An Overview of Equity Linked Savings Scheme

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Equity Linked Savings Scheme

Equity linked savings scheme is popularly known as ELSS and come with lock-in period of three years. It is a type of equity mutual fund where at least 80% of its total assets are invested in equity and equity-related instruments. ELSS qualifies for tax exemption under Section 80C of Income Tax Act which allows maximum tax exemption of Rs. 150000.

Benefits of ELSS

Tax Benefits
The most useful benefit of investing in ELSS is availing tax benefits of up to Rs. 150000. Investors get exemption under Section 80C.

Reinvestment
You can reinvest capital in ELSS on completion of three-year maturity period to avail additional tax benefits. The returns generated from investment in ELSS are partially taxable and the long-term capital gains of up to Rs. 1lakh are exempt from tax.

Equity Linked Savings Scheme


Less Lock-in Period
As compared to tax saver fixed deposits or Public Provident Fund or National Savings Certificate, ELSS comes with lesser lock-in period.
Tax-Saving Investment
Lock-in Period
ELSS
3 years
Fixed Deposit
5  years
National Savings Certificate
5 years
Public Provident Fund
15 years

Flexibility
Investment in ELSS is a flexible option. You can choose to invest via SIP or make lump sum investment as per your convenience. A SIP allows you to invest a fixed sum regularly in mutual funds of your choice. SIP avoids the stress of paying in bulk and you can easily invest small amount every month.

Conclusion
ELSS forms an important part of your overall financial plan. They are a good way to meet your long-term financial goals. At the same time, they carry high risk factor as well. When you don’t have the risk appetite, do not invest in them. They can be volatile in the short run. Though they come with lock-in period of only three years but they offer superior returns over a long period. One should not invest solely in ELSS.

Have you invested in ELSS? What has been your experience in investing such schemes? Share your views with us in the comments.

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