ELSS funds: everything you want to know!

ELSS funds: everything you want to know!

Among the many tax saving investments, Equity Linked Savings Scheme (ELSS) is regarded as an excellent option. ELSS funds are tax saving mutual funds; they invest 80% of its corpus in equity and equity-related instruments. It offers numerous advantages such as market-linked returns, shorter lock-in period, greater flexibility and more.

This article can help you understand everything about ELSS in detail.

What are ELSS mutual funds?

ELSS is similar to any other mutual fund scheme that predominantly invests in the stock market. It comes with a three-year lock-in period, which gives investors the flexibility to withdraw funds in the short-term.

ELSS is also termed as a tax saver mutual fund because it helps you save tax under Section 80C of the Income Tax Act, 1961. An investment in ELSS up to Rs.1.5 lakh is eligible for a tax deduction. This advantage makes ELSS a preferred option to save tax and build wealth in the long run.

Who can invest in ELSS funds?

ELSS is an ideal choice for investors who wish to save tax. It can help you save tax up to Rs.46,800 annually if you fall in the 30% income tax bracket. Besides, it can be an ideal investment avenue for young investors with high-risk appetite. Since these funds invest in equity, they are ideal for investors who are looking for a diverse portfolio to earn high yields over time.

How to invest in ELSS?

On deciding to invest in ELSS, choose a scheme that suits your financial goals, risk appetite and investment horizon. Consider the fund’s age and analyse its past performance to understand the kind of returns the fund can offer during the ups and downs of the market cycle. You can also look at the fund manager’s experience and expertise to determine your potential gains.

You can invest in ELSS via the lump sum method in one go or opt for the Systematic Investment Plan (SIP) for a minimum investment of Rs.500.

Benefits of investing in ELSS mutual funds

  • You can avail tax benefit of up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961 by investing in this mutual fund tax saver.
  • Investing every month in ELSS via SIP helps you build the habit of saving and investing.
  • With a lock-in period of three years, withdraw funds when you need after the stipulated time.
  • Since ELSS investments are majorly placed in equities, they can generate higher returns with tax-saving benefits than most investment options.
  • Investments in ELSS can be made with an amount as low as Rs. 500, giving modest-earning investors the chance to invest and reap the benefits.

Conclusion

ELSS combines the best of tax-saving and equity exposure to offer superior returns to investors. If you have a long-term financial goal and a higher risk tolerance, you can consider investing in ELSS funds.

Clare Louise