Equity Linked Saving Scheme (ELSS) Mutual Fund are a product designed for helping an investor achieve the twin goals of tax saving and wealth building. They are easy to understand and easy to invest.
What are Equity Linked Saving Scheme (ELSS) Mutual Fund
Equity Linked Saving Scheme (ELSS) Mutual Fund are one of the many means available for the purpose of tax saving. They Re more adept at creating wealth building if used properly for a longer duration of time. There is a lock-in period of three years for the product.The tax treatment of the ELSS falls in the income tax section 80-c where an investor can invest 1.5 lakhs to save tax.If we compare it to some of the other tax saving instruments like ULIPs endowment policies or NPS, the lock-in period is the least and the charges are very competitive.
Features of Equity Linked Saving Scheme (ELSS) Mutual Fund
Following are the salient features of the Equity Linked Saving Scheme (ELSS) Mutual Fund-
- It is a Mutual Fund product.
- The lock-in period is 3 years.
- An amount of 1.5 is available for saving tax.
- Falls under 80 c of income tax.
- Helps in tax saving as well as wealth building.
A common doubt is can SIP be done in ELSS? The answer is a big yes. It should be kept in mind though, that at the end of three years, only partial portion of the SIP will be out of lock-in period.Each portion of SIP follows the principle of First-in First-out.The infographic helps to understand it better.
Points to keep in mind while investing in Equity Linked Saving Scheme (ELSS) Mutual Fund
It is a very simple and tax-efficient product which every investor must make use of. Following points should be kept in mind before investing though-
- Use SIP. Instead of rushing at the end of the financial year and investing in the ELSS in a lump sum, please start a SIP right from beginning to avail the benefits in a true way.
- More than one ELSS can be used for investment, but the total amount of tax rebate will remain 1.5 Lakhs.
- Use your investment profile to select the ELSS. If you want security more than growth than go for Large-cap ELSS. For growth and as per your investment profile and risk taking capability, you may go for mid-cap ELSS.
- After the end of the lock-in period, don’t withdraw or redeem the units, if not required. Let them grow and be part of your overall portfolio.
- Use ELSS not in isolation but as part of your overall portfolio building.