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ELSS – Why must in your portfolio?

Equity Linked Saving Scheme or ELSS are diversified open-ended mutual funds that predominantly invest in equity and equity-related instruments. As per the SEBI Regulations, these schemes need to mandatorily have 80% equity exposure. ELSS Funds invest across market segments (large-cap, mid-cap and small-cap) and industries. The core objective of these schemes is to maximize wealth appreciation in the long run.<br>

Nidhimehra
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ELSS – Why must in your portfolio?

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  1. ELSS – Why must in yourportfolio? Mutual Funds have taken over the financial world. While most people invest in mutual funds with the hope to grow their money and meet their financial goals, there is one more important aspect that some mutual funds take care of – reducing your tax burden. ELSS are tax-saving mutual funds that are eligible for tax exemptions as per the Income TaxAct. How ELSS Fundswork? Equity Linked Saving Scheme or ELSSare diversified open-ended mutual funds that predominantly invest in equity and equity-related instruments. As per the SEBI Regulations, these schemes need to mandatorily have 80% equity exposure. ELSS Funds invest across market segments (large-cap, mid-cap and small-cap) and industries. The core objective of these schemes is to maximize wealth appreciation in the longrun. ELSS Mutual FundBenefits So, are you wondering why you should include this tax-saving mutual fund in your portfolio? Readon. There are a lot of ELSS Mutual Fund Benefits wherein only the top five reasons are listed here. Read to know why you should consider investing in these mutual fundschemes. TaxExemption The biggest advantage of these schemes is that they qualify for tax-deduction as per Section 80C of the Income Tax Act. You can claim a deduction against investment in ELSS up to Rs. 1.5 Lakhs in a financial year. HigherReturns ELSS Funds have the potential to generate the highest returns amongst all tax-saving instruments. ELSS returns are market-linked and their high equity exposure enhances their return generating capability, especially in the long run. In the last three years, these funds have generated about 13.18% returns, making them the most lucrative (financially) tax-savingoption. Additionally, these schemes offer better post-tax returns. Long-term capital gains till Rs. 1 lakh (per fiscal year) are exempted from tax. The gains over that limit are taxed at 10%. Short-term capital gains carry a tax rate of 15%. Higher returns coupled with better tax rates give double benefits toinvestors. ShorterLock-in Investments in ELSS have a mandatory lock-in period of three years as compared to the other products eligible for tax deduction under section 80C. Thus, compared to other tax-saving alternatives, this is the shortest lock-in period. This is one of the most important of the ELSS Mutual FundBenefits. A look at this below table will help you do thecomparison: Tax-savinginstruments Lock-inPeriod

  2. Professional fundmanagement One of the reasons mutual funds have become a preferred investment choice for investors is that they are professionally managed by financial experts. Fund managers are well-equipped with technical and market knowledge to make the best decisions for the investor’s portfolio. This becomes easy after you understand how ELSS Fundswork. Flexibility ELSS Funds offer a great deal of flexibility to investors. For example, investment in Public Provident Fund cannot exceed Rs. 1.5 lakhs in a year. There are no such restrictions on ELSS investments. Additionally, unlike ELSS, other-tax saving instruments come with an end date. Hence, you can continue to invest money in ELSS and link them to a specific financialgoal. So, once you understand how ELSS Funds work, the next question becomes extremelyimportant. So, how do you choose the right ELSSfund? These factors can help you select the best ELSS Fund for yourportfolio. Fund House’s trackrecord A good fund house can make all the difference to your investments. Look at the track record of the fund house, quality of fund managers, research capabilities,etc. Returns A good fund should be able to perform consistently well in absolute terms as well as in comparison to the peers andbenchmarks. Costs Every fund houses levy a charge for managing the investor’s money. It is expressed in the form of a percentage and is known as the expense ratio. Higher is the expense ratio, lower is the net income for theinvestors.

  3. 4. Financialparameters Some financial ratios also help you in choosing the right fund. Factors such as standard deviation, alpha, beta, Sharpe ratio enables you to understand the risk profile offunds. FinalWords The wide range of ELSS Mutual Fund benefits makes them an all-rounder. They help to prevent tax outflows as well as grow your corpus. If you stick with them for a long time period, they have the potential to make you a very happyinvestor.

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