Equity Linked Savings Schemes (ELSS) are mutual funds that invest primarily in the equity market. They’re tax-saving investments that allow investors to enjoy the double benefit of wealth creation and tax reduction. On the flip side, due to the equity orientation, investors do take on a slightly higher degree of risk.
What is the lock-in period for ELSS?
When compared with other tax-savings investments, ELSS has one of the shortest lock-in periods. You need to remain invested for a minimum of 3 years.
Are there different types of ELSS?
Depending on the flexibility of investment and withdrawal, ELSS can be open-ended or close-ended mutual funds.
- Open-ended schemes allow investors to purchase units at any point in time. The 3-year lock-in period begins from the date of purchase. At the end of this tenure, the investor can redeem the asset value at any time.
- Close-ended schemes, on the other hand, only accept new investors during their New Funds Offer (NFO) period. Similarly, after the 3-year lock-in period is complete, investors can liquidate their assets only during the period specified by the scheme.
Does ELSS offer tax benefits to the investor?
Yes, ELSS is among the many tax-saving investments recognised by the Income Tax Act, 1961. The amount invested in ELSS in any given financial year can be claimed as a deduction from the investor’s total taxable income, as per section 80C. The maximum amount of deduction allowed is ₹ 1.5 lakhs.
How do you invest in ELSS?
You can invest in these mutual funds in any one of three ways.
- You could purchase ELSS funds from an AMFI-certified fund advisor.
- You could purchase them directly from the website of the fund house you prefer.
- Multiple apps also provide you with the option to invest in mutual funds.
Also, contrary to popular belief, you do not need a DEMAT account to invest in ELSS. An Online Services Account would be sufficient.
What are the different ways to park your funds in ELSS?
Depending on your financial goals and your current fiscal situation, you can adopt any of these two strategies to invest in ELSS.
- Lump-sum investment: You invest a relatively larger sum of money in the mutual fund in one go.
- Systematic Investment Plan (SIP): You invest relatively small amounts periodically in the mutual funds of your choice.
What are the other features of ELSS?
- Minimum investment amount: ₹ 100
- Minimum investment amount: No upper limit
- Risk index: High risk, linked with market risk