Beginners Guide to Investing in ELSS Funds

Looking for an investment avenue that offers the dual benefit of tax rebate along with phenomenal returns? Consider dabbling in Equity Linked Savings Schemes (ELSS)! The diversified equity fund fits the bill perfectly. Boasting the shortest lock-in period, ELSS is inarguably one of the best investment options for tax exemption and wealth creation. However, there are certain things that a new investor must know about the financial instrument before taking the plunge.

1. The potential for Superior Returns: Want to invest in equities but a tad sceptical about the outcome? Try your hand at ELSS! This category of mutual funds invests a significant portion of the fund corpus in the equity market. Further, ELSS focuses on companies with the potential of robust growth. In short, ELSS is not just idyllic for exposure to equity stocks but promises superior returns compared to other asset classes. 
2. Tax Benefits of ELSS: The ELSS schemes are designed to bestow tax benefits. You can avail tax exemption to the tune of Rs.1.5 lakh under section 80C of the Income Tax Act, 1961. What’s more, no tax is imposed on earning via dividend or capital gains up to Rs.one lakh annually.  It must, however, be noted that gains above the set limit will be taxed at 10%.
3. Lower Lock-in Period of Investment: Unlike other tax saving options under 80C like Public Provident Fund (PPF) and National Savings Certificate (NSC) that come with a lock-in period of 15 and 5 years respectively, ELSS has the shortest lock-in (3 years) tenure. Since you have the option to withdraw after 3 years from the investment date, ELSS offers better liquidity. Despite this advantage, experts advise investors to choose a long-term investment (7 to 10 years) horizon.
4. Low Investment Threshold: You can start your ELSS investment journey with a paltry sum of Rs.500. What’s more, there is no maximum limit. You can invest in multiples of Rs.500 anytime depending upon your risk profile. Moreover, ELSS is managed by professionals and enables the investors to remain stress-free about things like market timing and volatility.
5. Modes of ELSS Investment: ELSS is of two types.  These include the dividend and growth option. The former offers tax-free dividend which can be reinvested to procure more units. The latter is cumulative in nature and perfect financial tool for wealth creation. And yes, ELSS offers flexibility. You have the liberty to invest a lump sum (one-time) or opt for the Systematic Investment Plan (SIP), a process that involves dispensing a fixed amount each month on a specific date.

Now that you are armed with the basic knowledge of investing in ELSS funds, what’s stopping you? Get ready to save tax and net profit from the Indian equity market!

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Created on Oct 26th 2018 01:27. Viewed 645 times.

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