Mutual funds are an excellent method to earn money while sleeping. Yes, you invest in these schemes, and the fund manager's goal is to raise your money by double digits, if not more, throughout the course of the investment's tenure. Tax-saving products such as ELSS and PPF can help taxpayers save up to Rs 1.5 lakh in a single financial year. Among tax-saving investment ELSS, this tax-saving investment comes with a short lock-in period.
ELSS (Equity linked Saving Scheme)
ELSS is a sort of open-ended equity mutual fund. AMCs of ELSS mutual funds invest in company stock and equity-related securities. Aside from higher returns, equities mutual funds provide income tax exemption on investments up to Rs 1.5 lakh in a single fiscal year. It also enables an individual to invest through a SIP. However, because ELSS mutual funds have a three-year lock-in period, the investor must pay a 10% LTCG tax at maturity.
What should you do after ELSS 3-year maturity?
If you own an ELSS or any other type of investment, you're undoubtedly thinking about recycling it after it matures. Simply put, you feel that selling ELSS after the three-year obligatory lock-in period and reinvesting the proceeds will help you avoid taxes. You won't have to set aside any new funds for tax-saving investments because you won't have to. This has been a long-standing practice among investors.
Thing question is should you recycle the fund after maturity or not? Financial gurus advise against it if you are in a difficult financial condition. You can sell an old ELSS investment and reinvest it to reduce taxes if you can't afford Rs 1.5 lakh in a year owing to your financial position. However, you should be aware of the potential for your investing strategy to be disrupted.
If you require the funds, you should withdraw them; but, if you can continue to invest for another four to five years, now is not the time to do so. Certainly, the market will stay turbulent for a few more months, but no one can accurately time the market. Switching to a different fund makes no sense because the one you choose is the best in the category. Second, if you switch to another equity fund, your exit burden, and tax treatment will start over from the date of your initial investment, which you should avoid.
ELSS funds are a great way to diversify your long-term investment portfolio. As previously stated, these plans are nothing more than stock-based equity plans. They generally invest using a Flexi cap technique. As a result, they can be used as a Flexi cap system. Over time, ELSS may be a fantastic way to build wealth. Don't only think of it as a way to save money on taxes.