What is Equity-Linked Savings Scheme (ELSS)?

What is Equity-Linked Savings Scheme (ELSS)?

Equity-Linked Savings Scheme (ELSS) funds are the most preferred tax saving instruments in the current year. The investment in the scheme offers you income tax rebate u/s 80 (C ) of IT act to the maximum limit of Rs. 150000.00 in a financial year with the shortest lock-in period of 3 years.

TAX rule (EEE):  Investment is eligible for tax exemption u/s 80 C, Return on the investment is eligible for tax exemption and Redemption proceeds are not added to taxable income.

 The ELSS is an open ended diversified equity fund offered by mutual funds. In this scheme, the investor’s money is chiefly invested in the portfolio of equity shares. In the recent past, investment in ELSS has given very good returns to the investors even in the bearish market (18.5% average annualized return for 3 years, 17.50% in the past 5 years). Axis long term equity fund, Birla Sunlife relief 96, DSPBR tax saver fund, Franklin India Taxshield Funds were some of the last year’s best portfolio funds managers to quote who have earned good profits to the investors.

Highlights of ELSS funds

  • The 3 years lock-in period is the shortest among the tax saving instruments and investor can safely recycle his investments every three years and claim tax benefits on the reinvested amount.
  • No tax payable on the profit earned from ELSS.
  • The minimum investment is as low as Rs.500.00
  • There is no compulsion to continue investments in subsequent years.

If you wish to invest in ELSS, you must remember that the money deposited by you in the scheme is reinvested by funds manager in equity related investments. Such investments are exposed to market risk. Even a fund which is showing very good performance at present may end with disappointing returns at a future date. Investors who have the appetite for risk could consider the option of investing in ELSS.

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