Generating wealth from the existing money you have is a task which many investors decide very carefully. They look for investment options that carry minimum risk and offer good returns. Also, some want to have an extra advantage of saving tax while investing with a fair return.
There is no scarcity of investment products available in the market. If one looks towards mutual funds, there are multiple options to invest, however, if one is looking to add tax saving as a benefit in their portfolio, then ELSS funds can help them realising the same.
Equity Linked Savings Scheme or ELSS Funds are tax-saving equity mutual funds.
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What are ELSS funds in mutual funds?
ELSS is a tax-saving equity mutual fund. ELSS is an equity mutual fund investment that invests at least 80 % of its assets in equity and equity-related instruments.
What is an Equity fund?
An equity fund is a mutual fund scheme that invests predominantly in equity stocks.
An equity mutual fund scheme must invest at least 65% of the scheme’s assets in equities and equity related instruments.
The size of an equity fund is determined by a market capitalisation, while the investment style, reflected in the fund’s stock holdings, is also used to categorise equity mutual funds.
ELSS invests at least 80% in stocks in accordance with the Equity Linked Saving Scheme, 2005, notified by the Ministry of Finance.
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Does ELSS come under 80C? How does ELSS save tax?
You can save up to Rs 1.5 lakhs a year in taxes by investing in these funds, under Section 80C of the Income Tax Act, 1961, which helps you lower the amount of income tax you are liable to pay. However, the income generated is treated as Long Term Capital Gain (LTCG) and taxed at 10% (if the income is above Rs. 1 lakh).
Minimum lock-in period for ELSS
There is no maximum tenure of investment. However, there is a lock-in period of three years.
These schemes have a lock-in period of three years from date of units allotment. After the lock-in period is over, the units are free to be redeemed or switched.
How to invest in ELSS?
ELSS offers both growth and dividend options. Investors can also invest through Systematic Investment Plans (SIP), and investments up to Rs 1.5 lakhs, made in a financial year are eligible for tax deduction.
