Equity Linked Schemes

What is Equity Linked Savings Scheme (ELSS)?

Equity Linked Savings Scheme (ELSS) is a type of diversified equity mutual fund scheme that invests in the stock s of different companies. Under section 80C of the income tax act, investments up to 1.5 lakhs are eligible for a tax deduction. 

How to Invest in Equity Linked Savings Scheme?

You can invest in ELSS tax saver mutual fund using an online investment service account. You can invest in ELSS as a lump sum or systematic investment plan.

Who Can Invest in ELSS?

Anyone can invest in ELSS MF schemes the same way that of other Mutual Fund scheme. Using an online investment mode is very easy and convenient.

Key Factors to Know Before Availing an Equity Linked Savings Scheme

There are several things that need to be taken into consideration before investing in ELSS mutual funds. Here is a list of things that you need to keep in mind when investing in ELSS:

Fund returns:

Make sure you do some research about the ELSS funds in which you are planning to invest. If the fund has shown consistent performance in the past then it will most likely bring in decent huge returns. Always look for the best ELSS funds.

Expense ratio:

It is highly recommended that you choose a fund that has a low expense ratio. It means you will have comparatively more higher returns.

Fund manager:

It is important to have an expert fund manager since they are going to manage your funds.

Advantages and Disadvantages of ELSS

Equity-linked mutual funds have plenty of advantages as well as disadvantages. Here’s a look at the advantages and disadvantages of ELSS Mutual Funds:

Shortest Lock-in:

ELSS has a lock-in period of three years which is less than tax-saving fixed deposits and PFF.

Higher returns:

In ELSS the returns are linked with the market fluctuation which sometimes can result in significantly higher better returns, unlike any other fixed-income products like PPF or FDs.

Best Post Tax Returns:

ELSS has a low tax rate which combined with higher returns makes it the best post-tax return option for investment.

Disadvantages of ELSS

High-Risk ELSS Funds:

ELSS returns depend on the market performance which can fluctuate causing loss and gain.

ELSS Liquidity:

The lock-in period of 3 Years months might be a problem for some investors since they can’t get their money back until that time period ends. 

Limited benefits:

Investors can only avail the tax benefit up to 1.50 Lakhs regardless of how much they invest which can be quite disappointing for some investors.

Management cost:

Like other Mutual Fund Schemes   ELSS mutual funds are also managed by fund managers. There will exist a fee for their Management of Funds. The charging fee can multiply over a certain period of time eventually affecting your returns as well.

What are the Options Available for Investment in ELSS?

There are plenty of options available for people interested in investing in ELSS. Here is a list of options for ELSS investment:

Growth option:

If you opt for the growth option then you will only get the returns at the time of redemption.

Dividend option:

If you choose the dividend option then you will get benefits regularly. However, dividend is only given in case the profits exceed a certain limit.

Dividend Reinvestments option:

This option allows the investors to reinvest their dividends when the market is going upward.

Features of Equity Linked Savings Scheme

ELSS is considered to be one of the best forms of investment for people looking for options to invest. Here is a list of features of ELSS:

Tenure:

ELSS has a lock-in period of 3 years

Returns:

The returns depend on the market performance which can fluctuate.

Risk:

The markets can be quite volatile which makes them a high-risk investment.

Tax Exemption:

In ELSS investors can avail a tax exemption of up to Rs 1.50 Lakh. ELSS mutual fund tax benefits are one of its key features.