If you are looking for some financial options which are eligible for tax exemption under section 80(c) of the IT Act and you do not know about the ELSS then it is high time you do that. Most of you might be paying the LIC premium, doing PPF, NSC, FDs and other traditional saving methods to get the tax exemption. In this article, we will go through another option available to us called the ELSS.
You must have heard people talking about the ELSS and the top mutual funds interchangeably. Both the investment options work on the same investment philosophy, i.e. diversification of invested funds. Though the ELSS and the top mutual funds are talked about together they are quite different from each other. Let’s see how.
What is an ELSS?
ELSS an abbreviation for Equity Linked Savings Scheme is also a different type of mutual fund. When you invest in ELSS funds you give your money to an asset management fund which in turn invests the amount in the equities, financial markets, etc.
Reading the above definition we find that there is no visible difference between an ELSS and the top mutual funds. But there are differences or to be more precise ELSS and the mutual funds are mutually exclusive of each other.
The main difference between the mutual funds and the ELSS funds is that ELSS has a lock-in period of three years. This means that once you have invested your money in ELSS funds they are locked for next 3 years implying that you cannot withdraw the funds before the completion of the tenure. Other top mutual funds do not have any lock-in period.
This might make you ask that if the mutual funds and the ELSS are same except for the lock-in the period then why you should invest in ELSS and not in the top mutual funds. We have an answer to this question. The most important benefit that you get by investing your money in ELSS funds is that you become eligible for tax exemptions under section 80(c) of the Income Tax Act. The other top mutual funds do not offer this benefit to you.
ELSS funds also offer you high returns in the long-term as the top mutual funds do. Both of them are long-term investment options. So if you wish to earn higher dividends then you should choose ELSS over the top mutual funds for long-term.
Also, it is advisable to invest a lump sum amount of money in ELSS as compared to that in top mutual funds as it has a lock-in period of three years. There is a reason behind this. If you invest your funds in installments then each installment paid by you will have a separate lock in period of three years. Therefore it is beneficial to invest the lump sum amount all at once.
You should invest in ELSS when the stock market is down. With the growth in an economy, your funds will reap better yields. In contrast, if you are investing in the top mutual funds then you should pay in installments. Each instalment that you invest in the mutual funds will compound with the previous ones and reap higher benefits.
If you are looking to invest in top mutual funds then read the information provided on the websites like moneycontrol.com, upwardly.com, etc. They provide complete information about the investment avenues in the top mutual funds.
