Unlike other instruments like PPF, NSC, and Long-term deposits, an ELSS is a long-term wealth creator due to consistent equity exposure. Equity investors are usually more cautious about losing money in the market. Investors who are smart enough are cautious about saving money and investing it from a longer-term perspective. ELSS is a kind of mutual fund scheme that invests a majority of its corpus in an equity-related product.
ü Tax benefit- Your returns form ELSS become tax-free. Indian government provides the tax rebate for the equity-linked saving scheme (ELSS) u/s 80C of Income Tax Act 1961. You can invest into ELSS and deduct up to Rs 150000 from your taxable to effectively reduce your tax liability.
ü Lock in a period- Good mutual fund portfolios are constructed for long-term investment. ELSS funds are locked for at least 3yrs. This inculcates a good habit to stay invested for a longer period.
ü Ride the long-term value growth- The lock-in period for ELSS is 3 yrs you can the continuous growth of your fund for longer or redeem after 3yrs. But since these funds invest your fund in equity you own greater chances of higher returns with tax exemption.
ü Inbuilt saving habit- ELSS scheme allow you to invest systematically with as low as Rs 500/month and slowly and gradually your savings into your investments and the best part of ELSS will be exempted from your tax returns.
ü Opportunity to invest in equity while saving- ELSS allows you the benefit of equity mutual fund schemes ride the growth cycle of stocks in your ELSS portfolio. In rising economy like India, a good portfolio with quality stocks may reap higher returns.