Are you looking for a smart way to save on taxes while building your wealth? If so, ELSS (Equity Linked Savings Schemes) might be the right solution for you. In this article, we’ll explore how ELSS works, its various benefits and features, and how it can be used as an effective tool for tax savings and building wealth.

Equity Linked Savings Schemes (ELSS)

ELSS funds are equity-linked saving schemes that invest in a diversified basket of stocks. They have a lock-in period of 3 years, and with the tax benefits of mutual funds, they emerge as one of the most tax-efficient investment options available. ELSS funds offer the twin benefits of tax saving and wealth building. They help you save on taxes by providing a deduction of up to Rs 1.5 lakhs under Section 80C of the Income Tax Act. At the same time, ELSS funds also give you the potential to earn higher returns than the popular traditional tax-saving options. If you are looking for an investment option that can help you save taxes and build wealth in the long term, then ELSS funds are a good choice for you.

Comparing ELSS with other Tax-saving Instruments:

Let’s look at other investment instruments that offer tax benefits under section 80C of the Income Tax Act.

• Public Provident Fund (PPF) – PPF is a long-term investment option offered by the government. It has a lock-in period of 15 years and offers an interest rate of 7.1%* p.a. (Q3 of FY 2023-24). Investments in PPF are eligible for deduction under Section 80C of the Income Tax Act.

• National Savings Certificate (NSC) – NSC is another government-backed investment scheme with a five-year lock-in period. It offers an interest rate of 7.7%* compounded annually (Q3 of FY 2023-24) but payable at maturity. Investments in NSC are eligible for deduction under Section 80C of the Income Tax Act.

• Unit Linked Insurance Plan (ULIP) – ULIP is a life insurance policy with an investment component. It offers the benefit of life insurance along with the opportunity to grow your money through market-linked returns. The premium paid towards ULIP is eligible for deduction under Section 80C of the Income Tax Act.

• 5-year Fixed Deposit (FD) – An FD is an investment instrument offered by banks. Investments made under 5-year FDs are tax deductible. However, interest is not tax deductible.