All You Need To Know About Elss Mutual Funds


Equity linked saving scheme is a mutual funds investment scheme, it is a diversified equity mutual fund that has a majority of the corpus which is invested in equities. As it is an equity fund, the returns from the ELSS fund will reflect returns from the equity market. This type of mutual fund has a lock-in period of 3 years from the date of investment, which means if an individual starts a systematic investment plan in an ELSS, then each of their investments are locked in 3 years from the respective investment date. The returns earned from ELSS mutual fund investments are tax free. An investor can claim up to Rs. 1 lakh of the ELSS investment as a deduction from the gross total income in a financial year.

An investor should always look at the long-term performance of the fund before they put their money in it. An individual should always remember to look at the fund details like the fund manager’s investment approach portfolio of the fund, the expense ratio of the fund and how volatile the fund has been in the past.

Equity linked savings scheme as a tax saving option also has different benefits over other tax saving investments such as public provident fund (PPF) and national savings certificate (NSC) and bank fixed deposits. The lock in period of an ELSS fund is much lower than other funds. While ELSS investment is locked in for 3 years, the PPF investments are locked in for 15 years, NSC investments are locked for 6 years and the bank fixed deposits eligible for tax deduction is locked in for 5 years. As ELSS is a mutual fund investment in equity markets and investing in this for a long term can give the investor better returns compared to other asset classes over the long term. An investor can also opt for SIP investments that bring about discipling in regular investing. Investors can also get income from their investment amount in the lock-in period if they opt for dividend schemes.

When investor opt for mutual funds investment tools, their main priority is not the returns but the tax benefits. There are a lot of tax savings options under section 80C of the income tax act 1961 like ELSS, NPS, PPF, EPF, health insurance, etc. Amongst these, ELSS has emerged as the most famous one. ELSS mutual funds have a short lock in period, only three years in comparison to the National savings certificate. ELSS mutual funds investments are also faster to access and more convenient. They offer high returns on investments, while saving tax as well for helping the investors make better profit in the long run. ELSS qualifies for tax exemptions under section 80C where investments are up to INR 1.5 lakh. They can claim them at the end of every financial year. The capital gains under ELSS are also tax-free, which is why they are preferred as a way an mutual funds investment for tax saving.

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