The Income Tax Act, 1961 allows certain deduction which can be claimed to save tax at the time of filing Income Tax Returns by all classes of Taxpayers. Over the years, Equity-Linked Savings Scheme (ELSS) has emerged as a popular and beneficial tax-saving, investment option. Read 5 Key reasons to know what makes ELSS could be preferred over other tax-saving options;
Shorter lock-in period
A popular feature of ELSS is the benefit of having the shortest lock-in period, as compared with other Section 80C products. Bank Fixed Deposit (FD), National Savings Certificate (NSC) and Unit Linked Insurance Plan (ULIP) come with a lock-in of 5 years, while Public Provident Fund (PPF) has a lock-in of 15 years. On the other hand, ELSS comes with a comparatively shorter lock-in, of minimum 3 years. This lock-in feature of ELSS offers access to funds faster than any other tax-saving alternative. This benefits the investor to either re-invest the capital in the same or other scheme, making it a long-term investment option or utilize it as per requirement.
Best of diversification and professional management
Since ELSS funds invest in the equity market, they help investors diversify their portfolio across stocks and lower the concentration risk. In addition, ELSS schemes are managed by professional fund managers who have the expertise and dedicated research teams tracking market developments.
The better habit of SIP
ELSS offers the advantage of investing in small amounts and over regular intervals, which helps the investor to maintain a routine, discipline and does not pinch the pocket; particularly why many investors prefer ELSS over any other tax saving option. Investors can make investments with amount as small as Rs. 500 through a facility called Systematic Investment Plan (SIP) where all the SIP investments are locked-in for a minimum of three years. SIP aims in motivating the investor to invest in equities without straining their financial budget.
Higher possibility of beating inflation
Since ELSS invests in the equity market, it is better than the other tax-saving products, however, this may not always be the case and it depends on the varying market conditions yet; there is more possibility of beating the inflation.
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Minimally impinged by market volatility
The equity-market, quite often, is considered an investment space for investors with a risk appetite comparatively higher than the debt-market investors. ELSS has shown less affect to market volatility, primarily because the lock-in period prevent the investors to give in to their whims of redeeming and the investors are forced to stay invested during short-term market volatility.