Equity Linked Savings Scheme (ELSS) is a type of mutual fund in India that is designed to help investors save on their taxes while also providing them with an opportunity to invest in the equity markets. These funds are considered to be tax-saving investments under Section 80C of the Income Tax Act and are eligible for tax deductions. Let’s get a deeper understanding of this tax-saving mutual fund.
What is an ELSS Fund?
An ELSS fund is an equity-oriented mutual fund that invests primarily in equities and has a lock-in period of three years. This means that once an investor invests in an ELSS fund, they cannot withdraw their money for a period of three years. This lock-in period makes ELSS funds eligible for tax deductions under Section 80C of the Income Tax Act.
How do ELSS Funds work?
ELSS funds work like any other equity-oriented mutual fund. First, the fund manager invests the money collected from investors into a diversified portfolio of equities. The fund’s performance is then linked to the performance of the equities in its portfolio.
The key difference between ELSS and other equity-oriented mutual funds is the lock-in period. This lock-in period is in place to ensure that investors cannot withdraw their money prematurely and that investors are committed to the long-term investment horizon of these funds.
Investment Risk and Returns
ELSS funds have a higher risk profile than other tax-saving investments like Public Provident Fund (PPF) or National Savings Certificate (NSC) as they primarily invest in equities. However, they also have the potential for higher returns. The returns generated by ELSS funds are linked to the performance of the equities in its portfolio.
The returns generated by ELSS funds are generally higher than those generated by fixed deposits or other fixed-income investments. However, investors should be aware that the returns generated by ELSS funds are also linked to the performance of the equity markets, which can be volatile.
Investors should also consider their risk appetite before investing in ELSS funds. Those who are comfortable with taking on a higher level of risk may find ELSS funds to be a suitable investment option, while those who are risk-averse may prefer to invest in fixed-income investments like Public Provident Fund (PPF) or National Savings Certificate (NSC).
Tax Benefits of ELSS Funds
Not only do ELSS funds provide an opportunity for investment in the equity markets, but they also offer tax benefits to investors. As per the Indian Income Tax Act, an individual can claim a tax exemption of up to Rs 1.5 Lakhs from their taxable income by investing in these mutual funds under Section 80C. This makes ELSS funds a great option for those looking to save on taxes while also investing in the equity markets.
Equity Linked Savings Scheme (ELSS) is a type of mutual fund in India that helps investors to save on their taxes while also providing them with an opportunity to invest in the equity markets.