Investors invest in mutual funds either to accumulate wealth, save taxes, or/and earn regular income. While you have multiple investment options but most of them don’t help in saving taxes that offer higher returns. So, if you go for a higher return, you may have to give up tax savings and vice versa. However, ELSS Funds are those funds that help in both tax savings and higher return generation.
This article will help you Invest in ELSS Funds in 2022 by providing all the details you need to know about ELSS funds.
What are ELSS funds?
ELSS stands for Equity-linked Savings Schemes which is one of a kind mutual fund scheme that invests 65% of its asset under management in equity and equity-related instruments but is eligible for tax deductions.
When you invest in equity directly or via mutual funds, the amount you invest doesn’t help you save taxes. Moreover, the returns you generate are also taxed by the government. However, with ELSS you can save taxes on the amount you invest in it.
Features of ELSS Funds
1- Tax benefit: Firstly, ELSS can help you get a tax deduction of up to Rs. 1.5 lakhs on your gross income as per Section 80C of the IT Act. However, you need to keep in mind, that the returns on ELSS are taxable. Any return you generate is taxable as per the capital gain tax regime. The returns above Rs. 1 lakh are taxed as per prevailing long-term capital gain taxes at the rate of 10%.
2- Lock-in-period: There is a 3-year lock-in period for ELSS. This means you cannot withdraw or redeem the fund within 3 years from the date of starting the fund in case of lump-sum investment. There is no option for premature withdrawal even, so no question arises of paying any penalty for premature withdrawal as well. After the completion of 3 years, you can withdraw or continue the fund as per your choice or investment plan.
3- Returns can be high but not guaranteed: ELSS provide above-average returns as they invest in equity instruments, however, there is no guaranteed return. As for any equity-linked investment, the returns can be high enough but without any guarantee, the same goes for ELSS as well. However, no other equity investment offers you tax deductions.
4- SIP options: There is another feature of ELSS funds is that you can invest in them via SIP. You can invest Rs. 1.5 lakhs in a year but paying Rs. 12500 per month. Here is one thing you need to keep in mind every SIP investment you make, for example, Rs. 12500 per month, will be locked for 3 years. So, if you invest Rs. 12500 in July 2022, it will be locked in up to July 2025. This thing you need to keep in mind while investing in ELSS.
Things to know about ELSS funds
If you are thinking to invest In Mutual Fund ELSS Online, then you need to evaluate the following before investing –
* If you are not willing to take a higher risk, then you can opt for a SIP investment in ELSS. Though this will keep your funds locked in for years the risk will be lower than a lump-sum investment.
* If you have a time horizon of more than 5 years, then the ELSS fund can offer you higher returns than other equity funds as there is a tax benefit you can avail yourself of with ELSS. Moreover, investing in equity funds requires an investment horizon of 5 years or more to get the actual benefit of equity funds. If you are looking for a short-term investment, then ELSS may not be the right option for you. The reason is market volatility, with longer tenure, market risks can be mitigated and returns can be higher.
* ELSS invests in equity and thus, you need to have a risk appetite of an equity investor. You cannot expect to earn a certain return or income from ELSS funds. There is no guarantee of income however, with long-term investments, these funds have always outperformed other investment options.
Conclusion
So, investors looking for tax savings with above-average returns, and a good risk appetite, can opt for ELSS as this is the only mutual fund that offers both benefits. You can easily invest in these funds using any online Mutual Fund Investment platform