Equity Linked Savings Scheme (ELSS)

What is an Equity Linked Savings Scheme?

Equity Linked Savings Scheme (ELSS) is a kind of mutual fund scheme that helps in saving taxes under Section 80C of the Income Tax Act and invest equity related instruments to generate high returns.

In also addition, with the investment in the ELSS Funds an investor can save taxes up to ₹ 46,800 under Section 80C of the Income Tax Act.

Features of ELSS Mutual Funds

1. Lock-in period: Some tax saving plans such as PPF (Public Provident Fund), NPS (National Pension System), and Fixed Deposits, etc, are the plans that have a lock-in period more than 5 years. But ELSS funds are the only fund that has a minimum of 3 years lock-in period.

2. Tax saving: ELSS is a type of mutual fund that provides exemptions under section 80C of the Income Tax Act up to ₹ 1.5 lakh from total income.

3. Dividend and growth: An investor can choose for dividend pay-outs if an investor wishes to receive regular income or go with the growth option for capital appreciation.

4. Dual benefits: An investor enjoys the dual benefits of capital appreciation from investments in equity along with tax-saving.

5. No Entry and Exit Load: ELSS funds don’t have any Entry or Exit load or fee.

How to Invest in Equity Linked Savings Scheme Funds?

There are two ways through which a person can invest in ELSS:

• Online: An investor can invest in ELSS funds through online platforms or directly through the AMC’s websites.

• Offline: An investor can fill a form and submit it directly at the nearby branch of the fund house, or invest through a broker.

Advantages and Disadvantages of Equity Linked Savings Scheme Funds

Advantages

1. Diversification: Some ELSS funds invest across a diverse group of companies ranging from small-cap to large-cap. This allows investors to add the elements of diversification to their investment portfolio.

2. Invest with the low amount: Most ELSS schemes offer investors to start investing with as low as ₹ 500/-.

3. Tax saving benefit: ELSS offers an investor to save taxes under section 80c of the IT Act up to ₹ 46,800/-.

4. High return: Investment in ELSS funds has delivered significantly higher returns when compared to other tax-saving instruments.

5. Investment Management by Professional: Under ELSS funds investor’s money is safe because the investment portfolio is managed by some professionals or experts. They are well about the market conditions.

6. SIPs: While an investor can invest a lump sum amount in an ELSS scheme, most investors prefer the Systematic Investment Plans (SIP) method. It allows investors to invest in small amounts and avail tax benefits along with an opportunity to create wealth.

Disadvantages

1. LTCG Tax: The money received by the investor after three years of lock-in period will be taxable as per Long term capital gain (LTCG) tax.

2. No Guaranteed returns: Any investment in a mutual fund doesn’t have any guarantee returns.

3. NRI not eligible: NRIs from Canada and the US can’t invest in mutual funds.

4. ELSS is equity-linked investment: There is no way one can avoid exposure towards equity in so it’s not suitable for conservative investors.