Equity Linked Saving Schemes (ELSS) is an equity-oriented investment option mainly focused on equity funds and other equity-related instruments. It has a lock-in period of 3 years. Any investment made in ELSS funds is eligible for deduction in 80C which makes it very popular. We would be talking about five things you should know about ELSS funds before investment.
ELSS Has a Lock-in Period of 3 Years
The ELSS funds have a lock-in period of 3 years. It means the investors would not be able to withdraw funds/ redeem their unit before three years. Please note that ELSS funds probably have the lowest lock-in among all tax-saving instruments. Also, ELSS is an open-ended instrument so, after the stated lock-in, you can hold it for as long as you want.
ELSS Should Be Held For a Long Term
As told previously, eligible ELSS funds are required to have a lock-in period of three years. However, it is suggestible to consider ELSS funds as a long-term investment option such as 5 to 7 years, if such fund had been performing well. The reason is that equity-based funds give better returns in the long term. So, to gain higher-returns one should see these funds as a long-term trading
ELSS Has Tax Benefits
ELSS scheme is one of the popular investment options in the markets. It provides tax savings while at the same time, provides good returns on investment. While investing in ELSS for saving tax, one must know that such tax deduction is allowed under section 80C of the Income Tax Act. It is necessary to understand that Section 80C is like an umbrella, with many eligible deductions like medical insurance, child tuition fees, etc. An investor can claim deduction up to Rs. 150,000 under this section. So, if a person is investing in ELSS only to save tax, he/she must take in note the other options too and calculate the amount of investment needed. However, if the investment is being made only with the sole purpose of earning one can invest as much as she/he wants with an eligible tax deduction up to Rs 150,000.
One Can Invest in ELSS Whenever She/He Wants
ELSS funds are suited to all kinds of investors who are willing to take moderate risks. It not only helps you to accumulate wealth in the long term but also provides additional tax benefits. It is like hitting two birds with one stone. Apart from the above, it helps you to diversify your portfolio by investing in various sectors. The short lock-in period is also a blessing for investors looking for a way of saving tax.
ELSS Funds Help You to Diversify Your Portfolio
Investors looking for a venue for investing in ELSS reap the benefit of diversification by distributed investment across different sectors and corporates, reducing the overall risks in investment. ELSS funds are said to carry moderate risks. Experts suggest investing across various schemes and holding your units for the long run. It helps to neutralize the overall risk of investment.
We hope this article has helped you to know more about Equity Linked Saving Schemes (ELSS). If you have any doubts or query about ELSS funds, do let us know. We’re happy to help.