Table of Contents
- Blog Introduction
- What Is ELSS?
- How Does Equity Linked Savings Scheme Work?
- Investment Limits in Equity Linked Savings Scheme
- Disadvantages Of Equity Linked Savings Scheme
- Maturity Period of Equity Linked Savings Scheme
- Systematic Investment Plan (SIP) In Equity Linked Savings Scheme
- Income Tax Benefits of Equity Linked Savings Scheme
- Investment Options In Equity Linked Savings Scheme
- FAQ About ELSS
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Generally when we want to invest money on any investment scheme , we always asks our friends and relatives that where we can invest ? and they suggests the investment schemes which they like most. Then we invest as per their suggestions, that is good as we consider them as our well wisher , But here I want to mention one thing, if we know end to end information of each investment schemes at least it will help us to understand if that investment scheme is good for us or not.
Hence it is better to have a complete idea about each investment scheme where we invest. Therefor this blog will help you to know end to end information of many Indian investment schemes available right Infront of you.
In this blog post I will be explaining my analysis on Equity Linked Savings Scheme (ELSS). This will be a complete guide on Equity Linked Savings Scheme (ELSS). Please read till end of the blog post to know the complete information about this Equity Linked Savings Scheme (ELSS). Lets get started.
What Is ELSS?
ELSS stands for Equity Linked Savings Scheme. ELSS is an open-ended equity mutual fund with income tax benefits under Section 80C of the Income Tax Act. ELSS invests majority of investments into equity and equity related assets and hence it is classified as “Equity” mutual fund. ELSS is considered under “high risk, high returns” category of investments.
How Does Equity Linked Savings Scheme Work?
- Choose an ELSS fund from one of the Mutual Fund companies.
- Invest the lump sum amount.
- Your amount will be locked for 3 years.
- After 3 years, you can withdraw the entire accumulated amount. Or, you can leave the amount and let it grow for as long as you wish.
Investment Limits in Equity Linked Savings Scheme
Minimum investment amount is Rs. 500. There is no limit on maximum investment amount. You can invest as much as you can. But the tax deduction is available up to Rs. 1.5 Lakhs in a financial year. Anything invested more than this will not get any tax deduction benefits. However, the amount will be invested and you can gain returns.
Disadvantages Of Equity Linked Savings Scheme
- High risk investment.
- ELSS returns is not guaranteed and it may vary based on Market conditions.
- Investment is locked for 3 years. You can’t withdraw before 3 years. No partial withdrawal or pre-mature withdrawal options.
- Once invested, you can’t switch to another fund during the lock-in period of 3 years.
Maturity Period of Equity Linked Savings Scheme
- Maturity period is 3 years.
- After 3 years, You can do one of the following.
- withdraw the entire accumulated amount and close the account.
- leave the amount invested and let it grow further for as long as you want. You can withdraw whenever you need either in full or in parts.
Systematic Investment Plan (SIP) In Equity Linked Savings Scheme
- Like other mutual funds, ELSS scheme also offers SIP option.
- You can opt for SIP route to invest in ELSS and you will get all the advantages of SIP method.
- But, note that every instalment of SIP will get locked for 3 years.
- For example, amount invested in Apr-2016 will be matured in Apr-2019. Amount invested in May-2016 will be matured in May-2019. Amount invested in Jun-2016 will be matured in Jun-2019 and so on.
Income Tax Benefits of Equity Linked Savings Scheme
ELSS mutual funds are the only class of mutual funds that are covered under Section 80C of the Income Tax Act, 1961. By investing in an ELSS, you are entitled to claim a tax rebate of up to Rs 1,50,000 a year. This helps you save up to Rs 46,800 a year in taxes.
Investment Options In Equity Linked Savings Scheme
When you choose a ELSS fund, you can opt for one of the following options.
- Growth : As the name implies, growth option aims for capital appreciation over long term. The number of units that you bought will remain the same till you sell them. NAV of the scheme will increase or decrease depending upon the performance of the scheme. In these schemes, you will get money only when you sell the units. This is suitable for those who expects growth over long term and not in need of money during short term.
- Dividend Payout : Dividends are nothing but the profits made by the Mutual Fund scheme. This option pays out dividends to investors from time to time. But, the dividend amount and the frequency of dividends are not guaranteed. The number of units will remain the same but the NAV of the scheme comes down after the dividends are declared. This is suitable for those who expect to receive income flow on a regular basis.
FAQ About ELSS
Is ELSS Returns Guaranteed?
No. ELSS returns is not guaranteed and it may vary based on Market conditions.
How many ELSS funds should I invest in?
It depends on the market knowledge you have. There is no ideal number, but it is advisable to keep it under 3 as it may turn out to be quite a task to track and manage your investments in multiple funds.
How to redeem ELSS after 3 years?
You have two ways of redeeming your investments made in mutual funds.
1. opting for a one-time lump sum withdrawal.
2. Initiate a systematic withdrawal plan or SWP. It is a process of withdrawing a fixed sum at regular intervals.
Can I withdraw ELSS after three years?
Yes, you can withdraw ELSS after the mandatory lock-in period of three years
Is ELSS better than PPF?
ELSS is a suitable tax-saving investment for investors with higher risk tolerance. It is one of the few tax-saving investments under Section 80C that invests predominantly in equities. However, PPF is a suitable investment for conservative investors and has the potential to offer inflation-beating returns over time. You can choose between ELSS and PPF based on your risk tolerance.
Do I get full money when I redeem ELSS?
You have the option of either redeeming your ELSS investment fully or partially, depending on your requirements. However, you cannot redeem those units that have not completed the mandatory lock-in period of three years.
Equity Linked Savings Scheme comes under which Section of 80C?
ELSS mutual funds provide tax deductions under Section 80C of the Income Tax Act, 1961. If you are a salaried individual, then you have to provide your proof of investment to your HR to avoid higher TDS deductions.
What is the risk in Equity Linked Savings Scheme?
Since ELSS is an equity-oriented mutual fund, it essentially carries all the risks that any other equity fund plan. All ELSS mutual funds are affected by the market risk, volatility risk and concentration risk. If you are a risk-averse investor, then you may consider investing in other Section 80C investments.
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