As the end of the financial year approaches, most of us scramble to find ways to reduce our tax liability. One of the most popular ways to do this is by investing in tax-saving instruments such as Equity-Linked Savings Schemes (ELSS). In this blog, we will take a closer look at what ELSS is and why you should consider investing in it.
ELSS is a type of mutual fund that primarily invests in equities and is designed to help investors save tax. ELSS has a lock-in period of three years, which means that the investor cannot redeem their investment for three years from the date of investment. However, the lock-in period of ELSS is the shortest among all tax-saving instruments. Other tax-saving instruments such as Public Provident Fund (PPF) and National Savings Certificate (NSC) have a lock-in period of 15 years and 5 years, respectively.
Investing in ELSS has several benefits. Firstly, it provides tax benefits under Section 80C of the Income Tax Act, 1961. An individual can claim a deduction of up to Rs. 1.5 lakh from their taxable income by investing in ELSS. Secondly, it offers the potential for higher returns compared to other tax-saving instruments such as PPF and NSC. Since ELSS invests primarily in equities, it has the potential to generate higher returns over the long term.
Another advantage of investing in ELSS is the flexibility it offers. Investors can choose to invest a lump sum or through systematic investment plans (SIPs) as per their convenience. Additionally, investors can also choose the frequency of their SIPs - monthly, quarterly or annually.
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In conclusion, investing in ELSS is a smart way to save tax and grow your wealth. It offers several benefits such as tax benefits, potential for higher returns, and flexibility. However, it is important to remember that ELSS is subject to market risks, and investors should carefully evaluate their risk appetite before investing. As with any investment, it is also advisable to consult a financial advisor before making any investment decisions.
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