ELSS Mutual Funds: Good returns and tax savings; know benefits of ELSS schemes

ELSS mutual funds are the only type of mutual funds that offer tax exemptions along with potentially higher returns. However, it offers less liquidity facilities than other mutual fund variants as it has a minimum lock-in period of three years.

ELSS mutual funds come with higher risk compared to other savings schemes.

Mutual funds have emerged as one of the most popular investment options in recent years owing to the diversity and returns they offer. These funds are less risky than the stock market and could be a great investment option for those who don't want to get exposed to the equity market. It could be an alternative for those investors who want to deal with an investment instrument that offers higher return but without the risk factors associated with equity stock.

Out of the various types of mutual funds, only Equity-linked Savings Scheme (ELSS) Mutual Funds offer tax benefits.

What are ELSS mutual funds?

ELSS mutual funds refer to those funds that generally direct their investment towards the equity or stock market by diversifying the investments across companies in different sectors. This diversification aims to deliver substantially higher returns over the long term by capitalising on the volatile nature of stocks. ELSS mutual funds are appealing to investors for their potentially higher returns and one-of-its-kind tax exemption benefits. However, it's crucial for investors to be aware of the prospective risks associated with these funds.

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How ELSS mutual funds have emerged as a good investment option?

The ELSS mutual funds have emerged as a popular investment instrument lately due to the following reasons.

Higher Returns: ELSS funds offer potentially higher returns compared to several other categories of mutual funds and other tax-saving investment options, such as Public Provident Fund (PPF) or National Savings Certificate (NSC).

Tax benefits: It is the only type of mutual fund that provides tax exemptions. Under the Section 80C of the Income Tax Act, 1961, you can claim deductions up to Rs 1.5 lakh for ELSS mutual fund investments.

Shorter Lock-in Period: ELSS mutual funds have a lock-in period of three years, which is the shortest compared to other tax-saving investment options, which require a minimum of five years to mature and the period could extend up to 10 or 15 years depending on the scheme.

Professional Fund Managers: The risk on your investments is lowered as professional fund managers look after the ELSS mutual fund investments. They use their expertise and skills to study the market thoroughly to invest in a way that your profits are maximised while your risks are minimised.

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Personal Finance ELSS