The equity-linked saving scheme (ELSS) is a type of mutual fund, that encourages long-term investments in equity. ELSS gives good returns over long periods of time. Many ELSS schemes have outperformed the stock market over the past 5 years. These funds are tax saving in nature and offer several benefits to investors.
The equity element in ELSS gives you the ability to build wealth. ELSS comes with twin benefits:
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Some important things you must know before investing in ELSS.
Equity Linked Savings Scheme (ELSS) is a type of equity diversified mutual fund, that invests most of your money in equities. Under ELSS, most of the fund corpus is invested in equities or equity-related products. Some funds also invest a small corpus in debt securities. The main purpose of these funds is to grow your money over the long term. ELSS also come with tax benefits.
SEE ALSO: ELSS Or Equity Diversified Mutual Funds
You can invest in ELSS either through lump sum (a single large investment) or systematic investment plans (SIPs). SIP is better as it allows you to invest in a disciplined manner. Investing through SIP gives the benefit of rupee-cost averaging.
You can invest a small amount of Rs 500 a month via SIPs, in an ELSS.
You can start investing in ELSS with a minimum amount of Rs 500. There is no upper limit on how much you can invest in ELSS funds.
Your investment in ELSS will be locked for a time period of 3 years. You won't be able to redeem this investment during this period. However, you will be entitled for dividend payments if you choose the Dividend Option.
Choosing the Dividend Option is not a good idea, as you lose some of the benefits of investing in ELSS. The money you receive as dividends would be spent, denying you the opportunity of staying invested and getting higher returns.
ELSS has the shortest lock-in period when compared to other tax-saving instruments like Public Provident Fund, Fixed Deposit and Kisan Vikas Patra.
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ELSS helps you save taxes. ELSS enjoys the Exempt, Exempt, Exempt (EEE) benefit. The investments you make are tax-free up to Rs 1.5 Lakhs a year under section 80C. The returns and the money you get at withdrawal are tax-free.
ELSS does not offer guaranteed returns, as returns you get are market-linked. Since your investment will be locked in ELSS for 3 years, you benefit by staying invested for long periods of time. Lock-in period in ELSS helps you grow your money by staying invested in the market and not selling, during sudden falls in the stock market. Be Wise, Get Rich.
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