What to Know Before Investing in ELSS

ELSS which is commonly referred to as Equity-linked savings scheme is a highly diversified form of equity mutual funds that permits tax reduction of up to 1.5 lakhs. As per Section 80C, investors are eligible to have a significant tax advantage by going for numerous instruments, such as Fixed Deposits (FD), Public Provident Fund (PPF), and National Savings Certificate (NSC).
However, ELSS provides you with a relatively lower lock-in period (3 years) when compared to other options for mutual fund taxation. 

Using ELSS you can not only save a major chunk of your taxable income but also seek profitable returns by investing in equity-related securities under ELSS.
Let’s assess what makes ELSS a viable option when you’re planning to invest your taxable earnings.

Benefits of choosing ELSS

There are several reasons that make investors go for ELSS funds, and some of these are as follows:

• You can begin with a low SIP (systematic investment plan) of just Rs. 500 if you’re at the beginning of your investment strategy. This allows ELSS to be the most fitting choice for those who want to step in with low investment and proceed as they gain results.

• As mentioned previously, the lock-in period of 3 years turns out to be an advantage for those who can’t keep their money untouched for quite long. Thus, going for ELSS gives investors an upper hand as PPF comes with a lock-in duration of 15 years and 5 years is attached with NSC.

• The returns you get with ELSS mutual funds tend to lie in the range of 15-20%, which is higher when compared to most of the other options (7-10%). 

Things to consider before you invest

• Going for a long-term investment plan of say ten years will be more likely to render higher returns if you’re considering ELSS as favorable tax saving mutual funds.

• You will need to carry out KYC before investing in an ELSS fund.

• Right after investing, it’s important to get a Statement of Account from your AMC so that you can have a proof of the invested amount.

• At the time of redemption, you should be aware of a 10% tax reduction as per the Income Tax Act.

 Conclusion:

While ELSS isn’t devoid of risks, looking out for potential companies to invest in can let you grow your wealth considerably. You can also improve your return figures by suitably making use of compounding options over your investment period. Happy investing!