How to compare ELSS with other tax saving options?

ELSS mutual funds

Last Updated on March 12, 2024 by admin

elss                   27,100
elss mutual funds                   22,200
tax saving mutual funds                   14,800

Tax planning is one of the most important aspects of financial planning that every investor must take seriously for building a strong portfolio. It is best to find avenues for saving taxes, instead of avoiding them as paying taxes happens to be one of our most important responsibilities as citizens. When one walks into a store, he/she expects to buy the best item of their choice, at the most affordable price, isn’t it? Similarly, when it comes to the concept of tax savings, investors are spoilt with choices in the market – such as PPF, traditional life insurance policies, NSC, and more. Today, we will be talking in depth about one such option – ELSS mutual funds or ELSS as it is known in short.

ELSS are tax saving mutual Funds that investors can use to claim a deduction of upto Rs 1.50 Lakhs from their taxable income in a financial year as per the Income Tax Act 1961. In comparison to other tax saving investment options, ELSS mutual fund schemes offers superior returns, helps to invest in stocks to generate higher returns and also generate long term wealth. In addition to this, it also offers the shortest lock in period, i.e. 3 years and when continued with patience, it can help investors reach several desired financial goals. Let us analyse mutual funds in details –

Comparison with other tax saving options

  • PPF or public provident fund has a lock in period of 15 years. However, if one intends to withdraw money prior to that, it is possible from the 5th year onward but only to a limited extent.
  • Traditional life insurance policies have lock in periods of 15-25 years typically. It varies depending on the type of policy you choose. If premature withdrawal is needed in this case, a high surrender charges are applicable.
  • ULIPs have a lock in period of 5 years. In case of early withdrawal, the fund balance would be moved to a Discounted Policy Fund. The insurer will charge a fund management fee in this case.
  • NSC and bank tax saver fixed deposits have lock in periods of 5 years and premature withdrawing of money is strictly not allowed.
  • Thus, it is understood from the above examples that ELSS has the shortest lock-in period, after which an investor is free to withdraw the money or remain invested for the purpose of capital appreciation or wealth creation.

How to start investing in ELSS funds?

To start investing in ELSS mutual funds, an investor needs to be KYC compliant. He/she can make the investment either online or offline. In case of the former path, one needs to visit the AMC website in question and follow the steps given therein to start the investment.

Alternatively, you can visit the nearest branch of the AMC chosen, with a cheque and duly filled in physical form, in order to get the process started. Post the investments, an account is created and units are allotted based on the mutual fund NAV of the day. Future investments can be added in the account created. If you want to track the performance of the ELSS mutual fund investment, you can login to the AMC website and track your investments.  .

In this article, we compared ELSS mutual funds with traditional options of tax savings available in the market for getting a comprehensive analysis on which would be a better option.

Apart from that, if you are interested to know about lumpsum and retirement calculator then visit our Finance category.

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Sophia Anderson
Sophia Anderson is a finance writer and blogger with a passion for helping people improve their financial literacy. With over 5 years of experience in the finance industry, Sophia has worked with individuals, families, and small businesses to provide financial advice and guidance. Her expertise includes budgeting, saving, credit management, and debt reduction. Sophia is dedicated to breaking down complex financial concepts into easy-to-understand language and empowering her readers to make smart financial decisions. She is a frequent contributor to financial publications and has written extensively on topics such as personal finance, investing, and financial planning. Sophia's mission is to help people take control of their finances and achieve financial security and freedom. When she's not writing, Sophia enjoys hiking, practicing yoga, and reading personal finance books.