SAVE TAX + BUILD WEALTH = ELSS

What is An ELSS?

ELSS or Equity-Linked Savings Scheme is a closed ended investment scheme offered in India with a minimum lock-in period of 3 years. These investments are in fact, one of the best available options in hand for the ones seeking tax redemption. These schemes come with dual benefits of generally fetching higher returns while also being partially taxable. They occur under Section 80C of the Income Tax Act 1961, which means that the investors investing in these type of schemes can claim a deduction of upto INR 1,50,000 in their respective gross total income in a financial year. Furthermore, investing in these schemes can be customized in terms of payment methods, i.e. the investors can choose to pay the investment money either through SIPs (Systematic Investment Plans) or as a lump sum depending upon their convenience.

What Are The Benefits Of ELSS?

Lock In Period:

The lock in period of an ELSS is a minimum of 3 years which is comparatively lesser than the counterparts such as PPFs (Public Provident Funds), NSCs (National Savings Certificates) or bank fixed deposits. However, considering the fact that good mutual fund portfolios are constructed for investments over longer terms, they usually do not have a minimum lock in period unlike the ELSS. This is one of the major reasons why these investment schemes fetch higher than usual mutual funds.

Tax Exemption:

These schemes occur under Section 80C of the Income Tax Act 1961 giving the benefits of tax exemption of upto INR 1,50,000 in a financial year for an investor.

Time frame Variation Options:

These schemes come with a minimum lock in period of 3 years. However, post 3 years, the investors are the given a choice whether to redeem or continue to grow their respective investments with the schemes.

Opportunity to Invest in Equity:

ELSS also permits the investors to enjoy the benefits of equity mutual fund schemes to ride the growth cycle of stocks in their respective ELSS portfolios. Investment in savings spares only 8% of returns, however, at times, investing in equity funds (especially during favorable situations in the stock market) may prove to be a lot more beneficial.

Let’s take an example of what happens to the tax on one’s gross total income with and without investing in one of these schemes:-

S. No.	Options	Interest	Lock-in Period	Guaranteed Returns	Risk Profile
1	ELSS	12-15%	3 Years	No	Equity-related risk
2	PPF	8.10%	15 Years	Yes	Risk-free
3	NPS	8-10%	Till retirement	No	Equity-related
4	NSC	8.10%	5 Years	Yes	Risk-free
5	FD	7-9%	5 Years	Yes	Risk-free
6	ULIP	8-10%	5 Years	No	Equity-related risk
7	Sukanya Samriddhi	8.60%	21 Years	Yes	Risk-free
8	SCSS	8.60%	5 Years	Yes	Risk-free