There's a famous saying - "A rupee saved is a rupee earned." Equity Linked Savings Scheme popularly called ELSS is one way in which you can save your hard-earned money.
ELSS is an equity diversified mutual fund, which invests heavily in stocks. What makes ELSS special is the tax benefit. ELSS is the only mutual fund, which enjoys a tax deduction under Section 80C up to Rs 1.5 lakhs a year. ELSS is a good tax saving instrument for people in the higher income tax brackets.
ELSS has the lowest lock-in of just 3 years among all Section 80C options. ELSS saves up to Rs 46,800 a year in tax. Top ELSS funds have given 18-20 per cent annualised returns. The double bonanza of high returns and tax saving makes ELSS an excellent investment.1. An investment in ELSS is for the long-term
ELSS has a short lock-in of just 3 years compared to the 15 year lock-in of PPF or the 5 year lock-in of National Savings Certificate. This doesn't mean ELSS must be treated like a short-term investment. Invest in an ELSS with a long-term investment horizon of 5-7 years.2. ELSS invests in stocks
ELSS invests most of the money in stocks. This scares off many would-be investors who believe ELSS to be risky. Studies show volatility in the stock market can be beaten and higher returns enjoyed on staying invested for the long-term. Overcome risk in ELSS by staying invested for the long-term.3. ELSS is great for higher tax payers
ELSS helps higher tax payers save up to Rs 46,800 a financial year in tax. Tax payers in the 30 per cent income tax slab who invest up to Rs 1.5 lakhs a year in ELSS can save Rs 46,800 a year in income tax and cess.
Do remember that Section 80C is an overcrowded section where many investments like PPF, NSC, life insurance premiums among others qualify for a tax deduction. Investing more than the required amount in ELSS, won't fetch an extra deduction.4. Choose between SIP and lump sum
Systematic Investment Plan or SIP is a method of investing in mutual funds. Choose between investing small amounts regularly say once each week or month in an ELSS through SIPs, or a one-time investment called lump sum. Investing in ELSS through SIP averages the cost of investing and avoids the stress of paying in bulk.(The writer is CEO and Founder of IndianMoney.com)