Shorter lock-in period and higher returns. Why is ELSS the smart choice?

Due to rising rates of inflation, it has become imperative for investors to identify investment avenues that offer higher returns. One of the most popular investment avenue with investors looking for wealth creation is ELSS – Equity Linked Savings Scheme.

Despite there being numerous other investment opportunities, ELSS is one of the smartest choices for investors. Here’s why.

1. Shortest Lock-in Period

ELSS comes with the shortest lock-in period of 3 years for investments under Sec 80C. All other investment avenues have a minimum lock-in period for five years (Tax saver FD, ULIP, NSC), and can go up to 15 years (PPF) and in case of NPS, it will be locked till your retirement.    

2. Higher Returns

Being tax saving mutual funds, ELSS invest money in equity or related instruments. Though equities can be volatile in short-run, in the long run, the returns offered by ELSS beat all other investment options by a significant margin. For instance, over a long-term, you can easily earn 12% annual returns from ELSS whereas no other investment product under Sec 80C offers more than 9% per annum.

3. Tax Benefits under Section 80C

Investment in ELSS is eligible for tax benefits under Sec 80C of the Income Tax Act for up to Rs. 1.5 Lakhs every year. The rebate could be claimed only for the year during which the amount has been invested.

4. Flexible investing options

While opting for an ELSS, one can take two routes, SIP (Systematic Investment Plan) or one-time lump sum investment. You can choose the SIP method and start investing with as low as Rs. 500 a month.

Additional Points to keep in mind

(i) Conduct a thorough analysis before investing in an ELSS. Do not blindly opt for any ELSS just for tax benefits.

(ii) Always consider the last 5-year performance of an ELSS fund while taking an investment decision.

(iii) Do not invest beyond your risk appetite and choose a fund accordingly.

ELSS no doubt is a great avenue for investment but despite that, it is always advisable to seek financial guidance if you re new to the field of investing. To make the most of this market, ensure you are well prepared with ample research in place or good counsel.