Why are ELSS Funds a Top Choice for Gen-Z’s in Tax Savings Instruments?

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Why are ELSS Funds a Top Choice for Gen-Z's in Tax Savings Instruments?

Investment strategies and financial knowledge are becoming more and more crucial as the younger generation joins the workforce. Gen Z, in contrast to earlier generations, are digital natives who are at ease using technology and looking for investing solutions that complement their financial objectives and ideals.

One of the most popular options for Generation Z (Gen-Z) among the several tax-saving options offered in India is the Equity Linked Savings Scheme (ELSS). In this blog, we will explore the reasons behind the ELSS fund’s popularity among Gen Z investors.

What are ELSS Funds?

Mutual funds that invest mostly in stocks and provide tax advantages under Section 80C of the Income Tax Act are known as Equity Linked Savings Schemes (ELSS).

An ELSS investment can lower taxable income with tax benefits of up to ₹1.5 lakh in a fiscal year. ELSS funds also have a three-year lock-in period, which makes them one of the shortest tax-saving options.

Reasons behind ELSS Funds Popularity Among Gen-Z

ELSS funds offer numerous benefits to Gen-Z. Let’s explore some of these reasons:

1. Short Lock-in Period

Tax-saving instruments are usually marketed with certain conditions attached, such as the
compulsory holding period. This three-year mandatory holding period makes ELSS funds
stand out among their peers. This comparatively shorter lock-in period offers more
financial flexibility to Gen-Z as well as the opportunity to benefit from long-term wealth
creation.

2. Potential for Higher Returns

One of the key reasons why Gen-Z likes ELSS funds is that they can give competitive returns. In contrast to fixed-income securities like Fixed Deposits (FDs) and National Savings Certificates (NSCs), which provide relatively lower and fixed returns, ELSS funds are market-linked and have given better returns in the long run.

By investing in the top ELSS funds, young investors can harness equity markets to maximize their wealth while saving taxes under Section 80C of the Income Tax Act at the same time.

3. SIP Friendly

Gen-Z investors like the convenience and simplicity of Systematic Investment Plans (SIP) while investing in ELSS funds. SIP enables them to invest small amounts regularly, avoiding the hassle of making lump-sum investments. With the help of an SIP calculator, they can calculate the amount of investment required to meet their financial objectives.

This systematic way of investing promotes financial discipline while taking advantage of the rupee cost-averaging benefit in ELSS funds, ultimately resulting in improved risk-adjusted returns.

4. Dual Benefits- Tax Savings and Wealth Creation

ELSS funds offer the dual advantage of tax savings and capital appreciation. Unlike traditional tax-saving schemes that primarily focus on wealth preservation, these funds invest predominantly in equities, allowing investors to generate substantial long-term gains.

By choosing these funds, Gen-Z investors can reduce their taxable income while simultaneously building a robust investment portfolio that grows over time, ensuring financial security and independence.

5. Transparency and Accessibility

With the advent of digital platforms, investing in these funds has become seamless and hassle-free. Gen-Z investors prefer online solutions, and can therefore easily research, compare, and invest in the best ELSS funds through user-friendly platforms.

The transparent nature of ELSS fund investments, coupled with real-time tracking and instant redemption options post-lock-in, makes them a convenient choice for young investors.

Final Words

ELSS funds have rightfully earned their place as one of the most sought-after tax-saving instruments among Gen-Z investors. Their combination of a short lock-in period, attractive returns, and ease of investment makes them an ideal choice for those looking to save taxes while building long-term wealth. By investing in these funds, Gen-Z investors can ensure a financially secure future while taking advantage of lucrative tax benefits.