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ELSS Vs 80C Investments Variants-Which is the best option for tax saving?

ELSS funds serve as the most efficient method to save tax when compared to all the investment options offered under the Income Tax Act’s Section 80C. Apart from wealth creation, with ELSS funds, an investor gets the benefit of shorter lock-in duration & professional management of funds.

What is ELSS (Equity Linked Saving Schemes)?

ELSS is a form of tax benefit-based investment under Section 80C of the IT Act where someone can easily invest as much as INR 1.5 lakh during the current financial year. You can also invest more than INR 1.5 lakh but the excess amount won’t be qualified for availing tax benefits with respect to Section 80C for tax saving funds.

Variants of ELSS Funds

ELSS is divided into two major categories which include:

  • Growth Fund:

It is a long-term platform for wealth creation where the investors can acquire full fund value at maturity.

  • Dividend Payout:

Now, Dividend Payout is also paired with Dividend Reinvestment. Dividend Reinvestment helps you reinvest the amount into a fresh plan for investment.

Now, ELSS funds come with the highest extent of transparency where one can track the portfolio with any changes to the same.

Reasons why ELSS funds are better than other variants of 80C Investments:

ELSS is actually a pure instrument based on equity that carries a potential for better return while serving as the ideal choice for long term investment.

1-Higher ROI (Returns on Investment):

Given the fact that ELSS investments are made at equity markets, returns acquired from this is higher in the long run. Apart from allowing you a chance to save taxes, ELSS also generates better profits. If you are looking for a fruitful investment option with medium or long duration timeline, ELSS is better than any 80C investment.

2-Short Tenure for Lock-In Investment:

ELSS, when compared with other options for investments to save tax, comes with a rather lower timeline for lock-in. In simple words, unlike any Public PF, Employee’s PF, or the NSC (National Savings Certificate) which require you to lock-in for at least 5 years, ELSS allows you a better choice with 3 years commitment.

3-Enhanced Flexibility:

With ELSS, you get the benefit of moving to any other investment option as it does not require you to commit with a multi-year deal. On the other hand, the ULIPs even though sold at low price tag do not provide you the flexibility to move to another investment fund. ULIPs only allow you to shift the fund into an investment option provided by ULIP itself.

4-ELSS and PFF combined:

The best thing about ELSS is the fact that it is available to be paired with PPF for better tax saving benefits as both these investment options fall under Section 80C of the Income Tax Act, 1961. This combination provides for a rigid ground that uncovers stability which is offered through PPF along with better-earning potentials from ELSS. Additionally, you get a diversified mix of equity and debt, government-backed security, and better growth opportunity via equity.

(Source :- https://economictimes.indiatimes.com/wealth/invest/how-to-open-ppf-account-online/articleshow/63854944.cms?from=mdr)

5-Protection during Volatility:

ELSS often serves as the first engagement point for investors. They usually begin with ELSS as the prime option going forward with investments in the Equity Mutual Fund Schemes. It helps build discipline provided the lock-in time period lasting 3 years. The best part about these funds is the fact that they serve as a strong base during highly volatile stock market sessions. This scheme doesn’t just provide benefits from market highs. It also provisions and aims to bring down impacts from market lows.

Things you should remember by before investing in ELSS:

  • You can invest any number you like with the ELSS but its just contributions till INR 1,50,000 that receive tax-exemption from IT Act of Section 80C.
  • It is the best option for investment that offers better tax benefit with higher potential return along with shorter time-frame for investment lock-in.
  • Dividends from the equity-based mutual funds can be paid post deduction of DDT or the Dividend Distribution Tax which has been set at 11.648 percent. This includes cess and surcharge which reduces overall in-hand return calculated for the investors.
  • You can go on with the investment in ELSS even after completion of its 3 years lock-in period.
  • Risks involved with Equity Linked Savings Scheme are actually high when compared with PPF or Fixed Deposit. However, the returns from the same are potentially better.

It is crucial that you consider various aspects of tax-saving funds along with the investment objective prior to making the investment. Every tax saving investment option comes with its own set of risks and benefits; the key is to choose what actually meets your requirements.

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