For most of us, retirement planning is typically the most ignored goal in our portfolio as it appears distant and one might not feel a pressing need to address it.However, our desire to save tax each year could be channelled to aid us to achieve 2 goals with one investment: tax-saving and investing for retirement. Enter ELSS funds. Equity-linked savings scheme(ELSS)is a tax-saving investment under Section 80C investments that offer dual benefits of tax-saving and capital appreciation. This article will focus on how ELSS mutual funds can help you save tax while funding for your retirement.

Key features of ELSS funds:

  1. A minimum of 80% of the fund’s corpus is invested in equity and equity-related securities
  2. Minimum investment limit is Rs500
  3. There is no maximum limit while investing in ELSS tax saving mutual funds. You can invest any amount you wish.
  4. As an investor, you get a taxdeduction of up to Rs.1.5 lac under Section 80C of the Income Tax Act, 1961.
  5. ELSS tax-saving funds have a lock-in period of 3 years
  6. You can choose either the dividend or growth option at the time of investing.
  7. Potential to earn significant returns;however, at the same time, returns may not be guaranteed.

Why should you consider ELSS funds for retirement planning?

Following are some of the reasons why you should consider ELSS mutual funds for your retirement planning:

  1. Stress-free investments
    The process of investing in ELSS mutual funds is quite simple. Once you open an account with the fund house, you can invest either through systematic investments periodically or lump sum. As an investor, you can also increase or decrease the amount over time depending on your financial conditions. While there is no upper limit on how much you can invest in ELSS, you can start by investingat least Rs.500 in these tax-saving investments. This can aid to build financial discipline while enhancing your retirement corpus. You can start by investing small, insignificant amounts early in your career. And with anincrease in your income over the years, you can proportionately surge your SIP investment amount.
  2. Diversification
    Markets move up and down; it’s not uncommon. And as an investor, you wouldn’t want to risk losing your investments to an economic slump. But, as ELSS mutual funds usually invest in a wide variety of sectors and stocks, ELSS schemes can offer you with good diversification in an easy and cost-efficient manner.
  3. Professional management
    ELSS tax-saving mutual funds are managed by professionals known as fund managers. They are experts with substantial experience in the stock market who can control the fund based on their extensive market research. The primary goal of fund managers is to provide you with reasonable returns on your investments. So, when you invest in ELSS, you don’t have to be concerned about tracking the market on a daily.

While choosing an ELSS scheme, an investor can compare various parameters such as risk and volatility, lock-in period, returns history, SWP option, SIP option, minimum investment required and fund management. ELSS mutual funds are ideal for those investors who want a taste of investing in equity. Happy investing!