If your goal is saving tax then ELSS is the option
What is ELSS?
ELSS is a type of diversified equity mutual fund where most of the corpus is invested in equity and equity-related products. They are financial products that aid tax saving.
Equity Linked Savings Schemes (ELSS) is a special type of equity fund investment which gives the investor tax deduction benefits under section 80C of the Income Tax Act up to a limit of Rs.1, 50,000 per year.
Lock-in Period for ELSS investment
ELSS has the shortest lock-in period of 3 years as compared to other instruments (PPF- 15 years, NSC- 6 years). This makes ELSS one of the most attractive instruments for investment.
ELSS Investment Options for Tax Saving
An investor can invest in ELSS in two ways – growth option or dividend option. An investor’s cash flow needs and tax bracket play a major role in deciding whether he should go for growth or dividend options. In growth option, the profits that one makes remains reinvested, while in dividend option, the profit is given back to the investor in cash.
Even though ELSS attracts Long term capital gains tax (LTCG) of 10% if profits exceed 1lakh, it is still a very viable option for creating wealth over the long term.
Suitability
ELSS is suitable for all kind of investors, big or small. A small investor can choose the SIP (Systematic Investment Plan) route, wherein he can invest a fixed amount of money every month, which can be as low as Rs. 500.
There is no fixed maturity period associated with the fund. You can stay invested for as long as you want.
Disadvantage
These funds are riskier than investment instruments such as PPFs and bank deposits.
Premature withdrawal is not allowed, so this is not a liquid investment for three years.
