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All you need to know about ELSS

ELSS or Equity Linked Saving Scheme is a diversified equity fund with a lock-in period of 3 years. Investments in ELSS are eligible for tax deduction under Section  80C of Income Tax Act, 1961. As per Section 80 C, ELSS Investments of up to ₹150,000 in a financial year can be claimed as tax deduction.

Here are the 6 things you must know about ELSS before investing in them

1. Short Lock-in Period

In contrast with the other investments eligible for tax exemption under Section 80C, ELSS has a shorter lock-in period of just 3 years. Other exempted investments have a lock-in period of around 5-15 years. Having a shorter lock-time provides you the convenience of re-investing or transferring the funds to an alternative, high-yielding investment opportunity.

2. Invest lump sum or in instalments

Just like other mutual funds, investors can invest in ELSS in a lump sum or through regular, smaller payments. By means of a systematic investment plan or SIP ELSS allows you to invest a fixed amount in regular instalments, with the facility of moving your savings into your ELSS investment periodically. This unburdens you from accumulating a lump sum amount to invest.

3. Tax benefits and implications

ELSS is one of the few instruments that enable you to avail tax deductions against stock market investments. The reason why ELSS is preferred so widely is that it allows you to claim ₹150,000 per annum, for deduction under the Income Tax Act of 1961. Also, the long term capital gains (LTGC) of upto ₹100,000 per annum from ELSS investments are tax exempted. However, if your LTGC from equity exceeds ₹100,000 in a financial year, then you have to pay a 10% tax on the amounts exceeding ₹100,000.

4. Return on Investment

Being a market-linked instrument, ELSS, in comparison to other tax-saving investments, provides a potentially higher return on investment. Also, ELSS provides better post-tax returns when compared to most other 80C investment options.

5. Tenure

There is a misconception that after the lock-in period, investors should transfer funds to other investments, or withdraw ELSS funds. However, if you are satisfied with the performance of the ELSS funds, you can choose to stay invested as long as you want to, whether it’s a decade or a day more than the lock-in-period. Since returns are higher in ELSS, it presents you with better compounding benefits when invested for a more extended period. 

6. Transparency

ELSS mutual funds are clear about the operation of the funds and its investments. The Securities and Exchange Board of India or SEBI regulates ELSS funds along with other mutual funds. As per SEBI’s guidelines, all Asset Management Companies (AMC)’s are bound to disclose vital information of all their schemes periodically. For investors beginning their journey, ELSS funds have high transparency. Investors can rely on access to the latest information, returns and investment principles of the AMC.


Final word:

As an investor, you stand to gain a lot from consistently investing a portion of your savings in ELSS. A tax saving investment that leads to wealth creation, ELSS is an instrument that every prudent investor should hold in their investment portfolio. Reach out to us at ICICIdirect to know more about how you can invest in ELSS.


Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. AMFI Regn. No.: ARN-0845. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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