When you invest in mutual funds, you are bound to attract taxes based on how much you generate gains from your investments. It can be in the form of income tax, capital gains tax, or dividend tax. Although such taxes don’t seem significant when considering the returns you can achieve through mutual funds, they still hugely impact your overall returns and ruin your wealth management. So what is the best way to surpass such taxes, maximize your ROI and achieve the intended goals on time? You can choose to invest in one of the top ELSS funds or Equity linked saving schemes.
ELSS are basically equity funds that invest majorly in equity and related instruments and come with a mandatory lock-in period of a minimum of 3 years. Interestingly, each installment you make towards your ELSS funds is considered separately and levied with a 3-year maturity. So every SIP will have a different maturity date. Top ELSS funds are known for offering exceptional tax benefits, which makes them highly preferred funds by investors.
ELSS funds are probably the only funds that offer tax deductions of up to Rs 1.5 lakh per year to the investors on the payments and investments under Section 80C. Although with the introduction of new taxation rules that state long-term capital gains of above Rs 1 lakh from ELSS funds are taxable, these funds still hold the highest value more than the ULIPs and PPFs when it comes to saving money on taxes.
There are a lot of other advantages of investing in Top ELSS funds that inverters can benefit from apart from them being great tax savers. Some of the top reasons why one should invest in the best ELSS funds and how they will help in wealth management are
- You become a disciplined investor: Especially if you have opted for a SIP. Usually, SIPs start at Rs 500, which is quite affordable if you have just started with mutual fund investments. Such smaller amounts don’t overburden investors with installments every month. As a result, investors become more consistent and disciplined toward their investments and achieve financial goals in time.
- The SIP makes it an affordable option to generate impressive returns: You can opt for a SIP instead of making a lump sum investment in ELSS funds. With SIPs, you can invest in a small fixed amount at predefined intervals. You can start with the lowest Rs 500 amount and then gradually increase the amount at your convenience. You can check the list of top ELSS funds and get started with your SIP with Glide invest.
- Equity exposure ensures higher returns: Most Top ELSS funds invest their major assets in equity and related instruments. As a result, they attract higher returns than other saving schemes. Having that said, they are most affected by market risks too, and hence are riskier. So before investing in ELSS funds, analyze your risk appetite to ensure you can endure such high levels of risk.
- The benefit of portfolio diversification: With the smallest investment amount of just Rs 500, you get the advantage of portfolio diversification like no other. ELSS funds are equity funds that distribute their assets across diverse companies and sectors. Such a practice benefits the investors in two ways. First, they get to experience the market round. Secondly, a well-diversified portfolio hedges against market volatility, so the risk is minimum.
- Shortest lock-in period: When you compare ELSS funds with other tax-saving investment options, they have the shortest lock-in period of three years. In PPFs, it’s 15 years, and fixed deposits are five years. Even within such a short time frame, Top ELSS funds provide better returns than their counterparts.
- You get the benefit of compounding: Mutual funds investments driven through SIPs tend to generate better returns owing to the compounding process. The overall theme of SIP is to invest in small amounts in ELSS funds. This investment amount grows gradually, creating a compounding effect and ensuring better returns on investments. Suppose you start a SIP of Rs 1000 at a rate of 20% to accumulate a corpus for your retirement in the next 15 years. If you perform the calculations around it, you will get the final value of Rs 9,55,460. With an investment of just Rs 1,80,000, you will be able to grow your wealth with such high numbers. And that is the benefit of compounding on your investment.
Investing in ELSS is like getting all the benefits in a single package. You get to build your wealth through equities, enjoy tax benefits, and above all, these funds inculcate discipline within you, which is one of the integrals for becoming a successful investor. ELSS funds are best when it comes to investments, but they carry considerable risk, too. Hence before investing, it’s crucial to get your risk profiling done to identify your risk appetite. Once done, analyze the top ELSS fund schemes and choose the one that fits your financial standing and risk appetite.