ELSS is one of the best ways to create wealth. ELSS helps you save for long term goals and also saves tax. When you invest into ELSS your money is predominantly invested into equities which are volatile in nature. The three year lock in period gives the fund manager ample time to evaluate stocks and build a portfolio. After the expiry of the lock-in period of 3 years, the investor should review the performance of the scheme and in case the scheme has underperformed the bench mark then the investment amount may be shifted to other funds for better funds.
LUMP SUM or SIP
You may buy units under this scheme with a minimum amount of Rs 500 and in multiples of Rs 500 thereafter. Investments can either be in lumpsum or through SIP route. As ELSS is a market linked instrument investing in it through SIP is a better option not only to save tax but also create wealth over long run.
ELSS and Tax Saving
ELSS investments enjoy tax benefits at all stages i.e. while investing, during growth stage and also on redemption. Therefore it has the “exempt-exempt-exempt” status. the amount invested in ELSS qualifies for deduction under section 80C of the Income Tax Act,1961. As it is eligible for tax benefit there is a lock-in period of 3 years. When compared to other tax saving instruments such as NSC and PPF which have a lock-in period of 6 and 15 years respectively, a three years exit restriction is on lesser side.
Considering the returns and factoring in the tax advantage, ELSS is double-edged weaponry in your armory for the creation of wealth in the long term.
This blog is written by students of Post Graduate Diploma in Financial Planning (PGDFP), International College of Financial Planning(ICFP) they are Manuraj, Pooja Gulia, Sachin Bhatra, Bimal Ranjan, Vibhuti Panwar & Bimal Ranjan.
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