ELSS Mutual Funds provides the investors not just an option to gain high returns on investment but also tax deduction benefit, which even with a lock-in period of 3 years offers a much greater return than the other form of tax saving mode of investments.
However, even with these and their many other benefits, ELSS funds have still not been able to witness a mass adoption and is still losing out to the many safe but low returns Section 80c tax-free instruments.
In this article, we are going to look at ELSS in a way that is understandable to the people who are just starting with the investment mode.
Let us start with the very basic – The Whats
What is the ELSS Mode of Investment?
ELSS is a diversified equity based mutual fund investment type, which is eligible for getting exempted from tax under the Policy of Indian Income Tax Section 80c. The fund type is known to offer the investors a two sided benefit – Tax Savings plus Capital Appreciation.
Now, the idea behind ELSS funds is that they are equity based models and so, the real returns (ones that makes investors rich) can only be garnered after the investors has remain invested for the long-haul.
What is the Lock-in Period of ELSS Funds?
While all the tax saving investment instruments that fall under Section 80c, come with a lock in period of around 5 to 15 years, ELSS funds come with a lock-in of three years – a tenure which is shortest as compared to any other form of tax saving investment.
This not just lowers the liquidity problem but also makes redemptions the least of the fund manager’s worry and allows them to make well-thought and non rushed into financial investment decisions.
What is the Taxability Factor on the ELSS fund?
The investments that you make under ELSS funds are deducted from tax under the Section 80c. The capital gains generated by your ELSS funds too, are exempted from tax if your earnings are under Rs. 1 Lakh and if more, you will have to pay 10% taxes on the capital gains.
In addition to it all, the withdrawals that you make on the ELSS funds are also tax-free.
What Risks Come Associated with ELSS Funds?
The ELSS Funds are basically diversified equity funds and thus carry the same risks that come tagged with the other equity-based mutual funds – a high market volatility risk.
In order to offer high returns to the investors, the ELSS fund managers generally make a range of small-cap and mid-cap investments, which are famous for the attached probability of high volatility and less stability in terms of returns.
Growth or Dividend: the Best ELSS Mode of Investment?
Like all the mutual fund schemes, in ELSS too you are given the option to choose between growth and dividend. What happens in dividend ELSS funds is that you can take out the returns back into the account but in case of Growth type, the returns, along with the seed money remains invested in the ELSS account, and thus grows with time.
So, how do you choose?
If you are looking for your returns to come back into your account, with your dreams of high returns being put at stake, go with the Dividend mode, but if you are willing to show patience and hold on as your fund grows, choose the Growth option of ELSS mutual funds.
Who is ELSS Mode of Investment best Suited for?
The ELSS mode of investment is best suited for the investors who are not too risk averse and wish to invest in some high-returns tax planning instruments. Also, the new in the industry investors who wish to test the waters before entering the equity mutual funds market will find the mode of investment very useful because of the discipline that it inculcates.
Now, although there’s no golden age to make investments, it is recommended to start as soon as possible.
With this, we have looked into everything that ELSS Mutual Fund investment entails. And, it is now time to get started with the glorious yet highly profitable mode of investment. Get in touch with our team of mutual fund experts today and start your ELSS Investment!