5 Reasons why Including a Tax Solution Mutual Fund to Your Investment Portfolio is a Smart Choice

Shorter lock-in periods, wealth creation, professional fund management, ELSS mutual funds offer several benefits apart from tax-saving. Find out the reasons why including ELSS funds to your portfolio is a smart investment decision.

If you are looking to save tax under Section 80C, then you have several options like Public Provident Funds, term life insurance, Mediclaim, and Equity Linked Saving Schemes (ELSS).

ELSS Funds Still an Excellent Tax-Saving Option, despite the latest Taxation Changes

ELSS is an equity-based mutual fund that has a potential for higher returns, with a lock-in period of three years. The recent changes in taxation mean the long-term capital gains you earn from ELSS funds are subject to taxation. Despite these changes, ELSS mutual funds still hold their place as one of the best tax saving instruments.

Find out the Reasons why you should include ELSS Funds in your Investment Portfolio.

  1. Potential for Higher Returns

ELSS funds invest in the equity market, meaning these funds have the potential for higher returns compared to other tax-saving investment options available under Section 80C, especially when you invest in it for a medium to long duration.

Market studies reveal that ELSS funds generate around 12% returns for ten years and more. When compared with the 8% return offered by PPF this presents a significant gain.


  1. Shorter Lock-in Periods

When compared with the other tax-saving options under Section 80C, ELSS funds have a shorter lock-in period of just three years. PPF has a lock-in period of 15 years, ULIPs have a lock-in period of at least ten years, and NPS has a longer lock-in period that extends until retirement age.

  1. Higher Flexibility

One of the biggest benefits of tax-saving mutual funds is that they are highly flexible. For instance, if you are not satisfied with the performance of your current fund, you can move to another fund. Compare this with a ULIP. In ULIPs, if you are unhappy with the fund, you can only shift to other funds offered by the specific ULIP plan.

  1. Protection against Volatility

When you invest in tax saving mutual funds, your fund stays locked-in for three years. This way, you cannot touch the funds even when the market goes through ups and downs. A key strategy for successful stock market investments is to stay invested, irrespective of market fluctuations. Thus, ELSS funds help you protect against short-term market volatility.

  1. No Maturity Date

Most tax-saving instruments under Section 80C have a maturity date. For instance, PPF matures in fifteen years, and you can renew it maximum for another five years. However, a tax-solution mutual fund has no fixed maturity date. You can continue holding on to your investments as long as you desire.

Points to Remember before Investing in ELSS Funds

You can invest any amount in an ELSS fund. There is no upper limit. However, only contributions up to 1,50,000 INR are eligible for tax deduction under Section 80C. Long-term capital gains from ELSS are tax-exempted up to 1 lakh INR and dividends are tax-free.

You can continue to keep investing in the funds even after the lock-in period of three years and stay invested for as long as you wish. While the risks of ELSS are higher compared to an FD or PPF, the potential returns are high as well.

So, if you are looking to build wealth along with tax-saving, then ELSS funds are a great option to add to your investment portfolio.

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