Is Investing in Tax Savings Mutual Funds worthy enough?

As an investor, you are always on the hunt for mutual funds and investment opportunities that help build your bankroll in the long run, provide greater returns than most public and private-sector banks, and save your tax money. However, most of the investment schemes available in the share market do not leave too much room or opportunity to save money on your returns, which is also the reason why so many people are hesitant to step into the world of mutual funds investment and share market investment.

The ELSS, or the equity-linked savings scheme, is an excellent investment opportunity for traders and shock market enthusiasts to make profitable returns without worrying about the tax amount that usually gets deducted according to the 1961 Income Tax Act, as the scheme allows a deduction of INR 1.50 Lakh from your total income generated in the year in which the investment has been done.

Instead of forcing investors to invest a part of their income in low-return debt funds, the ELSS scheme allows investors to save up to INR 1.50 Lakh off their gross income by investing a major portion (at least 80 percent) of their assets into equity firms and equity-related instruments. The scheme, therefore, has a lot of potential for young individuals who are willing to take the risk of investing more than half of their assets in equity and equity-related instruments for a lock-in period of 36 months. In other words, once engaged in an ELSS fund, you wouldn’t be able to redeem your investment before the completion of the 36-month-long mandatory lock-in period.

Now that you have an idea about the features, benefits, and advantages of putting your money at stake on an equity-linked savings scheme, you have to decide whether this investment scheme is worth your time and money. The list below discusses two questions that will indicate whether an ELSS investment is worth your time and money or not. If your answer to both questions asked below turns out to be positive, the tax-saving equity-linked savings scheme is ideal for you.

1. Are you comfortable with putting your assets in equity and equity-related instruments?

Since all investment opportunities under the equity-linked savings scheme risk over 80 percent of your total assets on equity and equity-related investments, you should be comfortable with risking your acquired wealth on high-risk investments.

• Does a lock-in period of 36 months sound too much for a high-risk investment for you?

The scheme is very strict about investors not being able to redeem a single penny from their equity-linked savings scheme amount until the lock-in period of 36 months is over. Therefore, you should go for an ELSS investment only if you agree to the terms and conditions of the scheme in terms of the time required to withdraw your amount.

That was all about the equity-linked savings scheme and we hope this article gave you some insights into whether investing in tax-saving mutual funds is worth your money and time. You can also seek expert guidance to choose the best mutual fund to invest to make the most out of your investments.