What Is ELSS And How To Invest In It?
Mini Balakrishnan
ELSS is an equity-linked savings scheme. It is a type of mutual fund investment scheme that offers tax benefits under Section 80C of the Income Tax Act in India. ELSS funds invest primarily in equities, or stocks of companies, and have a lock-in period of three years.
Is investing in ELSS funds risky?
ELSS investments are considered high-risk, high-return investments as they are linked to the stock market and are subject to market fluctuations. However, ELSS funds have the potential to provide higher returns compared to other tax-saving instruments such as PPF (Public Provident Fund), NSC (National Savings Certificate), and FD (Tax-saving Fixed Deposits).
What Are ELSS mutual funds?
ELSS mutual funds are a type of mutual fund investment scheme that invests primarily in the equities or stocks of companies. ELSS funds are designed to offer tax benefits to investors under Section 80C of the Income Tax Act in India. ELSS funds have a lock-in period of three years, which means that investors cannot redeem their investments before the completion of the lock-in period.
ELSS mutual funds are managed by professional fund managers who invest the money collected from investors in a diversified portfolio of stocks from different companies. By investing in a diversified portfolio of stocks, the fund manager aims to reduce the risk of investment and provide higher returns to investors.
How can we invest in ELSS mutual funds?
Investing in ELSS mutual funds can be done through various channels, such as online platforms, mobile applications, and traditional offline methods such as visiting a branch of the fund house or a financial advisor. Before investing in ELSS mutual funds, it is important to carefully consider the investment objectives, risks, and charges associated with the scheme.
What are the main benefits of ELSS mutual funds?
ELSS mutual funds offer several benefits to investors, which include:
- Tax benefits: One of the main benefits of investing in ELSS mutual funds is that they offer tax benefits under Section 80C of the Income Tax Act in India. An investor can make a deduction claim of up to Rs. 1.5 lakh in one financial year by investing in the ELSS mutual funds.
- Higher returns: ELSS mutual funds are primarily equity-oriented, which means they have the potential to provide higher returns compared to other tax-saving instruments such as PPF (Public Provident Fund), NSC (National Savings Certificate), and FD (Tax-saving Fixed Deposits). Over the long term, ELSS mutual funds have the potential to provide higher returns due to the power of compounding.
- Diversification: ELSS mutual funds invest in a diversified portfolio of stocks from different companies. By investing in a diversified portfolio of stocks, the fund manager aims to reduce the risk of investment and provide higher returns to investors.
- Shorter lock-in period: ELSS mutual funds have a lock-in period of three years, which is shorter compared to other tax-saving instruments such as PPF and NSC.
- Liquidity: Though ELSS mutual funds have a lock-in period of three years, they offer liquidity to investors. After the completion of the lock-in period, investors can redeem their investments and receive the money in their bank account within a few days.
Overall, ELSS mutual funds offer a combination of tax benefits, higher returns, diversification, a shorter lock-in period, and liquidity, which makes them an attractive investment option for investors.
