Investing in ELSS - Things You Need to Know

February 14, 2019

Author: Shashank Pawar

Equity Linked Savings Scheme (ELSS) is one of the many investment instruments in which you can invest. It allows excellent tax benefits, which has made it a valuable investment instrument. Let’s take a look at what an ELSS is and why you should make it a part of your portfolio.

There are various types of mutual funds in the mutual fund industry, Equity Linked Savings Scheme is one of it and it has a lock-in period of three years. It helps to save tax and gives a higher return on elss investment.

What is ELSS Mutual Fund?ELSS or Equity Linked Savings Scheme is a type of mutual funds. Most of its funds are invested in equity as well as equity-related schemes. These come with a lock-in period of three years. During this period, you will not be able to transfer or redeem these units to any other scheme. You can, however, claim tax benefits for the financial year during which you have invested. You can also opt for a one-time lump sum investment or SIPs when investing in ELSS.

Open-end ELSSWhen you opt for open-end ELSS, you can invest at any time according to your preference. The three-year lock-in period is still valid. You can redeem it at any point in time once the lock-in period comes to an end.

Closed-end ELSSYou can invest in closed-end ELSS only during the New Funds Offer (NFO) period. You can liquidate after the three-year lock-in period, from time to time as declared by the fund.

ELSS FeaturesHere are some of the features that make ELSS a lucrative investment option:

You can invest in ELSS through SIP. This is a good and easy way to ensure a regular flow of money. It also nullifies the stock market volatility to some extent.

When it comes to ELSS, there is no sudden outflow as your investment stays locked for three years. You cannot redeem your money, even in tough market conditions. This means, even during a bear run, there is no outflow and no investor panic. This increases the chance of capital appreciation as well.

High capital appreciation is the main aim of ELSS. This is an equity-linked scheme and hence, a high-return asset. When it comes to market-linked assets, there is no guarantee of returns.

ELSS has a shorter lock-in period, and yet the gains associated with them are usually higher compared to the assets that have a longer lock-in period like PPF, NSC, and VPF.

There is no upper limit when it comes to ELSS. You can invest as much as your risk appetite allows. The return is also tax-free, making ELSS a great choice for all. Under section 80C, you can claim Rs. 1.5 lakhs (max) for tax-exemption.

ELSS: The AdvantagesThe advantages of investing in ELSS are many:1. Tax Saving: ELSS is a great tax saving instrument. You can claim a deduction of up to 1.5 lakhs under section 80C of Income Tax. Mutual fund taxation is not very attractive. This is the only mutual fund that lets you save a lot of tax and gives you high returns as well.2. Lower Tax: ELSS attracts lower tax as it comes with a lock-in period and the returns come under long-term capital gains.3. Higher Return: ELSS has a high return potential. Try to invest for at least five years to increase your chances of maximum benefits.4. Everyone can Invest: Do you not have enough knowledge about stock markets? Let it not stop you from investing in ELSS because you don’t need it for investing in ELSS.

Tips to Help you Invest in ELSS:Keep these points in mind if you are considering ELSS investment:? Invest early and do it regularly to maximize returns? When choosing a scheme, do not consider its short-term performance.? Do not retrieve funds immediately after the lock-in period if the scheme is performing well.

The risk associated with ELSS is the same as any other equity scheme. The gain from an ELSS depends on the company in which the scheme invests. The price will go down during a bear run, and the same will go up during a bull period.