EQUITY LINKED SAVING SCHEMES (ELSS)

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What is ELSS?

Simply put, ELSS is a type of diversified equity mutual fund which is qualified for tax exemption under section 80C of the Income Tax Act, and offers the twin-advantage of capital appreciation and tax benefits. It comes with a lock-in period of three years. There is no upper limit on investments, however, investments of only upto Rs.1,50,000 per year are allowed to be claimed as deductions under Section 80C of IT Act.

Why should one invest in an ELSS?

ELSS funds are one of the best avenues to save tax under Section 80C. This is because along with the tax deduction, the investor also gets the potential upside of investing in the equity markets. Also, no tax is levied on the long-term capital gains from these funds. Moreover, compared to other tax saving options, ELSS has the shortest lock-in period of three years.

Advantages of ELSS

• Investor can opt for Systematic Investment Plan in ELSS.

• These funds show less volatility that most other equity funds (due to lock-in)

• Three-year lock-in is the lowest among tax saving instruments 

• Since it is an equity linked scheme earning potential is high.

• Historically, has provided better returns than NSC, PPF and ULIPs.

• Profits earned after the Lock-in Period is completely Tax-Free.

• Investor can opt for dividend option and get some gains during the lock-in period

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Suitability

It is suitable for all types of investors who are not risk averse and need to invest in tax planning instruments. Though there is no age to get started on an ELSS, it is good investment to have for those who are just starting their careers as it can help them shed their inhibition about investing in equities through mutual funds in a big way.

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