As a responsible citizen of India, one who is able and pays personal taxes, imagine a scenario where you get reasonable returns on your investments and reduce your tax outgo at the same time. One may say this is an ideal scenario, but don’t be misled. Luckily, there is an investment vehicle available to all investors with the above-mentioned dual benefits. This unique investment product is an ELSS or Equity Linked Savings Scheme.
An Equity Linked Saving Scheme (ELSS) is an open-ended equity mutual fund that invests primarily in equities and equity-related products. They are a particular category of mutual funds that qualify for tax deductions under Section 80C of the Income Tax Act, 1961. As a result, they are popularly known as tax saving mutual funds.
Many investors invest in Equity Linked Saving Scheme funds to save tax at the end of the financial year tax. This may not be considered a good strategy. Tax saving is an essential consideration for investing in these funds. But it must not be the primary reason to consider investing in them. Remember, these are equity-linked products and have a high risk. The best way to maximise the benefits of such funds is to invest with a long-term approach. So, identify your investment goals at the beginning of the year and invest accordingly through Systematic Investment Plans (SIPs). Investing steadily all year round can help reduce your exposure to market volatility and build wealth over time.
|Tenure||At Least three years|
|Lock-in Period||3 years|
|Returns||Variable; depends on market conditions|
|Safety/Risk||High Risk High Rewards|
|Minimum investment||Variable, as low as ₹500 fo|
Anyone interested in an investment avenue that could yield reasonable long-term returns and provide tax-saving benefits can invest in ELSS funds. So, if you have long-term financial goals like retirement planning, buying a house or financing your child’s college education, these funds can be a suitable option.
These funds are managed by Asset Management Companies (AMCs). Compare the fund option of different AMCs and choose the one matching your investment needs. Create an account with a fund house and invest accordingly. Alternatively, you can approach your financial advisor for selecting the right ELSS for you.
A lock-in period is a duration you must remain invested in the fund. You cannot withdraw your investment during this period. In the Equity Linked Saving Scheme, the lock-in period is for three years.