As the Financial year 2020-21 comes to an end, the foremost thing on your mind as a taxpayer must be filing your taxes and ensuring whether you have invested your money in tax-saving instruments over the last year. There are various options to choose from as specified in the Income Tax Act according to your capacity to take a risk.
It is advisable to not defer investing at the last minute, rather be prudent and take the right decision early in the financial year. However, if you are struggling to differentiate between ELSS vs mutual fund, ELSS vs NPS, or ELSS vs SIP in the hurry to file your taxes, chances are that you are not aware of ELSS funds. Lets us take a look at how they can help you create wealth and save tax.
ELSS is a short term or abbreviation for an Equity-linked savings scheme. These are the only mutual funds that can help you avail of a tax deduction under 80C up to a maximum investment of Rs 1.5 lakh in a financial year. As the name suggests, ELSS funds are diversified mutual funds that invest your capital in equities and securities related to the equity market.
ELSS mutual funds have recently emerged as one of the better return generating investments in the tax-saving category in the past few years. They are purely equity-oriented funds offering you a potentially higher yield as compared to fixed-income tax instruments such as PPF, NSC, tax-saving FDs, etc. However, you need to remember that mutual fund performance is influenced by market movements and hence past performance is not an indicator of returns in the future.
Still, if you are looking to create wealth and enjoy returns on your money that help you beat inflation, equity investments can be a good choice to help you meet your life goals in the long term. With the added benefit of reducing your tax liability, these funds have an upper hand in the battle between the ELSS vs mutual fund from other categories.
If you are confused between ELSS Vs SIP, you need to understand that SIP stands for Systematic investment plan. It is a mode of investment in most mutual funds including ELSS, apart from the lump-sum investment. SIPs work just like equated monthly installments or EMIs and allow you to invest in equity markets while taking calculated risks. It also helps you benefit from rupee cost averaging so you purchase more units when the market is low and less when it is high. SIP is the ideal route for wealth creation on a budget.
Now that you know the difference between ELSS Vs SIP, you need to understand how can investing your savings in an ELSS fund be rewarding for you. Here’s how:
To maximize returns from your ELSS investment, you should also be aware of a few risks associated with it such as:
Investing in ELSS is the smart way to see your hard-earned money grow in the long run. At the same time, ELSS investment gives you the double benefit of relieving your tax burden. A detailed, goal-oriented approach is key to reaping the rewards of the money that you invest in ELSS. Remember to select the right ELSS funds that suit your long-term goals at the beginning of the year and invest regularly to see your wealth grow.
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