There are less than 3 months left to close the 2024-25 financial year. In such a situation, if you have not yet done tax saving planning, you can still invest from this perspective. If you want good returns on investment as well as tax savings, then the equity linked savings plan i.e. ELSS mutual fund can prove to be the right option. It has given returns of up to 49% over the past year.
What is ELSS mutual fund? ELSS i.e. Equity Linked Savings Schemes are mutual funds in which investors’ money is locked in for 3 years. In this category of mutual funds, tax exemption is available on investments up to Rs 1.50 lakh under section 80C of the IT Act. However, being linked to the share market, it carries more risks than small savings like FD or NSC.
The lock-in period is less than other tax saving schemes. The lock-in period of ELSS Mutual Fund is much less than other tax saving schemes including Tax Saving FD, Public Provident Fund. Investors’ money remains locked in the tax-saving FD for 5 years and in the Public Provident Fund for 15 years. Whereas in ELSS mutual funds, investors’ money remains locked for 3 years.
However, one of the main benefits of locking in money is that it promotes disciplined long-term investing. This can further help you in wealth creation. The expiration of the 3-year lock-in does not mean that you will have to leave the fund, you can extend it further.
Like other equity funds, investing in this category of funds also proves more advantageous in the long term. The reason is that doing SIP in equity funds for a long period reduces the risk of fluctuations in the stock market. The stock market’s lows and highs create an average return and also benefit from compounding.
Is SIP the best way to invest? It might not be appropriate to call it the best way of investment but it can definitely be a good way of investment for people with regular income like salaried people and businessmen who have a fixed income each month. Investing through SIP is not heavy on the pocket and by continuously investing small amounts, a good amount can be accumulated in the long term.