Ever since the inception of tax system in India, financial gurus have been coming up with several kinds of investment vehicles, which cool down the taxation heat. Traditionally, people have been inclined towards using the safest of these instruments for saving tax. However, none of them offered attractive returns, and investors were always unhappy about it.
But now, times have changed, ever since mutual funds were born in the Indian economic market. Speaking of mutual funds, you can look at them as investment vehicles, which offer moderate amount of returns. The returns are not too low like those from debt instruments and are neither too risky, lije those from equity instruments. In short, the returns are balanced, but high enough to come under the taxation cover.
So, fund managers came up with unique schemes, which would offer protection from taxation as well as benefits of good returns. They achieved it by producing ELSS fund. The demand for this special type of mutual funds has strongly increased in the market. Even the NRIs are seen to be interested in them. ELSS or Equity Linked Savings Schemes are specially created to offer tax benefit to investors while taking care of their returns appetite.
The Section 80C of the Income Tax Act classifies ELSS as tax saver mutual fund. Any investment up to 1 lakh in it qualifies for special tax exemption. All you have to do is invest some amount in them, and it will get locked in the scheme for 3 years. The underlying instruments used for investment are equities only. Unlike the fixed deposits or bond deposits, these schemes do not carry any administrative charges. Lastly, the equity factor promises high returns.
So, why stick to traditional instruments like bonds and National Saving Schemes, when attractive instruments like ELSS are available at your disposal?