How are you all? ELSS or Equity Linked Saving Scheme is a kind of tax saving Mutual Fund and most popular among investors who invest with a motive to save tax on their returns. As per Section 80C of income tax act, investors can save up to Rs 1.5 Lakhs, while investing in ELSS.
ELSS is the most preferred tax-saving instrument among all the instruments under Section 80C like PPF (Public Provident Fund), National Saving Certificate (NSC) and more, because of its short lock-in period and more return giving features. However, besides all these, there are many misconceptions prevalent in respect of ELSS, among the investors, which needs to be clarified on urgent basis.
Through this article, we are going to discuss some of the rumors related to ELSS, read to know about them.
Rumor 1: Investment in ELSS Cannot Exceed Rs 1.50 Lakh in A Year.
Well, as per Section 80C, the tax benefit in ELSS is limited to an investment of Rs 1.5 Lakh a year, regarding this people do often get confused and assume that investment in ELSS is limited to 1.5 lakh a year, but this is not true. However, it is also a fact that in other eligible investment options like PPF, Sukanya Samridhhi Account, the deposit itself is restricted to Rs. 1.50 lakh a year.
Fact: In ELSS, there is no restriction towards the investment amount for a financial year, investors are free and can invest any amount in ELSS, less than 1.5 lakh or more than 1.5 lakh. However, the tax benefit will be applicable to those investors whose investment amount is equal to or less than 1.5 lakh for a financial year.
Rumor 2: Liquidate ELSS investments after three years.
All tax-saving instruments under section 80C, have a certain lock-in period, the difference is, other instruments like PPF has a long lock-in period of 15 years, whereas ELSS has the shortest lock-in period of only three years. As ELSS has a three-year lock-in period, people do conclude that ELSS needs to get redeemed after three years, which is actually not necessary.
Fact: It is not mandatory that if your ELSS investment has completed its 3-year lock-in, it should be redeemed, you are free to hold on to the fund if you want. At the same time, keep an eye on how the fund is performing and whether you are achieving your goal.
Rumor 3: Investment in ELSS must be made in a lump sum.
Investors often believe that the investment in ELSS is open for a limited period and must be made in a lump sum to avail of the tax-saving benefit.
Fact: ELSS is also preferred among other tax-saving instruments, as it provides investment through one of the easiest and disciplined ways and that is SIP (Systematic Investment Plan). SIP investors can start their investment with as low as Rs 500 per month in ELSS.
Rumor 4: Invest in the same ELSS Mutual Funds.
So, this is another rumor, that to avail the tax benefit, investors should invest in the same ELSS mutual fund and do not add another mutual fund scheme to their investment portfolio, that is simply not true.
Fact: Primarily, there is no restriction towards investing in a number of funds in a financial year, and secondly investors can choose multiple ELSS mutual fund schemes to invest in a financial year.
Rumor 5: Lock-in Period starts from the date of registration of SIP in ELSS.
A few of the available investment options like PPF, Sukanya Samridhhi Account, etc. start the lock-in period from the date of account opening, and similarly, people do consider for ELSS also. Investors of ELSS assume that the lock-in period of three years in ELSS starts from the registration of SIP or from the date of the first instalment of SIP deducted from the bank account.
Fact: Well, the fact is that your every SIP instalment in ELSS is a fresh purchase and has its own lock-in period of three years, from the date of the respective instalment. It should also be kept in mind of investors that ELSS has the shortest lock-in period among the other tax-saving instruments.
As of now, you must have understood about the misconceptions people have raised up in their mind regarding the ELSS.
ELSS is a kind of Equity mutual fund and is one of the best schemes to earn for your long-term goals along with the benefit of tax saving feature on returns earned, so don’t go with the misconceptions, plan your investment in ELSS and enjoy good returns and tax benefits.
Most importantly, do meet a financial advisor, and get every point to point details about the ELSS mutual fund scheme, also they will help you to plan your investment well according to your goals.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).