Equity-Linked Savings Scheme (ELSS) is a type of equity mutual fund. ELSS funds are the only tax saving mutual funds out there and an investment most investors add to their portfolio as it helps meet several financial goals at the same time. ELSS benefits range from tax saving to wealth creation and here is why you should start investing in ELSS funds in 2022:
- Tax-saving mutual fund
ELSS funds are eligible for a tax deduction of up to Rs 1.5 lakh under section 80C of the Income Tax Act, 1961. This means that if you invest in ELSS funds, you can reduce your taxable income by up to Rs 1.5 lakh in a year and thereby reduce your tax liability. There is no maximum amount cap on ELSS fund investments, you can invest as much as you like. However, the tax benefit is capped at Rs 1.5 lakh.
- Wealth creation
When you invest in ELSS, you are not just doing so because it is a tax-saver mutual fund. In addition to helping you save tax, ELSS funds also help you meet your wealth creation goals. ELSS mutual funds are just like equity mutual funds that help you build wealth in the long term. So, you can map out your goals with your ELSS mutual funds and meet them effectively.
- Efficient tax-saving instrument
Not only are ELSS funds the only tax-saving mutual funds out there, but they are also one of the best tax-saving instruments out there. ELSS funds have the shortest lock-in period of three years among all the different section 80C investments. ELSS funds also have one of the highest return earning potentials as compared to other tax-saving instruments as ELSS returns are market-linked.
- Habit of saving
ELSS mutual funds come with the Systematic Investment Plan (SIP) option. This means that you can invest small amounts every month in your ELSS fund. Hence, you do not need to wait to have a lump sum amount to gain from ELSS benefits. This also helps you build the habit of saving and investing regularly. Even when you invest in ELSS funds through the SIP option, you are eligible for the section 80C tax deduction.
ELSS funds are a great investment to add to your portfolio in 2022. The returns on ELSS funds are also partially exempted from tax – capital gains on ELSS funds are exempted up to Rs 1 lakh. ELSS benefits allow you to save tax, build wealth, and develop a habit of saving at the same time. One thing to note is that the section 80C tax benefit is not available under the new tax regime. So, make sure to check with your financial advisor or accountant which tax regime you are currently following and what tax benefits you will be eligible for accordingly.