Equity Linked Savings Schemes (ELSS) is one category of Mutual Funds that provides investors with tax benefits. Read on to get answers to some frequently asked questions about ELSS investments.
Investing in Mutual Funds is definitely a viable option if you’re looking to save on tax. But, while different Mutual Funds are tax-efficient, not all Mutual Funds offer tax benefits. Equity Linked Savings Schemes (ELSS) is one category of Mutual Funds which provides investors with tax benefits. Read on to get answers to some frequently asked questions about ELSS investments.
ELSS? What’s that?
Equity Linked Savings Schemes are a type of diversified Mutual Funds. These schemes are eligible for tax deductions up to Rs. 1,50,000 under Section 80C of the Income Tax Act. You can enjoy double benefits with ELSS: capital appreciation and tax benefits.
Additional Reading: 5 Tips To Select The Best ELSS Product
Is There A Lock-In Period For Equity Linked Savings Schemes?
Equity Linked Savings Schemes have the lowest lock-in period among all tax saving investment instruments. The lock-in period for ELSS is 3 years.
Equity Linked Savings Schemes Vs Other Tax Saving Options
Which One To Choose?
We’ll help you choose among the popular tax-saving instruments.
ELSS offers the lowest lock-in period of 3 years.
A PPF (Public Provident Fund) account has a lock-in period of 15 years and
National Savings Certificates (NSC) have a 5-year and 10-year tenure.
What’s more, the dividends declared in ELSS are tax-free. No tax is levied on long-term capital gains. But, you must remember that the risk factor with ELSS funds is high as these schemes invest in the stock market.
Additional Reading: Best Equity Mutual Funds To Buy In 2018
How Much Can You Invest In Equity Linked Savings Scheme Funds?
You can choose to invest as little as Rs. 500 every month in an ELSS fund. There is no maximum investment limit.
Here’s a tip: It’s always better to invest in Equity Linked Savings Schemes through a Systematic Investment Plan (SIP) to reduce market volatility.
What Kind Of Investors Are Equity Linked Savings Schemes Suitable For?
Investing in ELSS funds is a good option for an investor who is not uncomfortable with taking a certain degree of risk with their investments. If you need to invest in tax saving instruments, you can consider Equity Linked Savings Schemes.
How Do You Claim Tax Benefits On Investments In Equity Linked Savings Scheme Funds?
Claiming tax benefits on your investments in ELSS funds is easy. Tax deductions under Section 80C of the Income Tax Act can be claimed up to a maximum of Rs. 1,50,000 per year. You only need to give a copy of your ELSS account statement to your employer as a proof of your investment.
Additional Reading: Is It Wise To Reinvest ELSS Money Every Three Years?
Can an investor continue to hold Equity Linked Savings Scheme funds after the lock-in period?
Yes. It is recommended to remain invested in ELSS funds for at least 5 years or longer, to enjoy higher returns.
Additional Reading: Popular ELSS Funds 2018
Still have questions about investing? Let us help you find some great investment options.
I want to invest in an ELSS fund and would like to know about specific conditions for income tax exemptions via ELSS. How much of the investment would be tax exempt? For example, if I invest Rs. 60000 in the current financial year, would the entire amount fall under 80C exemption? Also, will the exemption be valid in case of exemptions above Rs. 12 Lacs?
Hi Mark, Contributions to ELSS are eligible for deduction under Section 80C. As per the IT Act, 1961, under Section 80C, a deduction of Rs. 1,50,000 can be claimed from your total income. So as long as your contribution is within Rs. 1.5 lakh, your contribution will be eligible for deduction. The maximum limit under the section is Rs. 1.5 lakh irrespective of the total exemption that you claim. Cheers, Team BankBazaar.