Important features of Equity Savings Scheme

by Vikas Malhotra Consultant, writer While there are various mutual funds which are meant for wealth creation and investment purposes, ELSS or Equity Linked Savings Schemes are designed for saving taxes. Under Section 80C of the Income Tax Act, you have the provision to deduct the tax that you need to pay by investing in certain Equity Linked Savings Schemes. Since it is an equity diversified fund, the investors get the advantage of capital appreciation as well as tax benefits. Read on to know more about ELSS:

The important features of ELSS

1. An ELSS is an equity mutual fund which is highly diversified in nature. The majority of the investor’s money is further put into equities to get the best possible returns. Due to it being an equity fund, the returns one gets from these funds is a reflection of the performance of the equity markets.  

2. While mutual funds come with a lock in period of as little as 1 year in today’s date, ELSS comes with a minimum lock in period of 3 years; which gives the fund manager a chance to strategise and ensure maximum returns on the investments that one has made. By lock in period, you are bound to keep the mutual fund for 3 years since the beginning of the investment date. You can, however, exit this particular scheme after selling your units post the 3 year period.

3. ELSS funds come in two categories- growth and dividend. Just like the other equity mutual funds, the ELSS funds come with both dividend as well as growth options. As an investor of the growth scheme, you can enjoy maximised returns after 3 years of investment. When it comes to a dividend scheme, an investor is entitled to a regular income derived from the dividend. Once declared by the fund, the investors will get a certain amount under the dividend scheme during the lock in period.

4. Since they come under Section 80C of the Income tax act, the returns derived from the investments in these funds are exempted from tax fee.  You can invest up to 1.5 lakh INR and claim it as a deduction from your taxable income by investing it in an ELSS.

5. However, with a plethora of benefits; you still need to do enough research before putting in your money. You should take into consideration the long term performance of the particular ELSS in which you plan to invest. It is also a healthy practice to understand the background of the fund manager, the kind of portfolio of the fund and the volatility that it shows in the market.

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Created on Nov 14th 2017 03:11. Viewed 440 times.

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