What is an ELSS?
Equity Linked Savings Scheme (ELSS), is a type of equity diversified mutual fund which invests most of your money in stocks. ELSS gives good returns over the long term coupled with tax benefits.
ELSS is a very famous investment because it is the only mutual fund which enjoys Section 80C benefit. This investment qualifies for a tax deduction up to Rs 1.5 Lakhs a year. ELSS enjoys the shortest lock-in of just 3 years, among all tax saving investments under Section 80C.
Who should invest in ELSS?
ELSS is very good for people who have just started their career and have a long time to meet financial goals like buying a house, purchasing an apartment and education and marriage expenses for kids.
ELSS invests most of the money in equity and is not suitable for people, who don't have the ability to take risk. If you are risk-averse, stay away from ELSS.
Many new investors are afraid to invest in ELSS, because most of the money is invested in stocks. You can overcome the fear of ELSS, by staying invested for long periods. Many ELSS Schemes have rewarded investors who have chosen to stay invested for long periods of time.
Who should invest in ELSS?
If you have already invested in equity mutual funds, do consider investing in ELSS. ELSS has a compulsory lock-in of 3 years, which helps you get used to volatility in the stock market. This makes ELSS an ideal investment and a great first investment in equity. Once you get used to investing in ELSS, you can easily invest in other equity mutual funds.
What returns can you expect from ELSS?
ELSS invests most of your money in stocks and investors expect massive returns. It is important to be realistic with this investment. You get superior returns on staying invested for long periods, but do not expect the same performance every year.
Have a realistic expectation of 10-12% tax free returns from ELSS over long periods.