Equity Linked Savings Scheme, or ELSS, has become a popular choice for investors who want to combine tax benefits with the chance to grow their money through equity investments. SBI Equity Linked Savings Scheme stands out as one of the reliable ELSS funds available, backed by the reputation of one of India’s leading banks. By investing in SBI ELSS, investors not only save on taxes under Section 80C but also tap into the growth potential of the stock market.
With an annual investment of ₹50,000, this scheme offers a smart way to build wealth over time, especially for those who want to start with a moderate amount and still aim for good returns. The fund’s professional management and diversified portfolio make it a suitable option for both beginners and seasoned investors.
How SBI ELSS Works
SBI ELSS primarily invests in shares and equity-related instruments of companies across various sectors and market capitalizations. The goal is to achieve long-term capital appreciation by riding the growth of Indian companies. The fund managers actively monitor the market and adjust the portfolio to maximize gains and minimize risks.
One important feature of ELSS is its mandatory lock-in period of three years. This means once you invest, your money is locked and cannot be withdrawn for at least three years. This lock-in is the shortest among tax-saving instruments under Section 80C, encouraging investors to stay invested and benefit from the market’s growth over time.
Potential Returns on a ₹50,000 Annual Investment
If you invest ₹50,000 each year in SBI ELSS, your money has the potential to grow significantly, depending on market performance. Equity funds like SBI ELSS generally offer an average annual return between 12% and 15% over a five to ten-year period. Assuming a reasonable annual return of about 14%, your ₹50,000 investment could grow to over ₹70,000 in a couple of years. Continuing this investment habit for a longer duration could multiply your returns even further, showcasing the power of compounding in equity investments.
Why Choose SBI ELSS for Tax Saving?
Tax savings are often the main reason investors look at ELSS funds. Under Section 80C, investments in ELSS up to ₹1.5 lakh qualify for tax deductions, which reduces your taxable income and consequently lowers your tax burden. For example, your ₹50,000 investment will directly reduce the income on which you pay tax.
Compared to traditional tax-saving options like fixed deposits or the Public Provident Fund, ELSS funds offer the potential for higher returns as they invest in equities. However, this also means the returns are not fixed and depend on the market’s ups and downs. The three-year lock-in period also makes ELSS relatively more liquid compared to other tax-saving instruments that have longer lock-ins.
Benefits of Investing in SBI ELSS
One of the main advantages of SBI ELSS is that it is managed by experienced professionals at SBI Mutual Fund, ensuring your investments are handled with expertise. The fund invests across different sectors and company sizes, which helps reduce risk by diversifying your exposure. Besides the tax deduction on your investment, the gains from ELSS are subject to long-term capital gains tax at 10% on profits exceeding ₹1 lakh per financial year, which is more favorable compared to other investment options.
Additionally, SBI ELSS offers convenience for investors as you can start investing with relatively small amounts, even as low as ₹500 per month through systematic investment plans (SIPs). This accessibility makes it easier for many people to begin investing in equity markets while saving on taxes.
Things to Keep in Mind Before Investing
It’s important to remember that investing in SBI ELSS carries market risk, as the returns depend on how equity markets perform. There may be times when the fund’s performance dips or is volatile, which is part of investing in equities. The mandatory lock-in period of three years means you cannot redeem your investment during that time, so it’s crucial to only invest money that you do not need to access in the short term.
ELSS is best suited for investors who have a medium to long-term investment horizon of at least five years. This allows enough time to ride out market fluctuations and benefit from potential growth. It’s also wise to review your investment periodically to ensure it still aligns with your financial goals.
How to Start Investing in SBI ELSS
Getting started with SBI ELSS is straightforward. You can invest directly through the SBI Mutual Fund website or approach any authorized mutual fund distributor. You have the option to invest a lump sum or start a monthly SIP with amounts as low as ₹500.
Make sure you complete the Know Your Customer (KYC) formalities as required by law before investing. Once your account is set up, you can easily monitor your investments online and make additional contributions whenever you wish.
Conclusion
SBI Equity Linked Savings Scheme offers an effective way to save tax and build wealth by investing in equities. With a disciplined annual investment of ₹50,000, investors can potentially see their returns grow beyond ₹70,000 in a few years, and possibly much more over the long term. The scheme’s blend of tax benefits, professional management, and relatively short lock-in period makes it an attractive choice for many.
Keep in mind that investing in equity markets involves risks and requires patience. If you are prepared to stay invested for the long haul and want a tax-efficient way to grow your money, SBI ELSS could be the right option to consider.
Disclaime: This blog is for informational purposes only and should not be considered as financial advice. Investments in mutual funds are subject to market risks, and past performance does not guarantee future results. Investors should read all scheme-related documents carefully before investing and consider their own financial objectives. It is recommended to consult with a qualified financial advisor before making any investment decisions.