Looking for a smart way to save tax and grow your money? Then you should know about ELSS mutual funds. An Equity Linked Savings Scheme (ELSS) is a special type of mutual fund that lets you invest in the stock market and save tax under Section 80C of the Income Tax Act at the same time. Sounds interesting, right?
That’s why many people choose ELSS funds, as they offer good returns while saving tax. Let’s understand more about ELSS funds, their meaning, how they work, the benefits of ELSS funds, who should invest, how you can start and more, with the following read.
What is ELSS?
Let’s start with the basics!
The ELSS full form is Equity Linked Savings Scheme. As mentioned, it is a type of mutual fund that puts most of your money into equities in the stock market. But the thing that makes ELSS different from other funds is that it also gives you tax benefits. That’s the reason it is also called an ELSS tax saver fund.
ELSS has a 3-year lock-in period, and this means, once you invest, you cannot take the money out before 3 years. However, there is no maximum time limit for investment. Hence, it can be considered a mix of a tax saving and long-term investing scheme.
Features of ELSS Funds
Here are the major features of ELSS funds:
- ELSS mainly invests in stocks or shares of companies, which means your money has the chance to grow more over time.
- It offers tax benefits under Section 80C, wherein you can claim a tax deduction of up to ₹1.5 lakh in a year.
- ELSS funds have a three-year lock-in period and hence, you can only take your money out after 3 years.
- As these funds are invested in the market, it is best for long-term returns.
- The income generated under ELSS funds is treated as Long Term Capital Gain (LTCG) and is taxed accordingly.
- You can start investing with as little as ₹500.
- With ELSS funds, you can invest a lump sum or monthly through SIP (Systematic Investment Plan).
Tax Benefits of Investing in ELSS
The ELSS tax benefits are the main reason people choose it to save and grow their money. You can save tax of up to ₹1.5 lakh every year under Section 80C of the Income Tax Act. However, the income you would earn after the lock-in period of 3 years would be taxed at 12.5%, as per the revised long-term capital gain tax rate.
Note: The first ₹1 lakh gain is tax-free. Above that, you pay just the revised tax.
Who Should Invest in ELSS?
Wondering if ELSS is right for you? Here’s who should invest in it:
- If you are a beginner and want to start investing smartly, ELSS would be a great first step.
- If you are a salaried employee and want to save tax every year, ELSS can be a great option for you.
- If long-term investment is what you prefer, then ELSS is perfect as you can stay invested for 3+ years.
- As ELSS funds are linked to the stock market, returns can go up and down. So, if you can take that risk over time, then this scheme is good for you.
How to Invest in ELSS Funds
Here’s how you can invest in an ELSS mutual fund. Just follow these simple steps:
Step 1: Choose the right platform. You can invest through mutual fund websites, investment apps, banks or agents.
Step 2: Pick the best ELSS mutual fund. Make sure you do some quick research.
Step 3: Choose your mode of investment- lump sum or SIP.
Step 4: Submit the required documents.
Step 3: Invest your money and track the growth
Also Read : Tax Benefits on Personal Loan
Conclusion
ELSS mutual funds make for a great way to save on taxes and grow your money. As they are easy to understand, beginners can also invest in ELSS funds to build their wealth for the future. However, you must note that ELSS is perfect for long-term planners who want both growth and tax savings.
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