELSS investments below to under why is it a good idea to invest in ELSS investment:

• Tax benefits

With ELSS investments, you can take advantage of tax deductions of up to Rs. 1.5 lakh a year as a Section 80C of the Income Tax Act, 1961. Thus, if you invest Rs. 60,000 in ELSS, this amount will be deducted from your total taxable income, thus lowering your tax liability.

Not only do ELSS returns reap tax advantages, but the withdrawal amount is also tax-free up to Rs. 1 lakh, too.

• Lock-in Term

ELSS investment has a lock-in period of 3 years only. While the period provides flexibility over the portfolio of assets and helps to achieve good returns, it also ensures higher liquidity being lower than average lock-in in other cases.

You can easily withdraw funds invested or choose to continue with your ELSS investment for a longer term.

• Savings and Wealth Creation

ELSS investments serve both savings and capital growth purposes. They are also recommended as an essential investment tool because they are proven to provide significant dividends in developing economies such as India.

Connection Between ELSS Investment and 80C Limit

Since the upper limit for investment in ELSS to get tax benefits is Rs. 1.5 lakh, many investors think if they should invest in these schemes beyond this limit .They ask about the benefit of investing money beyond this limit if they couldn't reap tax benefits. If you also seek the answer to it, consider the reasons behind your investment decisions, which are not solely based on tax benefits. Diversify your portfolio in a way that it maximizes both returns as well as tax benefits.

In this way, you will have the flexibility to switch between funds according to your financial targets, risk tolerance and market conditions, and thus reach relatively faster growth.

In a Nutshell

The choice of making ELSS investment should be based on your risk-appetite, tax deductions you seek and expected returns. Although it is good to consider the limit of tax deductions with such investments, it is crucial not to make a decision based on one factor only.

Alongside ELSS investment, you can invest in stock mutual funds to diversify your portfolio. If you are still baffled or wish to understand more about the benefits of ELSS investment plan, then you must contact a reputable financial advisor firm. They will assist you in understanding the financial instrument in detail and helping you make an informed decision.