What are ELSS funds?
An equity-linked savings scheme or
ELSS is a subcategory of mutual funds which is eligible for tax deductions under the provisions of Section 80C of the Indian Income Tax Act, 1961. Through this, you can claim a tax rebate of approximately Rs 1,50,000 and save up to Rs 46,800 a year in taxes by investing in ELSS mutual funds. The asset allocation in ELSS mutual funds is mostly made towards equity-linked securities and equity. So, if you have invested in ELSS, you can invest in things like listed shares. Apart from listed shares, they may also have some exposure to fixed-income securities as well. But these funds come with a lock-in period of just three years, the shortest among all Section 80C investments.
What are its salient features?
Listed below are some of the numerous salient features of equity-linked saving schemes:
- They come with a lock-in period of three years:
One of the features of equity-linked saving schemes is that they have a lock-in period of three years. And you need to remember this if you want to invest your money in ELSS. If you invest your money in ELSS, you may need to wait for three years to get it back as there are no provisions in the plan for premature exits.
- They offer tax deductions:
Another characteristic of ELSS is that an investor can enjoy tax deductions under Section 80C of the I-T Act. So, if you were to opt to invest in ELSS, you could enjoy a deduction of approximately Rs 1,50,000 a year under the provisions of Section 80C.
- There are no limits to investments:
When you opt to invest in
ELSS
, you may invest any amount in the plan and there is no upper cap on the amount you can invest. However, it is important to remember that the minimum amount that needs to be invested in ELSS varies across fund houses. Hence, if you are signing up for ELSS offered by an investment firm, please make sure to check what is the minimum amount of investment for the ELSS offered.
- The income generated may not be impacted by inflation:
An ELSS scheme is a tax-saving investment option that has the potential to offer inflation-surmounting returns. So, if you have put money in an ELSS plan and the market is going through inflation, you don’t need to worry as the income generated through the scheme may not be impacted by the current conditions of the market.
- ELSS can help you do both, accumulate wealth and save taxes:
ELSS funds come with twin benefits. They create wealth and even give you the advantage of tax deductions. As per the provisions of Section 80C, you could enjoy a deduction of approximately Rs 1,50,000 a year if you were to invest in ELSS funds.
- They are mostly exposed to equities:
If you are planning to invest in this scheme and are probably not aware, ELSS funds mostly invest in equities or equity-linked securities. However, the scheme, apart from equities, also tends to have some exposure to fixed-income securities as well.
What are the benefits of ELSS?
Equity-linked savings schemes come with a wide range of benefits. Listed below are some of the numerous advantages of
ELSS
:
- They offer tax deductions:
One of the best advantages of ELSS is that it enables you to enjoy tax deductions under section 80C. A lot of investors who look for tax-efficient schemes need not look any further than equity-linked savings schemes. So, if you, as a part of your financial plan, were to opt to invest in ELSS, you could end up enjoying a deduction of approximately Rs 1,50,000 a year. This can be done under the provisions of Section 80C of the Income Tax Act, 1961.
- They can help you accumulate wealth over time:
As stated earlier, the equity-linked savings scheme is an equity diversified mutual fund scheme that comes with a lock-in of three years from the date of investment. However, when the lock-in period ends, instead of withdrawing, you can opt for the funds to remain invested. You can do so to meet your goal, which in this case, may be to have enough balance in your account at the time of retirement.
All the things mentioned above are the salient features of an equity-linked savings scheme. If you still have any doubts, you could promptly contact a fund manager.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
