Hello Readers,

Started your investment in a mutual fund or not? Well, today I am here with one of the most significant mutual fund schemes, wherein investing, not only helps you to earn a good amount of return but also, saves your returns from tax exemptions! This tax saving mutual fund scheme is popularly known as, ELSS or Equity Linked Saving Scheme.

Read the blog and get to know the point details of ELSS.

ELSS or Equity-linked Saving Scheme is a kind of close-ended, equity fund, offered by Mutual Fund. Most importantly, ELSS funds are favored, for its tax-saving features. As per the Section 80C of Income Tax Act 1961, these funds offer tax benefits on the returns earned by the investors, investing in ELSS funds. 

Features Of ELSS: 

1. ELSS comes with a lock-in period of three years, which means, investors, investing in ELSS, cannot redeem their funds before the period of three years, from the start of their investment. However, once the lock-in period gets over, investors can easily redeem their funds or can continue, as per their choice.

2. Investors, who wish to invest in ELSS, can invest via any method, either Lump-sum or SIP (Systematic Investment Plan), as per their comfortability. Only they have to note it down when investors invest through Lump-sum, their one-time payment gets locked for three years. If the investor invests through SIP, each installment gets locked for three years, from the time of its payment. 

For example, suppose a person started his investment in ELSS, with Rs 1000 per month, and he deposited his first installment on 5^th September 2019, then his installment is locked for three years, that is up to, 5^th September 2022. He deposited his second installment on 5^th October 2019 then, his second installment will be locked up too, 5^th October 2022 and it will continue in the same manner.

3. ELSS fund offers a rate of return between 10-12% to its investors, but as it is an equity scheme, and its returns are affected by the market’s performance. Sometimes, its rate of return can reach up to 15%, when the market performs well.

Prominent Feature: Tax Benefits In ELSS 

As per SEBI (Security Exchange Board of India) and Section 80C of Income Tax Act 1961, investments of only up to Rs 1.5 lakh, in ELSS, are tax-exempt, if any investor exceeds this limit, they won’t be qualified to avail the tax benefits under Section 80C.

However, the Long-Term Capital Gains on ELSS, up to Rs 1 lakh per annum, is exempted from tax, also, the dividend received is tax-free in the hands of investors.

Why ELSS is preferred more over other tax saving schemes under Section 80C?

Being an Equity Scheme, ELSS funds are associated with risks and are risky than the other schemes of Section 80C, like NPS (National Pension Scheme), PPF (Public Provident Fund), NSC (National Saving Certificate) and many more. Despite being riskier, ELSS is preferred more than the other Section 80C funds due to its following features:

1. Higher Returns on Investment: ELSS funds are close-ended equity funds and its returns are based on market performance, hence, its returns are higher than other tax saving schemes, in longer runs. In fact, it has been observed that ELSS generates return up to 12% or over if carried for the long term of up to 10 years, whereas PPF (a government tax saving scheme) offers returns, of up to 8%, and gives a fix benefits over a period of time. Thus, investing in ELSS, helps the investor to earn more profit, along with that, freedom from tax exemption, which is a double benefit!

2. Short Lock-in Period: ELSS comes with a lock-in period of three years, which is comparably short than other investments like PPF (15 years lock-in period), NPS (till retirement), NSC (5 years lock-in) and many more. 

3. Invest, via SIP or Lump-Sum, Your Choice: ELSS funds offer both types of investment methods, it up to an investor, which method they want to go with. However, other tax saving schemes under Section 80C does not offer the SIP investment method.

4. Professional Management: ELSS, being an equity mutual fund scheme, offers the option of professional management of funds, which helps investors to reduce the risk on their portfolio and enhance the returns on the investment. 

Here I am depicting a table, go through the information provided in the table, it will help you understand, why ELSS is preferred more than the other tax-saving schemes of Section 80C.

There are many fund houses like Aditya Birla, Axis, Invesco, Kotak, and many more, providing ELSS schemes, to the investor to invest in.

If you are confused, regarding, which ELSS to invest, better consult a financial advisor or planner, they will give you the best advice, to invest in which ELSS scheme.

You can also, visit us at Shri Ashutosh Securities Pvt. Ltd., Our professional advisors, are here to help you in every way possible. 

As of now, you have understood about the ELSS funds, and its significances, visit us, and plan your investment in best ELSS funds, start your investment, earn benefits with the high rate of return, along with that enjoy the tax benefits.

Happy Investing!