ELSS funds: everything you want to know!

Posted by swarali chavan on April 21st, 2019

When people look to invest in any instrument, the result expected is high returns and maximum benefits. While most of the mutual funds do offer quick returns and some tax benefits, very few schemes offer the best of both worlds. Equity Linked Savings Scheme (ELSS) not only provide tax efficiency but also impressive returns, which is why they make it to every tax payer’s plan.

What is ELSS funds? They are a type of open-ended equity mutual funds that offer tax exemptions under section 80C of Income Tax Act, 1961. A significant chunk of capital goes towards equity funds here. ELSS funds come with a lock-in period of 3 years. After the lock-in period, the investors can exit the scheme by selling it.

How to invest in ELSS funds?

The minimum investment required for ELSS funds is INR 500. Investors can also invest lump sum amount in one go. Else, investors can opt for Systematic Investment Plan (SIP) method.

Who can invest in ELSS schemes?

ELSS are ideal for investors who are young and do not earn glamorous salaries. Investors who carry low-risk appetite can also go for such schemes. Those who earn substantially through high-risk investment and are hunting for means to save their taxes, can opt for ELSS funds.

The other set of investors who can go for ELSS funds are those who are looking for a diverse portfolio, to accrue high returns over time.

What are the benefits of ELSS funds?

• The lock-in period is 3 years, which is lower than mutual funds
• The returns are considerably higher here
• The earnings from ELSS funds post-lock-in period are exempted from tax
• There are no limitations on how much one can invest in ELSS funds
• Investors have the option to earn regular income during the lock-in period by choosing the dividend option under ELSS

What are the options available in ELSS investment?

ELSS funds meaning goes beyond returns and growth options, thanks to the numerous tax benefits it offers. ELSS investments help in the following manner:

• Growth: Under this option, the holders do not receive the profits through dividends. They gain advantage once the tenure completes. This, in turn, increases the Net Asset Value (NAV), thereby boosting the returns. The profits, however, are dependent on the market conditions.
• Dividend: Under the dividend option, the investor receives benefits via dividends on a timely basis, unlike a large sum of an amount at the end of the ELSS tenure. The dividend amount is exempt from tax, and the investor gets the entire amount.
• Dividend Reinvestment: Here the holder has the choice to return the dividends earned. By doing so, the value gets added to the NAV. Plenty of investors opt for this investment, especially when the market is performing well during the ELSS lock-in period.

Now, that you have understood what is ELSS funds, note that individuals can invest in these schemes as soon as they start earning. In fact, taxpayers consider ELSS as a financial haven.