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What if someone told you that you could create long-term wealth while enjoying tax benefits? Traditional saving instruments with a big lock-in period may come to mind. But there are other tax-saving instruments with a shorter investment horizon that may also give you relatively reasonable returns.
An equity-linked savings scheme (ELSS) is a type of mutual fund product that doubles up as a tax-saving instrument.
An ELSS is an Equity Linked Savings Scheme, that allows an individual or HUF a deduction from total income of up to Rs. 1.5 lacs under Sec 80C of Income Tax Act 1961.
Thus if an investor was to invest Rs. 50,000 in an ELSS, then this amount would be deducted from the total taxable income, thus reducing her tax burden.
ELSS comes with dual benefit of tax saving and capital appreciation for investors.
ELSS funds give an option of investing in both dividend and growth schemes. While the dividend one ensures regular income even during the 3-year lock-in period, the growth one comes with a lumpsum amount at the end of the lock-in period.
Investment in ELSS schemes can start from as low as Rs 500 per month; this is something that helps the person save without any major impact on monthly budget.
