EVERYTHING YOU NEED TO KNOW ABOUT ELSS
What is Equity Linked Savings Scheme (ELSS)?
An Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund that helps you to save tax. Apart from this, it also helps you to grow your money.
ELSS helps you to gain tax benefits. It also qualifies for tax exemptions under the 80C of the Indian Income Tax Act. ELSS is a tax saving mutual fund that helps you to save income tax of up to 1.5 lakhs.
An ELSS fund has two options. They are growth and dividend plan options. The growth plan is recommended for a long-term wealth creation.
In the Dividend option, the investor can choose between dividend reinvestment and dividend payout. The dividend won’t be taxable. In dividend reinvestment, the dividend will be treated as a new and fresh investment. You can claim tax benefit on that as well.
Features of ELSS:
1. Tenure: ELSS has a lock-in period of 3 years.
2. Returns: Returns are not assured and do not have a fixed rate of interest. It is based on the market growth and performance.
3. Minimum Investment: The minimum investment in ELSS is Rs. 500.
4. Maximum Investment: There is no limit for the maximum investment.
5. Amount Eligible for deduction: You can get a tax deduction of Rs. 1.5 lakhs.
6. Taxation for interest: The dividends and the gain are tax-free. It is useful for planning your tax.
You must do a proper research before investing in an ELSS fund. Study the performance of the ELSS fund and analyze the future returns and gains since the performance is based on the market growth. It involves risk and you need to analyze the risk.
Benefits of ELSS:
1. It helps you to grow your money if you invest in the equity market.
2. The gains from these funds for the long term are tax-free.
3. You can anytime opt for dividend payout option if you realize about some potential gains during the lock-in period. These dividends are tax-free.
4. The lock-in period is very less which is an advantage. It is 3 years where you do not have to invest for a longer period.
5. This will help you to get into proper tax planning.
It is suitable for all types of investors. Especially investors who are not risk averse and wants to invest in tax planning instruments. Anyone can get into ELSS fund. It is advisable for people to invest regularly since the returns, in the long run, will be huge. NRI’s except NRI’s living in Canada and the USA can invest in ELSS fund.
How can you invest in ELSS?
You can invest in ELSS through the online website of the fund company. It can be made in a lump sum but the recommended option is to go through the Systematic Investment Plan (SIP). Systematic Investment Plan allows you to average your investment and will save you from catching a market peak.