Mutual funds are now getting regarded as one of the finest investment solutions. Experts say that is due to their larger returns along with tax positive aspects. Investments in MFs support in decreasing one’s tax liability, along with assisting the investment develop more than the lengthy term.
ELSS (Equity-Linked Savings Scheme) is one of such diversified equity mutual fund schemes wherein the savings are invested in equity markets and are generally looked at by investors to save tax whilst investing.
With ELSS a minimum of 65 per cent of the ELSS fund’s assets is invested in the stock market place. Investments below ELSS are diversified and invested across sectors and industries, in contrast to other fund solutions such as sector funds, economic services, and infrastructure. ELSS investment qualifies for a tax deduction of a maximum of Rs 1.5 lakh per annum below Section 80C of the I-T Act.
Here are 4 positive aspects and drawbacks of investing in ELSS
Benefits of tax saving mutual funds-
· Even although one can invest in ELSS from as low as Rs 500 up to any quantity – an investment worth Rs 1.5 lakh is only eligible for tax positive aspects below Section 80C.
· These tax saving mutual funds come with a mandatory lock-in period of 3 years – the shortest amongst u/s 80C investment solutions whilst other investment solutions offer you lock-in periods of 6 to 15 years.
· Investment in ELSS requirements to be made for a minimum period of 3 years, as a result, any gains from the sale will be lengthy-term in nature.
Currently, any gains above Rs 1 lakh are taxable at the price of 10 per cent, wherein brief-term capital gains are taxed at the price of 15 per cent. Hence, ELSS funds attract reduce tax expenditures.
· According to authorities, whilst investing in ELSS, investors ought to select the SIP alternative, which will enable one to invest a fixed quantity at standard or periodic intervals.
Drawbacks of ELSS –
· Total positive aspects are restricted with this investment. For instance, even if an investor invests Rs 8 lakh in an ELSS fund in a present year, he/she will get tax positive aspects only for the quantity of Rs 1.5 lakh below section 80C, irrespective of the total quantity of investment made in the ELSS fund.
· Tax positive aspects are also restricted with ELSS. Tax positive aspects only up to Rs 1.5 lakh are inclusive of other positive aspects below section 80C such as PPF, repayment of home loan principal, life insurance coverage, amongst other individuals. Therefore, if other deductions currently quantity to a sum of Rs 1.5 lakhs then no deduction for the investment in the ELSS scheme will be out there to the investor.
· ELSS has a lock-in of 3 years and the income can not be withdrawn prior to that. Unlike other investment solutions like bank deposits, PPF – below ELSS schemes, premature withdrawal is not permitted prior to the completion of the lock-in period.
· As the name suggests, the equity-linked saving scheme invests in the stock market place and the danger is related to investing in the equity market place.