Equity linked saving scheme (ELSS) or tax-saving or planning mutual funds are open-ended equity schemes that help investors to save taxes of up to Rs 1.5 lakh under section 80C of the Income Tax Act
Why advisors recommend ELSS
ELSS funds have a mandate to invest a minimum of 80 per cent of the corpus in equity and equity related-instruments. Due to this investment strategy, they have the potential to offer superior returns than other available tax-saving options under Section 80C basket. Most other tax-saving options are government-backed and they offer modest returns
Benefits of mandatory lock-in period
Like every tax-saving investment option, ELSS funds also come with a lock-in period. In fact, they have the shortest lock-in-period of three years. The mandatory period helps investors to get used to the volatility in the stock markets. Since investors do not have an exit option, they hold on to their investments and end up creating wealth over the long period.
Ideal for long-term goals
ELSS funds sure help you to save taxes, but that doesn't mean that they cannot be part of your long-term investment plan. Since they invest in stocks, they have the potential to offer higher returns than the other tax-saving investment options available under Section 80C. This makes them an ideal candidate to fund your long-term financial goals.