Investing your money wisely is a great way to secure your future. But what if you could save taxes while growing your wealth at the same time? That’s where ELSS funds come in ELSS or Equity Linked Savings Scheme is a type of mutual fund that not only helps you save on taxes but also gives your money a chance to grow over time.
What Are ELSS Funds?
ELSS funds are mutual funds that invest most of your money in stocks (equity). They are designed to help you save taxes under Section 80C of the Income Tax Act in India. This means that by investing in ELSS you can reduce your taxable income by up to ₹1.5 lakh every year. Plus since these funds focus on stocks they have the potential to give you good returns in the long run.
Unlike other tax saving options like Fixed Deposits or Public Provident Fund ELSS funds come with a shorter lock in period of just 3 years. This makes them more flexible while still offering tax benefits and wealth growth opportunities.
How Do ELSS Funds Help You Save Taxes?
Let’s break it down with an example. Suppose you earn ₹10 lakh in a year and you fall in the 20% tax bracket. Without any tax saving investments you did pay ₹1.5 lakh as tax (this is a simplified calculation). Now if you invest ₹1.5 lakh in an ELSS fund your taxable income drops to ₹8.5 lakh. This means you did save ₹30000 in taxes (20% of ₹1.5 lakh).
The best part? That ₹1.5 lakh you invested is not just sitting there—it’s working to grow your wealth through the stock market. So you are not only saving taxes but also building a bigger financial future.
How Do ELSS Funds Grow Your Wealth?
ELSS funds invest in the stock market which means they have the potential for higher returns compared to traditional options like FDs or PPF. Over time the stock market tends to grow even though it can be up and down in the short term. Since ELSS funds are managed by experts (fund managers) they pick the best stocks to invest in increasing your chances of good returns.
For example let’s say you invest ₹1.5 lakh in an ELSS fund and it grows at an average rate of 12% per year. After 3 years your investment could grow to around ₹2.1 lakh. If you stay invested longer say 10 years it could become ₹4.65 lakh That’s the power of compounding—your money earns returns and those returns earn more returns over time.
Why Choose ELSS Funds?
Tax Savings: You can claim a deduction of up to ₹1.5 lakh under Section 80C reducing your tax burden. Short Lock-in Period: The 3 year lock in is shorter than other tax saving options like PPF (15 years) or tax saving FDs (5 years). Higher Returns: Since ELSS funds invest in stocks they can offer better returns (around 10-15% annually) compared to FDs (5-7%) or PPF (around 7-8%). Flexibility: After 3 years you can withdraw your money or stay invested for even more growth. SIP Option: You don’t need to invest a lump sum. You can start with a Systematic Investment Plan (SIP) as low as ₹500 per month making it easy for everyone.
Things to Keep in Mind
While ELSS funds are great they do come with some risks. Since they invest in stocks their value can go up and down based on the market. If the market performs poorly your returns might be lower than expected—or you could even face a loss in the short term. That’s why ELSS is best for people who can stay patient and think longterm.
Also the 3 year lock in means you can’t touch your money before that time. So only invest what you can afford to set aside for at least 3 years. If you are new to investing start small and learn how the market works.
How to Start Investing in ELSS Funds?
Getting started is simple:
- Choose a Fund: Research ELSS funds based on their past performance fund managers track record and expense ratio . Some popular ELSS funds in India include Axis Long Term Equity Fund, Mirae Asset Tax Saver Fund and DSP Tax Saver Fund.
- Complete KYC: You will need to submit your PAN card, address proof and other details to complete your Know Your Customer (KYC) process.
- Invest: You can invest online through mutual fund apps, websites or with the help of a financial advisor. Decide if you want to invest a lump sum or start an SIP.
- Track Your Investment: Keep an eye on how your fund is doing but don’t panic over shortterm ups and downs.
Who Should Invest in ELSS?
ELSS funds are perfect for:
- Young professionals who want to save taxes and start building wealth.
- People with a moderate risk appetite who are okay with market fluctuations.
- Longterm investors who want higher returns than traditional options.
If you are someone who needs quick access to money or does not like risk, ELSS might not be the best fit. In that case you could look at safer options like FDs or PPF.
ELSS funds are a smart way to kill two birds with one stone—save taxes and grow your wealth. With tax benefits under Section 80C a short lock in period and the potential for good returns the are a great addition to your financial plan. Yes there’s some risk involved but if you are willing to stay invested for the long term the rewards can be worth it.
So why not give ELSS a try? Start small stay consistent and watch your money work for you. Over time you will not only save taxes but also build a solid foundation for your financial future….