ELSS stands for Equity Linked Savings Scheme. It is equity-based tax savings mutual funds that qualify for income tax deductions u/s 80C. Investments made up to INR 1.5 lacs under ELSS qualify for tax benefits. It has a lock-in period of 3 years. Any individual who is KYC verified can invest in ELSS. In the case of minors, the guardian has to be KYC verified while investing in the name of the minor. The minor, upon attaining majority should immediately complete the KYC verification process.
- What are the Features of ELSS?
- What are the Advantages of Investing in ELSS?
- What are the Documents Required to Invest in ELSS Funds?
- What are the ways to invest in ELSS?
What are the Features of ELSS?
- ELSS funds have the shortest lock-in period of 3 years compared to different tax saving instruments such as NSC which has a lock-in period of 5 years and PPF which has a lock-in period of 15 years.
- You can start investing with a low starting amount of just INR 500.
- The returns earned on ELSS funds are also tax-free.
- You have different plans and AMCs to choose from. For example, you can opt for a systematic investment plan or a one time option as per your convenience.
- It gives you the benefit of Tax saving as well as Capital Appreciation. With the power of compounding, you can build your wealth.
- ELSS funds are essentially Equity-based mutual funds. Hence it offers attractive returns compared to other tax saving options available.
What are the Advantages of Investing in ELSS?
An individual investing in ELSS can have many benefits, some of the major advantages are as follows:
Income Tax Benefits
The amount invested in ELSS, up to INR 1,50,000 can be claimed as a deduction under section 80C. Apart from getting a tax benefit on the sum that is invested, deductions are also available on the capital gains. It is important to note that ELSS comes with a lock-in period of 3 years hence the long capital gains if less than INR 1,00,000 is exempt from tax. If LTCG is more than INR 1,00,000 then excess gains are taxed at 10%
Short Lock in Period
In comparison with other tax saving schemes, the lock-in period in ELSS is the shortest i.e. of 3 years. On the contrary, the lock-in period in PPF is 15 years and 5 years in FD. ELSS’s main advantage is that it is a scheme that offers high return within a shorter lock-in period.
Compounding Benefit and Higher Return
If investing in equity oriented funds it is always advisable to invest for a longer period of time so that one can benefit from compounding effect. The 3 year lock in period in ELSS comes as an added benefit as it allows the individual to reap the benefit of compounding. Investemnets made in ELSS is majorly in equity oriented funds and hence the returns are higher when compared to other saving schemes.
What are the Documents Required to Invest in ELSS Funds?
The investor needs to be KYC verified to start investing in funds. If you are KYC verified, you can start investing right away. If you are not KYC verified, you will have to complete the verification process before you can start investing. The documents required for KYC verification are:
- Copy of Address Proof
- Copy of PAN card
What are the ways to invest in ELSS?
There are mainly 3 ways in which you can invest in ELSS:
Under this option the investor will be able to gain the benefit only at the time of redemption. There is no dividend availabe under growth option. However, redeming total gains at the same time helps to appreciate the total NAV and as a result, multiplies the profit.
Dividend option as the name suggets offers the investors the advantage of recieving dividends at a regualr itervals provided that dividend is declared. Additionaly, the dividend is completely tax free in the hands on the investor.
Dividend Reinvestment Option
Under this option, the dividend amount is invested back to the NAV. Investors choose this option when when the market is observing an upswing and is likely to continue the same way.
There is no upper limit for investment into Equity Linked Savings Scheme. However, only Rs. 1,50,000 will be qualified as a deduction under section 80C. The minimum amount you can invest in ELSS is Rs. 500.
No. Both principal amount of investment and return on maturity are exempt from tax.
The Long-Term Capital Gains on ELSS are tax-exempt up to Rs 1 lakh, and dividend received is tax-free in the hands of investors.
No, there is no maximum investment duration, if an investor is satisfied with the returns he/she can continue with the scheme.
Yes, while investing one can