Mutual Fund |
March 19Key Features of ELSS
ElSS stands for Equity Linked Savings Scheme .These are tax saving
mutual fund that you can use to save income tax of up to 1.5 lakh under section
80C.ELSS have a lock-in period of 3 years and invest the majority of their
portfolios into the stock market. ELSS funds are recommended by tax and investment
payers as well.
Here are key reasons to invest in these Tax Saving ELSS Funds
1. Lowest lock-in
among tax-saving investments
Tax-saving investments traditionally have long lock-in periods. As per
existing rules, among the available tax saver investments in India, ELSS i.e.
tax saver mutual funds have the shortest lock-in period of 3 years. This gives
you the freedom to update your investments.
2. Inflation-beating
returns
ELSS are market-linked diversified equity schemes, this gives them an
edge over fixed return investments that offer tax benefits. Fortunately being
market-linked, tax saver mutual funds can provide potentially higher returns
that can beat the adverse impact of inflation in the long term. This is the key
reason why many have moved from old school options to mutual funds and ELSS
instead.
3. Investment through
SIPs
Using SIPs you don''''t need to invest one big amount at the end of the
financial year to meet your 80C requirement. You can invest a small amount
every month and get the same tax benefit at the end of the year. SIPs also have
the advantage of rupee cost averaging.
4. Diversify and
switch funds
Diversification is an important feature of equity mutual funds. The fund
itself builds its portfolio by investing in stocks of different market
capitalization and companies from different sectors. You can then diversify
across fund houses and investment styles by putting your money in more than one
ELSS fund. Furthermore, you can even stop investing in an underperforming fund
at any point and start investing in another one.
5. Tax benefit
The tax benefit of ELSS has made it special among the equity mutual
funds. Otherwise, the investment objective of ELSS is similar to any other
equity mutual fund. You can claim tax deduction under section 80C by investing
into the equity Linked saving schemes.
6. High levels of
transparency
Mutual fund houses i.e. asset management companies who manage ELSS and
other mutual funds schemes are regulated by SEBI. As per SEBI guidelines, AMCs
have to make periodic disclosures regarding key information of all schemes
managed by them. While some of these have to be reported daily, others need to
be reported as per a monthly or quarterly schedule. As of now, no tax saver
investment in India features a higher degree of transparency than ELSS.
7. No upper limit of
Investment
The tax saving investments comes with some riders.
Some of the government saving limit the maximum investment (e.g. PPF). But
there is no such restriction with the ELSS. You can invest as much money as you
want. However, the tax benefit is limited to the 80C limit. You can start
investing in the ELSS
Mutual Fund from as low
as Rs 500.