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
The major benefits of ELSS funds:
The following is the major benefits of an ELSS fund:
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.
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.
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.