This Rs 5,000 investment has grown into Rs 2.5 lakh; here is how you can benefit too

The new financial year has just started and this is the best time to make some really informed financial resolutions. Before it gets too late, you should plan your finances in a way that meets your tax goals. One option that may help you earn huge returns, and at the same time reduce your taxable income, is investing in a particular option that is both safe and provides good returns. We are referring to Equity Link Saving Scheme (ELSS) funds. Significantly, as little as Rs 5,000 invested in an ELSS fund can grow your money into lakhs, but only if it is invested methodically and at the right time. Many investors have done just that and earned a whopping Rs 2.5 lakh in just 3 years.

If you had started a systemic investment plan (SIP) of Rs 5000 each month in Motilal Oswal Long Term Equity Fund - Direct Plan three years ago, with over 21 per cent annualised return, this would have earned you Rs 2.5 lakh as of now. The total amount invested during the period would have come to Rs 1.8 lakh, a wealth gain of Rs 68,789 or nearly Rs 0.7 lakh.  

Motilal Oswal Long Term Equity Fund - Direct Plan is the best performing mutual fund in ELSS category in three-year time-period. Others include Motilal Oswal Long Term Equity Fund (up 18.48 per cent), Escorts Tax Direct Plan (up 16.15 per cent), Escorts Tax Plan (16 per cent), L&T Tax Saver (15.42 per cent) and Principal TaxSav DP (14.98 per cent), data available with database INSIGHT showed. 

ELSS funds help you reduce your taxable income under Section 80C of Income Tax Act.

Following are the benefits of ELSS:

1) Wealth creation while saving taxes

It is a known fact that equities garner higher returns as compared to other financial instruments in the long run. Those looking to invest in stock market can take this route for equity exposure and at the same time claiming tax deduction under Section 80C of Income Tax Act.

2) Lowest lock-in period

Lock-in period for ELSS is three years while other tax saving instruments like NSC, PPF etc has a lock-in period of anywhere between 5 to 15 years.

3) Systematic Investment Plan (SIP)

One need not invest a lumpsum in ELSS fund and can start an SIP with as little as Rs 500. In fact, investing lumpsum is inadvisable when it comes to ELSS funds as it may cost you dear in case stock market takes a sudden fall. Investing money in a staggered way is the best way to go about it.

4) Maturity date

Most tax saving investments such as PPF, tax saving deposit come with a maturity date. PPF matures in fifteen years and it can be renewed for another five years. ELSS has no such fixed maturity date or period.

Earlier, profits on equity investment used to be tax free. However, starting April 1, 2018, returns generated from ELSS funds would attract Long Term Capital Gain Tax (LTCG) at the rate of 10 per cent if the capital gains exceed Rs 1 lakh in a financial year.