Novice investors can get all jittery with the many options the mutual fund market offers. For many, the Equity Linked Savings Scheme or ELSS mutual funds is a good option owing to the equity exposure and the tax-saving benefits. But is that all? Given below are the top 5 reasons why you must choose ELSS funds for your investment.

Reason #1 Lock-in Period

Good mutual funds are designed to inculcate the habit of savings. However, not all are bound by a lock-in period. However, it is not so with ELSS funds which come with a lock-in period of 3 years. Not only do they encourage people to stay invested longer, but they are also more liquid than other tax-saving options that may come with a lock-in period of 15+ years – an ideal choice for first-time investors. 

Reason #2 Inflation-Beating Returns

Out of all tax-saving investment options, perhaps ELSS mutual funds show the most potential for inflation-beating returns. Why? Where one may earn interest close to 8% on their savings account, investing in a good portfolio of ELSS funds is capable of earning the investor returns as high as 12% to 15%. Since these funds are market-linked, they can beat the adverse impact of inflation, offering a higher rate of returns. 

Reason#3 Dual Benefits

When you invest in ELSS funds, you get to enjoy twofold benefits – tax deduction and wealth creation over time. Due to the equity exposure of these funds, the returns are not restricted to a particular limit. When the market is in full bloom, these funds offer overwhelming returns. No other tax-saving investment option provides this dual benefit. 

Reason #4 No Lump Sum Needed

Another reason to invest in ELSS is the provision of an SIP or Systematic Investment Plan. Under this investment plan, you need not arrange for a lump sum amount. With as little as Rs. 500 per month, you can start your journey towards investment in mutual funds. Plus, you can even ask your banker to automatically transfer a fixed sum every month to the ELSS fund of your choice, thereby making the whole process simple and straightforward. 

Reason #5 Compounding Benefit

What makes today’s investment options more profitable in the long run is their compounding effect. However, even then, ELSS mutual funds win hands down due to their potential for higher returns than traditional tax-saving investment options. The compounding of the latter grows slowly; as a result, the overall benefit reduces in the long run. The higher scope of returns of ELSS funds increases the compounding benefit over time.

Finally, investing in ELSS funds is easy and convenient and can be done from the comfort of your home. To easily compare your options, you can use investment applications like Tata Capital Moneyfy that allows you to choose the right fund based on your investment objectives, risk appetite, and other key requirements.