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ELSS Mutual fund

 Deepak Singh  12-11-2017   02-12-2017

 ELSS is an acronym used for Equity Linked Savings Scheme. It is an equity-based mutual fund which is beneficial for saving on tax deductions under Section 80C of Income Tax Act, 1961. As we know that any investment in mutual funds is subject to market risk, Major investment of ELSS funds goes into the equity market 

In today’s materialistic world, money seems to be the foremost requirement for a happy living. Even though money cannot buy all that you need for life, but it can buy luxuries and a better old age life for you. Everyone strives for a good income and being rich, but everyone’s approach for achieving the same destination is different. There are numerous ways of earning money but very few ways to earn smartly so that you can accumulate more money than you earn. Is that possible? Let’s explore.

ELSS is an acronym used for Equity Linked Savings Scheme. It is an equity-based mutual fund which is beneficial for saving on tax deductions under Section 80C of Income Tax Act, 1961. As we know that any investment in mutual funds is subject to market risk, Major investment of ELSS funds goes into the equity market.

How does ELSS work?

ELSS implies to tax saving mutual funds which offer twin advantage of tax exemption under Section 80C along with capital appreciation in the long term. If high return is in your mind while investing in ELSS, ensure that you do the requisite ground work by conducting relevant research on your ELSS investment funds. For the purpose you should track and evaluate their long term performance before taking a decision.

Other relevant aspects on which the outcome of an ELSS depends, include the investment approach adopted by the fund manager, its long term performance, the fund’s portfolio, its volatility in the past, the expense ratio etc. Yet, the holistic view involves considering the sector prospects along with the performance of the scheme and other related parameters.

Advantages of ELSS funds:

There is a long list of advantages of ELSS. We are dwelling here on some of them.

Shortest Lock-in period. Compared to the secured savings investment like NSC, PPF, etc. which come with lock-in tenure of 6 to 15 years, the three years lock-in for ELSS is relatively shorter.

Dividend and Growth Options. The dividend option is designed to get you a regular income and growth option provide you a high growth for your investment . In dividend option, the fund company gives you a apart of profit as dividend and in growth option, the part of profit is added to your NAV. There is still an option for extending the investment’s time horizon instead of withdrawing money as soon as the lock-in period gets over.

Higher Returns. Despite the risk involved, ELSS gives much higher returns as compared to other schemes. The investments remain subject to market risk but the lock-in period builds the bond with the equities, thereby increasing the chances of gaining higher returns on investment along with tax exemption.

Regular Investment.It instills the habit of making a small investment on a regular basis through SIP (Systematic Investment Plan) while at the same time making lump-sum investments.

Long term value growth.Shortest lock-in period does not imply that you have to force exit from this investment plan after the lock-in period gets over. This only refers to the liquidity of the investment funds. But, one is free to opt for a longer period beyond 3 years to avail continuous growth.

Complete tax saving. ELSS investments are completely exempted from tax whether it is the investment sum or the dividend or the maturity proceeds. This adds yet another feature to the ELSS mutual funds.

The risk associated with ELSS:

The major risk that comes with the amazing tax saving instrument is that it is exposed to market risk. In case things are all hunky dory, then it is perfectly fine. A market uncertainty has an impact on ELSS. The returns on investment entirely depend upon the market conditions from where the returns will be derived.

Tax benefits under ELSS:

Section 80C allows people to invest in tax saving plans, but different plans have different category of exemptions. ELSS is the only product other than PPF which falls under EEE regime. EEE means Exempt - Exempt - Exempt category. Such investments are exempted from taxation up to three levels, i.e., the investment amount, the dividend income, and the maturity sum are all free from taxes.


ELSS offers huge liquidity with an extremely short lock-in period of just three years. Further, the option of making a small investment on a monthly basis provides immense flexibility to the investor. But when someone is investing in parts then the lock-in period is applied separately to the investment made in parts. This means that if you make two investments in a financial year, say one Q2 and another one in Q4, then the lock-in period of first will be over after three years in Q2 and for the next one in Q4 after completing three years. If we compare ELSS with other traditional tax saving products of investment available in the market, it has a competitive edge concerning liquidity.

key points before investing in ELSS mutual fund:

Although the key driver for investment in ELSS is tax saving they are also expected to pay off with good returns. While investing in any such schemes, one should analyze them carefully to ensure peace of mind and better returns. Check out the scheme benefits so that it does not end up giving only the inflation cover. Following steps will guide you towards successfully investing in ELSS.

The first and foremost step for investing in ELSS is to choose an appropriate tax saving scheme. Never choose the tax saving scheme under pressure of time or the sales person’s insistence. Select a plan which seemingly serves your purpose of tax savings, gives a good return on investment and suits your requirement.

Although the common practice is to invest towards the year end because of the tax saving spree spreading all over, the best time to gain maximum advantage from these ELSS plans can be explored by starting early towards the beginning of the financial year. This gives you ample time to wisely invest and also gets you the tax benefits in addition to higher returns.

Since there is a maximum limit of Rs. 1,50,000 which can be invested in ELSS from the tax saving perspective, one should evaluate the applicable tax slab and the taxable income so as to finalize the amount that can one wishes to invest.

Since people are more keen to increase their income or have better returns on their investment, they should choose those instrument which will help them fulfill their dreams but also keep risk in control. The ELSS mutual fund saves taxes, offers a good return on investments and digress the stake by keeping eggs dispersed in multiple baskets.

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