Commonly referred to as Equity Linked Savings Schemes, or ELSS, these types of funds invest most of their portfolio in equities. Even though the equity exposure means that there are more risks with tax saving mutual funds, it can also result in more gains down the road. The ELSS funds are highly recommended by investment and tax experts, too. Some of the reasons to consider investing in these can be found here.
It is the Tax-Saving Investment with the Lowest Lock-In
The majority of tax-saving investments have longer lock-in periods. For example, PPF requires a lock-in period of 15 years, and the EPF and NPS require lock-in periods until you actually retire. However, tax saving mutual funds only require a lock-in period of three years. What this means is that you don’t have to remain invested in these for long periods of time. You can easily redeem the invested amount in just three years.
Ability to Invest through SIPs
Another benefit offered by tax saving mutual funds is that you can invest through SIPs. An SIP is a systematic investment that allows you to invest a certain amount each month. When you use SIPs you don’t have to invest a single large amount at the close of the year to meet the 80C requirements. Instead, you have the ability to invest a smaller amount each month and receive the same tax benefits when the year ends. SIPs also provide the benefit of rupee cost averaging. This means you can invest at various market levels without running the risk of hitting a peak.
As you can see, there are quite a few benefits offered by investing in ELSS. However, if you are still unsure, you should work with the professionals. You can learn more by visiting the Quantum Mutual Fund website.