What does ELSS mean?

An Equity Linked Saving Scheme (ELSS) is a mutual fund that invests a large majority of its corpus in equities and similar financial securities. Equity-linked service plans are the only mutual fund plans that qualify for tax deductions under Section 80C of the Income Tax Act. Investors enjoy tax exemption under these schemes at the time of investment. Hence, these are also known as tax savings funds.

How do ELSS funds work?

An ELSS fund is an organization that invests in ELSS. It invests the majority of its principal amount in equity-related instruments such as stocks. The rest of the corpus that is not invested in equities is invested in other fixed income or money market securities. The returns that investors enjoy are due to capital appreciation.

Simply put, if the market value of the stocks the fund has invested in increases, investors enjoy positive returns. Alternatively, if the value of assets falls, investors suffer a loss.

ELSS funds invest in a variety of securities from various industries and in companies of different market capitalizations.

READ MORE: ₹500. This means that one can start investing in an ELSS fund with as little as ₹500. Lump sum vs SIP: One can invest in an ELSS in a lump sum or regular installments via a SIP. When investing by installments, each installment will mature after 3 years from the date it is made. This implies that the last installment will be blocked for 3 years from its investment date, which would be different from the expiry of the first installment (first in, first out policy). Taxation: ELSS is best known for its tax benefits. Invested in ELSS up to ₹1.5 lakh is tax exempt and does not have to be added to his taxable income. In addition, the investment returns at the end of the investment period taxed the provision for long-term capital gain (LTCG), i.e. the returns up to ₹1 lakh are tax exempt and the amount exceeding this limit is taxed at 10%. ELSS offers many benefits and has the tax exemption feature attached. If you decide to invest in an ELSS, it is essential to research and educate yourself on the risks associated with each scheme. As there is no upper limit to the duration of the investment, you can also choose to continue investing in a program if it is profitable for you.”>How to invest in an ELSS?

Characteristics of the ELSS

Equity investment: At least 80% of an ELSS fund’s corpus is invested in equities and equity-oriented securities.

Lock-up period: These plans have a minimum lock-up period of three years, after which investors can choose to reinvest or exit the plan by selling securities. The three-year lock-up period is one of the lowest lock-up periods compared to traditional investments.

Low capital requirement: The minimum investment threshold is fair ₹500. This means that one can start investing in an ELSS fund with as little as ₹500.

Lump sum vs SIP: One can invest in an ELSS in a lump sum or in regular installments via a SIP. When investing by installments, each installment will mature after 3 years from the date it is made. This implies that the last installment will be blocked for 3 years from its investment date, which would be different from the expiry of the first installment (first in, first out policy).

Taxation: ELSS is best known for its tax benefits. Invested in ELSS up to ₹1.5 lakh is tax exempt and does not have to be added to his taxable income. In addition, the investment returns at the end of the investment period taxed the provision for long-term capital gain (LTCG), i.e. the returns up to ₹1 lakh are tax exempt and the amount exceeding this limit is taxed at 10%.

ELSS offers many benefits and has the tax exemption feature attached. If you decide to invest in an ELSS, it is essential to research and educate yourself on the risks associated with each scheme. Since there is no upper limit on the investment term, you can also choose to continue investing in a program if it is profitable for you.

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