ELSS or Equity Linked Saving Scheme is currently being considered as the best tax-saving mutual funds scheme. But before investing in any tax-saving investment scheme, every investor needs to know about the scheme in detail i.e. Features, Benefits & Shortcomings. Therefore, if you are planning on investing in ELSS, you need to have in-depth knowledge about it. In this scheme, the funds are made available by asset management companies and the management of these funds is overseen by highly experienced financial experts.
ELSS is also known as tax-saving investment scheme as you can save a great amount of income tax by investing in it. As per the section 80-C of the Income Tax Act, an investor can invest 1.5 Lac per year in ELSS and not pay tax on it. This means that the invested amount up to 1.5 Lac per year is exempted from the total taxable income of the investor.
ELSS doesn’t only offer tax-saving benefits to the investors but also is a great investment to get higher returns in the long-term.
Two Main ELSS Options
According to an investor’s convenience, ELSS investments can be done using any of the two available options.
- Growth Option – In the Growth Option, the investor gets a lump-sum return amount at the end of the 3 years lock-in period. The investors have the option to re-invest the earned dividend at the end of the lock-in period.
- Dividend Option – In the Dividend Option, the investor gets a regular dividend every month rather than waiting for 3 years lock-in period completion. The dividend received in this option is tax-free.
Important Features Of ELSS
Here are all the important details that you need to know about ELSS before investing in it.
- ELSS is a dual benefit investment scheme as it helps in saving taxes while offering good returns on investment.
- The minimum investment in this scheme is 500 rupees a month and there is no maximum investment limit. However, the maximum non-taxable investment per annum is limited to 1.5 Lac only.
- It is considered to be one of the best tax saver mutual fund investments as the returns are higher as compared to other tax-saving investment schemes. Moreover, the lock-in period is lesser than all other schemes i.e. 3 years.
- You can easily re-invest in ELSS after the 3 year lock-in period as there are no limitations on that.
- Immense knowledge, experience, and research are required to invest in these funds, which is why it is advisable to hire a financial expert for you. This will help in reducing the risks of loss greatly.
Although, ELSS is a great option to invest in mutual funds, yet the risk involved in this investment scheme is higher than FD, PPF & NPS. The reason behind this is the volatility of the equity market. Thus, hiring a financial market expert to make the ELSS investments for you is probably the most appropriate option for you.