Advantages of ELSS Investments

ELSS (Equity linked Savings scheme) investments is a tax-saving investment option under Section 80C of the Income Tax Act, 1961 that invest a scheme corpus in equity or equity-related instruments. They have the following features:

• 80% of the total corpus (minimum requirement) is invested in equity and equity-related instruments

• The fund invests in equity in a diversified manner across different sectors.

• There is a lock-in period of three years with no maximum tenure of investment.

• Income is taxed as LTCG under the prevalent tax rules due to 3 years lock in period

 ELSS investments are handled by professional fund managers and are available with almost all the mutual fund houses in India.

ELSS funds are tax saving schemes as the ELSS investment limit in term of tax benefit stands at Rs 1.5 lakhs a year i.e. a tax exemption up to Rs. 150,000 from one’s taxable income under Section 80 C of the Income Tax Act.  You can however exceed the ELSS investment limit and there is no cap on the investible amount.

An investor can decide on an ELSS investment plan keeping these factors in mind.

Given that ELSS funds are predominantly invested in the equity instruments, has potential to provide long term risk adjusted returns. An ELSS investment plan is good option for an individual who is willing to invest for a medium to long duration.

ELSS investment option can be in the form of:

• SIP: You invest a certain amount at regular intervals on a weekly, monthly, quarterly or bi-annual basis. For a first time investor, SIPs are a great method of capital protection.
• Lump sum investment: These are best suited for self-employed individuals, as well as investors who do not have a consistent source of income.

SIPs have a 3-year lock-in period that matures in stages, but lump sum investments are unlocked at once after 3 years.

With the help of an ELSS calculator an investor can calculate the returns from a potential ELSS investment option i.e. SIP or Lump sum investment. By using the ELSS calculator, one can align one’s ELSS investment and requirements together and decide the best ELSS investment option.

ELSS investments is one of the best way for new investors to enter the stock market. The lock-in period of three years in these schemes will prepare investors to weather the volatility that may come with investing in stock markets.

However, investing in ELSS investment means that one must have a long term investment plan.

Investing in the equity market through ELSS investments has potential to generate long term risk adjusted returns. That is why invest in equity mutual funds such as ELSS can be linked to the long-term financial goals such as retirement, buying a house, etc.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.