4 Benefits of Investing on Tax Saving Equity Mutual Fund

Hello guys, if you are looking for a long-term, tax-saving option to put your hard-earned income then you have come to the right place. While there are a lot of tax-saving options available to NRIs and Indians in India there is none that can beat inflation and give you handsome returns. I am not talking about crazy returns many people got on investing in Bitcoin and Ethereum, they are not for everybody but a more modest but realistic and safer 10 to 15% return in the long term. If you think that makes sense then learning about the Equity Tax saving fund can help you. 

ELSS or Equity Linked Saving Scheme is a type of Mutual Fund investment that provides tax saving and capital appreciation. I first come to know about this fund in the early 2000s when many brokers try to sell this fund to salaried employees in India.

That time they sell these funds to you saying that they are about to declare a dividend and you can get back 50% of your money back while still availing the full tax saving amount which works well for many people who don't want to wait 3 years, the full lock-in period of ELSS. 

While I also started investing in Mutual funds that way, I later find out that it's a great way to build wealth in long term, and ever since, I always put some money onto mutual funds as part of my investment strategy. 

4 Advantages of Investing in ELSS (Equity Linked Saving Scheme) Mutual fund

If you are also thinking on the same line, here are 4 major benefits of investing in ELSS or tax-saving equity mutual fund. 

1. Tax Saving
ELSS investments up to 1,50,000 are eligible for deduction from your taxable income under section 80 C. Save a maximum of 46,350/- (depending on your income-tax slab).


2. Shortest lock-in period
ELSS has the shortest lock-in period of 3 years, compared to other tax-saving instruments like PPF (15 yrs), ULIP (5 yrs), NSC (6 yrs), and certain Bank FDs (5 yrs).

3. Tax-Free Returns
Capital gains arising from redemptions and dividends are tax-free.

4. Grow your money
ELSS invests in the equity market and thus has the potential of providing returns better than other asset classes.

5. SIP

You can also invest in ELSS via SIP or Systematic Investment Plan, this is the best way o invest in equity because prices always go up and down and SIP allows you to take benefit of this volatility. It's also regular so you take the emotion out of investment 

What is the Risk of Investing in ELSS? 

There is a big risk that you will lose half or all of your money if things go wrong, while I have never seen anyone losing all of the money in a Mutual fund yet but I don't recommend this option to anyone who is in need of money. 

This option is best to park the money you don't need in the near future so that you can withdraw the fund when the market is doing good and over the long term, you will most likely be in profit. Just take an example, when the financial crisis happens in 2008, Sensex went down to 8000 to 12000 level, had you put the money at that time on any good equity mutual fund of any ETF like a Sensex index fund, that would have 5 times worth but at the same time, the market was around 28000 on March 2020 when COVID strikes. 

So, that's the thing, you can't always pull your money at the right time. That's why use ELSS for longer-term goals like to fund your children's education, your daughters' marriage, and some part of your retirement fund. 

If you want to invest in an Equity mutual fund, you should also do your own research or consult someone like your financial advisor. There are a lot of websites where you can analyze the past performance of the mutual fund, both for domestic and international funds. 

MoneyControl is one such site where you can find a couple of good tax-saving mutual funds or ELSS that have performed better in past. They also have a great article, if you want to grow your knowledge of tax saving and investment, you should bookmark that site. 

That's all about why you should invest in ELSS or what are the main benefits of investing in ELSS (Equity linked saving scheme). As I explained, you can also save tax by investing in an Equity-linked saving mutual fund, and it's best to park your money for the long term. But, this is not the only option for tax saving in India, you can also see the following articles to find more tax saving options for NRIs and Resident Indians.

Other NRI Income tax articles you may like

• 10 Income tax deductions and exemptions NRIs should know
• 3 Income tax benefits of opening NRI accounts in India 
• 13 ways to save income tax in India
• How much TDS is deducted from the NRO account?
• Is it mandatory to file income tax returns for NRIs?
• How NRIs can file their income tax returns online
• Is NRIs overseas income taxable in India
• Is it mandatory for NRIs to declare foreign bank accounts on tax returns?
• How to determine tax residential status of NRIs?
• 10 points NRIs should know about Income tax?
• Is Aadhaar card Mandatory for filing an Income tax return for NRIs?

That's all about the advantages of ELSS. If you like this article please share it with your friends and colleagues on Facebook and Twitter. I really appreciate that.