The rising inflation takes a toll on living expenses and sharply erodes our disposable incomes. Add to this the tax burden and voila… you find your wallet size shrinking… So what is the holistic solution that helps you trim your tax outgo and also offers you higher albeit over a longer time-frame?
Benefits of investing in ELSS
ELSS outperforms traditional tax-saving options:
Traditional instruments such as Public Provident Fund (PPF), National Savings Certificates (NSC) and Bank Fixed Deposits generate lower inflation-adjusted returns as compared to ELSS (Table 1). ELSS has beaten these instruments by a much wider margin. Here, one should note that while equity is a risky asset class, volatility in returns tends to subside in the longer run.
ELSS clubs financial planning with tax planning:
ELSS enables exposure to equities, which have historically proven their ability to generate better returns.Better returns can help investors fulfil their financial objectives across different life stages, apart from reducing the tax outgo.
Capital gains and dividend income are tax-free:
ELSS also helps investors save taxes on capital gains. Long-term capital gains (on units held for 1 year or more) are completely exempt from tax since the ELSS carries a three-year lock-period. Investors opting for the dividend plan can further enjoy tax-free dividend income.
Well-diversified and professionally managed portfolio:
ELSS funds help investors diversify their portfolio across stocks and lower the concentration risk. In addition, ELSS schemes are managed by professional fund managers who have the expertise and dedicated research teams tracking market developments.
Facilitates the SIP route to beat market volatility and harness returns:
While equity as an asset class is known to generate a better return, it is also subject to volatile market conditions. One of the best ways to counter volatility is to opt for investments in ELSS funds via the systematic investment plan (SIP) route.
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