A fund known as an equity-linked savings account (ELSS) is a type of equity mutual fund that enables investors to put their funds into stocks. On the other hand, this does not necessarily mean that about one hundred percent of your money would be invested in the stock market. Among the most effective approaches to profiting from the stock market without exposing oneself to an excessive amount of danger is to invest in a top ELSS funds. 

The requirements outlined in Section 80C of the Income Tax Act allow you to make tax savings through the use of ELSS funds, which is the most advantageous aspect of these types of investments. When you invest in equity-linked savings accounts (ELSS), you can reduce the amount of your annual taxable income that is subject to taxation by up to Rs 1,50,000.

PROS

• Reduced rates of taxation on capital gains

A minimum of three years must pass before the ELSS fund can be withdrawn from the market. Any gains that result from the sale of top ELSS funds are consequently considered to be of a long-term character. Gains that are greater than 1,000,000 will be subject to taxation at a rate of 10%, as stipulated by the current legislation. In contrast, taxes on gains on the sale of assets held for a period of less than a year are levied at a rate of 15%. As a consequence of this, the tax consequences of investing in ELSS funds are naturally reduced.

• Profits in abundance

Because of its connection to the stock markets, exchange-traded savings schemes (ELSS) are able to provide investors with returns that are greater than those provided by standard savings plans. You will realize that the returns on top ELSS funds may be especially in comparison to the returns on specific mutual fund investments after a period of ten years, indicating that these funds could produce returns that seem to be considerably higher than any of those given by other tax saving strategies.

• SIP option available

When purchasing shares in an ELSS, investors have the option of choosing the SIP purchase method. It gives the investor the chance to put aside a certain sum of money at predetermined intervals at frequent or periodic intervals. The salaried class can make use of this opportunity to invest a consistent amount from their savings on a regular basis, most frequently on the first of every month.

CONS

• Market risks

Equity-linked savings plans (ELSS) are mutual funds that invest in stocks and other equity-related assets. Consequently, there are dangers connected with purchasing top ELSS funds as an investment vehicle. It is not possible for an investor to anticipate returns that are fixed as well as guaranteed, as is the case with other tax-saving vehicles such as fixed deposits, PPF, etc. It is essential to highlight the fact that the high risk-return ratio, when combined with such a lock-in period, enables investors to smooth out volatility in the market and provides great benefits to investors who hold positions for the long term.

• Need to establish a lock-in time frame

The money invested in an ELSS account is locked up for a period of three years, and it cannot be released before that time. In contrast to other investment opportunities, such as bank deposits as well as the Public Provident Fund (PPF), premature withdrawals are not permitted under ELSS plans prior to the expiration of the lock-in period.

• Dilution

Due to the risk of dilution, it is never advisable to invest in such an excessive number of mutual funds all at once. While diversification protects an investor from suffering significant losses, it also prevents investors from generating a greater return on their investments.

Conclusion 

ELSS funds, based on what we’ve seen, have always had the potential to generate significant profits and, therefore, can assist save money on taxes; however, there are several constraints that investors need to be aware of before beginning their journey of investing in ELSS.