ELSS fund is typically a diversified mutual fund with major investments in the equities. As it is equity fund, the returns generated through the ELSS are often influenced by the standing of the equity market.

The basic characteristics of ELSS:

The following is the major characteristics of ELSS:

• Tax benefit: In an ELSS scheme, there is no upper limit for making an investment but an investor can avail tax benefit under section 80C of the current Income Tax Act up to the sum of Rs.150000.
• Lock-in period: An ELSS scheme comes with a minimum lock-in period of 3 years that starts from the day of investment. An investor can choose to exit from an ELSS scheme after the completion of the lock-in period.

The major benefits of ELSS funds:

The following is the major benefits of an ELSS fund:

• Tax Savings: As persection 80C of the prevailing Income Tax Act, an investor can enjoy the benefit of tax deduction under ELSS funds. This not only helps them to earn higher returns but at the same time gives them the chance to save money on tax.
• Lowest lock–in period:When compared to the other tax saving investment options, ELSS has the lowest lock-in period. This not only helps the investor generate higher returns but also offers them a chance to exit from the scheme without much ado.
• A lower rate of Tax on Gains: As per the current law, the rate of tax on long-term gains is shorter than short-term gains. Owing to the feature of 3 years lock-in period, the gains derived from an ELSS fund is automatically long-term in nature, which ultimately means a lower rate of tax on gains.
• The power of Compounding: Most of the time the investors are advised to invest in a fund that stretches over a broader time frame. An investment in an ELSS fund demands a disciplined approach towards a long-term investment habit by default, which in turn assists them to derive the benefit of compounding over time.
• Higher Returns: Investments in equity schemes generate higher returns when compared to most other investment schemes. The ELSS funds typically invest in equity schemes which in turn generate a higher rate of returns when compared to the different tax saving investment options.
• Optional redemption: After the completion of the lock-in period, the investor has the liberty to either continue or redeem their investment. If the investor is happy with the flow of returns from their chosen ELSS fund, they may continue with their investment.
• The option of SIP: An ELSS investor may opt for the SIP option of investment. Such an option allows them to invest a fixed sum of money at predefined intervals and also facilitates savings in the long run.

An investor can make a lump-sum Investments in ELSS or opt for a SIP. Each type of investment options has its own pros and cons; to find out more in details, consult our professional fund managers and clarify all your doubts about ELSS funds.