If you want to get high returns along with ways to save tax, then an ELSS mutual fund can be a great option for you. Know why this tax-saving scheme is special and how you can earn big profits by investing in 80C.
What is ELSS and why is it special
The full name of ELSS is Equity Linked Savings Scheme. It is a special type of mutual fund designed with the aim of saving tax as well as increasing capital. As per SEBI rules, at least 80% of the fund in ELSS is invested in equity, i.e., shares. This is the reason why the risk is higher in it than in small savings schemes like FD or NSC, but the returns can also be great. Some ELSS funds have given returns of up to 59% in the last 1 year.
Shortest lock-in period
The biggest advantage of ELSS is its shortest lock-in period. While your money is locked in Public Provident Fund (PPF) for 15 years and in a savings fixed deposit (FD) for 5 years, your investment in ELSS is locked for only 3 years. After three years, you can withdraw the entire amount or redeem it partially as per your need.
How much tax exemption and how much benefit
By investing in ELSS, you can avail a tax exemption of up to ₹ 1.5 lakh under section 80C of the Income Tax Act. Apart from this, a special tax exemption is also available on the profits (long-term capital gains) received on ELSS. There is no tax on profits up to ₹ 1 lakh, while profits above this are taxed at the rate of only 10%. You can start investing in this fund with a small amount of just ₹ 500.
What is the EEE category
ELSS is one of the few schemes that fall under the EEE, i.e., Exempt Exempt Exempt category. In the schemes of this category, you get tax exemption at three levels:
Exempt from investment
Exempt from returns
Exempt on withdrawal
Is SIP the best way to invest
It may not be right to call SIP, i.e., Systematic Investment Plan, the best way to invest, but it is definitely a great way for people with regular income. By investing small amounts every month through SIP, you can accumulate a large fund in the long term without putting a burden on your pocket. Since it is linked to the market, the average return from SIP is always good.
